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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 336 added, 326 removed, 636 unchanged (51% 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, 2021 (the “Quarterly Report”).

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

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• 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 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, 2020.

• risks related to other factors discussed under “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2021 and June 30, 2021, and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

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 statements.

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.

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.

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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, 2021 and March 31, 2020.

This section provides an analysis of our results of operations for the three and nine months ended June 30, 2021 and June 30, 2020.

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, 2021 and March 31, 2020, as well as a discussion of our financial condition and liquidity as of March 31, 2021.

This section provides an analysis of our cash flows for the nine months ended June 30, 2021 and June 30, 2020, as well as a discussion of our financial condition and liquidity as of June 30, 2021.

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

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On March 11, 2020, the World Health Organization declared a global pandemic.

The global pandemic and governmental responses thereto have disrupted physical and manufacturing supply chains and required the closures of physical retailers, resulting in declines in our physical revenue streams.

Additionally, stay at home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected 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.

However, the disruption from the COVID-19 pandemic has accelerated 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 six months ended March 31, 2021 were adversely affected by the global pandemic, but direct costs recorded to OIBDA related to COVID-19 were not material.

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 global pandemic and governmental responses thereto disrupted physical and manufacturing supply chains and required the closures of physical retailers, resulting in declines in our physical revenue streams at the onset of the pandemic.

Additionally, stay at home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected our business in other ways, such as, making it difficult 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 negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.

However, the disruption from the COVID-19 pandemic did accelerate growth of other revenue streams such as fitness and interactive gaming (including augmented reality and virtual reality), which continue to grow.

While global vaccination efforts are underway and businesses are beginning to reopen, it is unclear how long the global pandemic will last due to the possibility of new variants, increases in infection rates and renewed government action to slow the spread of the virus, and as such, it cannot be predicted to what extent the global pandemic will continue to impact the demand for our music and related services.

Our results of operations, cash flows and financial condition for both the three and nine months ended June 30, 2021 and June 30, 2020, were adversely affected by the global pandemic despite some recovery in the current quarter as businesses are beginning to reopen.

The Company recognized a one-time $2 million credit loss reserve reversal impacting OIBDA for the three and nine months ended June 30, 2021, compared to one-time charges of $13 million impacting OIBDA and a total of $18 million impacting net income for the nine months ended June 30, 2020.

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

Initial Public Offering

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

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 and six months ended March 31, 2021, costs associated with being a public company were $3 million and $7 million, respectively.

fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

For the three and nine months ended June 30, 2021, costs associated with being a public company were $3 million and $9 million, respectively.

Senior Management Free Cash Flow Plan

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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 awards issued under the Omnibus Incentive Plan.

We incurred non-cash stock-based compensation expense and other related expenses of $16 million and $167 million for the three months ended March 31, 2021 and March 31, 2020, respectively, and $22 million and $160 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

We incurred non-cash stock-based compensation expense and other related expenses of $14 million and $440 million for the three months ended June 30, 2021 and June 30, 2020, respectively, and $36 million and $600 million for the nine months ended June 30, 2021 and June 30, 2020, respectively.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020

Consolidated Results

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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Total Revenues

Total revenues increased by $179 million, or 17%, to $1,250 million for the three months ended March 31, 2021 from $1,071 million for the three months ended March 31, 2020.

Total revenues increased by $330 million, or 33%, to $1,340 million for the three months ended June 30, 2021 from $1,010 million for the three months ended June 30, 2020.

The increase includes $49 million of favorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenue for both the three months ended March 31, 2021 and March 31, 2020, respectively.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenue for the three months ended June 30, 2021, respectively, and 85% and 15% of total revenue for the three months ended June 30, 2020, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 45% and 55% of total revenues for the three months ended March 31, 2021, respectively, and 44% and 56% of total revenues for the three months ended March 31, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $161 million, or 23%, to $860 million for the three months ended March 31, 2021 from $699 million for the three months ended March 31, 2020.

Total digital revenues represented 69% and 65% of consolidated revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended March 31, 2021 were comprised of U.S.

revenues of $432 million and international revenues of $428 million, respectively 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, 2020 were comprised of U.S.

and international revenues represented 44% and 56% of total revenues for the three months ended June 30, 2021, respectively, and 43% and 57% of total revenues for the three months ended June 30, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $208 million, or 29%, to $928 million for the three months ended June 30, 2021 from $720 million for the three months ended June 30, 2020.

Total digital revenues represented 69% and 71% of consolidated revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the three months ended June 30, 2021 were comprised of U.S.

revenues of $458 million and international revenues of $470 million, respectively or 49% and 51% of total digital revenues, 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, respectively, or 50% of total digital revenues for each of U.S.

and international revenues.

Recorded Music revenues increased by $152 million, or 17%, to $1,059 million for the three months ended March 31, 2021 from $907 million for the three months ended March 31, 2020.

Recorded Music revenues increased by $291 million, or 34%, to $1,152 million for the three months ended June 30, 2021 from $861 million for the three months ended June 30, 2020.

The increase includes $42 million of favorable currency exchange fluctuations.

Recorded Music revenues were $469 million and $380 million, or 44% and 42%, of consolidated Recorded Music revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

International Recorded Music revenues were $590 million and $527 million, or 56% and 58%, of consolidated Recorded Music revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

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

Digital revenue increased by $130 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms such as Facebook, TikTok, and Peloton, strength of releases including the current year release from Megan Thee Stallion as well as carryover success from Dua Lipa, Michael Bublé, Ed Sheeran, Ava Max, Hamilton Cast Recording, and Roddy Ricch.

Revenue from streaming services grew by $136 million, or 23%, to $722 million for the three months ended March 31, 2021 from $586 million for the three months ended March 31, 2020.

Digital revenue growth was partially offset by decreases in digital download and other digital declines of $6 million, or 15%, to $34 million for the three months ended March 31, 2021 from $40 million for the three months ended March 31, 2020 due to the continued shift to streaming services.

Physical revenue increased by $24 million primarily from higher online sales due to an increased demand for vinyl products, success of new releases including The Yellow Monkey in Japan, Neil Young, and Fleetwood Mac, as well as the favorable impact of foreign currency exchange rates of $5 million.

Artist services and expanded-rights revenue increased by $3 million primarily due to higher direct-to-consumer merchandising revenue at EMP and the favorable impact of foreign currency exchange rates of $7 million, partially offset by the decrease in touring activity resulting from COVID.

Licensing revenue decreased by $5 million mainly due to lower broadcast fees resulting from COVID, partially offset by increasing synchronization activity and favorable foreign currency exchange rates.

Music Publishing revenues increased by $26 million, or 16%, to $192 million for the three months ended March 31, 2021 from $166 million for the three months ended March 31, 2020.

Music Publishing revenues were $96 million and $87 million, or 50% and 52%, of consolidated Music Publishing revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

International Music Publishing revenues were $96 million and $79 million or 50% and 48%, of consolidated Music Publishing revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $30 million, synchronization revenue of $4 million, partially offset by decreases in performance revenue of $6 million and mechanical revenue of $3 million.

The increase in digital revenue of 41% to $104 million is primarily due to increases in streaming revenue driven by the continued growth in streaming services and timing of new digital deals.

Recorded Music revenues were $504 million and $358 million, or 44% and 42%, of consolidated Recorded Music revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

International Recorded Music revenues were $648 million and $503 million, or 56% and 58%, of consolidated Recorded Music revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

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

Digital revenue increased by $185 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms such as Facebook, TikTok, and Peloton, strength of releases including the current year release from Cardi B and Masked Wolf as well as carryover success from Dua Lipa, Ed Sheeran, and Ava Max.

Revenue from streaming services grew by $192 million, or 33%, to $781 million for the three months ended June 30, 2021 from $589 million for the three months ended June 30, 2020.

Digital revenue growth was partially offset by decreases in digital download and other digital declines of $7 million, or 17%, to $34 million for the three months ended June 30, 2021 from $41 million for the three months ended June 30, 2020 due to the continued shift to streaming services.

Physical revenue increased by $79 million, or 155%, primarily from higher sales due to an increased demand for vinyl products, increasing retail sales as businesses began to recover from the COVID disruption, as well as the favorable impact of foreign currency exchange rates of $4 million.

Artist services and expanded-rights revenue increased by $9 million primarily due to higher direct-to-consumer merchandising revenue at EMP and the favorable impact of foreign currency exchange rates of $8 million, partially offset by the decrease in touring activity resulting from the COVID disruption.

Licensing revenue increased by $18 million mainly due to higher broadcast fees and synchronization revenue as businesses began to recover from the COVID disruption, and favorable foreign currency exchange rates.

Music Publishing revenues increased by $40 million, or 27%, to $189 million for the three months ended June 30, 2021 from $149 million for the three months ended June 30, 2020.

Music Publishing revenues were $90 million and $74 million, or 48% and 50%, of consolidated Music Publishing revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

International Music Publishing revenues were $99 million and $75 million or 52% and 50%, of consolidated Music Publishing revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $23 million, synchronization revenue of $12 million, and mechanical revenue of $5 million.

The increase in digital revenue of 26% to $113 million is primarily due to increases in streaming revenue driven by the continued growth in streaming services and timing of new digital deals, partially offset by a shift in the collection of certain writer’s share income from certain digital service providers.

This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin.

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

The decline in performance revenue is primarily driven by the impact from COVID and the decrease in mechanical revenue is driven by the continuing shift to streaming services.

The increase in mechanical revenue is a result of businesses beginning to recover from the COVID disruption.

Performance revenue was flat due to the ongoing COVID impact on bars, restaurants, concerts and live events, partially offset by the favorable impact of foreign currency exchange rates.

Revenue by Geographical Location

revenue increased by $98 million, or 21%, to $565 million for the three months ended March 31, 2021 from $467 million for the three months ended March 31, 2020.

revenue increased by $162 million, or 38%, to $594 million for the three months ended June 30, 2021 from $432 million for the three months ended June 30, 2020.

Recorded Music revenue increased by $146 million, or 41%.

