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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-07 · 439 added, 413 removed, 522 unchanged (62% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 (the “Quarterly Report”).

“SAFE HARBOR” STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical facts included in this Quarterly Report, including, without limitation, statements regarding our future financial position, business strategy, cost savings, industry trends and plans and objectives of management for future operations, are forward-looking statements.

In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology.

Such statements include, among others, our ability to compete in the highly competitive markets in which we operate, statements regarding our ability to develop talent and attract future talent, our ability to reduce future capital expenditures, our ability to monetize our music-based content, including through new distribution channels and formats to capitalize on the growth areas of the music industry, our ability to effectively deploy our capital, the development of digital music and the effect of digital distribution channels on our business, including whether we will be able to achieve higher margins from digital sales, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music industry, the effectiveness of our ongoing efforts to reduce overhead expenditures and manage our variable and fixed cost structure and our ability to generate expected cost savings from such efforts, our success in limiting piracy, the growth of the music industry and the effect of our and the music industry’s efforts to combat piracy on the industry, our intention to pay dividends or repurchase or retire our outstanding debt or notes in open market purchases, privately or otherwise, the impact on us of potential strategic transactions, our ability to fund our future capital needs and the effect of litigation on us.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report.

Additionally, important factors could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report.

As stated elsewhere in this Quarterly Report, such risks, uncertainties and other important factors include, among others:

• the failure of the digital portion of the global recorded music industry to grow or grow at a significant rate to offset declines in the physical portion of the global recorded music industry;

• downward pressure on our pricing and our profit margins and reductions in shelf space;

• our ability to identify, sign and retain artists and songwriters and the existence or absence of superstar releases;

• threats to our business associated with digital piracy;

• the significant threat posed to our business and the music industry by organized industrial piracy;

• the popular demand for particular recording artists and/or songwriters and albums and the timely completion of albums by major recording artists and/or songwriters;

• the diversity and quality of our portfolio of songwriters;

• the diversity and quality of our album releases;

• the impact of legitimate channels for digital distribution of our creative content;

• our dependence on a limited number of digital music services for the online sale of our music recordings and their ability to significantly influence the pricing structure for online music stores;

• our involvement in intellectual property litigation;

• our ability to continue to enforce our intellectual property rights in digital environments;

• the ability to develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music business;

• the impact of heightened and intensive competition in the recorded music and music publishing businesses and our inability to execute our business strategy;

• risks associated with our non-U.S.

operations, including limited legal protections of our intellectual property rights and restrictions on the repatriation of capital;

• significant fluctuations in our operations, cash flows and valuation of our common stock from period to period;

This Quarterly Report includes forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms or the negative thereof.

Forward-looking statements include, without limitation, all matters that are not historical facts.

They appear in a number of places throughout this Quarterly Report and include, without limitation, our ability to compete in the highly competitive markets in which we operate, statements regarding our ability to develop talent and attract future talent, our ability to reduce future capital expenditures, our ability to monetize our music, including through new distribution channels and formats to capitalize on the growth areas of the music entertainment industry, our ability to effectively deploy our capital, the development of digital music and the effect of digital distribution channels on our business, including whether we will be able to achieve higher margins from digital sales, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music entertainment industry, the effectiveness of our ongoing efforts to reduce overhead expenditures and manage our variable and fixed cost structure and our ability to generate expected cost savings from such efforts, our success in limiting piracy, the growth of the music entertainment industry and the effect of our and the industry’s efforts to combat piracy on the industry, our intention to pay dividends or repurchase or retire our outstanding debt or notes in open market purchases, privately or otherwise, the impact on us of potential strategic transactions, our ability to fund our future capital needs and the effect of litigation on us.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control.

We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report.

In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them.

Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

• risks related to the effects of natural or man-made disasters, including pandemics such as COVID-19;

• our ability to identify, sign and retain recording artists and songwriters and the existence or absence of superstar releases;

• our inability to compete successfully in the highly competitive markets in which we operate;

• the ability to further develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music entertainment business;

• the popular demand for particular recording artists and/or songwriters and music and the timely delivery to us of music by major recording artists and/or songwriters;

• the diversity and quality of our recording artists, songwriters and releases;

• slower growth in streaming adoption and revenue;

• our dependence on a limited number of digital music services for the online distribution and marketing of our music and their ability to significantly influence the pricing structure for online music stores;

• trends, developments or other events in some foreign countries in which we operate;

• local economic conditions in the countries in which we operate;

• risks associated with our non-U.S.

operations, including limited legal protections of our intellectual property rights and restrictions on the repatriation of capital;

• unfavorable currency exchange rate fluctuations;

• the impact of heightened and intensive competition in the recorded music and music publishing industries and our inability to execute our business strategy;

• significant fluctuations in our operations, cash flows and the trading price of our common stock from period to period;

• our failure to attract and retain our executive officers and other key personnel;

• a significant portion of our revenues are subject to rate regulation either by government entities or by local third-party collecting societies throughout the world and rates on other income streams may be set by governmental proceedings, which may limit our profitability;

• risks associated with obtaining, maintaining, protecting and enforcing our intellectual property rights;

• our involvement in intellectual property litigation;

• threats to our business associated with digital piracy, including organized industrial piracy;

• an impairment in the carrying value of goodwill or other intangible and long-lived assets;

• unfavorable currency exchange rate fluctuations;

• our failure to have full control and ability to direct the operations we conduct through joint ventures;

• the impact of, and risks inherent in, acquisitions or other business combinations;

• risks inherent to our outsourcing certain finance and accounting functions;

• the fact that we have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings;

• our ability to maintain the security of information relating to our customers, employees and vendors and our music;

• risks related to evolving laws and regulations concerning data privacy which might result in increased regulation and different industry standards;

• legislation limiting the terms by which an individual can be bound under a “personal services” contract;

• a potential loss of catalog if it is determined that recording artists have a right to recapture rights in their recordings under the U.S.

• a potential loss of catalog if it is determined that recording artists have a right to recapture U.S.

rights in their recordings under the U.S.

• trends that affect the end uses of our musical compositions (which include uses in broadcast radio and television, film and advertising businesses);

• the growth of other products that compete for the disposable income of consumers;

• the impact of, and risks inherent in, acquisitions or business combinations;

• risks inherent to our outsourcing of information technology (“IT”) infrastructure and certain finance and accounting functions;

• our ability to maintain the security of information relating to our customers, employees and vendors and our music-based content;

• potential employment and withholding liabilities if our recording artists and songwriters are characterized as employees;

• any delays and difficulties in satisfying obligations incident to being a public company;

• the impact of our substantial leverage on our ability to raise additional capital to fund our operations, on our ability to react to changes in the economy or our industry and on our ability to meet our obligations under our indebtedness;

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• the fact that our debt agreements contain restrictions that limit our flexibility in operating our business;

• our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness, which may increase the risks created by our substantial indebtedness;

• the significant amount of cash required to service our indebtedness and the ability to generate cash or refinance indebtedness as it becomes due depends on many factors, some of which are beyond our control;

• our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness, which may increase the risks created by our substantial indebtedness;

• risks of downgrade, suspension or withdrawal of the rating assigned by a rating agency to us could impact our cost of capital;

• risks relating to Access Industries, Inc.

(“Access”), which, together with its affiliates, indirectly owns all of our outstanding capital stock, and controls our company and may have conflicts of interest with the holders of our debt or us in the future.

Access may also enter into, or cause us to enter into, strategic transactions that could change the nature or structure of our business, capital structure or credit profile;

• risks related to evolving regulations concerning data privacy which might result in increased regulation and different industry standards;

• changes in law and government regulations, including as a result of the Tax Cuts and Jobs Act;

• risks related to our Senior Management Free Cash Flow Plan (the “Plan”), including the extent of any future non-cash charge(s) associated with share-based compensation costs related to the Plan;

• risks related to the effects of natural or man-made disasters, including pandemics such as COVID-19;

• risks related to other factors discussed under “Risk Factors” of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

There may be other factors not presently known to us or which we currently consider to be immaterial that could cause our actual results to differ materially from those projected in any forward-looking statements we make.

You should read carefully the “Risk Factors” section of this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report.

We disclaim any duty to update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

• the dual class structure of our common stock and Access’s existing ownership of our Class B Common Stock have the effect of concentrating control over our management and affairs and over matters requiring stockholder approval with Access;

• risks related to the Plan;

• risks related to other factors discussed under “Risk Factors” of this Quarterly Report, in the prospectus filed pursuant to Rule 424(b) dated as of June 3, 2020 and filed with the Securities and Exchange Commission on June 4, 2020 (the “Prospectus”) and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from expectations.

All forward-looking statements made in this Quarterly Report are qualified by these cautionary

Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Other risks, uncertainties and factors, including those discussed in the “Risk Factors” of this Quarterly Report, the Prospectus and our Annual Report on Form 10-K, could cause our actual results to differ materially from those projected in any forward-looking statements we make.

You should read carefully the factors described in the “Risk Factors” section of this Quarterly Report, the Prospectus and our Annual Report on our Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.

Warner Music Group Corp.

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is one of the world’s major music entertainment companies.

On February 6, 2020, the Company filed a Form S-1 registration statement with the Securities and Exchange Commission (the “SEC”) for an initial public offering (“IPO”).

The completion of the proposed IPO will depend on, among other things, the SEC review process and customary regulatory approvals, as well as market conditions.

There can be no assurance that the proposed IPO will occur.

On June 5, 2020, the Company completed an IPO of 77,000,000 shares of Class A Common Stock at a public offering price of $25 per share.

The offering consisted entirely of secondary shares sold by Access and certain related selling stockholders.

On July 7, 2020, the Company completed the sale of an additional 11,550,000 shares of Class A Common Stock from the selling stockholders to the underwriters of the Company’s IPO pursuant to the exercise by the underwriters of their option to purchase additional shares of Class A Common Stock.

We did not receive any of the proceeds of the IPO or exercise of the underwriters’ option.

Following completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, Access holds an aggregate of 421,450,000 shares of Class B Common Stock, representing approximately 99% of the total combined voting power of the Company’s outstanding common stock and approximately 83% of the economic interest.

As a result, the Company is a “controlled company” within the meaning of the corporate governance standards of NASDAQ.

Risk Factors — Risks Related to Our Controlling Stockholder.

The Company and Holdings are holding companies that conduct substantially all of their business operations through their subsidiaries.

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• Results of operations.

This section provides an analysis of our results of operations for the three and six months ended March 31, 2020 and March 31, 2019.

This section provides an analysis of our results of operations for the three and nine months ended June 30, 2020 and June 30, 2019.

This analysis is presented on both a consolidated and segment basis.

• Financial condition and liquidity.

This section provides an analysis of our cash flows for the six months ended March 31, 2020 and March 31, 2019, as well as a discussion of our financial condition and liquidity as of March 31, 2020.

This section provides an analysis of our cash flows for the nine months ended June 30, 2020 and June 30, 2019, as well as a discussion of our financial condition and liquidity as of June 30, 2020.

The discussion of our financial condition and liquidity includes a summary of the key debt covenant compliance measures under our debt agreements.

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In addition, our definition of OIBDA may differ from similarly titled measures used by other companies.

A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp.

A reconciliation of

consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp.

is provided in our “Results of Operations.”

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Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault.

We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’, Warner Classics and Warner Music Nashville.

Outside the United States, our Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates and non-affiliated licensees.

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In addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as Amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, radio services such as iHeart Radio and SiriusXM and download services.

We have integrated the marketing of digital content into all aspects of our business, including artist and repertoire (“A&R”) and distribution.

We have integrated the marketing of digital content into all aspects of our business, including A&R and distribution.

Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations.

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Additionally, the requirement that people stay in their homes has impacted our business in other ways, such as, making it impossible to hold live concert tours, adversely impacting our concert promotion business and the sale of merchandise, delaying the release of new recordings and disrupting the production and release of motion pictures and television programs, which has negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.

Our results of operations, cash flows and financial condition at and for the three and six months ended March 31, 2020 were adversely affected by the global pandemic.

In addition to the impact resulting from the business disruption, the Company recognized one-time charges of $13 million impacting OIBDA and a total of $18 million impacting net income for the three and six months ended March 31, 2020.

The disruption from the COVID-19 pandemic may accelerate growth of other revenue streams such as fitness and interactive gaming (including augmented reality and virtual reality).

Our results of operations, cash flows and financial condition at and for the three and nine months ended June 30, 2020 were adversely affected by the global pandemic.

No such charges were incurred for the three months ended June 30, 2020.

Initial Public Offering

On June 5, 2020, we completed an IPO of 77,000,000 shares of Class A Common Stock, par value $0.001 per share at a public offering price of $25 per share.

On July 7, 2020, we completed a sale of an additional 11,550,000 shares of Class A Common Stock from the selling stockholders to the underwriters of the IPO pursuant to the exercise by the underwriters of their option to purchase additional shares of Class A Common Stock.

The sale of shares through the offering consisted entirely of secondary shares sold by Access.

We did not receive any proceeds resulting from the sale and listing of shares.

As a result, we incurred one-time costs associated with the IPO of approximately $86 million and $90 million for the three and nine months ended June 30, 2020, respectively.