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Increases are also attributable to the increase in U.S.

Recorded Music physical revenue of $14 million from higher online sales due to an increased demand for vinyl products as well as the success of new releases including Neil Young.

Recorded Music artist services and expanded-rights revenue increased $5 million primarily driven by higher advertising revenues from a recent acquisition.

Music Publishing revenue increased by $9 million, or 10%, to $96 million for the three months ended March 31, 2021 from $87 million for the three months ended March 31, 2020.

Recorded Music physical revenue of $43 million from higher sales due to an increased demand for vinyl products and increasing retail sales as businesses began to recover from the COVID disruption.

Recorded Music artist services and expanded-rights revenue increased $13 million primarily driven by higher advertising and platform revenues from recent acquisitions.

The increase in licensing revenue of $5 million is due to higher synchronization activity.

Music Publishing revenue increased by $16 million, or 22%, to $90 million for the three months ended June 30, 2021 from $74 million for the three months ended June 30, 2020.

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

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The increase in synchronization revenue of $6 million is due to higher motion picture and commercial income.

Increases are partially offset by decreases in performance revenue of $3 million due to the impact of COVID as well as a decline in mechanical revenue of $1 million driven by the continuing shift to streaming services.

International revenue increased by $80 million, or 13%, to $686 million for the three months ended March 31, 2021 from $606 million for the three months ended March 31, 2020.

The increase in performance revenue of $2 million is a result of businesses beginning to recover from the COVID disruption.

Increases are partially offset by the decrease in mechanical revenue of $1 million driven by the continuing shift to streaming services.

International revenue increased by $169 million, or 29%, to $747 million for the three months ended June 30, 2021 from $578 million for the three months ended June 30, 2020.

Excluding the favorable impact of foreign currency exchange rates, International revenue increased by $120 million, or 19%.

International Recorded Music revenue increased by $63 million primarily due to increases in digital revenue of $60 million and physical revenue of $10 million, partially offset by decreases in licensing revenue of $5 million and artist services and expanded-rights revenue of $2 million.

International Recorded Music revenue increased by $145 million primarily due to increases in digital revenue of $100 million, physical revenue of $36 million, and licensing revenue of $13 million, partially offset by the decrease in artist services and expanded-rights revenue of $4 million.

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

International Recorded Music physical revenue increased by $10 million due to the increased demand for vinyl products, success of new releases including The Yellow Monkey and favorable impact of foreign currency exchange rates.

International Recorded Music licensing revenue decreased by $5 million due to lower broadcast fees resulting from the impact of COVID, partially offset by favorable foreign currency exchange rates.

International Recorded Music artist services and expanded-rights revenue decreased by $2 million primarily due to the decrease in touring activity resulting from COVID.

International Recorded Music physical revenue increased by $36 million due to the increased demand for vinyl products, increasing retail sales as businesses began to recover from the COVID disruption, and favorable impact of foreign currency exchange rates.

International Recorded Music licensing revenue increased by $13 million due to higher broadcast fees, and favorable impact of foreign currency exchange rates.

International Recorded Music artist services and expanded-rights revenue decreased by $4 million primarily due to the decrease in touring activity resulting from the COVID disruption.

This was offset by growth in EMP direct-to-consumer merchandise revenue and the favorable impact of foreign currency exchange rates of $8 million.

International Music Publishing revenue increased from the prior-year quarter by $17 million, or 22%, to $96 million for the three months ended March 31, 2021 from $79 million for the three months ended March 31, 2020.

This was primarily driven by the increase in digital revenue of $19 million and synchronization revenue of $2 million, partially offset by decreases in performance revenue of $3 million and mechanical revenue of $2 million.

International Music Publishing revenue increased from the prior-year quarter by $24 million, or 32%, to $99 million for the three months ended June 30, 2021 from $75 million for the three months ended June 30, 2020.

This was primarily driven by the increase in digital revenue of $13 million, synchronization revenue of $6 million, and mechanical revenue of $6 million, partially offset by the decrease in performance revenue of $2 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 new digital deals.

Higher synchronization revenue is primarily driven by higher commercial income.

The decline in performance revenue is due to the impact from COVID and decrease in mechanical revenue is driven by the continuing shift to streaming services.

The increase in mechanical revenue is a result of businesses beginning to recover from the COVID disruption and favorable impact of foreign currency exchange rates.

The decline in performance revenue is due to the impact from the COVID disruption.

Cost of revenues

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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Total cost of revenues $ 681 $ 527 $ 154 29 %

Artist and repertoire costs increased by $59 million, to $419 million for the three months ended March 31, 2021 from $360 million for the three months ended March 31, 2020.

Artist and repertoire costs as a percentage of revenue remained constant at 34% for both the three months ended March 31, 2021 and March 31, 2020.

Product costs increased by $29 million, to $204 million for the three months ended March 31, 2021 from $175 million for the three months ended March 31, 2020.

Product costs as a percentage of revenue remained constant at 16% for both the three months ended March 31, 2021 and March 31, 2020.

Artist and repertoire costs increased by $77 million, to $444 million for the three months ended June 30, 2021 from $367 million for the three months ended June 30, 2020.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the three months ended June 30, 2021 from 36% for the three months ended June 30, 2020.

The overall decrease as a percentage of revenue is due to revenue mix.

Product costs increased by $77 million, to $237 million for the three months ended June 30, 2021 from $160 million for the three months ended June 30, 2020.

Product costs as a percentage of revenue increased to 18% for the three months ended June 30, 2021 from 16% for the three months ended June 30, 2020.

The overall increase as a percentage of revenue is due to revenue mix, primarily increases in physical revenue.

Selling, general and administrative expenses

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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______________________________________

(1) Includes depreciation expense of $19 million and $14 million for the three months ended March 31, 2021 and for the three months ended March 31, 2020, respectively.

Total selling, general and administrative expense decreased by $120 million, or 22%, to $418 million for the three months ended March 31, 2021 from $538 million for the three months ended March 31, 2020.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 33% for the three months ended March 31, 2021 from 50% for the three months ended March 31, 2020.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $151 million.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of revenue decreased to 32% for the three months ended March 31, 2021 from 35% for the three months ended March 31, 2020.

General and administrative expense decreased by $134 million to $217 million for the three months ended March 31, 2021 from $351 million for the three months ended March 31, 2020.

The decrease in general and administrative expense was mainly due to lower non-cash stock-based compensation and other related expenses of $151 million, higher bad debt provisions taken in the prior year due to COVID and lower overhead due to active cost management efforts, partially offset by increased employee related costs.

Expressed as a percentage of revenue, general and administrative expense decreased to 17% for the three months ended March 31, 2021 from 33% for the three months ended March 31, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, general and administrative expenses as a percentage of revenue decreased to 16% for the three months ended March 31, 2021 from 17% for the three months ended March 31, 2020 due to the factors described above.

Selling and marketing expense increased by $10 million, or 6%, to $176 million for the three months ended March 31, 2021 from $166 million for the three months ended March 31, 2020.

Expressed as a percentage of revenue, selling and marketing expense decreased to 14% for the three months ended March 31, 2021 from 15% for the three months ended March 31, 2020 due to a decrease in spend as a percentage of revenue resulting from COVID and ongoing cost management efforts.

Distribution expense was $25 million for the three months ended March 31, 2021 and $21 million the three months ended March 31, 2020.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for both the three months ended March 31, 2021 and the three months ended March 31, 2020.

(1) Includes depreciation expense of $19 million and $15 million for the three months ended June 30, 2021 and for the three months ended June 30, 2020, respectively.

Total selling, general and administrative expense decreased by $432 million, or 50%, to $437 million for the three months ended June 30, 2021 from $869 million for the three months ended June 30, 2020.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 33% for the three months ended June 30, 2021 from 86% for the three months ended June 30, 2020.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $426 million, the

prior-year quarter management agreement termination fee and IPO related expenses totaling $86 million.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year quarter management agreement termination fee and IPO related expenses, selling, general and administrative expense as a percentage of revenue decreased to 32% for the three months ended June 30, 2021 from 34% for the three months ended June 30, 2020.

General and administrative expense decreased by $494 million to $223 million for the three months ended June 30, 2021 from $717 million for the three months ended June 30, 2020.

The decrease in general and administrative expense was mainly due to lower non-cash stock-based compensation and other related expenses of $426 million, the prior-year quarter management agreement termination fee and IPO related expenses totaling $86 million, and credit loss reserve reversal, partially offset by increased employee related costs.

Expressed as a percentage of revenue, general and administrative expense decreased to 17% for the three months ended June 30, 2021 from 71% for the three months ended June 30, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year quarter management agreement termination fee and IPO related expenses, general and administrative expenses as a percentage of revenue decreased to 16% for the three months ended June 30, 2021 from 19% for the three months ended June 30, 2020 due to COVID related revenue impacts in the prior-year quarter.

Selling and marketing expense increased by $57 million, or 43%, to $190 million for the three months ended June 30, 2021 from $133 million for the three months ended June 30, 2020.

Expressed as a percentage of revenue, selling and marketing expense increased to 14% for the three months ended June 30, 2021 from 13% for the three months ended June 30, 2020 due to an increase in spend as a percentage of revenue resulting from an increase in variable marketing in Recorded Music driven by the COVID disruption in the prior-year quarter.

Distribution expense was $24 million for the three months ended June 30, 2021 and $19 million the three months ended June 30, 2020.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for both the three months ended June 30, 2021 and the three months ended June 30, 2020.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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Net income (loss) 61 (519) 580 — %

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

Income tax expense 41 51 (10) -20 %

Income (loss) before income taxes 102 (468) 570 — %

Other (income) expense (49) 4 (53) — %

Other expense 18 3 15 — %

Interest expense, net 30 32 (2) -6 %

Loss on extinguishment of debt 12 — 12 — %

Operating income (loss) 162 (433) 595 — %

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OIBDA $ 241 $ (371) $ 612 — %

OIBDA increased by $216 million to $228 million for the three months ended March 31, 2021 as compared to $12 million for the three months ended March 31, 2020 as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, partially offset by higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 18% for the three months ended March 31, 2021 from 1% for the three months ended March 31, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, OIBDA margin as a percentage of revenue increased to 20% for the three months ended March 31, 2021 from 17% for the three months ended March 31, 2020 due to revenue mix and lower overhead due to active cost management efforts.

OIBDA increased by $612 million to $241 million for the three months ended June 30, 2021 as compared to a loss of $371 million for the three months ended June 30, 2020 as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, the prior-year quarter management agreement termination fee and IPO related expenses, partially offset by higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 18% for the three months ended June 30, 2021 from (37)% for the three months ended June 30, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year quarter management agreement termination fee and IPO related expenses, OIBDA margin as a percentage of revenue increased to 19% for the three months ended June 30, 2021 from 15% for the three months ended June 30, 2020 due to strong operating performance and margin improvement associated with revenue mix.

Depreciation expense

Our depreciation expense increased by $5 million, or 36%, to $19 million for the three months ended March 31, 2021 from $14 million for the three months ended March 31, 2020.

The increase is primarily due to new assets placed into service.

Our depreciation expense increased by $4 million, or 27%, to $19 million for the three months ended June 30, 2021 from $15 million for the three months ended June 30, 2020.

The increase is primarily due to an increase in capital spending and new assets being placed into service.

Amortization expense

Our amortization expense increased by $11 million, or 23%, to $58 million for the three months ended March 31, 2021 from $47 million for the three months ended March 31, 2020.

Our amortization expense increased by $13 million, or 28%, to $60 million for the three months ended June 30, 2021 from $47 million for the three months ended June 30, 2020.

The increase is primarily due to an increase in amortizable intangible assets related to the recent acquisitions of music-related assets.

Operating income (loss)

Our operating income increased by $200 million to $151 million for the three months ended March 31, 2021 from operating loss of $49 million for the three months ended March 31, 2020.

Our operating income increased by $595 million to $162 million for the three months ended June 30, 2021 from operating loss of $433 million for the three months ended June 30, 2020.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher depreciation and amortization as noted above.

Loss on extinguishment of debt

We recorded a loss on extinguishment of debt in the amount of $12 million for the three months ended June 30, 2021 which represents the premium paid on early redemption and unamortized deferred financing costs related to the redemption of the 5.500% Notes.

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

Interest expense, net

Our interest expense, net, decreased to $32 million for the three months ended March 31, 2021 from $33 million for the three months ended March 31, 2020 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of the additional 3.000% Senior Secured Notes due 2031 in November 2020.

Other (income) expense

Other income for the three months ended March 31, 2021 primarily includes foreign currency gains on our Euro-denominated debt of $33 million and unrealized gains of $18 million on the mark-to-market of equity investments, partially offset by currency exchange losses on our intercompany loans of $3 million.

This compares to unrealized losses of $10 million on the mark-to-market of an equity investment and a $5 million loss on investments, partially offset by foreign currency gains on our Euro-denominated debt of $6 million for the three months ended March 31, 2020.

Income tax expense (benefit)

Our income tax expense increased by $63 million to $51 million for the three months ended March 31, 2021 from a tax benefit of $12 million for the three months ended March 31, 2020.

The change of $63 million in income tax expense primarily relates higher pre-tax income during the three months ended March 31, 2021.

Our interest expense, net, decreased to $30 million for the three months ended June 30, 2021 from $32 million for the three months ended June 30, 2020 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance.

Other expense

Other expense for the three months ended June 30, 2021 primarily includes foreign currency losses on our Euro-denominated debt of $12 million and unrealized losses of $5 million on the mark-to-market of equity investments.

This compares to foreign currency losses 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 gains of $14 million on the mark-to-market of an equity investment and currency exchange gains on our intercompany loans of $3 million for the three months ended June 30, 2020.

Income tax expense

Our income tax expense decreased by $10 million to $41 million for the three months ended June 30, 2021 from $51 million for the three months ended June 30, 2020.

The change of $10 million in income tax expense is due to timing of expense and the impact of the Company’s IPO in the prior-year quarter, partially offset by the impact of higher pre-tax income and the change in the U.K.

future statutory tax rate recognized in the current-year quarter.

Net income (loss)

Net income increased by $191 million to $117 million for the three months ended March 31, 2021 from a net loss of $74 million for the three months ended March 31, 2020 as a result of the factors described above.

Net income increased by $580 million to $61 million for the three months ended June 30, 2021 from a net loss of $519 million for the three months ended June 30, 2020 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, 2021 and March 31, 2020.

There was no income attributable to noncontrolling interest for three months ended June 30, 2021 and $1 million of income attributable to noncontrolling interest for the three months ended June 30, 2020.

Business Segment Results

1 unchanged sentence

For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

1 unchanged sentence

Revenues $ 1,152 $ 861 $ 291 34 %

Operating income 184 36 148 — %

Operating income (loss) 197 (160) 357 — %

OIBDA 250 (119) 369 — %

11 unchanged sentences

Recorded Music

Recorded Music revenue increased by $152 million, or 17%, to $1,059 million for the three months ended March 31, 2021 from $907 million for the three months ended March 31, 2020.

Recorded Music revenues were $469 million and $380 million, or 44% and 42%, of consolidated Recorded Music revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

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

Recorded Music revenue increased by $291 million, or 34%, to $1,152 million for the three months ended June 30, 2021 from $861 million for the three months ended June 30, 2020.

Recorded Music revenues were $504 million and $358 million, or 44% and 42%, of consolidated Recorded Music revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

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

Cost of revenues

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March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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Total cost of revenues $ 560 $ 431 $ 129 30 %

Recorded Music cost of revenues increased by $60 million, or 14%, to $499 million for the three months ended March 31, 2021 from $439 million for the three months ended March 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 28% for the three months ended March 31, 2021 from 29% for the three months ended March 31, 2020.

The decrease is primarily attributable to lower artist related costs due to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 19% for both the three months ended March 31, 2021 and March 31, 2020.

Recorded Music cost of revenues increased by $129 million, or 30%, to $560 million for the three months ended June 30, 2021 from $431 million for the three months ended June 30, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 28% for the three months ended June 30, 2021 from 31% for the three months ended June 30, 2020.

The decrease is primarily attributable to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increased to 21% for the three months ended June 30, 2021 from 19% for the three months ended June 30, 2020.

The overall increase as a percentage of revenue is due to revenue mix, primarily increases in physical revenue.

Selling, general and administrative expense

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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______________________________________

(1) Includes depreciation expense of $13 million and $10 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

Recorded Music selling, general and administrative expense decreased by $64 million, or 16%, to $338 million for the three months ended March 31, 2021 from $402 million for the three months ended March 31, 2020.

The decrease in general and administrative expense was primarily due to lower non-cash stock-based compensation and other related expenses of $94 million, higher bad debt provisions taken in the prior year due to COVID, partially offset by increased employee related costs.

The increase in selling and marketing expense was primarily due to increased variable marketing spend primarily at EMP, which drove higher direct-to-consumer merchandising revenue.

(1) Includes depreciation expense of $14 million and $11 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

Recorded Music selling, general and administrative expense decreased by $204 million, or 36%, to $356 million for the three months ended June 30, 2021 from $560 million for the three months ended June 30, 2020.

The decrease in general and administrative expense was primarily due to lower non-cash stock-based compensation and other related expenses of $279 million and credit loss reserve reversal, partially offset by increased employee related costs.

The increase in selling and marketing expense was primarily due to increased variable marketing spend driven by the COVID disruption in the prior-year quarter.

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

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 32% for the three months ended March 31, 2021 from 44% for the three months ended March 31, 2020.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $94 million and lower selling and marketing spend as a percentage of Recorded Music revenue.

Excluding non-cash stock-based compensation expense and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 31% for the three months ended March 31, 2021 from 33% for the three months ended March 31, 2020 due to the factors described above.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 31% for the three months ended June 30, 2021 from 65% for the three months ended June 30, 2020.

This is primarily due to lower non-cash stock-based compensation and other related expenses of $279 million.

Excluding non-cash stock-based compensation expense and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 30% for the three months ended June 30, 2021 from 32% for the three months ended June 30, 2020 due to COVID related revenue impacts in the prior-year quarter.

Operating income and OIBDA

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

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OIBDA $ 250 $ (119) $ 369 — %

Recorded Music OIBDA increased by $159 million to $235 million for the three months ended March 31, 2021 from $76 million for the three months ended March 31, 2020 as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $94 million, partially offset by higher costs of revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 22% for the three months ended March 31, 2021 from 8% for the three months ended March 31, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, OIBDA margin increased to 23% for the three months ended March 31, 2021 from 20% for the three months ended March 31, 2020 due to revenue mix, impact from a recent acquisition and lower selling, general and administrative expenses as a percentage of total Recorded Music revenue.

Recorded Music operating income increased by $148 million to $184 million for the three months ended March 31, 2021 from $36 million for the three months ended March 31, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by higher depreciation from new assets placed into service and an increase in amortizable intangible assets related to the recent acquisitions of music-related assets.

Recorded Music OIBDA increased by $369 million to $250 million for the three months ended June 30, 2021 from a loss of $119 million for the three months ended June 30, 2020 as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $279 million, partially offset by higher costs of revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 22% for the three months ended June 30, 2021 from (14)% for the three months ended June 30, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, OIBDA margin increased to 22% for the three months ended June 30, 2021 from 19% for the three months ended June 30, 2020 due to strong operating performance, revenue mix, and the impact of recent acquisitions.

Recorded Music operating income increased by $357 million to $197 million for the three months ended June 30, 2021 from operating loss of $160 million for the three months ended June 30, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by higher depreciation from new assets placed into service and an increase in amortizable intangible assets related to the recent acquisitions of music-related assets.

Music Publishing

Music Publishing revenues increased by $26 million, or 16%, to $192 million for the three months ended March 31, 2021 from $166 million for the three months ended March 31, 2020.