Going forward, our results of operations will include expenses associated with being a public company, including auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

For the three months ended June 30, 2020, costs associated with being a public company were not material.

Senior Management Free Cash Flow Plan

Our results of operations can be adversely affected by the Senior Management Free Cash Flow Plan (the “Plan”), which pays annual bonuses to certain executives based on our free cash flow and offers participants the opportunity to share in appreciation of the value of our common stock.

The extent of the benefits awarded under the Plan is affected by our operating results and the valuation or trading price of our common stock and, as such, to the extent that either or both fluctuates, the value of the award may increase or decrease materially, which could affect our cash flows and results of operations.

We incurred charges associated with our Senior Management Free Cash Flow Plan of $169 million and $5 million for the three months ended March 31, 2020 and March 31, 2019, respectively, based on the currently estimated value of the Company.

We incurred charges of $167 million and $22 million for the six months ended March 31, 2020 and March 31, 2019, respectively.

Other Business Models to Drive Incremental Revenue

Artist Services and Expanded-Rights Deals

As the recorded music industry has continued to transition to a business model through which the majority of revenues are generated from streaming, for many years we have signed recording artists to expanded-rights deals.

Under our expanded-rights deals, we also participate in the recording artist’s revenue streams, in addition to recorded music sales, such as touring, merchandising and sponsorships.

In addition to signing recording artists to expanded-rights deals, we have continued to make strategic investments to expand our Recorded Music business and open up new opportunities for our recording artists.

Artist services and expanded-rights

recorded music revenue, which includes revenue from expanded-rights deals as well as revenue from our artist services business, represented approximately 11% and 13% of our total revenues for the three and six months ended March 31, 2020, respectively.

Artist services and expanded-rights revenue will fluctuate from period to period depending upon recording artists’ touring schedules, among other things.

Margins for the various artist services and expanded-rights revenue streams can vary significantly as well.

The overall impact on margins will, therefore, depend on the composition of the various revenue streams in any particular period.

For instance, participation in revenue from touring under our expanded-rights deals typically flows straight through to operating income with little associated cost.

Revenue from some of our artist services businesses such as management and revenue from participation in touring and sponsorships under our expanded-rights deals are all high margin, while revenue under our expanded-rights deals and revenue from some of our artist services businesses such as merchandising tend to be lower margin than our traditional revenue streams in our Recorded Music business.

On June 5, 2020, we amended our Senior Management Free Cash Flow Plan (the “Plan”), which pays annual bonuses to certain executives based on our free cash flow and offers participants the opportunity to share in the appreciation of the value of our common stock, to remove the cash-settlement feature of the awards issued previously under the Plan.

Our results of operations were adversely impacted by non-cash stock-based compensation charges of $436 million and $593 million for the three and nine months ended June 30, 2020, respectively, which reflect the mark-to-market adjustment through the modification date of the Plan for the change in value of our common stock upon consummation of the IPO.

We incurred non-cash stock-based compensation charges of $13 million and $23 million for the three and nine months ended June 30, 2019, respectively.

Subsequent to the amendment, the awards issued under the Plan will no longer be adjusted for changes in the value of our common stock.

We will continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan and for any future awards that may be issued under the Plan.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2020 Compared with Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 Compared with Three Months Ended June 30, 2019

Consolidated Results

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For the Three Months Ended

March 31, 2020 vs.

June 30, 2020 vs.

2020 2019 $ Change % Change

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Total Revenues

Total revenues decreased by $19 million, or 2%, to $1,071 million for the three months ended March 31, 2020 from $1,090 million for the three months ended March 31, 2019.

Total revenues decreased by $48 million, or 5%, to $1,010 million for the three months ended June 30, 2020 from $1,058 million for the three months ended June 30, 2019.

The decrease includes $16 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenue for the three months ended March 31, 2020.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenue for the three months ended March 31, 2019.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenue for the three months ended June 30, 2020, respectively, and 86% and 14% of total revenue for the three months ended June 30, 2019.

Prior to intersegment eliminations, U.S.

and international revenues represented 44% and 56% of total revenues for both the three months ended March 31, 2020 and March 31, 2019, respectively.

Total digital revenues after intersegment eliminations increased by $38 million, or 6%, to $699 million for the three months ended March 31, 2020 from $661 million for the three months ended March 31, 2019.

Total digital revenues represented 65% and 61% of consolidated revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2020 were comprised of U.S.

revenues of $351 million and international revenues of $349 million, or 50% of total digital revenues for each of U.S and international revenues.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2019 were comprised of U.S.

and international revenues represented 43% and 57% of total revenues for the three months ended June 30, 2020, respectively, and 44% and 56% of total revenues for the three months ended June 30, 2019, respectively.

Total digital revenues after intersegment eliminations increased by $72 million, or 11%, to $720 million for the three months ended June 30, 2020 from $648 million for the three months ended June 30, 2019.

Total digital revenues represented 71% and 61% of consolidated revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended June 30, 2020 were comprised of U.S.

revenues of $363 million and international revenues of $357 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the three months ended June 30, 2019 were comprised of U.S.

revenues of $343 million and international revenues of $306 million, or 53% and 47% of total digital revenues, respectively.

Recorded Music revenues decreased by $26 million, or 3%, to $907 million for the three months ended March 31, 2020 from $933 million for the three months ended March 31, 2019.

Recorded Music revenues decreased by $52 million, or 6%, to $861 million for the three months ended June 30, 2020 from $913 million for the three months ended June 30, 2019.

The decrease includes $14 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $380 million and $410 million, or 42% and 44%, of consolidated Recorded Music revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

International Recorded Music revenues were $527 million and $523 million, or 58% and 56%, of consolidated Recorded Music revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

The overall decrease in Recorded Music revenue was driven by decreases in physical and artist services and expanded-rights revenue, partially offset by increases in digital revenue.

Physical revenue decreased by $36 million primarily due to the continued shift from physical revenue to digital revenue, timing of releases and carryover success in the prior-year quarter, and lower physical sales due to the impact of COVID-19.

Artist services and expanded-rights revenue decreased by $19 million primarily due to timing of touring activity and the impact of COVID-19, which resulted in tour postponements and decreased merchandising revenues.

Partially offsetting these decreases was an increase of digital revenue by $29 million as a result of the continued growth in streaming services and new releases, which include Dua Lipa as well as carryover success from Roddy Ricch, Tones and I, and Ed Sheeran.

Revenue from streaming services grew by $49 million to $586 million for the three months ended March 31, 2020 from $537 million for the three months ended March 31, 2019, which includes the impact of a one-time digital streaming license in the prior-year quarter.

Digital revenue growth was partially offset by decreases in digital download and other digital declines of $20 million to $40 million for the three months ended March 31, 2020 from $60 million for the three months ended March 31, 2019 due to the continued shift to streaming services.

Recorded Music revenues were $358 million and $395 million, or 42% and 43%, of consolidated Recorded Music revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

International Recorded Music revenues were $503 million and $518 million, or 58% and 57%, of consolidated Recorded Music revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

The overall decrease in Recorded Music revenue was driven by decreases in physical, artist services and expanded-rights, and licensing revenue, partially offset by increases in digital revenue.

Physical revenue decreased by $44 million primarily due to the impact of the COVID-19 business disruption resulting in lower physical sales, continued shift from physical revenue to digital revenue, and timing of releases and carryover success in the prior-year quarter.

Artist services and expanded-rights revenue decreased by $34 million primarily due to timing of touring activity and the impact of COVID-19, which resulted in tour postponements and cancellations and decreased merchandising revenues.

Licensing revenue decreased by $20 million primarily due to the impact of COVID-19, which resulted in lower advertising and deal activity.

Partially offsetting these decreases was an increase of digital revenue by $46 million as a result of the continued growth in streaming services and strength of releases, which included carryover success from Roddy Ricch, Dua Lipa, Lil Uzi Vert, Tones and I, and Ed Sheeran.

Revenue from streaming services grew by $49 million to $589 million for the three months ended June 30, 2020 from $540 million for the three months ended June 30, 2019.

Digital revenue growth was partially offset by decreases in digital download and other digital declines of $3 million to $41 million for the three months ended June 30, 2020 from $44 million for the three months ended June 30, 2019 due to the continued shift to streaming services.

Digital revenue was not materially impacted by COVID-19 in the quarter.

Music Publishing revenues increased by $8 million, or 5%, to $166 million for the three months ended March 31, 2020 from $158 million for the three months ended March 31, 2019.

Music Publishing revenues were $87 million and $75 million, or 52% and 47%, of consolidated Music Publishing revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

International Music Publishing revenues were $79 million and $83 million or 48% and 53%, of consolidated Music Publishing revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $9 million, synchronization revenue of $3 million and mechanical revenue of $2 million, partially offset by decreases in performance revenue of $5 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services.

The increase in synchronization revenue is attributable to higher TV and commercial income.

The increase in mechanical revenue is due to timing of distributions.

The decline in performance revenue is driven by the impact from COVID-19 and timing distributions.

Music Publishing revenues increased by $2 million, or 1%, to $149 million for the three months ended June 30, 2020 from $147 million for the three months ended June 30, 2019.

Music Publishing revenues were $74 million and $71 million, or 50% and 48%, of consolidated Music Publishing revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

International Music Publishing revenues were $75 million and $76 million or 50% and 52%, of consolidated Music Publishing revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $25 million, partially offset by decreases in performance revenue of $9 million, synchronization revenue of $7 million, and mechanical revenue of $5 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services and timing of digital deals.

The decline in performance revenue and synchronization revenue is primarily driven by the impact from COVID-19.

The decline in mechanical revenue is driven by the continued market decline in physical revenue, timing of distributions and the impact from COVID-19.

Revenue by Geographical Location

revenue decreased by $18 million, or 4%, to $467 million for the three months ended March 31, 2020 from $485 million for the three months ended March 31, 2019.

revenue decreased by $34 million, or 7%, to $432 million for the three months ended June 30, 2020 from $466 million for the three months ended June 30, 2019.

Recorded Music revenue decreased by $37 million, or 9%.

The primary driver was the $14 million decrease in U.S.

Recorded Music digital revenue, primarily driven by the impact of a one-time digital streaming license in the prior-year quarter.

Additionally, there was a decrease of U.S.

The primary driver was the decrease in U.S.

Recorded Music physical revenue of $22 million driven by general market decline, impact of COVID-19, and timing of releases, as well as a decrease of U.S.

Recorded Music artist services and expanded-rights revenue of $21 million primarily due to the impact of COVID-19.

Partially offsetting U.S.

Recorded Music declines was an increase in U.S.

Music Publishing revenue of $12 million, or 16%, to $87 million for the three months ended March 31, 2020 from $75 million for the three months ended March 31, 2019.

Partially offsetting this decrease is an increase of U.S.

Recorded Music digital revenue of $10 million driven by the continued growth in streaming services.

Music Publishing revenue increased by $3 million, or 4%, to $74 million for the three months ended June 30, 2020 from $71 million for the three months ended June 30, 2019.

This was primarily driven by the increase in U.S.

Music Publishing of $10 million in digital revenue due to the continued growth in streaming services and the increase in synchronization revenue of $2 million due to higher TV and commercial income.

International revenue was $606 million for both the three months ended March 31, 2020 and March 31, 2019.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $16 million or 3%.

International Recorded Music revenue increased by $4 million primarily due to increases in digital revenue of $43 million, partially offset by decreases in physical revenue of $26 million and artist services and expanded-rights revenue of $12 million.

The increase in International Recorded Music digital revenue was due to continued growth in streaming services internationally, partially offset by a decline in digital downloads.

Music Publishing of $10 million in digital revenue due to the continued growth in streaming services, partially offset by decreases in synchronization revenue and performance revenue of $4 million and $3 million, respectively, primarily due to the impact of COVID-19.

International revenue decreased by $16 million, or 3%, to $578 million for the three months ended June 30, 2020 from $594 million for the three months ended June 30, 2019.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue remained flat.

International Recorded Music revenue decreased by $15 million primarily due to decreases in physical revenue of $22 million, licensing revenue of $16 million, and artist services and expanded-rights revenue of $13 million, partially offset by increases in digital revenue of $36 million.

International Recorded Music physical revenue decreased by $22 million due to the continued shift from physical revenue to digital revenue, impact of COVID-19, timing of releases and carryover success in the prior-year quarter.

International Recorded Music artist services and expanded-rights revenue decreased by $12 million primarily due to the impact of COVID-19, which resulted in tour postponements and decreased merchandising revenues.

International Music Publishing revenue decreased from the prior-year quarter by $4 million to $79 million for the three months ended March 31, 2020.

This was primarily driven by decreases in performance revenue of $6 million primarily due to the impact of COVID-19 and timing of distributions, partially offset by an increase in mechanical revenue of $2 million.

International Recorded Music licensing revenue decreased by $16 million primarily due to the impact of COVID-19.

International Recorded Music artist services and expanded-rights revenue decreased by $13 million primarily due to the impact of COVID-19, which resulted in tour postponements and cancellations and decreased merchandising revenues, and timing of larger tours in Japan and France in the prior-year quarter.

The increase in International Recorded Music digital revenue was due to continued growth in streaming services internationally.