Music Publishing revenues were $96 million and $87 million, or 50% and 52%, of consolidated Music Publishing revenues for the three months ended March 31, 2021 and March 31, 2020,

respectively.

International Music Publishing revenues were $96 million and $79 million, or 50% and 48%, of consolidated Music Publishing revenues for the three months ended March 31, 2021 and March 31, 2020, respectively.

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

Music Publishing revenues increased by $40 million, or 27%, to $189 million for the three months ended June 30, 2021 from $149 million for the three months ended June 30, 2020.

Music Publishing revenues were $90 million and $74 million, or 48% and 50%, of consolidated Music Publishing revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

International Music Publishing revenues were $99 million and $75 million, or 52% and 50%, of consolidated Music Publishing revenues for the three months ended June 30, 2021 and June 30, 2020, respectively.

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

Cost of revenues

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 122 $ 96 $ 26 27 %

Music Publishing cost of revenues increased by $27 million, or 28%, to $125 million for the three months ended March 31, 2021 from $98 million for the three months ended March 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the three months ended March 31, 2021 from 59% for the three months ended March 31, 2020.

This increase is primarily attributable to revenue mix and the t iming of a non-recurring benefit in the prior-year quarter.

Music Publishing cost of revenues increased by $26 million, or 27%, to $122 million for the three months ended June 30, 2021 from $96 million for the three months ended June 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the three months ended June 30, 2021 from 64% for the three months ended June 30, 2020.

This increase is primarily attributable to revenue mix, partially offset by lower royalty expense due to a shift in the collection of certain writer’s share income from certain digital service providers .

Selling, general and administrative expense

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

General and administrative expense (1) $ 25 $ 22 $ 3 14 %

Selling and marketing expense — — — — %

Total selling, general and administrative expense $ 25 $ 22 $ 3 14 %

______________________________________

(1) Includes depreciation expense of $1 million for both the three months ended March 31, 2021 and March 31, 2020.

Music Publishing selling, general and administrative expense increased by $4 million or 19% to $25 million for the three months ended March 31, 2021 from $21 million for the three months ended March 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained flat at 13% for both the three months ended March 31, 2021 and March 31, 2020.

(1) Includes depreciation expense of $1 million and $2 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

Music Publishing selling, general and administrative expense increased by $3 million or 14% to $25 million for the three months ended June 30, 2021 from $22 million for the three months ended June 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 13% for the three months ended June 30, 2021 from 15% for the three months ended June 30, 2020 due to restructuring and COVID related revenue impacts in the prior-year quarter.

Operating income and OIBDA

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For the Three Months Ended

March 31, 2021 vs.

June 30, 2021 vs.

2021 2020 $ Change % Change

2 unchanged sentences

OIBDA $ 43 $ 33 $ 10 30 %

Music Publishing OIBDA decreased by $5 million, or 10%, to $43 million for the three months ended March 31, 2021 from $48 million for the three months ended March 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 22% for the three months ended March 31, 2021 from 29% for the three months ended March 31, 2020.

The decrease was primarily due to revenue mix and the t iming of a non-recurring benefit in the prior-year quarter .

Music Publishing operating income decreased by $8 million to $22 million for the three months ended March 31, 2021 from $30 million for the three months ended March 31, 2020 due to the factors that led to the decrease in Music Publishing OIBDA noted above.

Music Publishing OIBDA increased by $10 million, or 30%, to $43 million for the three months ended June 30, 2021 from $33 million for the three months ended June 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 23% for the three months ended June 30, 2021 from 22% for the three months ended June 30, 2020.

The increase was due to revenue mix, lower royalty expense due to a shift in the collection of certain writer’s share income from certain digital service providers, and restructuring in the prior-year quarter.

Music Publishing operating income increased by $7 million to $21 million for the three months ended June 30, 2021 from $14 million for the three months ended June 30, 2020 due to the factors that led to the increase in Music Publishing OIBDA noted above.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations decreased by $60 million for the three months ended March 31, 2021 to $55 million from $115 million for the three months ended March 31, 2020, which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $58 million, decline in management fees of $3 million and lower overhead due to active cost management efforts, partially offset by higher employee related costs.

Our OIBDA loss from corporate expenses and eliminations decreased by $62 million for the three months ended March 31, 2021 to $50 million from $112 million for the three months ended March 31, 2020 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations decreased by $231 million for the three months ended June 30, 2021 to $56 million from $287 million for the three months ended June 30, 2020, which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $148 million, the prior-year quarter management agreement termination fee and IPO related expenses totaling $86 million, decline in management fees of $3 million, partially offset by higher employee related costs and public company related expenses.

Our OIBDA loss from corporate expenses and eliminations decreased by $233 million for the three months ended June 30, 2021 to $52 million from $285 million for the three months ended June 30, 2020 due to the operating loss factors noted above.

RESULTS OF OPERATIONS

Six Months Ended March 31, 2021 Compared with Six Months Ended March 31, 2020

Nine Months Ended June 30, 2021 Compared with Nine Months Ended June 30, 2020

Consolidated Results

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

24 unchanged sentences

Total Revenues

Total revenues increased by $258 million to $2,585 million for the six months ended March 31, 2021 from $2,327 million for the six months ended March 31, 2020.

Total revenues increased by $588 million to $3,925 million for the nine months ended June 30, 2021 from $3,337 million for the nine months ended June 30, 2020.

The increase includes $116 million of favorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenues for the six months ended March 31, 2021, respectively, and 85% and 15% of total revenues for the six months ended March 31, 2020, respectively.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenues for the nine months ended June 30, 2021, respectively, and 85% and 15% of total revenues for the nine months ended June 30, 2020, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 44% and 56% for the six months ended March 31, 2021, respectively, and 43% and 57% for the six months ended March 31, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $280 million, or 20%, to $1,685 million for the six months ended March 31, 2021 from $1,405 million for the six months ended March 31, 2020.

Total digital revenues represented 65% and 60% of consolidated revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2021 were comprised of U.S.

and international revenues represented 44% and 56% for the nine months ended June 30, 2021, respectively, and 43% and 57% for the nine months ended June 30, 2020, respectively.

Total digital revenues after intersegment eliminations increased by $488 million, or 23%, to $2,613 million for the nine months ended June 30, 2021 from $2,125 million for the nine months ended June 30, 2020.

Total digital revenues represented 67% and 64% of consolidated revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the nine months ended June 30, 2021 were comprised of U.S.

revenues of $1,308 million and international revenues of $1,306 million, or 50% of total digital revenues for each of U.S.

and international revenues.

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

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.

Recorded Music revenues increased by $229 million, or 12%, to $2,220 million for the six months ended March 31, 2021 from $1,991 million for the six months ended March 31, 2020.

Recorded Music revenues increased by $520 million, or 18%, to $3,372 million for the nine months ended June 30, 2021 from $2,852 million for the nine months ended June 30, 2020.

The increase includes $100 million of favorable currency exchange fluctuations.

Recorded Music revenues were $950 million and $833 million, or 43% and 42%, of consolidated Recorded Music revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

International Recorded Music revenues were $1,270 million and $1,158 million, or 57% and 58%, of consolidated Recorded Music revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

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

Digital revenue increased by $224 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms such as Facebook, TikTok, and Peloton as well as strength of releases from Dua Lipa, Ed Sheeran, Ava Max, Hamilton Cast Recording, Michael Bublé, Cardi B and Roddy Ricch.

Revenue from streaming services grew by $239 million to $1,414 million for the six months ended March 31, 2021 from $1,175 million for the six months ended March 31, 2020.

Digital revenue growth was partially offset by digital download and other digital declines of $15 million, or 18%, to $69 million for the six months ended March 31, 2021 from $84 million for the six months ended March 31, 2020 due to the continued shift to streaming services.

Physical revenue increased by $14 million primarily from higher online sales due to an increased demand for vinyl products, success of new releases including Johnny Hallyday, Mariya Takeuchi, Tom Petty, Kim Hojoong in Korea, and The Yellow Monkey in Japan as well as the favorable impact of foreign currency exchange rates of $12 million.

Artist services and expanded-rights revenue decreased by $5 million primarily due to a decrease in touring activity resulting from the impact of COVID, partially offset by higher direct-to-consumer merchandising revenue at EMP and the favorable impact of foreign currency exchange rates of $17 million.

Licensing revenue decreased by $4 million due to the impact of COVID, partially offset by favorable foreign currency exchange rates.

Music Publishing revenues increased by $28 million, or 8%, to $367 million for the six months ended March 31, 2021 from $339 million for the six months ended March 31, 2020.

Music Publishing revenues were $187 million and $168 million, or 51% and 50%, of consolidated Music Publishing revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

International Music Publishing revenues were $180 million and $171 million, or 49% and 50%, of Music Publishing revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

Recorded Music revenues were $1,454 million and $1,191 million, or 43% and 42%, of consolidated Recorded Music revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

International Recorded Music revenues were $1,918 million and $1,661 million, or 57% and 58%, of consolidated Recorded Music revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

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

Digital revenue increased by $409 million as a result of the continued growth in streaming services, including growth in emerging streaming platforms such as Facebook, TikTok, and Peloton as well as strength of releases from Dua Lipa, Ed Sheeran, Ava Max, Cardi B, and Hamilton Cast Recording.

Revenue from streaming services grew by $431 million to $2,195 million for the nine months ended June 30, 2021 from $1,764 million for the nine months ended June 30, 2020.

Digital revenue growth was partially offset by digital download and other digital declines of $22 million, or 18%, to $103 million for the nine months ended June 30, 2021 from $125 million for the nine months ended June 30, 2020 due to the continued shift to streaming services.

Physical revenue increased by $93 million primarily from higher sales due to an increased demand for vinyl products, success of releases including Tom Petty, Mariya Takeuchi, Johnny Hallyday, Kim Hojoong in Korea, and The Yellow Monkey in Japan as well as the favorable impact of foreign currency exchange rates of $16 million.

Licensing revenue increased by $14 million due to higher broadcast fees and synchronization activity as businesses began to recover from the COVID disruption and favorable foreign currency exchange rates.

Artist services and expanded-rights revenue increased by $4 million primarily due to the favorable impact of foreign currency exchange rates of $25 million and higher direct-to-consumer merchandising revenue at EMP, partially offset by a decrease in touring activity resulting from the impact of the COVID disruption.

Music Publishing revenues increased by $68 million, or 14%, to $556 million for the nine months ended June 30, 2021 from $488 million for the nine months ended June 30, 2020.

Music Publishing revenues were $277 million and $242 million, or 50% and 50%, of consolidated Music Publishing revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

International Music Publishing revenues were $279 million and $246 million, or 50% and 50%, of Music Publishing revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $79 million and synchronization revenue of $13 million, partially offset by decreases in performance revenue of $22 million and mechanical revenue of $2 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 new digital deals.

The increase in synchronization revenue is attributable to higher motion picture and commercial income and favorable foreign currency exchange rates, partially offset by the impact from COVID.

The decline in performance revenue is primarily driven by the impact of COVID.

The decline in mechanical revenue is driven by the continuing shift to streaming services and the impact from COVID.

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

The decline in performance revenue is primarily driven by the impact of the COVID disruption.

The decline in mechanical revenue is driven by the continuing shift to streaming services and the impact from the COVID disruption.

Revenue by Geographical Location

revenue increased by $136 million, or 14%, to $1,137 million for the six months ended March 31, 2021 from $1,001 million for the six months ended March 31, 2020.

revenue increased by $298 million, or 21%, to $1,731 million for the nine months ended June 30, 2021 from $1,433 million for the nine months ended June 30, 2020.

Recorded Music revenue increased by $263 million, or 22%.

3 unchanged sentences

Increases are also attributable to the increase in U.S.

Recorded Music physical revenue, which increased by $20 million from higher online sales due to an increased demand for vinyl products as well as the success of new releases including Tom Petty.

Recorded Music artist services and expanded-rights revenue increased by $3 million primarily driven by higher advertising revenues from a recent acquisition.

Music Publishing revenue increased by $19 million to $187 million for the six months ended March 31, 2021 from $168 million for the six months ended March 31, 2020.

Recorded Music physical revenue, which increased by $63 million from higher sales due to an increased demand for vinyl products as well as the success of releases including Tom Petty.

Recorded Music artist services and expanded-rights revenue increased by $16 million primarily driven by higher advertising and platform revenues from recent acquisitions.

Music Publishing revenue increased by $35 million to $277 million for the nine months ended June 30, 2021 from $242 million for the nine months ended June 30, 2020.

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

Music Publishing of $25 million in digital revenue due to the continued growth in streaming services and timing of new digital deals, partially offset by decreases in performance revenue of $4 million due to the impact of COVID, as well as a decline in mechanical revenue of $2 million from the continuing shift to streaming services.

International revenue increased by $121 million to $1,450 million for the six months ended March 31, 2021 from $1,329 million for the six months ended March 31, 2020.

Music Publishing of $35 million in digital revenue due to the continued growth in streaming services and timing of new digital deals, and increase in synchronization revenue of $6 million due to higher motion picture and commercial income, partially offset by decreases in performance revenue of $2 million due to the impact of the COVID disruption, as well as a decline in mechanical revenue of $3 million from the continuing shift to streaming services.

International revenue increased by $290 million to $2,197 million for the nine months ended June 30, 2021 from $1,907 million for the nine months ended June 30, 2020.

Excluding the favorable impact of foreign currency exchange rates, International revenue increased by $174 million or 9%.

International Recorded Music revenue increased by $112 million primarily due to increases in digital revenue of $130 million, partially offset by decreases in artist services and expanded-rights revenue of $8 million, physical revenue of $6 million and licensing revenue of $4 million.

International Recorded Music revenue increased by $257 million primarily due to increases in digital revenue of $230 million, physical revenue of $30 million, and licensing revenue of $9 million, partially offset by decreases in 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.

International Recorded Music artist services and expanded-rights revenue decreased primarily due to the decrease in touring activity resulting from the impact of COVID.

International Recorded Music physical revenue increased by $30 million primarily due to an increased demand for vinyl products as well as the success of releases including Mariya Takeuchi, Johnny Hallyday, and Kim Hojoong, and favorable impact of foreign currency exchange rates.

International Recorded Music licensing revenue increased by $9 million as businesses began to recover from the COVID disruption,

as well as favorable foreign currency exchange rates.

International Recorded Music artist services and expanded-rights revenue decreased primarily due to the decrease in touring activity resulting from the impact of the COVID disruption.

This was offset by growth in EMP direct-to consumer merchandise revenue and the favorable impact of foreign currency exchange rates of $25 million.

International Recorded Music physical revenue decreased by $6 million due to the impact of COVID,

partially offset by the success of new releases, including Johnny Hallyday, Mariya Takeuchi, and Kim Hojoong and favorable impact of foreign currency exchange rates.

International Recorded Music licensing revenue decreased by $4 million primarily due to the impact of COVID, partially offset by favorable foreign currency exchange rates.

International Music Publishing revenue increased by $9 million, or 5%, to $180 million for the six months ended March 31, 2021 from $171 million for the six months ended March 31, 2020.

This was primarily driven by increases in digital revenue of $31 million and synchronization revenue of $1 million, partially offset by decreases in performance revenue of $18 million and mechanical revenue of $5 million.

International Music Publishing revenue increased by $33 million, or 13%, to $279 million for the nine months ended June 30, 2021 from $246 million for the nine months ended June 30, 2020.

This was primarily driven by increases in digital revenue of $44 million, synchronization revenue of $7 million, and mechanical revenue of $1 million, partially offset by decreases in performance revenue of $20 million.

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

Higher synchronization revenue is driven by higher commercial income and favorable foreign currency exchange rates, partially offset by the impact of COVID.

The decline in performance revenue is due to the impact of COVID and decrease in mechanical revenue is driven by the continuing shift to streaming services.

The increase in synchronization revenue is due to higher commercial income.

The increase in mechanical revenue is a result of favorable foreign currency exchange rates, partially offset by the continuing shift to streaming.

The decline in performance revenue is due to the impact of the COVID disruption.

Cost of revenues

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 1,990 $ 1,727 $ 263 15 %

Artist and repertoire costs increased by $73 million, to $844 million for the six months ended March 31, 2021 from $771 million for the six months ended March 31, 2020.

Artist and repertoire costs as a percentage of revenue remained constant at 33% for both the six months ended March 31, 2021 and March 31, 2020.

Product costs increased by $36 million, to $465 million for the six months ended March 31, 2021 from $429 million for the six months ended March 31, 2020.

Product costs as a percentage of revenue remained constant at 18% for the six months ended March 31, 2021 and March 31, 2020.

Artist and repertoire costs increased by $150 million, to $1,288 million for the nine months ended June 30, 2021 from $1,138 million for the nine months ended June 30, 2020.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the nine months ended June 30, 2021 from 34% for the nine months ended June 30, 2020.

The overall decrease as a percentage of revenue is due to revenue mix.

Product costs increased by $113 million, to $702 million for the nine months ended June 30, 2021 from $589 million for the nine months ended June 30, 2020.

Product costs as a percentage of revenue remained constant at 18% for the nine months ended June 30, 2021 and June 30, 2020.

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, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $38 million for both the six months ended March 31, 2021 and March 31, 2020.

Total selling, general and administrative expense decreased by $98 million, or 11%, to $819 million for the six months ended March 31, 2021 from $917 million for the six months ended March 31, 2020.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 32% for the six months ended March 31, 2021 from 39% for the six months ended March 31, 2020.

This is primarily due to the decreased expense associated with non-cash stock-based compensation and other related expenses of $138 million.

Excluding non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of revenue decreased to 31% for the six months ended March 31, 2021 from 33% for the six months ended March 31, 2020.

General and administrative expense decreased by $117 million to $406 million for the six months ended March 31, 2021 from $523 million for the six months ended March 31, 2020.

The decrease in general and administrative expense was mainly due to lower expense associated with non-cash stock-based compensation and other related expenses of $138 million and lower overhead due to active cost management efforts, partially offset by increased employee related costs.

Expressed as a percentage of revenue, general and administrative expense decreased to 16% for the six months ended March 31, 2021 from 22% for the six months ended March 31, 2020.

Excluding non-cash stock-based compensation and other related expenses, general and administrative expense as a percentage of revenue decreased to 15% for the six months ended March 31, 2021 from 16% for the six months ended March 31, 2020 due to the factors described above.

Selling and marketing expense increased by $15 million, or 4%, to $354 million for the six months ended March 31, 2021 from $339 million for the six months ended March 31, 2020.

Expressed as a percentage of revenue, selling and marketing expense decreased to 14% for the six months ended March 31, 2021 from 15% for the six months ended March 31, 2020 due to a decrease in spend as a percentage of revenue resulting from COVID and ongoing cost management efforts.

Distribution expense increased by $4 million, or 7%, to $59 million for the six months ended March 31, 2021 from $55 million for the six months ended March 31, 2020.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for both the six months ended March 31, 2021 and March 31, 2020.

(1) Includes depreciation expense of $57 million and $53 million for the nine months ended June 30, 2021 and June 30, 2020, respectively.

Total selling, general and administrative expense decreased by $530 million, or 30%, to $1,256 million for the nine months ended June 30, 2021 from $1,786 million for the nine months ended June 30, 2020.

Expressed as a percentage of revenue, selling, general and administrative expense decreased to 32% for the nine months ended June 30, 2021 from 54% for the nine months ended June 30, 2020.

This is primarily due to the decreased expense associated with non-cash stock-based compensation and other related expenses of $564 million, the prior-year management agreement termination fee and IPO related expenses totaling $90 million.

Excluding non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, selling, general and administrative expense as a percentage of revenue decreased to 31% for the nine months ended June 30, 2021 from 33% for the nine months ended June 30, 2020.

General and administrative expense decreased by $611 million to $629 million for the nine months ended June 30, 2021 from $1,240 million for the nine months ended June 30, 2020.