International Music Publishing revenue decreased from the prior-year quarter by $1 million to $75 million for the three months ended June 30, 2020.

This was primarily driven by decreases in performance revenue of $6 million, mechanical revenue of $4 million, and synchronization revenue of $3 million, partially offset by an increase in digital revenue of $15 million.

The decline in performance revenue and synchronization revenue is primarily driven by the impact from COVID-19.

The decline in mechanical revenue is driven by lower private copy income in France, the continued market decline in physical revenue and the impact from COVID-19.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services.

Our cost of revenues was composed of the following amounts (in millions):

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2020 2019 $ Change % Change

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Total cost of revenues $ 527 $ 577 $ (50) -9 %

Artist and repertoire costs decreased by $13 million, to $360 million for the three months ended March 31, 2020 from $373 million for the three months ended March 31, 2019.

Artist and repertoire costs as a percentage of revenue remained constant at 34% for both the three months ended March 31, 2020 and March 31, 2019.

Product costs decreased by $11 million, to $175 million for the three months ended March 31, 2020 from $186 million for the three months ended March 31, 2019.

Product costs as a percentage of revenue decreased to 16% for the three months ended March 31, 2020 from 17% for the three months ended March 31, 2019.

Decreases in product costs relate to revenue mix and favorable foreign currency exchange rates.

Artist and repertoire costs decreased by $5 million, to $367 million for the three months ended June 30, 2020 from $372 million for the three months ended June 30, 2019.

Artist and repertoire costs as a percentage of revenue increased to 36% for the three months ended June 30, 2020 from 35% for the three months ended June 30, 2019.

Product costs decreased by $45 million, to $160 million for the three months ended June 30, 2020 from $205 million for the three months ended June 30, 2019.

Product costs as a percentage of revenue decreased to 16% for the three months ended June 30, 2020 from 19% for the three months ended June 30, 2019.

Decreases in product costs relate to revenue mix, specifically the decrease in physical and artist services and expanded-rights revenue.

Selling, general and administrative expenses

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(1) Includes depreciation expense of $14 million for both the three months ended March 31, 2020 and March 31, 2019.

Total selling, general and administrative expense increased by $184 million, or 52%, to $538 million for the three months ended March 31, 2020 from $354 million for the three months ended March 31, 2019.

Expressed as a percentage of revenue, selling, general and administrative expense increased to 50% for the three months ended March 31, 2020 from 33% for the three months ended March 31, 2019.

This is primarily due to the increased expense associated with our Senior Management Free Cash Flow Plan of $164 million.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, selling, general and administrative expense as a percentage of revenue increased to 34% for the three months ended March 31, 2020 from 32% for the three months ended March 31, 2019.

General and administrative expense increased by $180 million to $351 million for the three months ended March 31, 2020 from $171 million for the three months ended March 31, 2019.

The increase in general and administrative expense was mainly due to higher expense associated with our Senior Management Free Cash Flow Plan of $164 million, increases in legal and consulting costs related to the proposed IPO of $4 million, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions and higher transformation initiatives costs of $10 million.

Expressed as a percentage of revenue, general and administrative expense increased to 33% for the three months ended March 31, 2020 from 16% for the three months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, general and administrative expense as a percentage of revenue increased to 17% for the three months ended March 31, 2020 from 15% for the three months ended March 31, 2019 due to the factors described above.

Selling and marketing expense increased by $9 million, or 6%, to $166 million for the three months ended March 31, 2020 from $157 million for the three months ended March 31, 2019.

The increase in selling and marketing expense was primarily due to increased spending on new releases and developing artists.

Expressed as a percentage of revenue, selling and marketing expense increased to 15% for the three months ended March 31, 2020 from 14% for the three months ended March 31, 2019 due to the factors described above.

Distribution expense was $21 million for the three months ended March 31, 2020 and $26 million for the three months ended March 31, 2019.

Expressed as a percentage of revenue, distribution expense was 2% for both the three months ended March 31, 2020 and March 31, 2019.

(1) Includes depreciation expense of $15 million for both the three months ended June 30, 2020 and June 30, 2019.

Total selling, general and administrative expense increased by $497 million to $869 million for the three months ended June 30, 2020 from $372 million for the three months ended June 30, 2019.

Expressed as a percentage of revenue, selling, general and administrative expense increased to 86% for the three months ended June 30, 2020 from 35% for the three months ended June 30, 2019.

This is primarily due to the increased non-cash stock-based compensation expense of $426 million and management agreement termination fee and IPO related expenses totaling $86 million.

Excluding non-cash stock-based compensation expense, the management agreement termination fee and IPO related expenses, selling, general and administrative expense as a percentage of revenue remained constant at 34% for both the three months ended June 30, 2020 and June 30, 2019.

General and administrative expense increased by $526 million to $717 million for the three months ended June 30, 2020 from $191 million for the three months ended June 30, 2019.

The increase in general and administrative expense was mainly due to higher non-cash stock-based compensation expense of $426 million, and the management agreement termination fee and IPO related expenses totaling $86 million, timing of variable compensation expense, and higher transformation initiatives costs of $5 million.

Expressed as a percentage of revenue, general and administrative expense increased to 71% for the three months ended June 30, 2020 from 18% for the three months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, management agreement termination fee and IPO related expenses, general and administrative expense as a percentage of revenue increased to 19% for the three months ended June 30, 2020 from 17% for the three months ended June 30, 2019 due to the factors described above.

Selling and marketing expense decreased by $22 million, or 14%, to $133 million for the three months ended June 30, 2020 from $155 million for the three months ended June 30, 2019.

The decrease in selling and marketing expense was primarily due to a decrease in spend as a result of the COVID-19 disruption.

Expressed as a percentage of revenue, selling and marketing expense decreased to 13% for the three months ended June 30, 2020 from 15% for the three months ended June 30, 2019 due to the factors described above.

Distribution expense was $19 million for the three months ended June 30, 2020 and $26 million for the three months ended June 30, 2019.

Expressed as a percentage of revenue, distribution expense decreased to 2% for the three months ended June 30, 2020 from 3% for the three months ended June 30, 2019.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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For the Three Months Ended

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Net (loss) income (519) 14 (533) — %

Income tax (benefit) expense (12) 48 (60) — %

Income tax expense (benefit) 51 (12) 63 — %

(Loss) income before income taxes (468) 2 (470) — %

Other expense (income) 4 (29) 33 — %

Other expense 3 16 (13) -81 %

Interest expense, net 32 36 (4) -11 %

Loss on extinguishment of debt — 4 (4) -100 %

Operating (loss) income (433) 58 (491) — %

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OIBDA $ (371) $ 124 $ (495) — %

OIBDA decreased by $179 million, or 94%, to $12 million for the three months ended March 31, 2020 as compared to $191 million for the three months ended March 31, 2019 as a result of lower revenues and higher expense associated with our Senior Management Free Cash Flow Plan.

Expressed as a percentage of total revenue, OIBDA margin decreased to 1% for the three months ended March 31, 2020 from 18% for the three months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, as a percentage of total revenue, OIBDA margin decreased to 17% for the three months ended March 31, 2020 from 18% for the three months ended March 31, 2019 due to revenue mix.

OIBDA decreased by $495 million to a loss of $371 million for the three months ended June 30, 2020 as compared to income of $124 million for the three months ended June 30, 2019 as a result of lower revenues and higher non-cash stock-based compensation expense, and the management agreement termination fee and IPO related expenses.

Expressed as a percentage of total revenue, OIBDA margin decreased to (37)% for the three months ended June 30, 2020 from 12% for the three months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, management agreement termination fee and IPO related expenses, as a percentage of total revenue, OIBDA margin increased to 15% for the three months ended June 30, 2020 from 13% for the three months ended June 30, 2019 as a result of lower product costs and lower selling and marketing expense.

Amortization expense

Our amortization expense decreased by $8 million, or 15%, to $47 million for the three months ended March 31, 2020 from $55 million for the three months ended March 31, 2019.

Our amortization expense decreased by $4 million, or 8%, to $47 million for the three months ended June 30, 2020 from $51 million for the three months ended June 30, 2019.

The decrease is primarily due to certain intangible assets becoming fully amortized.

Operating (loss) income

Our operating (loss) income decreased by $171 million to $49 million for the three months ended March 31, 2020 from operating income of $122 million for the three months ended March 31, 2019.

The decrease in operating income was due to the factors that led to the decrease in OIBDA.

Our operating (loss) income decreased by $491 million to operating loss of $433 million for the three months ended June 30, 2020 from operating income of $58 million for the three months ended June 30, 2019.

The decrease in operating (loss) income was due to the factors that led to the decrease in OIBDA.

Loss on extinguishment of debt

There was no loss on extinguishment of debt for the three months ended June 30, 2020.

We recorded a loss on extinguishment of debt in the amount of $4 million for the three months ended June 30, 2019 related to the redemption of the remaining 5.625% Senior Secured Notes.

Interest expense, net

Our interest expense, net, decreased to $33 million for the three months ended March 31, 2020 from $36 million for the three months ended March 31, 2019 due to a decline in LIBOR rates as well as lower interest rates resulting from the redemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes.

Other expense (income), net

Other expense (income), net, for the three months ended March 31, 2020 primarily includes unrealized losses of $10 million on the mark-to-market of an equity method investment and a $5 million loss on investments, partially offset by foreign currency gains on our Euro-denominated debt of $6 million.

This compares to an unrealized gain of $15 million on the mark-to-market of an equity method investment, foreign currency gains on our Euro-denominated debt of $10 million and currency exchange gains on our intercompany loans of $5 million for the three months ended March 31, 2019.

Income tax (benefit) expense

Our income tax expense decreased by $60 million to a tax benefit of $12 million for the three months ended March 31, 2020 from $48 million of tax expense for the three months ended March 31, 2019.

The change of $60 million in income tax expense primarily relates to lower pre-tax income in the three months ended March 31, 2020.

Our interest expense, net, decreased to $32 million for the three months ended June 30, 2020 from $36 million for the three months ended June 30, 2019 due to a decline in LIBOR rates as well as lower interest rates resulting from the redemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes.

Other expense

Other expense for the three months ended June 30, 2020 primarily includes foreign currency loss on our Euro-denominated debt of $16 million, unrealized loss on hedging activity of $2 million, and a loss on investment of $1 million, partially offset by unrealized gain of $14 million on the mark-to-market of an equity method investment and currency exchange gains on our intercompany loans of $3 million.

This compares to the unrealized loss of $6 million on the mark-to-market of an equity method investment and a loss on our Euro-denominated debt of $10 million for the three months ended June 30, 2019.

Income tax expense (benefit)

Our income tax expense (benefit) increased by $63 million to a tax expense of $51 million for the three months ended June 30, 2020 from $12 million of a tax benefit for the three months ended June 30, 2019.

The change of $63 million in income tax expense primarily relates to higher pre-tax income before non-deductible expenses of the Plan and transaction costs and impact of IRC Section 162(m) in the three months ended June 30, 2020 as compared to change in components of forecasted taxable income in the three months ended June 30, 2019.

Net (loss) income

Net (loss) income decreased by $141 million to $74 million for the three months ended March 31, 2020 from net income of $67 million for the three months ended March 31, 2019 as a result of the factors described above.

Net (loss) income decreased by $533 million to net loss of $519 million for the three months ended June 30, 2020 from net income of $14 million for the three months ended June 30, 2019 as a result of the factors described above.

Noncontrolling interest

There was no income attributable to noncontrolling interest for both the three months ended March 31, 2020 and March 31, 2019.

There was $1 million of income attributable to noncontrolling interest for both the three months ended June 30, 2020 and June 30, 2019.

Business Segment Results

Revenue, operating income (loss) and OIBDA by business segment were as follows (in millions):

Revenues, operating income (loss) and OIBDA by business segment were as follows (in millions):

For the Three Months Ended

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2020 2019 $ Change % Change

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Revenues $ 861 $ 913 $ (52) -6 %

Operating income 36 134 (98) -73 %

Operating (loss) income (160) 85 (245) — %

OIBDA (119) 131 (250) — %

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Recorded Music

Recorded Music revenue decreased by $26 million, or 3%, to $907 million for the three months ended March 31, 2020 from $933 million for the three months ended March 31, 2019.

Recorded Music revenues were $380 million and $410 million, or 42% and 44%, of consolidated Recorded Music revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

International Recorded Music revenues were $527 million and $523 million, or 58% and 56%, of consolidated Recorded Music revenues for both the three months ended March 31, 2020 and March 31, 2019, respectively.

The overall decrease in Recorded Music revenue was mainly driven by decreases in physical and artist services and expanded-rights revenue, partially offset by increases in digital revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Recorded Music revenue decreased by $52 million, or 6%, to $861 million for the three months ended June 30, 2020 from $913 million for the three months ended June 30, 2019.

Recorded Music revenues were $358 million and $395 million, or 42% and 43%, of consolidated Recorded Music revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

International Recorded Music revenues were $503 million and $518 million, or 58% and 57%, of consolidated Recorded Music revenues for both the three months ended June 30, 2020 and June 30, 2019, respectively.