The decrease in general and administrative expense was mainly due to lower expense associated with non-cash stock-based compensation and other related expenses of $564 million, the prior-year management agreement termination fee and IPO related expenses totaling $90 million, credit loss reserve reversal, and lower overhead due to active cost management efforts, partially offset by increased employee related costs.

Expressed as a percentage of revenue, general and

administrative expense decreased to 16% for the nine months ended June 30, 2021 from 37% for the nine months ended June 30, 2020.

Excluding non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, general and administrative expense as a percentage of revenue decreased to 15% for the nine months ended June 30, 2021 from 16% for the nine months ended June 30, 2020 due to the factors described above.

Selling and marketing expense increased by $72 million, or 15%, to $544 million for the nine months ended June 30, 2021 from $472 million for the nine months ended June 30, 2020.

Expressed as a percentage of revenue, selling and marketing expense remained constant at 14% for both the nine months ended June 30, 2021 and June 30, 2020.

Distribution expense increased by $9 million, or 12%, to $83 million for the nine months ended June 30, 2021 from $74 million for the nine months ended June 30, 2020.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for both the nine months ended June 30, 2021 and June 30, 2020.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

3 unchanged sentences

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

Net income attributable to Warner Music Group Corp.

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

$ 276 $ (474) $ 750 — %

Income attributable to noncontrolling interest 1 3 (2) -67 %

Net income 216 48 168 — %

Income tax expense (benefit) 86 (7) 93 — %

Income before income taxes 302 41 261 — %

Other (income) expense (18) 9 (27) — %

Net income (loss) 277 (471) 748 — %

Income tax expense 127 44 83 — %

Income (loss) before income taxes 404 (427) 831 — %

Other expense — 12 (12) -100 %

Interest expense, net 93 98 (5) -5 %

Operating income 347 116 231 — %

Loss on extinguishment of debt 12 — 12 — %

Operating income (loss) 509 (317) 826 — %

Amortization expense 170 141 29 21 %

1 unchanged sentence

OIBDA $ 736 $ (123) $ 859 — %

OIBDA increased by $247 million to $495 million for the six months ended March 31, 2021 as compared to $248 million for the six months ended March 31, 2020 as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, partially offset by higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 19% for the six months ended March 31, 2021 from 11% for the six months ended March 31, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, OIBDA margin as a percentage of revenue increased to 20% for the six months ended March 31, 2021 from 18% for the six March 31, 2020 from revenue mix and lower overhead due to active cost management efforts.

OIBDA increased by $859 million to $736 million for the nine months ended June 30, 2021 as compared to a loss of $123 million for the nine months ended June 30, 2020 as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, partially offset by higher cost of revenues.

Expressed as a percentage of total revenue, OIBDA margin increased to 19% for the nine months ended June 30, 2021 from (4)% for the nine months ended June 30, 2020.

Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, OIBDA margin as a percentage of revenue increased to 20% for the nine months ended June 30, 2021 from 17% for the nine months ended June 30, 2020 from revenue mix and lower overhead due to active cost management efforts.

Depreciation expense

Our depreciation expense remained flat at $38 million for both the six months ended March 31, 2021 and the six months ended March 31, 2020.

Our depreciation expense increased by $4 million to $57 million for the nine months ended June 30, 2021 from $53 million for the nine months ended June 30, 2020.

This is due to new assets placed into service, partially offset by a one-time charge of $10 million representing the difference between the net book value of a building and its recoverable value in the prior year.

Amortization expense

Our amortization expense increased by $16 million, or 17%, to $110 million for the six months ended March 31, 2021 from $94 million for the six months ended March 31, 2020.

Our amortization expense increased by $29 million, or 21%, to $170 million for the nine months ended June 30, 2021 from $141 million for the nine months ended June 30, 2020.

The increase is primarily due to an increase in amortizable intangible assets related to the acquisition of music-related assets.

Operating income

Our operating income increased by $231 million to $347 million for the six months ended March 31, 2021 from operating income of $116 million for the six months ended March 31, 2020.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Operating income (loss)

Our operating income increased by $826 million to $509 million for the nine months ended June 30, 2021 from operating loss of $317 million for the nine months ended June 30, 2020.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher depreciation and amortization as noted above.

Interest expense, net

Our interest expense, net, decreased to $63 million for the six months ended March 31, 2021 from $66 million for the six months ended March 31, 2020 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of senior secured notes.

Other (income) expense

Other income for the six months ended March 31, 2021 primarily includes unrealized gains of $32 million on the mark-to-market of equity investments, partially offset by foreign currency losses on our Euro-denominated debt of $8 million and currency exchange losses on our intercompany loans of $5 million.

This compares to 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 for the six months ended March 31, 2020.

Income tax expense (benefit)

Our income tax expense increased by $93 million to $86 million for the six months ended March 31, 2021 from a tax benefit of $7 million for the six months ended March 31, 2020.

The change of $93 million in income tax expense primarily relates to the higher pre-tax income partially offset by a $4 million benefit related to the impact of excess tax benefits on our long term incentive plan during the six months ended March 31, 2021.

For the six months ended March 31, 2020, income tax benefit is higher as a result of the release of a valuation allowance of foreign tax credits of $33 million.

Net income increased by $168 million to $216 million for the six months ended March 31, 2021 from $48 million for the six months ended March 31, 2020 as a result of the factors described above.

Our interest expense, net, decreased to $93 million for the nine months ended June 30, 2021 from $98 million for the nine months ended June 30, 2020 due to lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of senior secured notes.

Other expense

Other expense for the nine months ended June 30, 2021 primarily includes unrealized gains of $26 million on the mark-to-market of equity investments, offset by foreign currency losses on our Euro-denominated debt of $20 million and currency exchange losses on our intercompany loans of $7 million.

This compares to unrealized losses on our Euro-denominated debt of $22 million, $6 million relating to 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 for the nine months ended June 30, 2020.

Loss on extinguishment of debt

We recorded a loss on extinguishment of debt in the amount of $12 million for the nine months ended June 30, 2021 which represents the premium paid on early redemption and unamortized deferred financing costs related to the redemption of the 5.500% Notes.

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

Income tax expense

Our income tax expense increased by $83 million to $127 million for the nine months ended June 30, 2021 from $44 million for the nine months ended June 30, 2020.

The change of $83 million in income tax expense primarily relates to the higher pre-tax income in the current year as compared to pre-tax income before non-deductible executive compensation and transaction costs and release of a valuation allowance of foreign tax credits of $33 million for the nine months ended June 30, 2020.

Net income (loss)

Net income increased by $748 million to $277 million for the nine months ended June 30, 2021 from net loss of $471 million for the nine months ended June 30, 2020 as a result of the factors described above.

Noncontrolling interest

There was $1 million of income attributable to noncontrolling interest for the six months ended March 31, 2021 and $2 million of income attributable to noncontrolling interest for the six months ended March 31, 2020.

There was $1 million of income attributable to noncontrolling interest for the nine months ended June 30, 2021 and $3 million of income attributable to noncontrolling interest for the nine months ended June 30, 2020.

Business Segment Results

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

12 unchanged sentences

Revenues 3,925 3,337 588 18 %

Operating income 347 116 231 — %

Operating income (loss) 509 (317) 826 — %

OIBDA 736 (123) 859 — %

Recorded Music

Recorded Music revenue increased by $229 million, or 12%, to $2,220 million for the six months ended March 31, 2021 from $1,991 million for the six months ended March 31, 2020.

Recorded Music revenues were $950 million and $833 million, or 43% and 42%, of consolidated Recorded Music revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

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

Recorded Music revenue increased by $520 million, or 18%, to $3,372 million for the nine months ended June 30, 2021 from $2,852 million for the nine months ended June 30, 2020.

Recorded Music revenues were $1,454 million and $1,191 million, or 43% and 42%, of consolidated Recorded Music revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital, physical, licensing, and artist services and expanded-rights revenues, 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, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

2 unchanged sentences

Total cost of revenues $ 1,633 $ 1,418 $ 215 15 %

Recorded Music cost of revenues increased by $86 million, or 9%, to $1,073 million for the six months ended March 31, 2021 from $987 million for the six months ended March 31, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 27% for the six months ended March 31, 2021 from 28% for the six months ended March 31, 2020.

The decrease is primarily attributable to lower artist-related costs due to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs decreased to 21% for the six months ended March 31, 2021 from 22% for the six months ended March 31, 2020.

The decrease in product costs relates to revenue mix from lower artist services and expanded-rights revenue.

Recorded Music cost of revenues increased by $215 million, or 15%, to $1,633 million for the nine months ended June 30, 2021 from $1,418 million for the nine months ended June 30, 2020.

Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 28% for the nine months ended June 30, 2021 from 29% for the nine months ended June 30, 2020.

The decrease is primarily attributable to revenue mix.

Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 21% for both the nine months ended June 30, 2021 and June 30, 2020.

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, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

4 unchanged sentences

______________________________________

(1) Includes depreciation expense of $26 million and $31 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

Recorded Music selling, general and administrative expense decreased by $49 million, or 7%, to $669 million for the six months ended March 31, 2021 from $718 million for the six months ended March 31, 2020.

The decrease in general and administrative expense was primarily due to lower non-cash stock-based compensation and other related expenses of $86 million and lower overhead due to active cost management efforts, partially offset by increased employee related costs.

(1) Includes depreciation expense of $40 million and $42 million for the nine months ended June 30, 2021 and June 30, 2020, respectively.

Recorded Music selling, general and administrative expense decreased by $253 million, or 20%, to $1,025 million for the nine months ended June 30, 2021 from $1,278 million for the nine months ended June 30, 2020.

The decrease in general and administrative expense was primarily due to lower non-cash stock-based compensation and other related expenses of $365 million, credit loss reserve reversal, and lower overhead due to active cost management efforts, partially offset by increased employee related costs.

The increase in selling and marketing expense was primarily due to increased variable marketing spend on higher revenues and new releases.