The overall decrease in Recorded Music revenue was mainly driven by decreases in physical, artist services and expanded-rights, and licensing revenue, partially offset by increases in digital revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

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Total cost of revenues $ 431 $ 487 $ (56) -11 %

Recorded Music cost of revenues decreased by $27 million, or 6%, to $439 million for the three months ended March 31, 2020 from $466 million for the three months ended March 31, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 29% for the three months ended March 31, 2020 from 30% for the three months ended March 31, 2019.

The decrease is primarily attributable to lower artists related costs, including a decrease in spending resulting from the impact of COVID-19.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 19% for the three months ended March 31, 2020 from 20% for the three months ended March 31, 2019.

The decrease in product costs relates to revenue mix and favorable foreign currency exchange rates.

Recorded Music cost of revenues decreased by $56 million, or 11%, to $431 million for the three months ended June 30, 2020 from $487 million for the three months ended June 30, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs remained constant at 31% for both the three months ended June 30, 2020 and June 30, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 19% for the three months ended June 30, 2020 from 22% for the three months ended June 30, 2019.

The decrease in product costs relates to revenue mix, specifically decreases in physical and artist services and expanded-rights revenue.

Selling, general and administrative expense

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(1) Includes depreciation expense of $10 million and $9 million for the three months ended March 31, 2020 and for the three months ended March 31, 2019, respectively.

Recorded Music selling, general and administrative expense increased by $106 million, or 36%, to $402 million for the three months ended March 31, 2020 from $296 million for the three months ended March 31, 2019.

The increase in general and administrative expense was primarily due to higher expense associated with our Senior Management Free Cash Flow Plan of $99 million and increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions.

The increase in selling and marketing expense was primarily due to increased spending on new releases and developing artists.

(1) Includes depreciation expense of $11 million and $12 million for the three months ended June 30, 2020 and for the three months ended June 30, 2019, respectively.

Recorded Music selling, general and administrative expense increased by $253 million, or 82%, to $560 million for the three months ended June 30, 2020 from $307 million for the three months ended June 30, 2019.

The increase in general and administrative expense was primarily due to higher non-cash stock-based compensation expense of $276 million and timing of variable compensation expense.

The decrease in selling and marketing expense was primarily due to a decrease in spend resulting from the COVID-19 business disruption.

The decrease in distribution expense was primarily due to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 44% for the three months ended March 31, 2020 from 32% for the three months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, selling, general and administrative expense as a percentage of Recorded Music revenue increased to 33% for the three months ended March 31, 2020 from 31% for the three months ended March 31, 2019 due to the factors described above.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 65% for the three months ended June 30, 2020 from 34% for the three months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 32% for the three months ended June 30, 2020 from 33% for the three months ended June 30, 2019 due to the factors described above.

Operating income and OIBDA

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OIBDA $ (119) $ 131 $ (250) — %

Recorded Music OIBDA decreased by $104 million, or 58%, to $76 million for the three months ended March 31, 2020 from $180 million for the three months ended March 31, 2019 as a result of lower revenues and higher expense associated with our Senior Management Free Cash Flow Plan.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, Recorded Music OIBDA decreased by $5 million, or 3%, for the three months ended March 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin decreased to 8% for the three months ended March 31, 2020 from 19% for the three months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, OIBDA, as a percentage of Recorded Music revenue, was 20% for both the three months ended March 31, 2020 and the three months ended March 31, 2019.

Recorded Music operating income decreased by $98 million to $36 million for the three months ended March 31, 2020 from $134 million for the three months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, operating income increased by $1 million to $138 million for the three months ended March 31, 2020 from $137 million for the three months ended March 31, 2019.

Recorded Music OIBDA decreased by $250 million to a loss of $119 million for the three months ended June 30, 2020 from income of $131 million for the three months ended June 30, 2019 as a result of lower revenues and higher non-cash stock-based compensation expense.

Excluding non-cash stock-based compensation expense, Recorded Music OIBDA increased by $26 million, or 19%, for the three months ended June 30, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin decreased to (14)% for the three months ended June 30, 2020 from 14% for the three months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, OIBDA, as a percentage of Recorded Music revenue, increased to 19% for the three months ended June 30, 2020 from 15% for the three months ended June 30, 2019 as a result of lower product costs, selling and marketing expense, and distribution expense.

Recorded Music operating (loss) income decreased by $245 million to operating loss of $160 million for the three months ended June 30, 2020 from operating income $85 million for the three months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, operating income increased by $31 million to $125 million for the three months ended June 30, 2020 from $94 million for the three months ended June 30, 2019.

Music Publishing

Music Publishing revenues increased by $8 million, or 5%, to $166 million for the three months ended March 31, 2020 from $158 million for the three months ended March 31, 2019.

Music Publishing revenues were $87 million and $75 million, or 52% and 47%, of consolidated Music Publishing revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

International Music Publishing revenues were $79 million and $83 million, or 48% and 53%, of consolidated Music Publishing revenues for the three months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by streaming revenue growth and higher synchronization and mechanical, partially offset by lower performance revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Music Publishing revenues increased by $2 million, or 1%, to $149 million for the three months ended June 30, 2020 from $147 million for the three months ended June 30, 2019.

Music Publishing revenues were $74 million and $71 million, or 50% and 48%, of consolidated Music Publishing revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

International Music Publishing revenues were $75 million and $76 million, or 50% and 52%, of consolidated Music Publishing revenues for the three months ended June 30, 2020 and June 30, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by streaming revenue growth, partially offset by lower performance, synchronization, and mechanical revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

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Total cost of revenues $ 96 $ 92 $ 4 4 %

Music Publishing cost of revenues increased by $4 million, or 4%, to $98 million for the three months ended March 31, 2020 from $94 million for the three months ended March 31, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 59% for the three months ended March 31, 2020 from 60% for the three months ended March 31, 2019.

This decrease is primarily attributable to higher revenue during the quarter.

Music Publishing cost of revenues increased by $4 million, or 4%, to $96 million for the three months ended June 30, 2020 from $92 million for the three months ended June 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the three months ended June 30, 2020 from 63% for the three months ended June 30, 2019.

This increase is primarily attributable to revenue mix.

Selling, general and administrative expense

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(1) Includes depreciation expense of $1 million and $2 million for the three months ended March 31, 2020 and the three months ended March 31, 2019, respectively.

Music Publishing selling, general and administrative expense increased to $21 million for the three months ended March 31, 2020 from $19 million for the three months ended March 31, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense increased to 13% for the three months ended March 31, 2020 from 12% for the three months ended March 31, 2019 due to higher employee-related and restructuring costs.

(1) Includes depreciation expense of $2 million and $1 million for the three months ended June 30, 2020 and the three months ended June 30, 2019, respectively.

Music Publishing selling, general and administrative expense increased to $22 million for the three months ended June 30, 2020 from $20 million for the three months ended June 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense increased to 15% for the three months ended June 30, 2020 from 14% for the three months ended June 30, 2019 due to higher employee-related and restructuring costs.

Operating income and OIBDA

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OIBDA $ 33 $ 36 $ (3) -8 %

Music Publishing OIBDA increased by $1 million, or 2%, to $48 million for the three months ended March 31, 2020 from $47 million for the three months ended March 31, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 29% for the three months ended March 31, 2020 from 30% for the three months ended March 31, 2019.

The decrease was primarily due to higher general and administrative expenses as a percentage of revenue.

Music Publishing operating income increased by $3 million to $30 million for the three months ended March 31, 2020 from $27 million operating income for the three months ended March 31, 2019 due to increased revenues and lower amortization expense, partially offset by higher artist and repertoire and general and administrative costs.

Music Publishing OIBDA decreased by $3 million, or 8%, to $33 million for the three months ended June 30, 2020 from $36 million for the three months ended June 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 22% for the three months ended June 30, 2020 from 24% for the three months ended June 30, 2019.

The decrease was primarily due to higher artist and repertoire expenses and general and administrative expenses as a percentage of revenue.

Music Publishing operating income decreased by $4 million to $14 million for the three months ended June 30, 2020 from $18 million for the three months ended June 30, 2019 due to the factors that led to the decrease in Music Publishing OIBDA noted above.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $76 million for the three months ended March 31, 2020 to $115 million from $39 million for the three months ended March 31, 2019, which primarily includes an increase of $65 million in variable compensation associated with our Senior Management Free Cash Flow Plan as well as higher costs related to transformation initiatives of $10 million.

Our OIBDA loss from corporate expenses and eliminations increased by $76 million for the three months ended March 31, 2020 to $112 million from $36 million for the three months ended March 31, 2019 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $242 million for the three months ended June 30, 2020 to $287 million from $45 million for the three months ended June 30, 2019, which primarily includes an increase in non-cash stock-based compensation expense of $150 million, the management agreement termination fee and IPO related expenses totaling $86 million, and higher costs related to transformation initiatives of $5 million.

Our OIBDA loss from corporate expenses and eliminations increased by $242 million for the three months ended June 30, 2020 to $285 million from $43 million for the three months ended June 30, 2019 due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Six Months Ended March 31, 2020 Compared with Six Months Ended March 31, 2019

Nine Months Ended June 30, 2020 Compared with Nine Months Ended June 30, 2019

Consolidated Results

Our revenues were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

24 unchanged sentences

Total Revenues

Total revenues increased by $34 million, or 1%, to $2,327 million for the six months ended March 31, 2020 from $2,293 million for the six months ended March 31, 2019.

Total revenues decreased by $14 million to $3,337 million for the nine months ended June 30, 2020 from $3,351 million for the nine months ended June 30, 2019.

The increase includes $44 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenues for the six months ended March 31, 2020, respectively, and 86% and 14% of total revenues for the six months ended March 31, 2019, respectively.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenues for the nine months ended June 30, 2020, respectively, and 86% and 14% of total revenues for the nine months ended June 30, 2019, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 43% and 57% of total revenue for both the six months ended March 31, 2020 and March 31, 2019, respectively.

Total digital revenues after intersegment eliminations increased by $117 million, or 9%, to $1,405 million for the six months ended March 31, 2020 from $1,288 million for the six months ended March 31, 2019.

Total digital revenues represented 60% and 56% of consolidated revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2020 were comprised of U.S.

and international revenues represented 43% and 57% of total revenues for both the nine months ended June 30, 2020 and June 30, 2019, respectively.

Total digital revenues after intersegment eliminations increased by $189 million, or 10%, to $2,125 million for the nine months ended June 30, 2020 from $1,936 million for the nine months ended June 30, 2019.

Total digital revenues represented 64% and 58% of consolidated revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2020 were comprised of U.S.

revenues of $1,094 million and international revenues of $1,032 million, or 51% and 49% of total digital revenues, respectively.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2019 were comprised of U.S.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2019 were comprised of U.S.

revenues of $1,028 million and international revenues of $911 million, or 53% and 47% of total digital revenues, respectively.

Recorded Music revenues increased by $17 million, or 1%, to $1,991 million for the six months ended March 31, 2020 from $1,974 million for the six months ended March 31, 2019.

The increase includes $22 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $833 million and $841 million, or 42% and 43%, of consolidated Recorded Music revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

International Recorded Music revenues were $1,158 million and $1,133 million, or 58% and 57%, of consolidated Recorded Music revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital revenue and artist services and expanded-rights revenue, partially offset by decreases in physical revenue and licensing revenue.

Digital revenue increased by $99 million as a result of the continued growth in streaming services and strength of releases, which included new releases from Roddy Ricch and YoungBoy Never Broke Again as well as carryover success from Ed Sheeran, Tones and I and Lizzo.

Revenue from streaming services grew by $136 million to $1,175 million for the six months ended March 31, 2020 from $1,039 million for the six months ended March 31, 2019.

Digital revenue growth was partially offset by digital download and other digital declines of $37 million to $84 million for the six months ended March 31, 2020 from $121 million for the six months ended March 31, 2019 due to the continued shift to streaming services.

Artist services and expanded-rights revenue increased by $3 million primarily due to higher advertising revenues and timing of tours in France, partially offset by the impact of COVID-19, which resulted in tour postponements and decreased merchandising revenues.

Physical revenue decreased by $83 million primarily due to the continued shift from physical revenue to digital revenue, timing of releases and prior-year success of Johnny Hallyday.

Licensing revenue decreased by $2 million primarily related to unfavorable foreign exchange rates.

Music Publishing revenues increased by $16 million, or 5% , to $339 million for the six months ended March 31, 2020 from $323 million for the six months ended March 31, 2019.

Music Publishing revenues were $168 million and $148 million, or 50% and 46%, of consolidated Music Publishing revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

International Music Publishing revenues were $171 million and $175 million, or 50% and 54%, of Music Publishing revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $17 million and synchronization revenue of $10 million, partially offset by decreases in performance revenue of $12 million.

Recorded Music revenues decreased by $35 million, or 1%, to $2,852 million for the nine months ended June 30, 2020 from $2,887 million for the nine months ended June 30, 2019.

The decrease includes $36 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $1,191 million and $1,236 million, or 42% and 43%, of consolidated Recorded Music revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

International Recorded Music revenues were $1,661 million and $1,651 million, or 58% and 57%, of consolidated Recorded Music revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

The overall decrease in Recorded Music revenue was driven by decreases in physical, artist services and expanded-rights, and licensing revenue, partially offset by increases in digital revenue.