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

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 30% for the six months ended March 31, 2021 from 36% for the six months ended March 31, 2020 primarily due to lower non-cash stock-based compensation and other related expenses of $86 million and lower selling and marketing spend as a percentage of Recorded Music revenue.

Excluding non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 30% for the six months ended March 31, 2021 from 31% for the six months ended March 31, 2020 due to the factors described above.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 30% for the nine months ended June 30, 2021 from 45% for the nine months ended June 30, 2020 primarily due to lower non-cash stock-based compensation and other related expenses of $365 million.

Excluding non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 30% for the nine months ended June 30, 2021 from 31% for the nine months ended June 30, 2020 due to the factors described above.

Operating income and OIBDA

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

2 unchanged sentences

OIBDA $ 754 $ 198 $ 556 — %

Recorded Music OIBDA increased by $187 million, or 59%, to $504 million for the six months ended March 31, 2021 from $317 million for the six months ended March 31, 2020 as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $86 million, partially offset by higher costs of revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 23% for the six months ended March 31, 2021 from 16% for the six months ended March 31, 2020.

Excluding non-cash stock-based compensation and other related expenses, OIBDA, as a percentage of Recorded Music revenue, increased to 23% for the six months ended March 31, 2021 from 21% for the six months ended March 31, 2020 due to revenue mix, impact from a recent acquisition and lower costs of revenue and selling, general and administrative expenses as a percentage of total Recorded Music revenue.

Recorded Music operating income increased by $180 million to $407 million for the six months ended March 31, 2021 from $227 million for the six months ended March 31, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Recorded Music OIBDA increased by $556 million, to $754 million for the nine months ended June 30, 2021 from $198 million for the nine months ended June 30, 2020 as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $365 million, partially offset by higher costs of revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin increased to 22% for the nine months ended June 30, 2021 from 7% for the nine months ended June 30, 2020.

Excluding non-cash stock-based compensation and other related expenses, OIBDA, as a percentage of Recorded Music revenue, increased to 23% for the nine months ended June 30, 2021 from 20% for the nine months ended June 30, 2020 due to revenue mix, impact from a recent acquisition and lower costs of revenue and selling, general and administrative expenses as a percentage of total Recorded Music revenue.

Recorded Music operating income increased by $537 million to $604 million for the nine months ended June 30, 2021 from $67 million for the nine months ended June 30, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing

Music Publishing revenues increased by $28 million, or 8%, to $367 million for the six months ended March 31, 2021 from $339 million for the six months ended March 31, 2020.

Music Publishing revenues were $187 million and $168 million, or 51% and 50%, of consolidated Music Publishing revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

International Music Publishing revenues were $180 million and $171 million, or 49% and 50%, of consolidated Music Publishing revenues for the six months ended March 31, 2021 and March 31, 2020, respectively.

Music Publishing revenues increased by $68 million, or 14%, to $556 million for the nine months ended June 30, 2021 from $488 million for the nine months ended June 30, 2020.

Music Publishing revenues were $277 million and $242 million, or 50% and 50%, of consolidated Music Publishing revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

International Music Publishing revenues were $279 million and $246 million, or 50% and 50%, of consolidated Music Publishing revenues for the nine months ended June 30, 2021 and June 30, 2020, respectively.

1 unchanged sentence

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

1 unchanged sentence

Total cost of revenues $ 360 $ 312 $ 48 15 %

Music Publishing cost of revenues increased by $22 million, or 10%, to $238 million for the six months ended March 31, 2021 from $216 million for the six months ended March 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the six months ended March 31, 2021 from 64% for the six months ended March 31, 2020, primarily attributable to revenue mix.

Music Publishing cost of revenues increased by $48 million, or 15%, to $360 million for the nine months ended June 30, 2021 from $312 million for the nine months ended June 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the nine months ended June 30, 2021 from 64% for the nine months ended June 30, 2020, primarily attributable to revenue mix.

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, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

3 unchanged sentences

______________________________________

(1) Includes depreciation expense of $3 million and $2 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

Music Publishing selling, general and administrative expense increased to $50 million for the six months ended March 31, 2021 from $44 million for the six months ended March 31, 2020 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 six months ended March 31, 2021 from 13% for the six months ended March 31, 2020 due to factors described above.

(1) Includes depreciation expense of $4 million for both the nine months ended June 30, 2021 and June 30, 2020.

Music Publishing selling, general and administrative expense increased to $75 million for the nine months ended June 30, 2021 from $66 million for the nine months ended June 30, 2020 due to higher employee-related costs.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 13% for the nine months ended June 30, 2021 from 14% for the nine months ended June 30, 2020 due to COVID related revenue impacts in the prior year.

Operating income and OIBDA

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

For the Six Months Ended

March 31, 2021 vs.

For the Nine Months Ended

June 30, 2021 vs.

2021 2020 $ Change % Change

2 unchanged sentences

OIBDA $ 125 $ 114 $ 11 10 %

Music Publishing OIBDA increased by $1 million, or 1%, to $82 million for the six months ended March 31, 2021 from $81 million for the six months ended March 31, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin decreased to 22% for the six months ended March 31, 2021 from 24% for the six months ended March 31, 2020.

The decrease was primarily due to revenue mix and higher selling, general and administrative expenses.

Music Publishing operating income decreased by $4 million to $40 million for the six months ended March 31, 2021 from $44 million operating income for the six months ended March 31, 2020 largely due to the factors that led to the decrease in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing OIBDA increased by $11 million, or 10%, to $125 million for the nine months ended June 30, 2021 from $114 million for the nine months ended June 30, 2020 as a result of higher revenues, partially offset by higher costs of revenue.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin remained constant at 23% for both the nine months ended June 30, 2021 and June 30, 2020.

Music Publishing operating income increased by $3 million to $61 million for the nine months ended June 30, 2021 from $58 million operating income for the nine months ended June 30, 2020 largely due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations decreased by $55 million to $100 million for the six months ended March 31, 2021 from $155 million for the six months ended March 31, 2020 which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $53 million, decline in management fees of $6 million and lower overhead due to active cost management efforts, partially offset by higher employee related costs and public company related expenses.

Our OIBDA loss from corporate expenses and eliminations decreased by $59 million to $91 million for the six months ended March 31, 2021 from $150 million for the six months ended March 31, 2020 due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations decreased by $286 million to $156 million for the nine months ended June 30, 2021 from $442 million for the nine months ended June 30, 2020 which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $201 million, the prior-year management agreement termination fee and IPO related expenses totaling $90 million, decline in management fees of $9 million and lower overhead due to active cost management efforts, partially offset by higher employee related costs and public company related expenses.

Our OIBDA loss from corporate expenses and eliminations decreased by $292 million to $143 million for the nine months ended June 30, 2021 from $435 million for the nine months ended June 30, 2020 due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition at March 31, 2021

At March 31, 2021, we had $3.354 billion of debt (which is net of $31 million of deferred financing costs), $588 million of cash and equivalents (net debt of $2.766 billion, defined as total debt, less cash and equivalents and deferred financing costs) and $57 million of Warner Music Group Corp.

This compares to $3.104 billion of debt (which is net of $29 million of deferred financing costs), $553 million of cash and equivalents (net debt of $2.551 billion) and $63 million of Warner Music Group Corp.

Financial Condition at June 30, 2021

At June 30, 2021, we had $3.367 billion of debt (which is net of $31 million of premiums, discounts and deferred financing costs), $442 million of cash and equivalents (net debt of $2.925 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $81 million of Warner Music Group Corp.

This compares to $3.104 billion of debt (which is net of $29 million of premiums, discounts and deferred financing costs), $553 million of cash and equivalents (net debt of $2.551 billion) and $63 million of Warner Music Group Corp.

deficit at September 30, 2020.

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

The financial data for the six months ended March 31, 2021 and March 31, 2020 are unaudited and have been derived from our consolidated interim financial statements included elsewhere herein.

Six Months Ended

The financial data for the nine months ended June 30, 2021 and June 30, 2020 are unaudited and have been derived from our consolidated interim financial statements included elsewhere herein.

Nine Months Ended

Cash provided by (used in):

3 unchanged sentences

Operating Activities

Cash provided by operating activities was $319 million for the six months ended March 31, 2021 as compared with cash provided by operating activities of $164 million for the six months ended March 31, 2020.

The $155 million increase in cash provided by operating activities was primarily due to an increase in OIBDA and the timing of working capital, which includes continued A&R investment.

Cash provided by operating activities was $410 million for the nine months ended June 30, 2021 as compared with cash provided by operating activities of $287 million for the nine months ended June 30, 2020.

The $123 million increase in cash provided by operating activities was primarily due to an increase in OIBDA offset by a decrease in non-cash equity compensation expense and continued A&R investment driving a use of cash from working capital.

Investing Activities

Cash used in investing activities was $404 million for the six months ended March 31, 2021 as compared with cash used in investing activities of $51 million for the six months ended March 31, 2020.

The $404 million of cash used in investing activities in the six months ended March 31, 2021 consisted of $39 million relating to investments, $38 million relating to capital expenditures and $327 million to acquire music related assets, a portion of which was debt-financed.

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.

Cash used in investing activities was $566 million for the nine months ended June 30, 2021 as compared with cash used in investing activities of $87 million for the nine months ended June 30, 2020.

The $566 million of cash used in investing activities in the nine months ended June 30, 2021 consisted of $49 million relating to investments and acquisitions of businesses, $58 million relating to capital expenditures and $459 million to acquire music related assets, a portion of which was debt-financed.

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.

Financing Activities

Cash provided by financing activities was $114 million for the six months ended March 31, 2021 as compared with cash used in financing activities of $245 million for the six months ended March 31, 2020.

The $114 million of cash provided by financing activities for the six months ended March 31, 2021 consisted of proceeds from debt issuance of $244 million which was used to fund investments, partially offset by dividends paid of $125 million, distributions to noncontrolling interest holders of $1 million and deferred financing costs of $4 million.