Physical revenue decreased by $127 million primarily due to the continued shift from physical revenue to digital revenue, timing of releases, prior-year success of Johnny Hallyday, and impact of the COVID-19 business interruption resulting in lower physical sales.

Artist services and expanded-rights revenue decreased by $31 million primarily due to timing of touring activity and the impact of COVID-19, which resulted in tour postponements and cancellations and decreased merchandising revenues.

Licensing revenue decreased by $22 million primarily due to the impact of COVID-19, which resulted in lower advertising and deal activity.

Digital revenue increased by $145 million as a result of the continued growth in streaming services and strength of releases, which included new releases from Roddy Ricch, YoungBoy Never Broke Again, and Dua Lipa as well as carryover success from Ed Sheeran, Tones and I, Lizzo, Cardi B, and Young Thug.

Revenue from streaming services grew by $185 million to $1,764 million for the nine months ended June 30, 2020 from $1,579 million for the nine months ended June 30, 2019.

Digital revenue growth was partially offset by digital download and other digital declines of $40 million to $125 million for the nine months ended June 30, 2020 from $165 million for the nine months ended June 30, 2019 due to the continued shift to streaming services.

Music Publishing revenues increased by $18 million, or 4% , to $488 million for the nine months ended June 30, 2020 from $470 million for the nine months ended June 30, 2019.

Music Publishing revenues were $242 million and $219 million, or 50% and 47%, of consolidated Music Publishing revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

International Music Publishing revenues were $246 million and $251 million, or 50% and 53%, of Music Publishing revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $42 million, partially offset by decreases in performance revenue of $21 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services.

The increase in synchronization revenue is attributable to higher TV and commercial income.

The decline in performance revenue is driven by timing of distributions and the impact of COVID-19.

The decline in performance revenue is primarily driven by the impact of COVID-19 and timing of distributions.

Revenue by Geographical Location

revenue increased by $12 million, or 1%, to $1,001 million for the six months ended March 31, 2020 from $989 million for the six months ended March 31, 2019.

revenue decreased by $22 million, or 2%, to $1,433 million for the nine months ended June 30, 2020 from $1,455 million for the nine months ended June 30, 2019.

Recorded Music revenue decreased by $45 million, or 4%.

The primary driver was the decrease in U.S.

Recorded Music physical revenue, which decreased by $35 million driven by general market decline and timing of releases.

Recorded Music physical revenue, which decreased by $57 million driven by general market decline, impact of COVID-19, and timing of releases, as well as a decrease of U.S.

Recorded Music artist services and expanded-rights revenue of $30 million primarily due to the impact of COVID-19.

Partially offsetting this decrease was an increase of U.S.

1 unchanged sentence

Streaming revenue increased by $62 million, partially offset by $23 million of digital download and other digital declines.

Music Publishing revenue increased by $20 million to $168 million for the six months ended March 31, 2020 from $148 million for the six months ended March 31, 2019.

Music Publishing revenue increased by $23 million to $242 million for the nine months ended June 30, 2020 from $219 million for the nine months ended June 30, 2019.

This was primarily driven by the increase in U.S.

Music Publishing of $17 million in digital revenue due to the continued growth in streaming services and the increase in synchronization revenue of $5 million due to higher TV and commercial income, partially offset by decreases in performance revenue of $1 million.

International revenue increased by $21 million, or 2%, to $1,329 million for the six months ended March 31, 2020 from $1,308 million for the six months ended March 31, 2019.

Music Publishing of $27 million in digital revenue due to the continued growth in streaming services, partially offset by decreases in performance revenue of $4 million.

International revenue increased by $5 million to $1,907 million for the nine months ended June 30, 2020 from $1,902 million for the nine months ended June 30, 2019.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $49 million or 3%.

International Recorded Music revenue increased by $25 million primarily due to increases in digital revenue of $70 million and artist services and expanded-rights revenue of $12 million, partially offset by decreases in physical revenue of $48 million and licensing revenue of $9 million.

International Recorded Music revenue increased by $10 million primarily due to increases in digital revenue of $106 million, partially offset by decreases in physical revenue of $70 million and licensing revenue of $25 million.

The increase in International Recorded Music digital revenue was due to continued growth in streaming services internationally, partially offset by a decline in digital downloads.

International Recorded Music artist services and expanded-rights revenue increased by $12 million due to higher merchandising revenues and timing of tours in France, partially offset by the impact of COVID-19, which resulted in tour postponements.

International Recorded Music physical revenue decreased by $48 million due to the continued shift from physical revenue to digital revenue, timing of releases and the prior-year physical success of Johnny Hallyday.

International Recorded Music licensing revenue decreased by $9 million primarily related to unfavorable foreign currency exchange rates and higher broadcast fees in the prior year.

International Music Publishing revenue decreased by $4 million, or 2%, to $171 million for the six months ended March 31, 2020 from $175 million for the six months ended March 31, 2019.

This was primarily driven by decreases in performance revenue of $11 million due to timing of distribution and the impact of COVID-19, partially offset by increases in synchronization revenue of $5 million due to higher TV and commercial income and mechanical revenue of $2 million.

International Recorded Music physical revenue decreased by $70 million due to the continued shift from physical revenue to digital revenue, impact of COVID-19, timing of releases, and the prior-year physical success of Johnny Hallyday.

International Recorded Music licensing revenue decreased by $25 million primarily due to the impact of COVID-19 and higher broadcast fees in the prior year.

International Music Publishing revenue decreased by $5 million, or 2%, to $246 million for the nine months ended June 30, 2020 from $251 million for the nine months ended June 30, 2019.

This was primarily driven by decreases in performance revenue of $17 million due to the impact of COVID-19 and timing of distribution, other revenue of $3 million, and mechanical revenue of $2 million, partially offset by increases in digital revenue of $15 million and synchronization revenue of $2 million.

Our cost of revenues was composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 1,727 $ 1,762 $ (35) -2 %

Artist and repertoire costs decreased by $2 million, to $771 million for the six months ended March 31, 2020 from $773 million for the six months ended March 31, 2019.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the six months ended March 31, 2020 from 34% for the six months ended March 31, 2019.

Decreases in artist and repertoire costs relate to lower artist-related costs, including a decrease in spending resulting from the impact of COVID-19.

Product costs increased by $17 million, to $429 million for the six months ended March 31, 2020 from $412 million for the six months ended March 31, 2019.

Product costs as a percentage of revenue remained constant at 18% for the six months ended March 31, 2020 and March 31, 2019.

Artist and repertoire costs decreased by $7 million, to $1,138 million for the nine months ended June 30, 2020 from $1,145 million for the nine months ended June 30, 2019.

Artist and repertoire costs as a percentage of revenue remained constant at 34% for both the nine months ended June 30, 2020 and June 30, 2019.

Product costs decreased by $28 million, to $589 million for the nine months ended June 30, 2020 from $617 million for the nine months ended June 30, 2019.

Product costs as a percentage of revenue remained constant at 18% for the nine months ended June 30, 2020 and June 30, 2019.

Selling, general and administrative expenses

Our selling, general and administrative expenses were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $38 million and $28 million for the six months ended March 31, 2020 and March 31, 2019, respectively.

Total selling, general and administrative expense increased by $187 million, or 26%, to $917 million for the six months ended March 31, 2020 from $730 million for the six months ended March 31, 2019.

Expressed as a percentage of revenue, selling, general and administrative expense increased to 39% for the six months ended March 31, 2020 from 32% for the six months ended March 31, 2019.

This is primarily due to the increased expense associated with our Senior Management Free Cash Flow Plan of $145 million and a one-time charge within depreciation expense of $10 million.

Excluding the expense associated with our Senior Management Free Cash Flow Plan and one-time charge within depreciation expense, selling, general and administrative expense as a percentage of revenue increased to 32% for the six months ended March 31, 2020 from 31% for the six months ended March 31, 2019.

General and administrative expense increased by $172 million, or 49%, to $523 million for the six months ended March 31, 2020 from $351 million for the six months ended March 31, 2019.

The increase in general and administrative expense was mainly due to higher expense associated with our Senior Management Free Cash Flow Plan of $145 million, a one-time charge within depreciation expense of $10 million, increases in legal and consulting costs related to the proposed IPO, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions and costs associated with transformation initiatives of $17 million.

Expressed as a percentage of revenue, general and administrative expense increased to 23% for the six months ended March 31, 2020 from 15% for the six months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, general and administrative expense as a percentage of revenue increased to 15% for the six months ended March 31, 2020 from 14% for the six months ended March 31, 2019 due to the factors described above.

Selling and marketing expense increased by $22 million, or 7%, to $339 million for the six months ended March 31, 2020 from $317 million for the six months ended March 31, 2019.

The increase in selling and marketing expense was primarily due to increased variable marketing expense on higher revenue and increased spending on new releases and developing artists.

Expressed as a percentage of revenue, selling and marketing expense increased to 15% for the six months ended March 31, 2020 from 14% for the six months ended March 31, 2019 due to the factors described above.

Distribution expense was $55 million for the six months ended March 31, 2020 and $62 million for the six months ended March 31, 2019.

Expressed as a percentage of revenue, distribution expense decreased to 2% for the six months ended March 31, 2020 from 3% for the six months ended March 31, 2019.

(1) Includes depreciation expense of $53 million and $43 million for the nine months ended June 30, 2020 and June 30, 2019, respectively.

Total selling, general and administrative expense increased by $684 million, or 62%, to $1,786 million for the nine months ended June 30, 2020 from $1,102 million for the nine months ended June 30, 2019.

Expressed as a percentage of revenue, selling, general and administrative expense increased to 54% for the nine months ended June 30, 2020 from 33% for the nine months ended June 30, 2019.

This is primarily due to the increased expense associated with non-cash stock-based compensation expense of $572 million, the management agreement termination fee and IPO related expenses totaling $90 million and a one-time charge within depreciation expense of $10 million.

Excluding non-cash stock-based compensation expense, the management agreement termination fee and IPO related expenses, and one-time charge within depreciation expense, selling, general and administrative expense as a percentage of revenue increased to 33% for the nine months ended June 30, 2020 from 32% for the nine months ended June 30, 2019.

General and administrative expense increased by $698 million to $1,240 million for the nine months ended June 30, 2020 from $542 million for the nine months ended June 30, 2019.

The increase in general and administrative expense was mainly due to higher expense associated with non-cash stock-based compensation expense of $572 million, the management agreement termination fee and IPO related expenses totaling $90 million, a one-time charge within depreciation expense of $10 million, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions and costs associated with transformation initiatives of $22 million.

Expressed as a percentage of revenue, general and administrative expense increased to 37% for the nine months ended June 30, 2020 from 16% for the nine months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, the management agreement termination fee and IPO related expenses, and the one-time charge within depreciation expense, general and administrative expense as a percentage of revenue increased to 16% for the nine months ended June 30, 2020 from 15% for the nine months ended June 30, 2019 due to the factors described above.

Selling and marketing expense remained flat at $472 million for both the nine months ended June 30, 2020 and June 30, 2019.

Expressed as a percentage of revenue, selling and marketing expense remained flat at 14% for both the nine months ended June 30, 2020 and June 30, 2019.

Distribution expense was $74 million for the nine months ended June 30, 2020 and $88 million for the nine months ended June 30, 2019.

Expressed as a percentage of revenue, distribution expense decreased to 2% for the nine months ended June 30, 2020 from 3% for the nine months ended June 30, 2019.

The decrease in distribution costs is due to revenue mix.

4 unchanged sentences

to operating income for purposes of the discussion that follows (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

Net income attributable to Warner Music Group Corp.

Net (loss) income attributable to Warner Music Group Corp.

$ (474) $ 166 $ (640) — %

Income attributable to noncontrolling interest 3 1 2 — %

Net income 48 153 (105) -69 %

Income tax (benefit) expense (7) 98 (105) — %

Income before income taxes 41 251 (210) -84 %

Net (loss) income (471) 167 (638) — %

Income tax expense 44 86 (42) -49 %

(Loss) income before income taxes (427) 253 (680) — %

Other expense (income) 12 (41) 53 — %

1 unchanged sentence

Loss on extinguishment of debt — 7 (7) -100 %

Operating income 116 269 (153) -57 %

Operating (loss) income (317) 327 (644) — %

Amortization expense 141 160 (19) -12 %

1 unchanged sentence

OIBDA $ (123) $ 530 $ (653) — %

OIBDA decreased by $158 million, or 39%, to $248 million for the six months ended March 31, 2020 as compared to $406 million for the six months ended March 31, 2019 as a result of higher selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin decreased to 11% for the six months ended March 31, 2020 from 18% for the six months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, as a percentage of total revenue, OIBDA margin decreased to 18% for the six months ended March 31, 2020 from 19% for the six months ended March 31, 2019 due to the factors previously discussed.

OIBDA decreased by $653 million to a loss of $123 million for the nine months ended June 30, 2020 as compared to income of $530 million for the nine months ended June 30, 2019 as a result of higher selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin decreased to (4)% for the nine months ended June 30, 2020 from 16% for the nine months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, the management agreement termination fee and IPO related expenses, as a percentage of total revenue, OIBDA margin remained constant at 17% for both the nine months ended June 30, 2020 and June 30, 2019.