The $245 million of cash used in financing activities for the six months ended March 31, 2020 consisted of dividends paid of $244 million, which included a special cash dividend of $206 million, and distributions to noncontrolling interest holders of $1 million.

Cash provided by financing activities was $35 million for the nine months ended June 30, 2021 as compared with cash used in financing activities of $288 million for the nine months ended June 30, 2020.

The $35 million of cash provided by financing activities for the nine months ended June 30, 2021 consisted of proceeds from debt issuance of $244 million, which was used to fund, the acquisition of music related assets, and proceeds from the increase supplement to the Senior Term Loan Facility of $325 million, partially offset by the redemption of the outstanding aggregate principal amount of $325 million of the 5.500% Senior Notes due 2026, dividends paid of $187 million, call premiums paid on early redemption of the 5.500% Senior Notes due 2026 of $8 million, distributions to noncontrolling interest holders of $6 million and deferred financing costs of $8 million.

The $288 million of cash used in financing activities for the nine months ended June 30, 2020 consisted of dividends paid of $281 million, which included a special cash dividend of $206 million, distributions to noncontrolling interest holders of $6 million and deferred financing costs of $1 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.

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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 improved from B in 2017 to BB in 2020 with a stable outlook, and our Moody’s corporate family rating 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 3.7% as of March 31, 2021.

For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating 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 3.4% as of June 30, 2021.

Our nearest-term maturity date is in 2026.

Our weighted-average interest rate was further reduced to 3.4% after the effectiveness of the Increase Supplement and 5.500% Senior Notes Redemption.

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

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The Additional Notes have identical terms as (other than the issue date and the issue price) and are fungible with, and treated as a single series of senior secured debt securities with, the 3.000% Senior Secured Notes issued on August 12, 2020 (the “Original Notes”).

The net proceeds of the issuance and sale of the aforementioned Additional Notes of $241 million, in conjunction with cash on hand, were used to fund the acquisition of music-related assets for aggregate cash consideration of $338 million.

The net proceeds of the issuance and sale of the aforementioned Additional Notes of $241 million, in conjunction with cash on hand, were used to fund the acquisition of music-related assets.

Senior Term Loan Facility

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Following such borrowing, there was an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $1,145 million.

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

On April 15, 2021, Acquisition Corp.

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The redemption price for the 5.500% Notes was approximately $343 million, equivalent to 102.750% of the principal amount of the 5.500% Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was April 15, 2021.

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

The Company recorded a loss on extinguishment of debt of approximately $12 million for the three and nine months ended June 30, 2021, which represents the premium paid on early redemption and unamortized deferred financing costs.

Revolving Credit Facility

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On April 3, 2020, Acquisition Corp.

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.

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

On March 1, 2021, Acquisition Corp.

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can access certain baskets in connection with Acquisition Corp.’s negative covenants, including those related to incurrence of indebtedness, restricted payments and covenant suspension.

We expect Acquisition Corp.

to be able to suspend certain covenants set forth in the Revolving Credit Agreement based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified in the Revolving Credit Agreement.

On May 4, 2021, certain covenants set forth in our Revolving Credit Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.

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 2.98x at March 31, 2021, the applicable margin for Eurodollar loans would be 1.375% instead of 1.875% and the applicable margin for ABR loans would be 0.375% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).

Existing Debt as of March 31, 2021

As of March 31, 2021, 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 3.00x at June 30, 2021, the applicable margin for Eurodollar loans would be 1.375% instead of 1.875% and the applicable margin for ABR loans would be 0.375% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).

Existing Debt as of June 30, 2021

As of June 30, 2021, 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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3.000% Senior Secured Notes due 2031 800

5.500% Senior Notes due 2026 325

Total long-term debt, including the current portion $ 3,398

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______________________________________

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at March 31, 2021, less letters of credit outstanding of approximately $10 million at March 31, 2021.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2021.

(a) Reflects $300 million of commitments under the Revolving Credit Facility available at June 30, 2021, less letters of credit outstanding of approximately $10 million at June 30, 2021.

There were no loans outstanding under the Revolving Credit Facility at June 30, 2021.

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, 2020.

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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.

On February 11, 2021, the Company’s board of directors declared a cash dividend of $0.12 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on March 1, 2021.

The Company paid an aggregate of approximately $63 million and $125 million, or $0.12 and $0.24 per share, in cash dividends to stockholders and participating security holders for the three and six months ended March 31, 2021, respectively.

On May 13, 2021, the Company’s board of directors declared a cash dividend of $0.12 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on June 1, 2021.

The Company paid an aggregate of approximately $62 million and $187 million, or $0.12 and $0.36 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 2021, respectively.

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, 2021.

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, 2021.

On January 18, 2019, we delivered a notice to the trustee under the 2012 Secured Indenture and 2014 Unsecured Indenture changing the Fixed GAAP Date, as defined under the indentures, to October 1, 2018.

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Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.

We expect Acquisition Corp.

EBITDA as defined in the Revolving Credit Facility is based on Consolidated Net Income (as defined in the Revolving Credit Facility), both of which terms differ from the terms “EBITDA” and “net income” as they are commonly used.

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The Senior Term Loan Facility and the 2020 Secured Indenture use financial measures called “Consolidated EBITDA” or “EBITDA” and “Consolidated Net Income” that have substantially the same definitions to EBITDA and Consolidated Net Income, each as defined under the Revolving Credit Agreement.

The 2012 Secured Indenture and the 2014 Unsecured Indenture use financial measures called “Consolidated EBITDA” or “EBITDA” and “Consolidated Net Income” that have similar (but not the same) definitions to EBITDA and Consolidated Net Income, each as defined under the Revolving Credit Agreement.

The 2012 Secured Indenture uses financial measures called “Consolidated EBITDA” or “EBITDA” and “Consolidated Net Income” that have similar (but not the same) definitions to EBITDA and Consolidated Net Income, each as defined under the Revolving Credit Agreement.

EBITDA as defined in the Revolving Credit Facility (referred to in this section as “Adjusted EBITDA”) is presented herein because it is a material component of the leverage ratio contained in the Revolving Credit Agreement.

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Accordingly, Adjusted EBITDA should be considered in addition to, not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with U.S.

The following is a reconciliation of net (loss) 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, 2021, for the twelve months ended March 31, 2020 and for the three months ended March 31, 2021 and March 31, 2020.

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, 2021.

The following is a reconciliation of net income (loss), 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 June 30, 2021, for the twelve months ended June 30, 2020 and for the three months ended June 30, 2021 and June 30, 2020.

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

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Twelve Months Ended

March 31, Three Months Ended

June 30, Three Months Ended

2021 2020 2021 2020

Net (Loss) Income $ (302) $ 153 $ 117 $ (74)

Net Income (Loss) $ 278 $ (380) $ 61 $ (519)

Income tax expense (benefit) 106 (33) 41 51

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______________________________________

(a) For the twelve months ended March 31, 2021, reflects a net loss incurred on the early extinguishment of our debt incurred as part of the June 2020 redemption of our 4.125% Senior Secured Notes and 4.875% Senior Secured Notes, the June 2020 tender for and the August 2020 redemption of the 5.000% Senior Secured Notes and the August 2020 partial repayment of the Senior Term Loan Facility.

For the twelve months ended March 31, 2020, reflects a 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.

(a) For the three months ended June 30, 2021, reflects a net loss incurred on the early extinguishment of our debt as part of the April 2021 redemption of our 5.500% Senior Notes.

The twelve months ended June 30, 2021 also reflects a net loss incurred on the early extinguishment of our debt as part of the redemption of our 4.125% Senior Secured Notes and 4.875% Senior Secured Notes, the tender for and redemption of the 5.000% Senior Secured Notes and the partial repayment of the Senior Term Loan Facility, all of which occurred in the fourth quarter of fiscal 2020.

(b) Reflects net gain on sale of securities and divestitures.

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

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

For the twelve months ended March 31, 2021, amounts mainly include a one-time fee of $13 million related to termination of the management agreement with Access upon completion of the IPO in June 2020.

Prior to termination of the management agreement, the annual fee was equal to the greater of a base amount and 1.5% of EBITDA (as defined in the indenture governing the redeemed Holdings 13.75% Senior Notes due 2019) of the Company for the applicable fiscal year, plus expenses.

(f) Reflects transaction costs, including Senior Term Loan Credit Agreement Amendment fees of $3 million and qualifying IPO costs of $72 million for the twelve months ended March 31, 2021.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $8 million and $25 million related to our finance transformation for the three and twelve months ended March 31, 2021, respectively, as well as $10 million and $31 million for the three and twelve months ended March 31, 2020, respectively.

(e) Reflects management fees and related expenses paid to Access pursuant to the management agreement which was terminated upon completion of the IPO in June 2020.

(f) Reflects mainly integration, transaction and qualifying IPO costs.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $9 million and $28 million related to our finance transformation for the three and twelve months ended June 30, 2021, respectively, as well as $6 million and $33 million for the three and twelve months ended June 30, 2020, respectively.

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

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(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 pro forma impact of specified transactions for the three and twelve months ended March 31, 2021.

(j) Reflects expected savings resulting from transformation initiatives and pro forma impact of specified transactions for the three and twelve months ended June 30, 2021.

Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period.

The pro forma impact of these

specified transactions and initiatives resulted in a $24 million increase in the twelve months ended March 31, 2021 Adjusted EBITDA.

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

The pro forma impact of these specified transactions and initiatives resulted in a $15 million increase in the twelve months ended June 30, 2021 Adjusted EBITDA.

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

of approximately $3.367 billion less cash of $250 million.

(l) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA.

This is calculated net of cash and equivalents of the Company as of March 31, 2021 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.

This is calculated net of cash and equivalents of the Company as of June 30, 2021 not exceeding $250 million.

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.

The Company’s Revolving Credit Facility does not impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or equal to $105 million at the end of a fiscal quarter.

We expect Acquisition Corp.

Management believes that funds generated from our operations and borrowings under the Revolving Credit Facility and available cash and equivalents will be sufficient to fund our debt service requirements, working capital requirements and capital expenditure requirements for the foreseeable future.

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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