Amortization expense

Our amortization expense decreased by $15 million, or 14%, to $94 million for the six months ended March 31, 2020 from $109 million for the six months ended March 31, 2019.

Our amortization expense decreased by $19 million, or 12%, to $141 million for the nine months ended June 30, 2020 from $160 million for the nine months ended June 30, 2019.

The decrease is primarily due to certain intangible assets becoming fully amortized.

Operating income

Our operating income decreased by $153 million to $116 million for the six months ended March 31, 2020 from $269 million for the six months ended March 31, 2019.

Operating (loss) income

Our operating (loss) income decreased by $644 million to operating loss of $317 million for the nine months ended June 30, 2020 from operating income of $327 million for the nine months ended June 30, 2019.

The decrease in operating income was due to the factors that led to the decrease in OIBDA.

Loss on extinguishment of debt

There was no loss on extinguishment of debt for the six months ended March 31, 2020.

We recorded a loss on extinguishment of debt in the amount of $3 million for the six months ended March 31, 2019, which represents the unamortized deferred financing costs related to the partial redemption of the 4.125% Senior Secured Notes and 5.625% Senior Secured Notes, and the open market purchases of the 4.875% Senior Secured Notes.

There was no loss on extinguishment of debt for the nine months ended June 30, 2020.

We recorded a loss on extinguishment of debt in the amount of $7 million for the nine months ended June 30, 2019, which represents the unamortized deferred financing costs related to the partial redemption of the 4.125% Senior Secured Notes and 5.625% Senior Secured Notes, and the open market purchases of the 4.875% Senior Secured Notes.

Interest expense, net

Our interest expense, net, decreased to $66 million for the six months ended March 31, 2020 from $72 million for the six months ended March 31, 2019 due to a decline in LIBOR rates as well as lower interest rates resulting from the redemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes.

Other expense (income), net

Other expense (income), net, for the six months ended March 31, 2020 primarily includes unrealized losses of $10 million on the mark-to-market of an equity method investment, the loss on our Euro-denominated debt of $6 million and $5 million relating to a loss on investments, partially offset by currency exchange gains on our intercompany loans of $12 million.

This compares to an unrealized gain of $30 million on the mark-to-market of an equity method investment and $6 million unrealized gains on hedging activity and foreign currency gains on our Euro-denominated debt of $20 million for the six months ended March 31, 2019.

Income tax (benefit) expense

Our income tax expense decreased by $105 million to a tax benefit of $7 million for the six months ended March 31, 2020 from $98 million of a tax expense for the six months ended March 31, 2019.

The change of $105 million in income tax expense primarily relates to lower pre-tax income and the release of a valuation allowance on foreign tax credits of $33 million during the six months ended March 31, 2020.

Net income decreased by $105 million to $48 million for the six months ended March 31, 2020 from net income of $153 million for the six months ended March 31, 2019 as a result of the factors described above.

Our interest expense, net, decreased to $98 million for the nine months ended June 30, 2020 from $108 million for the nine months ended June 30, 2019 due to a decline in LIBOR rates as well as lower interest rates resulting from the redemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes.

Other expense (income)

Other expense (income) for the nine months ended June 30, 2020 primarily includes the loss on our Euro-denominated debt of $22 million, $6 million relating to a loss on investments, and $2 million unrealized loss on hedging activity, partially offset by currency exchange gains on our intercompany loans of $14 million and unrealized gain of $4 million on the mark-to-market of an equity method investment.

This compares to an unrealized gain of $25 million on the mark-to-market of an equity method investment, foreign currency gains on our Euro-denominated debt of $10 million, and $4 million unrealized gains on hedging activity for the nine months ended June 30, 2019.

Income tax expense

Our income tax expense decreased by $42 million to $44 million for the nine months ended June 30, 2020 from $86 million for the nine months ended June 30, 2019.

The change of $42 million in income tax expense primarily relates to the release of a valuation allowance on foreign tax credits of $33 million during the nine months ended June 30, 2020.

Net (loss) income

Net (loss) income decreased by $638 million to net loss of $471 million for the nine months ended June 30, 2020 from net income of $167 million for the nine months ended June 30, 2019 as a result of the factors described above.

Noncontrolling interest

There was $2 million of income attributable to noncontrolling interest for the six months ended March 31, 2020 and no income attributable to noncontrolling interest for the six months ended March 31, 2019.

There was $3 million of income attributable to noncontrolling interest for the nine months ended June 30, 2020 and $1 million of income attributable to noncontrolling interest for the nine months ended June 30, 2019.

Business Segment Results

Revenue, operating income (loss) and OIBDA by business segment were as follows (in millions):

For the Six Months Ended

March 31, 2020 vs.

Revenues, operating income (loss) and OIBDA by business segment were as follows (in millions):

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

12 unchanged sentences

Revenues 3,337 3,351 (14) — %

Operating income 116 269 (153) -57 %

Operating (loss) income (317) 327 (644) — %

OIBDA (123) 530 (653) — %

Recorded Music

Recorded Music revenue increased by $17 million, or 1%, to $1,991 million for the six months ended March 31, 2020 from $1,974 million for the six months ended March 31, 2019.

Recorded Music revenues were $833 million and $841 million, or 42% and 43%, of consolidated Recorded Music revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Recorded Music revenue was mainly driven by streaming revenue growth, partially offset by decreases in physical revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Recorded Music revenue decreased by $35 million, or 1%, to $2,852 million for the nine months ended June 30, 2020 from $2,887 million for the nine months ended June 30, 2019.

Recorded Music revenues were $1,191 million and $1,236 million, or 42% and 43%, of consolidated Recorded Music revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

The overall decrease in Recorded Music revenue was mainly driven by decreases in physical, artist services and expanded-rights, and licensing revenue, partially offset by streaming revenue growth as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

Recorded Music cost of revenues was composed of the following amounts (in millions)

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 1,418 $ 1,474 $ (56) -4 %

Recorded Music cost of revenues remained flat at $987 million for both the six months ended March 31, 2020 and March 31, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 28% for the six months ended March 31, 2020 from 29% for the six months ended March 31, 2019.

Recorded Music cost of revenues decreased by $56 million, or 4%, to $1,418 million for the nine months ended June 30, 2020 from $1,474 million for the nine months ended June 30, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 29% for the nine months ended June 30, 2020 from 30% for the nine months ended June 30, 2019.

The decrease is primarily attributable to lower artist-related costs, including a decrease in spending resulting from the impact of COVID-19.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 22% for the six months ended March 31, 2020 from 21% for the six months ended March 31, 2019.

The increase in product costs relates to revenue mix and impact of costs associated with tours in France.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 21% for both the nine months ended June 30, 2020 and June 30, 2019.

Selling, general and administrative expense

Recorded Music selling, general and administrative expenses were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

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(1) Includes depreciation expense of $31 million and $19 million for the six months ended March 31, 2020 and March 31, 2019, respectively.

Recorded Music selling, general and administrative expense increased by $103 million, or 17%, to $718 million for the six months ended March 31, 2020 from $615 million for the six months ended March 31, 2019.

The increase in general and administrative expense was primarily due to higher expense associated with our Senior Management Free Cash Flow Plan of $88 million and a one-time charge within depreciation expense of $10 million, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions partially offset by employee-related expenses.

The increase in selling and marketing expense was primarily due to increased variable marketing expense on higher revenue in the quarter and increased spending on new releases and developing artists.

(1) Includes depreciation expense of $42 million and $31 million for the nine months ended June 30, 2020 and June 30, 2019, respectively.

Recorded Music selling, general and administrative expense increased by $356 million, or 39%, to $1,278 million for the nine months ended June 30, 2020 from $922 million for the nine months ended June 30, 2019.

The increase in general and administrative expense was primarily due to higher non-cash stock-based compensation expense of $364 million and a one-time charge within depreciation expense of $10 million, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions partially offset by decrease in restructuring costs and lower overhead from cost control efforts.

The decrease in distribution expense was primarily due to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 36% for the six months ended March 31, 2020 from 31% for the six months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, selling, general and administrative expense as a percentage of Recorded Music revenue remained flat at 30% for both the six months ended March 31, 2020 and March 31, 2019.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 45% for the nine months ended June 30, 2020 from 32% for the nine months ended June 30, 2019.

Excluding non-cash stock-based compensation expense and the one-time charge within depreciation expense, selling, general and administrative expense as a percentage of Recorded Music revenue remained flat at 31% for both the nine months ended June 30, 2020 and June 30, 2019.

Operating income and OIBDA

Recorded Music OIBDA included the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

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OIBDA $ 198 $ 522 $ (324) -62 %

Recorded Music OIBDA decreased by $74 million, or 19%, to $317 million for the six months ended March 31, 2020 from $391 million for the six months ended March 31, 2019 as a result of higher general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin decreased to 16% for the six months ended March 31, 2020 from 20% for the six months ended March 31, 2019.

Excluding the expense associated with our Senior Management Free Cash Flow Plan, OIBDA, as a percentage of Recorded Music revenue, remained constant at 21% for both the six months ended March 31, 2020 and March 31, 2019.

Recorded Music operating income decreased by $70 million to $227 million for the six months ended March 31, 2020 from $297 million for the six months ended March 31, 2019 due to factors within the Recorded Music OIBDA decrease noted above.

Excluding the expense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, Recorded Music operating income increased $28 million due to higher revenues and lower amortization expense within the quarter.

Recorded Music OIBDA decreased by $324 million, or 62%, to $198 million for the nine months ended June 30, 2020 from $522 million for the nine months ended June 30, 2019 as a result of higher general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin decreased to 7% for the nine months ended June 30, 2020 from 18% for the nine months ended June 30, 2019.

Excluding non-cash stock-based compensation expense, OIBDA, as a percentage of Recorded Music revenue, increased to 20% for the nine months ended June 30, 2020 from 19% for the nine months ended June 30, 2019.

Recorded Music operating income decreased by $315 million to $67 million for the nine months ended June 30, 2020 from $382 million for the nine months ended June 30, 2019 due to factors within the Recorded Music OIBDA decrease noted above.

Excluding non-cash stock-based compensation expense and the one-time charge within depreciation expense, Recorded Music operating income increased $59 million due to lower total cost of revenues, depreciation and amortization expense, distribution expense, and general and administrative expense within the quarter.

Music Publishing

Music Publishing revenues increased by $16 million, or 5%, to $339 million for the six months ended March 31, 2020 from $323 million for the six months ended March 31, 2019.

Music Publishing revenues were $168 million and $148 million, or 50% and 46%, of consolidated Music Publishing revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

International Music Publishing revenues were $171 million and $175 million, or 50% and 54%, of consolidated Music Publishing revenues for the six months ended March 31, 2020 and March 31, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by streaming revenue growth and higher synchronization, partially offset by lower performance revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Music Publishing revenues increased by $18 million, or 4%, to $488 million for the nine months ended June 30, 2020 from $470 million for the nine months ended June 30, 2019.

Music Publishing revenues were $242 million and $219 million, or 50% and 47%, of consolidated Music Publishing revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

International Music Publishing revenues were $246 million and $251 million, or 50% and 53%, of consolidated Music Publishing revenues for the nine months ended June 30, 2020 and June 30, 2019, respectively.

The overall increase in Music Publishing revenue was mainly driven by streaming revenue growth, partially offset by lower performance revenues as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

Music Publishing cost of revenues were composed of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

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Total cost of revenues $ 312 $ 294 $ 18 6 %

Music Publishing cost of revenues increased by $14 million, or 7%, to $216 million for the six months ended March 31, 2020 from $202 million for the six months ended March 31, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the six months ended March 31, 2020 from 63% for the six months ended March 31, 2019, primarily due to revenue mix and timing of artist and repertoire investments.

Music Publishing cost of revenues increased by $18 million, or 6%, to $312 million for the nine months ended June 30, 2020 from $294 million for the nine months ended June 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the nine months ended June 30, 2020 from 63% for the nine months ended June 30, 2019, primarily due to revenue mix and timing of artist and repertoire investments.

Selling, general and administrative expense

Music Publishing selling, general and administrative expenses were comprised of the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

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(1) Includes depreciation expense of $2 million and $3 million for the six months ended March 31, 2020 and March 31, 2019, respectively.

Music Publishing selling, general and administrative expense increased to $44 million for the six months ended March 31, 2020 from $38 million for the six months ended March 31, 2019 due to higher employee-related and restructuring costs.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense increased to 13% for the six months ended March 31, 2020 from 12% for the six months ended March 31, 2019 due to factors described above.

(1) Includes depreciation expense of $4 million for both the nine months ended June 30, 2020 and June 30, 2019.

Music Publishing selling, general and administrative expense increased to $66 million for the nine months ended June 30, 2020 from $58 million for the nine months ended June 30, 2019 due to higher employee-related and restructuring costs.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense increased to 14% for the nine months ended June 30, 2020 from 12% for the nine months ended June 30, 2019 due to factors described above.

Operating income and OIBDA

Music Publishing OIBDA included the following amounts (in millions):

For the Six Months Ended

March 31, 2020 vs.

For the Nine Months Ended

June 30, 2020 vs.

2020 2019 $ Change % Change

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OIBDA $ 114 $ 122 $ (8) -7 %

Music Publishing OIBDA decreased by $5 million, or 6%, to $81 million for the six months ended March 31, 2020 from $86 million for the six months ended March 31, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 24% for the six months ended March 31, 2020 from 27% for the six months ended March 31, 2019.

Music Publishing OIBDA decreased by $8 million, or 7%, to $114 million for the nine months ended June 30, 2020 from $122 million for the nine months ended June 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 23% for the nine months ended June 30, 2020 from 26% for the nine months ended June 30, 2019.

The decrease was primarily due to higher artist and repertoire and general and administrative expenses.

Music Publishing operating income decreased by $5 million to $44 million for the six months ended March 31, 2020 from $49 million operating income for the six months ended March 31, 2019 largely due to the factors that led to the decrease in Music Publishing OIBDA noted above.

Music Publishing operating income decreased by $9 million to $58 million for the nine months ended June 30, 2020 from $67 million operating income for the nine months ended June 30, 2019 largely due to the factors that led to the decrease in Music Publishing OIBDA noted above.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $78 million to $155 million for the six months ended March 31, 2020 from $77 million for the six months ended March 31, 2019 which primarily relates to an increase of $57 million in variable compensation expense associated with our Senior Management Free Cash Flow Plan as well as higher corporate-related costs and costs related to transformation initiatives of $17 million.

Our OIBDA loss from corporate expenses and eliminations increased by $79 million to $150 million for the six months ended March 31, 2020 from $71 million for the six months ended March 31, 2019 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $320 million to $442 million for the nine months ended June 30, 2020 from $122 million for the nine months ended June 30, 2019 which primarily includes an increase in non-cash stock-based compensation expense of $208 million, the management agreement termination fee and IPO related expenses totaling $90 million, and higher costs related to transformation initiatives of $22 million.

Our OIBDA loss from corporate expenses and eliminations increased by $321 million to $435 million for the nine months ended June 30, 2020 from $114 million for the nine months ended June 30, 2019 due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition at March 31, 2020

At March 31, 2020, we had $2.983 billion of debt (which is net of $25 million of deferred financing costs), $484 million of cash and equivalents (net debt of $2.499 billion, defined as total debt, less cash and equivalents and deferred financing costs) and $306 million of Warner Music Group Corp.

Financial Condition at June 30, 2020

At June 30, 2020, we had $3.000 billion of debt (which is net of $23 million of deferred financing costs), $532 million of cash and equivalents (net debt of $2.468 billion, defined as total debt, less cash and equivalents and deferred financing costs) and $38 million of Warner Music Group Corp.

This compares to $2.974 billion of debt (which is net of $29 million of deferred financing costs), $619 million of cash and equivalents (net debt of $2.355 billion) and $289 million of Warner Music Group Corp.

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The following table summarizes our historical cash flows (in millions).

The financial data for the six months ended March 31, 2020 and March 31, 2019 are unaudited and have been derived from our interim financial statements included elsewhere herein.

For the Six Months Ended

The financial data for the nine months ended June 30, 2020 and June 30, 2019 are unaudited and have been derived from our interim financial statements included elsewhere herein.

For the Nine Months Ended

Cash provided by (used in):

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Operating Activities

Cash provided by operating activities was $164 million for the six months ended March 31, 2020 as compared with cash provided by operating activities of $99 million for the six months ended March 31, 2019.

Cash provided by operating activities was $287 million for the nine months ended June 30, 2020 as compared with cash provided by operating activities of $249 million for the nine months ended June 30, 2019.

The $38 million increase in cash provided by operating activities was primarily due to timing of working capital partially offset by higher cash taxes.

Investing Activities

Cash used in investing activities was $51 million for the six months ended March 31, 2020 as compared with cash used in investing activities of $293 million for the six months ended March 31, 2019.

The $51 million of cash used in investing activities in the six months ended March 31, 2020 consisted of $5 million relating to investments, $28 million relating to capital expenditures and $18 million to acquire music publishing rights and recorded music catalogs.

The $293 million of cash used in investing activities in the six months ended March 31, 2019 consisted of $183 million relating to the acquisition of EMP, net of cash and cash equivalents acquired, $35 million relating to the acquisition of equity investments, $59 million relating to capital expenditure and $16 million to acquire music publishing rights.

Cash used in investing activities was $87 million for the nine months ended June 30, 2020 as compared with cash used in investing activities of $340 million for the nine months ended June 30, 2019.

The $87 million of cash used in investing activities in the nine months ended June 30, 2020 consisted of $11 million relating to investments, $48 million relating to capital expenditures and $28 million to acquire music publishing rights and recorded music catalogs.

The $340 million of cash used in investing activities in the nine months ended June 30, 2019 consisted of $183 million relating to the acquisition of EMP, net of cash and equivalents acquired, $47 million relating to the acquisition of equity investments, $82 million relating to capital expenditure and $24 million to acquire music publishing rights.

Financing Activities

Cash used in financing activities was $245 million for the six months ended March 31, 2020 as compared with cash provided by financing activities of $151 million for the six months ended March 31, 2019.

The $245 million of cash used in financing activities for the six months ended March 31, 2020 consisted of dividends paid of $244 million and distributions to noncontrolling interest holders of $1 million.

The $151 million of cash provided by financing activities for the six months ended March 31, 2019 consisted of proceeds of $287 million from the issuance of Acquisition Corp.’s 3.625% Senior Secured Notes due 2026 partially offset by deferred financing costs paid of $4 million, the partial repayment of Acquisition Corp.’s 4.125% Senior Secured Notes due 2024 of $40 million, 4.875% Senior Secured Notes due 2024 of $30 million and 5.625% Senior Secured Notes due 2022 of $27 million, including call premiums paid of $2 million, for an aggregate $99 million, dividends paid of $31 million and distributions to noncontrolling interest holders of $2 million.

Cash used in financing activities was $288 million for the nine months ended June 30, 2020 as compared with cash provided by financing activities of $119 million for the nine months ended June 30, 2019.

The $288 million of cash used in financing activities for the nine months ended June 30, 2020 consisted of dividends paid of $281 million, distributions to noncontrolling interest holders of $6 million and deferred financing costs of $1 million.

The $119 million of cash provided by financing activities for the nine months ended June 30, 2019 consisted of proceeds of $514 million from the issuance of Acquisition Corp.’s 3.625% Senior Secured Notes due 2026 partially offset by deferred financing costs paid of $7 million, the repayment of Acquisition Corp.’s 5.625% Senior Secured Notes due 2022 of $247 million including call premiums paid of $5 million, partial repayment of Acquisition Corp.’s 4.125% Senior Secured Notes due 2024 of $40 million and 4.875% Senior Secured Notes due 2024 of $30 million, for an aggregate $185 million, dividends paid of $63 million and distributions to noncontrolling interest holders of $3 million.

Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and equivalents and funds available for drawing under our Revolving Credit Facility.

These sources of liquidity are needed to fund our debt service requirements, 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, we may elect to pay or make in the future.

Certain of our executive officers participate in the Plan, which permits those executive officers to defer all or a portion of their free cash flow bonuses and receive grants of indirect equity interests in the Company.

Payments under the Plan, which could be material, are influenced by the Company’s valuation and other market factors, including valuations of similar companies.

In connection with preparing for the proposed IPO, we amended the Plan to

provide that, following completion of the proposed IPO, Plan participants would no longer have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in WMG Management Holdings LLC (“Management LLC”).

Instead, following the proposed IPO, all deferred interests under the Plan would be settled in or redeemed with shares of our common stock.

These amendments are only effective if the proposed IPO occurs prior to December 31, 2020.

If the proposed IPO does not occur by such date and the Plan is not further amended, participants will have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in Management LLC.

Based on the valuation at quarter-end, we would expect the total cash payments associated with the deferred payments and indirect equity interests under the Plan to be $400 million, with the majority expected to be paid in fiscal 2021.

These sources of liquidity are needed to fund our debt service requirements, working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and dividends, prepayments of debt, repurchases or retirement of our outstanding debt or notes or repurchases of our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise, we may elect to pay or make in the future.

We believe that our primary sources of liquidity will be sufficient to support our existing operations over the next twelve months.

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We expect that our primary sources of liquidity will be sufficient to fund these expenditures.

Debt Capital Structure

Since Access acquired us in 2011, we have sought to extend the maturity dates on our outstanding indebtedness, reduce interest expense and improve our debt ratings.

For example, our S&P corporate credit rating has improved from B in 2017 to BB- in 2019.

On February 20, 2020, S&P upgraded the outlook on our corporate credit rating from stable to positive.

Additionally, on June 16, 2020, S&P further upgraded our S&P corporate credit rating from BB- to BB with a stable outlook.

Our Moody’s corporate family rating has improved from B1 in 2016 to Ba3 in 2020.

In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.0% as of June 30, 2020.

Our nearest-term maturity date is in 2026 after our June 2020 debt refinancing (as described below) which further reduced our weighted-average interest rate to 3.6%.

Subject to market conditions, we expect to continue to take opportunistic steps to extend our maturity dates and reduce related interest expense.

From time to time, we may incur additional indebtedness for, among other things, working capital, repurchasing, redeeming or tendering for existing indebtedness and acquisitions or other strategic transactions.

3.875% Senior Secured Notes and 2.750% Senior Secured Notes Offerings

On June 29, 2020, Acquisition Corp.

issued and sold $535 million in aggregate principal amount of 3.875% Senior Secured Notes due 2030 (the “3.875% Senior Secured Notes”) and €325 million in aggregate principal amount of 2.750% Senior Secured Notes due 2028 (the “2.750% Senior Secured Notes”).

Net proceeds of the offerings were used to redeem €311 million of the 4.125% Senior Secured Notes due 2024 (the “4.125% Senior Secured Notes”) and $220 million of the 4.875% Senior Secured Notes due 2024 (the “4.875% Senior Secured Notes”), constituting the redemption of all of the outstanding aggregate principal amount of the 4.125% Senior Secured Notes and the 4.875% Senior Secured Notes, and the remaining proceeds were used towards the tender offer for $300 million aggregate principal amount of 5.000% Senior Secured Notes due 2023 (the “5.000% Senior Secured Notes”), $244 million of which was tendered and accepted on June 29, 2020 and $295,000 of which was tendered and accepted on July 14, 2020.

The remainder of the 5.000% Senior Secured Notes not tendered in the tender offer were redeemed on August 1, 2020.

Interest on the 3.875% Senior Secured Notes will accrue at the rate of 3.875% per annum and will be payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2021.

Interest on the 2.750% Senior Secured Notes will accrue at the rate of 2.750% per annum and will be payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2021.

The 3.875% Senior Secured Notes and the 2.750% Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of Acquisition Corp.’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of Acquisition Corp.

under its existing credit facilities, subject to customary exceptions.

The indentures governing the 3.875% Senior Secured Notes and the 2.750% Senior Secured Notes (collectively, the “New Secured Notes Indenture”) do not contain many of the restrictive covenants, certain events of default and other related provisions contained in the indentures previously governing the 4.125% Senior Secured Notes and 4.875% Senior Secured Notes.

The New Secured Notes Indenture contains covenants limiting, among other things, Acquisition Corp.’s ability and the ability of most of its subsidiaries to create liens and consolidate, merge, sell or otherwise dispose of all or substantially all of its assets.

Revolving Credit Facility

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entered into an amendment to the Revolving Credit Agreement (the “Second Amendment”) which, among other things, extended the final maturity of the Revolving Credit Facility from January 31, 2023 to April 3, 2025.

For a more detailed description of the changes effected by the Second Amendment, see Note 14 to our unaudited interim consolidated financial statements for the three and six months ended March 31, 2020, included in Part I to this Quarterly Report.

For a more detailed description of the changes effected by the Second Amendment, see Note 8 to our unaudited interim consolidated financial statements for the three and nine months ended June 30, 2020, included in Part I to this Quarterly Report.

Acquisition Corp.

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provided that, for each of clauses (i) and (ii), the applicable margin with respect to such loans is subject to adjustment upon achievement of certain leverage ratios as set forth in a leverage-based pricing grid in the Revolving Credit Agreement.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.22x at March 31, 2020, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans.

Existing Debt as of March 31, 2020

As of March 31, 2020, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.11x at June 30, 2020, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans.

Existing Debt as of June 30, 2020

As of June 30, 2020, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):

Revolving Credit Facility (a) $ —

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(a) Reflects $180 million of commitments under the Revolving Credit Facility available at March 31, 2020, less letters of credit outstanding of approximately $13 million at March 31, 2020.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2020.

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at June 30, 2020, less letters of credit outstanding of approximately $13 million at June 30, 2020.

There were no loans outstanding under the Revolving Credit Facility at June 30, 2020.

On April 3, 2020, Acquisition Corp.

entered into an amendment to the Revolving Credit Facility which, among other things, increased the commitments under the Revolving Credit Facility from an aggregate principal amount of $180 million to an aggregate principal amount of $300 million.

For a more detailed description of the changes effected by the amendment, see Note 14 to our unaudited interim consolidated financial statements for the three and six months ended March 31, 2020, included in Part 1 in this Quarterly Report.

(b) Principal amount of $1.326 billion less unamortized discount of $3 million and unamortized deferred financing costs of $8 million at March 31, 2020.

(b) Principal amount of $1.326 billion less unamortized discount of $3 million and unamortized deferred financing costs of $8 million at June 30, 2020.

On June 16, 2020, Acquisition Corp.

announced a cash tender offer to purchase any and all of the 5.000% Senior Secured Notes.

On June 30, 2020, Acquisition Corp.

announced that $244 million of the aggregate principal amount outstanding had tendered and been accepted in the tender offer.

Also on June 30, 2020, Acquisition Corp.

issued a notice of redemption calling the remaining outstanding 5.000% Senior Secured Notes not tendered in the tender offer.

An additional $295,000 was accepted in the tender offer on July 14, 2020 and the remainder of the 5.000% Senior Secured Notes were redeemed on August 1, 2020.

See Note 15 to our unaudited interim consolidated financial statements included in Part I to this Quarterly Report.

(d) Face amount of €311 million.

Above amount represents the dollar equivalent of such note at March 31, 2020.

Principal amount of $342 million less unamortized deferred financing costs of $3 million at March 31, 2020.

(e) Principal amount of $220 million less unamortized deferred financing costs of $2 million at March 31, 2020.

(f) Face amount of €445 million at March 31, 2020.

Above amount represents the dollar equivalent of such note at March 31, 2020.

Principal amount of $491 million, an additional issuance premium of $7 million, less unamortized deferred financing costs of $6 million at March 31, 2020.

(g) Principal amount of $325 million less unamortized deferred financing costs of $4 million at March 31, 2020.

(h) Principal amount of debt of $3.004 billion, an additional issuance premium of $7 million, less unamortized discount of $3 million and unamortized deferred financing costs of $25 million at March 31, 2020.

Above amount represents the dollar equivalent of such note at June 30, 2020.

Principal amount of $349 million less unamortized deferred financing costs of $3 million at June 30, 2020.

On June 30, 2020, Acquisition Corp.

redeemed all of the outstanding aggregate principal amount, or €311 million, of the 4.125% Senior Secured Notes.

See Note 15 to our unaudited interim consolidated financial statements included in Part I to this Quarterly Report.

(e) Principal amount of $220 million less unamortized deferred financing costs of $2 million at June 30, 2020.

On June 30, 2020, Acquisition Corp.

redeemed all of the outstanding aggregate principal amount, or $220 million, of the 4.875% Senior Secured Notes.

See Note 15 to our unaudited interim consolidated financial statements included in Part I to this Quarterly Report.

(f) Face amount of €445 million at June 30, 2020.

Above amount represents the dollar equivalent of such note at June 30, 2020.

Principal amount of $499 million, an additional issuance premium of $7 million, less unamortized deferred financing costs of $5 million at June 30, 2020.

(g) Principal amount of $325 million less unamortized deferred financing costs of $3 million at June 30, 2020.

(h) Principal amount of debt of $3.019 billion, an additional issuance premium of $7 million, less unamortized discount of $3 million and unamortized deferred financing costs of $23 million at June 30, 2020.

For further discussion of our debt agreements, see “Liquidity” in the “Financial Condition and Liquidity” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

The Company’s ability to pay dividends is restricted by covenants in the indentures governing its notes and in the credit agreements for the Senior Term Loan Facility and the Revolving Credit Facility.

In the first quarter of fiscal year 2019, the Company instituted a regular quarterly dividend policy whereby it intends to pay a modest regular quarterly dividend in each of the first three fiscal quarters and a variable dividend for the fourth fiscal quarter in an amount commensurate with cash expected to be generated from operations in such fiscal year, in each case, after taking into account other potential uses for cash, including acquisitions, investment in our business and repayment of indebtedness.

The declaration of each dividend will continue to be at the discretion of the Company’s board of directors.

On March 25, 2020, the Company’s board of directors declared a cash dividend of $37.5 million which was paid to stockholders on April 17, 2020 and recorded as an accrual as of March 31, 2020.

On September 23, 2019, the Company’s board of directors declared a cash dividend of $206 million which was paid to stockholders on October 4, 2019 and recorded as an accrual as of September 30, 2019.

On March 26, 2019, the Company’s board of directors declared a cash dividend of $31.25 million which was accrued as of March 31, 2019 and paid to stockholders on April 5, 2019.

The Company’s ability to pay dividends may be restricted by covenants in certain of the indentures governing its notes and in the credit agreements for the Senior Term Loan Facility and the Revolving Credit Facility.

In the first quarter of fiscal year 2019, the Company instituted a regular quarterly dividend policy whereby it intended to pay a modest regular quarterly dividend in each of the first three fiscal quarters and a variable dividend for the fourth fiscal quarter in an amount commensurate with cash expected to be generated from operations in such fiscal year, in each case, after taking into account other potential uses for cash, including acquisitions, investment in our business and repayment of indebtedness.

In connection with the IPO, the Company amended its dividend policy whereby it intends to pay quarterly cash dividends of $0.12 per share to holders of its Class A Common Stock and Class B Common Stock.

The Company expects to pay the first dividend under this policy in September 2020.

The declaration of each dividend will continue to be at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, earnings, liquidity and capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that the Company’s board of directors deems relevant in making such a determination.

Therefore, there can be no assurance that the Company will pay any dividends to holders of the Company’s common stock, or as to the amount of any such dividends.

Prior to the completion of the IPO, the Company’s board of directors declared cash dividends to common stockholders of $37.5 million on each of December 16, 2019 and March 25, 2020, $206 million on September 23, 2019, and $31.25 million on June 28, 2019.

Dividends were recorded as an accrual as of the end of periods in which they were declared and paid to stockholders in the quarterly reporting period subsequent to declaration.

Covenant Compliance

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of March 31, 2020.

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of June 30, 2020.

With respect to the Revolving Credit Facility, the discussion below now reflects the covenants in effect under the Second Amendment, dated as of April 3, 2020.

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(2) any non-cash charges (including any impairment charges);

(3) any net loss resulting from hedging currency

exchange risks;

(3) any net loss resulting from hedging currency exchange risks;

(4) the amount of management, monitoring, consulting and advisory fees paid to Access;

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Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations.

In particular, the definition of Adjusted EBITDA in the Revolving Credit Agreement allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income.

In particular, the definition of Adjusted EBITDA in

the Revolving Credit Agreement allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income.

However, these are expenses that may recur, vary greatly and are difficult to predict.

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The following is a reconciliation of net income, which is a U.S.

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended March 31, 2020, and for the twelve months ended March 31, 2019.

In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended March 31, 2020.

GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended June 30, 2020, for the twelve months ended June 30, 2019 and for the three months ended June 30, 2020 and June 30, 2019.

The terms and related calculations are defined in the Revolving Credit Agreement.

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(in millions, except ratios):

Twelve Months Ended

March 31, 2020 Twelve Months Ended

March 31, 2019

Net Income $ 153 $ 462

For the Twelve Months Ended

June 30, For the Three Months Ended

2020 2019 2020 2019

Net (Loss) Income $ (380) $ 154 $ (519) $ 14

Income tax (benefit) expense (33) 84 51 (12)

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Restructuring costs (c) 22 43 6 9

Net hedging losses and foreign exchange gains (d) (18) (44)

Net hedging and foreign exchange (gains) losses (d) (17) (11) 15 14

Management fees (e) 25 17 17 3

1 unchanged sentence

Business optimization expenses (g) 42 19 10 5

Equity based compensation expense (h) 196 50

Non-cash stock-based compensation expense (h) 622 38 440 14

Other non-cash charges (i) 21 (25) (12) 6

Pro forma impact of cost savings initiatives and specified transactions (j) 16 8 14 —

Adjusted EBITDA (k) $ 755 $ 1,097

Senior Secured Indebtedness (l) $ 2,428

Leverage Ratio (m) 3.22x

Adjusted EBITDA $ 785 $ 735 $ 189 $ 159

Senior Secured Indebtedness (k) $ 2,444

Leverage Ratio (l) 3.11x

______________________________________

(a) Reflects net loss incurred on the early extinguishment of our debt incurred as part of the May 2019 redemption of the remaining 5.625% Secured Notes for the twelve months ended March 31, 2020.

For the twelve months ended March 31, 2019, reflects net loss incurred on the early extinguishment of our debt incurred as part of the June 2018 Senior Term Loan Credit Agreement amendments, the October 2018 partial redemption of 4.125% Secured Notes, the October 2018 open market purchase of our 4.875% Senior Secured Notes and the November 2018 partial redemption of 5.625% Secured Notes.

(b) Reflects net gain on sale of securities and, for the twelve months ended March 31, 2019, net gain on divestitures.

(a) For the twelve months ended June 30, 2019, reflects net loss incurred on the early extinguishment of our debt incurred as part of the October 2018 partial redemption of 4.125% Secured Notes, the October 2018 open market purchase of our 4.875% Senior Secured Notes, the November 2018 partial redemption of 5.625% Secured Notes and the May 2019 redemption of the

remaining 5.625% Secured Notes.

For the three months ended June 30, 2019, reflects net loss incurred on the early extinguishment of our debt incurred as part of the May 2019 redemption of the remaining 5.625% Secured Notes.

(b) For the twelve months ended June 30, 2020 and June 30, 2019, reflects net gain on sale of securities and divestitures.

(d) Reflects net losses from hedging activities and unrealized gains or losses due to foreign exchange on our Euro-denominated debt and intercompany transactions.

(e) Reflects management fees paid to Access, including an annual fee and related expenses.

Pursuant to the Company’s and Holdings’ management agreement with Access, the annual fee is equal to the greater of a base amount of approximately $9 million and 1.5% of Adjusted EBITDA.

(f) Reflects expenses related to transaction costs, which includes qualifying costs associated with the proposed IPO for the twelve months ended March 31, 2020.

(g) Reflects primarily costs associated with IT systems updates and other transformation initiatives and, for the twelve

months ended March 31, 2019, costs associated with U.S.

shared services relocation.

(h) Reflects equity-based compensation expense related to the Warner Music Group Corp.

(d) Reflects (gains) losses from hedging activities and unrealized (gains) losses due to foreign exchange on our Euro-denominated debt and intercompany transactions.

(e) Reflects management fees and related expenses paid to Access.

For the three and twelve months ended June 30, 2020, amounts include a one-time fee of $13 million related to termination of the management agreement with Access.

Prior to termination of the management agreement, the annual fee was equal to the greater of a base amount of approximately $9 million and 1.5% of Adjusted EBITDA.

Refer to Note 13 of our unaudited interim consolidated financial statements included in Part I to this Quarterly Report for further discussion.

(f) Reflects expenses related to transaction costs, which includes qualifying IPO costs of $73 million and $77 million for the three and twelve months ended June 30, 2020, respectively.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $6 million and $33 million related to our finance transformation for the three and twelve months ended June 30, 2020, respectively, as well as $4 million and $12 million for the three and twelve months ended June 30, 2019, respectively.

(h) Reflects non-cash stock-based compensation expense related to the Warner Music Group Corp.

Senior Management Free Cash Flow Plan.

(i) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market of an equity method investment, investment losses (gains) and other non-cash impairments.

(j) Reflects expected savings resulting from transformation initiatives and restructuring programs for the twelve months ended March 31, 2020 and reflects expected savings resulting from transformation initiatives and pro forma impact of specified transactions, including pro forma adjustments related to the acquisition of EMP for the twelve months ended March 31, 2019.

(k) The Adjusted EBITDA as of the twelve months ended March 31, 2019 includes a net gain of $389 million, pre-tax, related to the sale of the Spotify shares acquired in the ordinary course of business.

Excluding the impact of this gain, Adjusted EBITDA for the twelve months ended March 31, 2019 was $708 million.

(l) Reflects the principal balance of senior secured debt at Acquisition Corp.

(j) Reflects expected savings resulting from transformation initiatives and restructuring programs and, for the twelve months ended June 30, 2019, reflects expected savings resulting from transformation initiatives and pro forma impact of specified transactions, including pro forma adjustments related to the acquisition of EMP.

(k) Reflects the principal balance of senior secured debt at Acquisition Corp.

of approximately $2.694 billion less cash of $250 million.

(m) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Pro Forma Adjusted EBITDA as of the twelve months ended March 31, 2020.

This is calculated net of cash and equivalents of the Company as of March 31, 2020 not exceeding $250 million.

(l) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA as of the twelve months ended June 30, 2020.

This is calculated net of cash and equivalents of the Company as of June 30, 2020 not exceeding $250 million.

If the outstanding aggregate principal amount of borrowings and drawings under letters of credit which have not been reimbursed under our Revolving Credit Facility is greater than $105 million at the end of a fiscal quarter, the maximum leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00.

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In addition, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, we may seek to refinance the Senior Credit Facilities or our outstanding debt or debt securities with existing cash and/or with funds provided from additional borrowings.

Payments under the Plan, which could be material, are influenced by the Company’s valuation and other market factors, including valuations of similar companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis