UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019March 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32502

Warner Music Group Corp.
(Exact name of Registrant as specified in its charter)


Delaware
13-4271875
(State or other jurisdiction of
incorporation or organization)
13-4271875
(I.R.S. Employer
Identification No.)
1633 Broadway
New York, NY 10019
(Address of principal executive offices)
(212) 275-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  x☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filerx☒Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ☐    No  x☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class (a)
Trading

Symbol(s)
Name of each exchange on which registered
NoneNoneNone
(a)There is no public market for the registrant’s common stock. As of May 7, 2020, the registrant had 0 shares of Class A common stock, par value $0.001 per share, and 510,000,000 shares of Class B common stock, par value $0.001 per share, outstanding. All of the registrant’s common stock is owned by affiliates of Access Industries, Inc. The registrant has filed all Exchange Act reports for the preceding 12 months.
(a)There is no public market for the Registrant’s common stock. As of August 6, 2019, the number of shares of the Registrant’s common stock, par value $0.001 per share, outstanding was 1,060. All of the Registrant’s common stock is owned by affiliates of Access Industries, Inc. The Registrant has filed all Exchange Act reports for the preceding 12 months.





WARNER MUSIC GROUP CORP.
INDEX
Page

Number
Financial Statements (Unaudited)
31
Consolidated Balance Sheets as of June 30, 2019March 31, 2020 and September 30, 20182019
31
Consolidated Statements of Operations for the Three and NineSix Months Ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018
42
Consolidated Statements of Comprehensive Income for the Three and NineSix Months Ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018
53
Consolidated Statements of Cash Flows for the NineSix Months Ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018
64
Consolidated Statements of (Deficit) EquityDeficit for the Three and NineSix Months Ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018
75
Notes to Consolidated Interim Financial Statements
97
Supplementary Information—Consolidating Financial Statements
3226
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4639
Quantitative and Qualitative Disclosures About Market Risk
7268
Controls and Procedures
7368
Other Information
Legal Proceedings
7570
Risk Factors
7570
Unregistered Sales of Equity Securities and Use of Proceeds
7671
Defaults Upon Senior Securities
7671
Mine Safety Disclosures
7671
Other Information
7671
Exhibits
7772
7873




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Warner Music Group Corp.
Consolidated Balance Sheets (Unaudited)
June 30,
2019		 September 30, 2018March 31, 2020September 30, 2019
(in millions)(in millions, except share data)
Assets   Assets
Current assets:   Current assets:
Cash and equivalents$541
 $514
Cash and equivalents$484  $619  
Accounts receivable, net of allowances of $21 million and $45 million744
 447
Accounts receivable, net of allowances of $21 million and $17 millionAccounts receivable, net of allowances of $21 million and $17 million763  775  
Inventories67
 42
Inventories65  74  
Royalty advances expected to be recouped within one year171
 123
Royalty advances expected to be recouped within one year189  170  
Prepaid and other current assets57
 50
Prepaid and other current assets82  53  
Total current assets1,580
 1,176
Total current assets1,583  1,691  
Royalty advances expected to be recouped after one year209
 153
Royalty advances expected to be recouped after one year232  208  
Property, plant and equipment, net296
 229
Property, plant and equipment, net294  300  
Operating lease right-of-use assets, netOperating lease right-of-use assets, net281  —  
Goodwill1,772
 1,692
Goodwill1,761  1,761  
Intangible assets subject to amortization, net1,780
 1,851
Intangible assets subject to amortization, net1,644  1,723  
Intangible assets not subject to amortization153
 154
Intangible assets not subject to amortization151  151  
Deferred tax assets, net7
 11
Deferred tax assets, net55  38  
Other assets158
 78
Other assets123  145  
Total assets$5,955
 $5,344
Total assets$6,124  $6,017  
Liabilities and Equity   
Liabilities and DeficitLiabilities and Deficit
Current liabilities:   Current liabilities:
Accounts payable$208
 $281
Accounts payable$246  $260  
Accrued royalties1,577
 1,396
Accrued royalties1,591  1,567  
Accrued liabilities448
 423
Accrued liabilities564  492  
Accrued interest18
 31
Accrued interest34  34  
Operating lease liabilities, currentOperating lease liabilities, current39  —  
Deferred revenue170
 208
Deferred revenue167  180  
Other current liabilities123
 34
Other current liabilities91  286  
Total current liabilities2,544
 2,373
Total current liabilities2,732  2,819  
Long-term debt3,006
 2,819
Long-term debt2,983  2,974  
Operating lease liabilities, noncurrentOperating lease liabilities, noncurrent312  —  
Deferred tax liabilities, net236
 165
Deferred tax liabilities, net154  172  
Other noncurrent liabilities302
 307
Other noncurrent liabilities228  321  
Total liabilities$6,088
 $5,664
Total liabilities$6,409  $6,286  
Equity:   Equity:
Common stock ($0.001 par value; 10,000 shares authorized; 1,060
and 1,052 shares issued and outstanding at June 30, 2019
and September 30, 2018, respectively)
$—
 $—
Common A stock ($0.001 par value; 1,000,000,000 shares authorized; 0 and 0 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively)Common A stock ($0.001 par value; 1,000,000,000 shares authorized; 0 and 0 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively)$—  $—  
Common B stock ($0.001 par value; 1,000,000,000 shares authorized; 510,000,000 and 505,830,022 issued and outstanding as of March 31, 2020 and September 30, 2019, respectively)Common B stock ($0.001 par value; 1,000,000,000 shares authorized; 510,000,000 and 505,830,022 issued and outstanding as of March 31, 2020 and September 30, 2019, respectively)1  1  
Additional paid-in capital1,128
 1,128
Additional paid-in capital1,127  1,127  
Accumulated deficit(1,061) (1,272)Accumulated deficit(1,166) (1,177) 
Accumulated other comprehensive loss, net(219) (190)Accumulated other comprehensive loss, net(268) (240) 
Total Warner Music Group Corp. deficit(152) (334)Total Warner Music Group Corp. deficit  (306) (289) 
Noncontrolling interest19
 14
Noncontrolling interest21  20  
Total equity(133) (320)
Total liabilities and equity$5,955
 $5,344
Total deficitTotal deficit(285) (269) 
Total liabilities and deficitTotal liabilities and deficit$6,124  $6,017  
See accompanying notes

1

Warner Music Group Corp.
Consolidated Statements of Operations (Unaudited)
Three Months Ended
June 30,		 Nine Months Ended
June 30,		Three Months Ended
March 31,		Six Months Ended
March 31,
2019 2018 2019 20182020201920202019
(in millions) (in millions)(in millions, except share and per share data)
Revenue$1,058
 $958
 $3,351
 $2,966
Revenue$1,071  $1,090  $2,327  $2,293  
Costs and expenses:       Costs and expenses:
Cost of revenue(577) (531) (1,762) (1,588)Cost of revenue(535) (559) (1,200) (1,185) 
Selling, general and administrative expenses (a)(372) (343) (1,102) (1,013)Selling, general and administrative expenses (a)(538) (354) (917) (730) 
Amortization expense(51) (56) (160) (164)Amortization expense(47) (55) (94) (109) 
Total costs and expenses(1,000) (930) (3,024) (2,765)Total costs and expenses(1,120) (968) (2,211) (2,024) 
Operating income58
 28
 327
 201
Operating (loss) incomeOperating (loss) income (49) 122  116  269  
Loss on extinguishment of debt(4) (7) (7) (31)Loss on extinguishment of debt—  —  —  (3) 
Interest expense, net(36) (33) (108) (105)Interest expense, net(33) (36) (66) (72) 
Other (expense) income, net(16) 394
 41
 392
Income before income taxes2
 382
 253
 457
Other (expense) incomeOther (expense) income (4) 29  (9) 57  
(Loss) income before income taxes(Loss) income before income taxes (86) 115  41  251  
Income tax benefit (expense)12
 (61) (86) (132)Income tax benefit (expense) 12  (48) 7  (98) 
Net income14
 321
 167
 325
Net (loss) incomeNet (loss) income (74) 67  48  153  
Less: Income attributable to noncontrolling interest(1) (1) (1) (4)Less: Income attributable to noncontrolling interest—  —  (2) —  
Net income attributable to Warner Music Group Corp.$13
 $320
 $166
 $321
Net (loss) income attributable to Warner Music Group Corp.Net (loss) income attributable to Warner Music Group Corp. $(74) $67  $46  $153  
       
(a) Includes depreciation expense of:$(15) $(15) $(43) $(41)
(a) Includes depreciation expense:(a) Includes depreciation expense:$(14) $(14) $(38) $(28) 
Net (loss) income per share attributable to Warner Music Group Corp.’s stockholders:Net (loss) income per share attributable to Warner Music Group Corp.’s stockholders:
Basic and DilutedBasic and Diluted$(0.15) $0.13  $0.09  $0.30  
Weighted average common shares:Weighted average common shares:
Basic and DilutedBasic and Diluted501,991,944  501,991,944  501,991,944501,991,944
See accompanying notes

2

Warner Music Group Corp.
Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
June 30,		 Nine Months Ended
June 30,
 2019 2018 2019 2018
 (in millions) (in millions)
Net income$14
 $321
 $167
 $325
Other comprehensive income (loss), net of tax:       
Foreign currency adjustment9
 (31) (17) (13)
Deferred loss on derivative(3) (3) (12) (1)
Other comprehensive income (loss), net of tax6
 (34) (29) (14)
Total comprehensive income20
 287
 138
 311
Less: Income attributable to noncontrolling interest(1) (1) (1) (4)
Comprehensive income attributable to Warner Music Group Corp.$19
 $286
 $137
 $307
Three Months Ended
March 31,		Six Months Ended
March 31,
2020201920202019
(in millions)
Net (loss) income$(74) $67  $48  $153  
Other comprehensive loss, net of tax:
Foreign currency adjustment(15) (10) (8) (26) 
Deferred loss on derivative financial instruments(23) (3) (20) (9) 
Other comprehensive loss, net of tax(38) (13) (28) (35) 
Total comprehensive (loss) income(112) 54  20  118  
Less: Income attributable to noncontrolling interest—  —  (2) —  
Comprehensive (loss) income attributable to Warner Music Group Corp.$(112) $54  $18  $118  
See accompanying notes

3

Warner Music Group Corp.
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
June 30,		Six Months Ended
March 31,
2019 201820202019
(in millions)(in millions)
Cash flows from operating activities   Cash flows from operating activities
Net income$167
 $325
Net income  $48  $153  
Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization203
 205
Depreciation and amortization132  137  
Unrealized gains on remeasurement of foreign denominated loans(6) (6)
Unrealized gains and remeasurement of foreign-denominated loans and foreign currency forward exchange contractsUnrealized gains and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts(7) (24) 
Deferred income taxes25
 105
Deferred income taxes(31) 27  
Loss on extinguishment of debt7
 31
Loss on extinguishment of debt—  3  
Net gain on divestitures and investments(27) (385)
Net loss (gain) on divestitures and investmentsNet loss (gain) on divestitures and investments15  (32) 
Non-cash interest expense5
 5
Non-cash interest expense3  3  
Equity-based compensation expense28
 52
Equity-based compensation expense160  14  
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:
Accounts receivable, net(50) (43)Accounts receivable, net6  (90) 
Inventories12
 (1)Inventories9  13  
Royalty advances(107) —
Royalty advances(47) (61) 
Accounts payable and accrued liabilities(94) (84)Accounts payable and accrued liabilities(109) (100) 
Royalty payables117
 113
Royalty payables38  46  
Accrued interest(13) (22)Accrued interest—  1  
Operating lease liabilitiesOperating lease liabilities(2) —  
Deferred revenue(17) —
Deferred revenue(14) (19) 
Other balance sheet changes(1) (30)Other balance sheet changes(37) 28  
Net cash provided by operating activities249
 265
Net cash provided by operating activities164  99  
Cash flows from investing activities   Cash flows from investing activities
Acquisition of music publishing rights, net(24) (11)
Acquisition of music publishing rights and music catalogs, netAcquisition of music publishing rights and music catalogs, net(18) (16) 
Capital expenditures(82) (40)Capital expenditures(28) (59) 
Investments and acquisitions of businesses, net of cash received(234) (14)Investments and acquisitions of businesses, net of cash received(5) (218) 
Proceeds from the sale of investments—
 516
Net cash (used in) provided by investing activities(340) 451
Net cash used in investing activitiesNet cash used in investing activities(51) (293) 
Cash flows from financing activities   Cash flows from financing activities
Proceeds from issuance of Acquisition Corp. 3.625% Senior Secured Notes514
 —
Proceeds from issuance of Acquisition Corp. 3.625% Senior Secured Notes—  287  
Repayment of Acquisition Corp. 4.125% Senior Secured Notes(40) —
Repayment of Acquisition Corp. 4.125% Senior Secured Notes—  (40) 
Repayment of Acquisition Corp. 4.875% Senior Secured Notes(30) —
Repayment of Acquisition Corp. 4.875% Senior Secured Notes—  (30) 
Repayment of Acquisition Corp. 5.625% Senior Secured Notes(247) —
Repayment of Acquisition Corp. 5.625% Senior Secured Notes—  (27) 
Proceeds from issuance of Acquisition Corp. 5.50% Senior Notes—
 325
Proceeds from supplement of Acquisition Corp. Senior Term Loan Facility—
 320
Repayment of and redemption deposit for Acquisition Corp. 6.75% Senior Notes—
 (635)
Call premiums paid and deposit on early redemption of debt(5) (23)Call premiums paid and deposit on early redemption of debt—  (2) 
Deferred financing costs paid(7) (12)Deferred financing costs paid—  (4) 
Distribution to noncontrolling interest holder(3) (3)Distribution to noncontrolling interest holder(1) (2) 
Dividends paid(63) (425)Dividends paid(244) (31) 
Net cash provided by (used in) financing activities119
 (453)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(245) 151  
Effect of exchange rate changes on cash and equivalents(1) (5)Effect of exchange rate changes on cash and equivalents(3) (1) 
Net increase in cash and equivalents27
 258
Net decrease in cash and equivalents Net decrease in cash and equivalents  (135) (44) 
Cash and equivalents at beginning of period514
 647
Cash and equivalents at beginning of period619  514  
Cash and equivalents at end of period$541
 $905
Cash and equivalents at end of period$484  $470  
See accompanying notes

4

Warner Music Group Corp.
Consolidated Statements of (Deficit) EquityDeficit (Unaudited)
Six Months Ended March 31, 2020
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Warner Music
Group Corp.
Deficit		Noncontrolling
Interest		Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at September 30, 2019—  $—  505,830,022  $1  $1,127  $(1,177) $(240) $(289) $20  $(269) 
Cumulative effect of ASC 842 adoption—  —  —  —  —  7  —  7  —  7  
Cumulative effect of ASC 718 accounting policy change—  —  —  —  —  33  —  33  —  33  
Net income—  —  —  —  —  46  —  46  2  48  
Other comprehensive loss, net of tax—  —  —  —  —  —  (28) (28) —  (28) 
Dividends ($0.15 per share)—  —  —  —  —  (75) —  (75) —  (75) 
Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  (1) (1) 
Other—  —  4,169,978  —  —  —  —  —  —  —  
Balance at March 31, 2020—  $—  510,000,000  $1  $1,127  $(1,166) $(268) $(306) $21  $(285) 

Three Months Ended March 31, 2020
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Warner Music
Group Corp.
Deficit		Noncontrolling
Interest		Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at December 31, 2019—  $—  510,000,000  $1  $1,127  $(1,088) $(230) $(190) $21  $(169) 
Cumulative effect of ASC 718 accounting policy change—  —  —  —  —  33  —  33  —  33  
Net loss—  —  —  —  —  (74) —  (74) —  (74) 
Other comprehensive loss, net of tax—  —  —  —  —  —  (38) (38) —  (38) 
Dividends ($0.07 per share)—  —  —  —  —  (37) —  (37) —  (37) 
Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  —  —  
Other—  —  —  —  —  —  —  —  —  —  
Balance at March 31, 2020—  $—  510,000,000  $1  $1,127  $(1,166) $(268) $(306) $21  $(285) 
5

Six Months Ended March 31, 2019Six Months Ended March 31, 2019
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Warner Music
Group Corp.
Deficit		Noncontrolling
Interest		Total
Deficit
Nine Months Ended June 30, 2019    
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Warner Music
Group Corp.
Deficit
 
Noncontrolling
Interest
 
Total
Equity
Common Stock Class A
Common Stock		Class B
Common Stock
Shares Value SharesAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Warner Music
Group Corp.
Deficit		Noncontrolling
Interest		Total
Deficit
(in millions, except share amounts)(in millions, except share and per share data)
Balance at September 30, 20181,052
 $—
 $1,128
 $(1,272) $(190) $(334) $14
 $(320)Balance at September 30, 2018—  $—  501,991,944  $1  $1,127  $(1,272) 
Cumulative effect of ASC 606 adoption—
 —
 —
 139
 —
 139
 11
 150
Cumulative effect of ASC 606 adoption—  —  —  —  —  139  —  139  11  150  
Net income—
 —
 —
 166
 —
 166
 1
 167
Net income—  —  —  —  —  153  —  153  —  153  
Other comprehensive loss, net of tax—
 —
 —
 —
 (29) (29) —
 (29)Other comprehensive loss, net of tax—  —  —  —  —  —  (35) (35) —  (35) 
Dividends—
 —
 —
 (94) —
 (94) —
 (94)
Dividends ($0.12 per share)Dividends ($0.12 per share)—  —  —  —  —  (63) —  (63) —  (63) 
Distribution to noncontrolling interest holders—
 —
 —
 —
 —
 —
 (3) (3)Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  (2) (2) 
Other8
 —
 —
 —
 —
 —
 (4) (4)Other—  —  3,838,078  —  —  —  —  —  (3) (3) 
Balance at June 30, 20191,060
 $—
 $1,128
 $(1,061) $(219) $(152) $19
 $(133)
Balance at March 31, 2019Balance at March 31, 2019—  $—  505,830,022  $1  $1,127  $(1,043) $(225) $(140) $20  $(120) 

Three Months Ended June 30, 2019    
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Warner Music
Group Corp.
Deficit
 
Noncontrolling
Interest
 
Total
Equity
 Common Stock 
 Shares Value 
 (in millions, except share amounts)
Balance at March 31, 20191,060
 $—
 $1,128
 $(1,043) $(225) $(140) $20
 $(120)
Net income—
 —
 —
 13
 —
 13
 1
 14
Other comprehensive income, net of tax—
 —
 —
 —
 6
 6
 —
 6
Dividends—
 —
 —
 (31) —
 (31) —
 (31)
Distribution to noncontrolling interest holders—
 —
 —
 —
 —
 —
 (1) (1)
Other—
 —
 —
 —
 —
 —
 (1) (1)
Balance at June 30, 20191,060
 $—
 $1,128
 $(1,061) $(219) $(152) $19
 $(133)

Nine Months Ended June 30, 2018    
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Warner Music
Group Corp.
Equity
 
Noncontrolling
Interest
 
Total
Equity
 Common Stock 
 Shares Value 
 (in millions, except share amounts)
Balance at September 30, 20171,055
 $—
 $1,128
 $(654) $(181) $293
 $15
 $308
Net income—
 —
 —
 321
 —
 321
 4
 325
Other comprehensive loss, net of tax—
 —
 —
 —
 (14) (14) —
 (14)
Dividends—
 —
 —
 (425) —
 (425) —
 (425)
Distribution to noncontrolling interest holders—
 —
 —
 —
 —
 —
 (3) (3)
Other(3) —
 —
 —
 —
 —
 —
 —
Balance at June 30, 20181,052
 $—
 $1,128
 $(758) $(195) $175
 $16
 $191
Three Months Ended June 30, 2018    
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Warner Music
Group Corp.
Equity
 
Noncontrolling
Interest
 
 Total
Equity
 Common Stock 
 Shares Value 
 (in millions, except share amounts)
Balance at March 31, 20181,052
 $—
 $1,128
 $(778) $(161) $189
 $16
 $205
Net income—
 —
 —
 320
 —
 320
 1
 321
Other comprehensive loss, net of tax—
 —
 —
 —
 (34) (34) —
 (34)
Dividends—
 —
 —
 (300) —
 (300) —
 (300)
Distribution to noncontrolling interest holders—
 —
 —
 —
 —
 —
 (1) (1)
Balance at June 30, 20181,052
 $—
 $1,128
 $(758) $(195) $175
 $16
 $191
Three Months Ended March 31, 2019
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Warner Music
Group Corp.
Deficit		Noncontrolling
Interest		Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at December 31, 2018—  $—  505,830,022  $1  $1,127  $(1,078) $(212) $(162) $23  $(139) 
Net income—  —  —  —  —  67  —  67  —  67  
Other comprehensive loss, net of tax—  —  —  —  —  —  (13) (13) —  (13) 
Dividends ($0.06 per share)—  —  —  —  —  (32) —  (32) —  (32) 
Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  —  —  
Other—  —  —  —  —  —  —  —  (3) (3) 
Balance at March 31, 2019—  $—  505,830,022  $1  $1,127  $(1,043) $(225) $(140) $20  $(120) 
See accompanying notes

6

Warner Music Group Corp.
Notes to Consolidated Interim Financial Statements (Unaudited)
1. Description of Business
Warner Music Group Corp. (the “Company”) was formed on November 21, 2003. The Company is the direct parent of WMG Holdings Corp. (“Holdings”), which is the direct parent of WMG Acquisition Corp. (“Acquisition Corp.”). Acquisition Corp. is one of the world’s major music-based contentmusic entertainment companies.
Acquisition of Warner Music Group by Access Industries
Pursuant to anthe Agreement and Plan of Merger, dated as of May 6, 2011 (the “Merger Agreement”), by and among the Company, AI Entertainment Holdings LLC (formerly Airplanes Music LLC), a Delaware limited liability company (“Parent”) and an affiliate of Access Industries, Inc. (“Access”), and Airplanes Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), on July 20, 2011 (the “Merger Closing Date”), Merger Sub merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). In connection with the Merger, the Company delisted its common stock from the NYSE. New York Stock Exchange (the “NYSE”).
The Company continues to voluntarily to file with the SECU.S. Securities and Exchange Commission (the “SEC”) current and periodic reports that would be required to be filed with the SEC pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as provided for in certain covenants contained in the instruments covering its outstanding indebtedness. All of the Company’s common stock is owned by affiliates of Access.
On February 6, 2020, the Company filed a Form S-1 registration statement with the SEC for an initial public offering (“IPO”). The completion of the proposed IPO will depend on, among other things, the SEC review process and customary regulatory approvals, as well as market conditions. There can be no assurance that the proposed IPO will occur.
Recorded Music Operations
The Company’sOur Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of recorded music producedcreated by such recording artists. The Company playsWe play an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music to marketing and promoting recording artists and their products.music.
In the United States, our Recorded Music operations arebusiness is conducted principally through the Company’sour major record labels— WarnerAtlantic Records and AtlanticWarner Records. In October 2018, the Companywe launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels. The Company’sOur Recorded Music operationsbusiness also includeincludes Rhino Entertainment, a division that specializes in marketing the Company’sour recorded music catalog through compilations, and reissuances of previously released music and video titles. The Companytitles and releasing previously unreleased material from our vault. We also conducts itsconduct our Recorded Music operationsbusiness through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’, Warner Classics and Warner Music Nashville.
Outside the United States, our Recorded Music activities arebusiness is conducted in more than 5070 countries through various subsidiaries, affiliates and non-affiliated licensees. Internationally, the Company engageswe engage in the same activities as in the United States: discovering and signing artists and distributing, selling, marketing and sellingpromoting their recorded music. In most cases, the Companywe also marketsmarket, promote, distribute and distributessell the music of those recording artists for whom the Company’sour domestic record labels have international rights. In certain smaller markets, the Company licenseswe license the right to distribute the Company’s recordsand sell our music to non-affiliated third-party record labels. The Company’s international artist services operations include a network of concert promoters through which it provides resources to coordinate tours for the Company’s artists and other artists as well as management companies that guide artists with respect to their careers.
The Company’sOur Recorded Music business’ distribution operations include Warner-Elektra-Atlantic Corporation (“WEA Corp.”), which markets, distributes and sells music and video products to retailers and wholesale distributors; Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.
The Company’s Recorded Music products areIn addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as Amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including digital streaming services such as those of Amazon, Apple, Music, Deezer, Napster, Soundcloud,SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, digital radio services such as iHeart Radio Pandora and Sirius XMSiriusXM and digital download services such as Apple’s iTunes and Google Play. In addition, Recorded Music products are sold in physical retail outlets and in physical form to online physical retailers such as Amazon.com and bestbuy.comservices.

7

The Company hasWe have integrated the exploitationmarketing of digital content into all aspects of itsour business, including artist and repertoire (“A&R”), marketing, promotion and distribution. The Company’sOur business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations. The CompanyWe also works side by sidework side-by-side with its digitalour online and mobile partners to test new concepts. The Company believesWe believe existing and new digital businesses will be a significant source of growth and will provide new opportunities to successfully monetize itsour assets and create new revenue streams. The proportion of digital revenues attributedattributable to each distribution channel varies by region and proportions may change as the roll outintroduction of new technologies continues. As an ownerone of the world’s largest music content, the Company believes it isentertainment companies, we believe we are well positioned to take advantage of growth in digital distribution and emerging technologies to maximize the value of itsour assets.
The Company hasWe have diversified itsour revenues beyond itsour traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers. Under these agreements, the Company provideswe provide services to and participatesparticipate in recording artists’ activities outside the traditional recorded music business such as touring, merchandising and sponsorships. The Company hasWe have built and acquired artist services capabilities and platforms for exploitingmarketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands it helpswe help create.
The Company believes We believe that entering into expanded-rights deals and enhancing itsour artist services capabilities in areas such as merchandising, VIP ticketing, fan clubs, concert promotion merchandising and management havehas permitted itus to diversify revenue streams and capitalize on other revenue opportunities. This provides for improved long-term relationships with our recording artists and allows the Companyus to more effectively connect recording artists and fans.
Music Publishing Operations
While recorded musicRecorded Music is focused on exploitingmarketing, promoting, distributing and licensing a particular recording of a musical composition, music publishingMusic Publishing is an intellectual property business focused on the exploitationgenerating revenue from uses of the musical composition itself. In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, the Company’sour Music Publishing business garners a share of the revenues generated from use of the composition.  musical compositions.
The Company’soperations of our Music Publishing operationsbusiness are conducted principally through Warner Chappell Music, itsour global Music Publishingmusic publishing company headquartered in Los Angeles with operations in over 5070 countries through various subsidiaries, affiliates and non-affiliated licensees. The Company ownslicensees and sub-publishers. We own or controlscontrol rights to more than one1.4 million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions. Assembled over decades, itsour award-winning catalog includes over 70,00080,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, techno, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios. The Company hasWe have an extensive production music librarycatalog collectively branded as Warner Chappell Production Music.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principlesUnited States generally accepted in the United Statesaccounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periodssix months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019.2020.
The consolidated balance sheet at September 30, 20182019 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 20182019 (File No. 001-32502).
Basis of Consolidation
The accompanying financial statements present the consolidated accounts of all entities in which the Company has a controlling voting interest and/or variable interest required to be consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated.

8

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), requires the Company first evaluate its investments to determine if any investments qualify as a variable interest entity (“VIE”). A VIE is consolidated if the Company is deemed to be the primary beneficiary of the VIE, which is the party involved with the VIE that has both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If an entity is not deemed to be a VIE, the Company consolidates the entity if the Company has a controlling voting interest.
The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period. As such, all references to June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 relate to the periods ended June 28,March 27, 2020 and March 29, 2019, and June 29, 2018, respectively. For convenience purposes, the Company continues to date its second-quarter financial statements as of June 30.March 31. The fiscal year ended September 30, 20182019 ended on September 28, 2018.27, 2019.
The Company has performed a review of all subsequent events through the date the financial statements were issued and has determined that no additional disclosures are necessary.
Common Stock and Earnings per Share
On February 28, 2020, the Company amended its certificate of incorporation to increase its authorized capital stock to 2,100,000,000 shares, consisting of 1,000,000,000 shares of Class A common stock, par value $0.001 per share, 1,000,000,000 shares of Class B common stock, par value $0.001 per share, and 100,000,000 shares of preferred stock, par value $1.00 per share. In addition, the February 28, 2020 amendment to the Company’s certificate of incorporation also gave effect to the reclassification and 477,242.614671815-for-1 stock split of the Company’s existing common stock outstanding into 510,000,000 shares of Class B common stock. This stock split has been retrospectively presented throughout the interim financial statements.
The consolidated statements of operations present basic and diluted earnings per share (“EPS”). Basic and diluted earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of outstanding common shares less shares issued for the exercise of the deferred equity units. The deferred equity units are mandatorily redeemable and as such are excluded from the denominator of the basic and diluted EPS calculation. The Company did not have any dilutive securities for the three and six months ended March 31, 2020 and March 31, 2019.
Share-Based Compensation
The Company accounts for share-based payments as required by ASC 718, Compensation—Stock Compensation (“ASC 718”). Under the recognition provision of ASC 718, the Company’s liability classified share-based compensation costs are measured each reporting date until settlement. In February 2020, the Company filed a Form S-1 registration statement with the SEC for a proposed IPO, which required a change in accounting policy during the quarter from the intrinsic value method to fair value method in determining the basis of measurement of its share-based compensation liability.
In determining fair value, the Company utilized an option pricing model for those awards with an option-like pay-off, which includes various inputs for volatility, term to exit, discount for lack of marketability, expected dividend yield and risk-free rates. For awards with an equity-like pay-off, inputs for discount of lack of marketability and non-performance risk were considered. The Company continued to use an income approach using a discounted cash flow model to determine its per-share value input within the model. As a result of this change in accounting policy, the Company recorded a decrease to its share-based compensation liability of $38 million, which resulted in a decrease of $33 million, net of tax, to accumulated deficit as of March 31, 2020.
Income Taxes
AtThe Company uses the end of each interim period, the Company makes its best estimate of theestimated annual effective tax rate expectedmethod in computing its interim tax provision. Certain items, including those deemed to be applicable forunusual and infrequent are excluded from the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items.
On December 22, 2017,estimated annual effective tax rate. In such cases, the U.S. government enacted comprehensiveactual tax legislation commonly referred toexpense or benefit is reported in the same period as the Tax Cuts and Jobs Act (the “Tax Act”).  In accordance with ASC Topic 740, Income Taxes (“ASC 740”) the Company recorded the impactsrelated item. Certain tax effects are also not reflected in the periodestimated annual effective tax rate, primarily certain changes in the realizability of enactment.deferred tax assets and uncertain tax positions.
New Accounting Pronouncements
Adoption of New Revenue Recognition Standard
In May 2014, the FASB issued guidance codified in ASC 606, Revenue from Contracts with Customers (“ASC 606”), which replaces the guidance in former ASC 605, Revenue Recognition and ASC 928-605, Entertainment – Music. The amendment was the result of a joint effort by the FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and international financial reporting standards ("IFRS").  The joint project clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and IFRS.
The Company adopted ASC 606 on October 1, 2018, using the modified retrospective method to all contracts not completed as of the date of adoption.  The reported results as of and for the three and nine months ended June 30, 2019 reflect the application of the new standard, while the reported results for the three and nine months ended June 30, 2018 have not been adjusted to reflect the new standard and were prepared under prior revenue recognition accounting guidance.
The adoption of ASC 606 resulted in a change in the timing of revenue recognition in the Company’s Music Publishing segment as well as international broadcast rights within Recorded Music.  Under the new revenue recognition rules, revenue is recorded based on best estimates available in the period of sale or usage whereas revenue was previously recorded when cash was received for both the licensing of publishing rights and international Recorded Music broadcast fees.  Additionally, for certain licenses where the consideration is fixed and the intellectual property being licensed is static, revenue is recognized at the point in time when control of the licensed content is transferred to the customer. As a result of adopting ASC 606, the Company recorded a decrease to the opening accumulated deficit of approximately $139 million, net of tax, as of October 1, 2018.  The Company also reclassified $28 million from accounts receivable to other current liabilities related to estimated refund liabilities for our physical sales.  

The following table provides the cumulative effect of the changes made to the opening balance sheet, as of October 1, 2018, from the adoption of ASC 606 and which primarily relates to the accrual of licensing revenue in the period of sale or usage.
 September 30,
2018		 
Impact of
Adoption
 October 1, 2018
 (in millions)
Assets     
Accounts receivable, net$447
 $257
 $704
Total current assets1,176
 257
 1,433
Other assets78
 15
 93
Total assets$5,344
 $272
 $5,616
Liabilities and Equity     
Accrued royalties1,396
 79
 1,475
Accrued liabilities423
 (1) 422
Deferred revenue208
 (27) 181
Other current liabilities34
 33
 67
Total current liabilities2,373
 84
 2,457
Deferred tax liabilities, net165
 37
 202
Other noncurrent liabilities307
 1
 308
Total liabilities5,664
 122
 5,786
Equity:     
Accumulated Deficit(1,272) 139
 (1,133)
Noncontrolling interest14
 11
 25
Total equity(320) 150
 (170)
Total liabilities and equity$5,344
 $272
 $5,616
The disclosure of the impact of adoption on the consolidated statement of operations for the three and nine months ended June 30, 2019, the consolidated balance sheet as of June 30, 2019, and the consolidated statement of cash flows for the nine months ended June 30, 2019 are as follows (in millions):
 Three Months Ended June 30, 2019 Nine Months Ended June 30, 2019
 
As
Reported
 
Balances
without
adoption
of ASC
606
 
Effect of
Change
 
As
Reported
 
Balances
without
adoption
of ASC
606
 
Effect of
Change
 (in millions) (in millions)
Revenue$1,058
 $1,057
 $1
 $3,351
 $3,322
 $29
Cost and expenses:           
Cost of revenue(577) (558) (19) (1,762) (1,765) 3
Operating income58
 76
 (18) 327
 295
 32
Income before income taxes2
 20
 (18) 253
 221
 32
Income tax benefit (expense)12
 17
 (5) (86) (75) (11)
Net income14
 37
 (23) 167
 146
 21
Less: Income attributable to noncontrolling interest(1) —
 (1) (1) (3) 2
Net income attributable to Warner Music Group Corp.$13
 $37
 $(24) $166
 $143
 $23

 June 30, 2019
 As Reported 
Balances
without
adoption
of ASC
606
 
Effect of
Change
 (in millions)
Assets     
Accounts receivable, net$744
 $465
 $279
Total current assets1,580
 1,301
 279
Other assets158
 143
 15
Deferred tax assets, net7
 7
 —
Total assets$5,955
 $5,661
 $294
Liabilities and Equity     
Accounts payable208
 209
 (1)
Accrued royalties1,577
 1,501
 76
Accrued liabilities448
 449
 (1)
Deferred revenue170
 199
 (29)
Other current liabilities123
 95
 28
Total current liabilities2,544
 2,471
 73
Deferred tax liabilities, net236
 189
 47
Other noncurrent liabilities302
 298
 4
Total liabilities6,088
 5,964
 124
Equity:     
Accumulated deficit(1,061) (1,221) 160
Noncontrolling interest19
 9
 10
Total equity(133) (303) 170
Total liabilities and equity$5,955
 $5,661
 $294
 June 30, 2019
 As Reported 
Balances
without
adoption
of ASC
606
 
Effect of
Change
 (in millions)
Cash flows from operating activities     
Net income$167
 $146
 $21
Deferred income taxes25
 15
 10
Changes in operating assets and liabilities:     
Accounts receivable, net(50) (28) (22)
Accounts payable and accrued liabilities(94) (96) 2
Royalty advances(107) (104) (3)
Deferred revenue(17) (15) (2)
Other balance sheet changes(1) 5
 (6)
Net cash provided by operating activities249
 249
 —
Effect of exchange rate changes on cash and equivalents(1) (1) —
Net decrease in cash and equivalents27
 27
 —
Cash and equivalents at beginning of period514
 514
 —
Cash and equivalents at end of period$541
 $541
 $—

Recently Adopted Accounting Pronouncements
In JanuaryFebruary 2016, the FASB issued ASU 2016-01, Recognition2016-02, Leases (“ASU 2016-02”), which established a new ASC Topic 842 (“ASC 842”) that introduces a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and Measurementa lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of Financial Assets and Financial Liabilitiesexpense recognition in the statement of operations. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted
9

Improvements (“ASU 2016-01”2018-11”). This ASU will require that equity investments, except those investments under, which allows for retrospective application with the equity methodrecognition of accounting, are measured at fair value with changesa cumulative-effect adjustment to the opening balance of retained earnings in fair value recognized in net income. The Company may elect to measure equity investments thatthe period of adoption. Under this option, entities do not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable prices.need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented. The Company adopted ASU 2016-012016-02 on October 1, 2018 and has elected to use2019, using the measurement alternative to measure our equity investments without readily determinable fair values. This guidance was applied prospectively and did not have a significant impact on the Company’s financial statements. For the nine months ended June 30, 2019, there were no observable price change events that were completed related to our equity investments without readily determinable fair values.
In August 2016, the FASB issuedmodified retrospective transition method provided by ASU 2016-15, Statement2018-11. The adoption of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). This ASU provides specific guidance of how certain cash receipts and cash payments should be presented and classified2016-02 resulted in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those years. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019 and this adoption did not have a significant impact on the Company’s financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16").  This ASU requires the recognition of currentoperating lease liabilities of $366 million and ROU assets of $297 million, which is net of the historical deferred income taxes for intra-entity asset transfers when the transaction occurs. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those years.rent liability balance of $69 million, primarily related to real estate leases. The Company also recorded a decrease to opening accumulated deficit of $7 million, net of taxes, related to previously deferred gains related to sale-leaseback transactions.
Upon transition, the Company adopted ASU 2016-16 in the first quarter“package of fiscal 2019three” practical expedient provided by ASC 842 and this adoption didtherefore has not have(1) reassessed whether any expired or existing contracts are or contain a significant impact onlease, (2) reassessed the Company’s financial statements.lease classification for expired or existing leases and (3) reassessed initial direct costs for any existing leases. Rather, the Company will retain the conclusions reached for these items under ASC 840.
In January ofAugust 2017, the FASB issued ASU 2017-01, Business Combinations2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-01”), to clarify the definition of a business, which establishes a process to determine when an integrated set of assets and activities can be deemed a business combination. The Company adopted ASU 2017-01 in the first quarter of fiscal 2019 and this adoption did not have a significant impact on the Company’s financial statements.
In February 2018, FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (“ASU 2018-02”2017-12”). This ASU allows a reclassification from accumulated other comprehensive income to accumulated deficitimproves certain aspects of the hedge accounting model including making more risk management strategies eligible for stranded tax effects resulting fromhedge accounting and simplifying the Tax Act.assessment of hedge effectiveness. ASU 2018-022017-12 is effective for all entities for fiscal yearsannual periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted includingand requires a prospective adoption in any interim period.with a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption for existing hedging relationships. The Company adopted ASU 2018-022017-12 in the first quarter of fiscal 20192020 and this adoption did not have a significant impact on the Company’s financial statements.
Accounting Pronouncements Not Yet Adopted
In FebruaryJune 2016, the FASB issued ASU 2016-02, Leases2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-02”2016-13”),. ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which established a new ASC Topic 842 (ASC 842). Thiscarrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. ASU 2016-022016-13 will be effective for annual periods beginning after December 15, 2018, and interim periods within those years. Earlier adoption is permitted. In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements (“ASU 2018-11”), which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented.
Upon adoption, the Company expects that most of our operating leases will be recognized as operating lease liabilities and ROU assets on our consolidated balance sheet. The Company continues to evaluate the impact of the adoption of this standard on its financial statements and disclosures and expects to elect the optional transition method that allows for a cumulative-effect adjustment upon adoption.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). This ASU improves certain aspects of the hedge accounting model including making more risk management strategies eligible for hedge accounting and simplifying the assessment of hedge effectiveness. ASU 2017-12 is effective for all annual periods beginning after December 15, 20182019, and interim periods within those fiscal years. EarlyEarlier adoption is permitted and requires a prospective adoption with a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption for existing hedging relationships.permitted. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statementsstatements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminates the exception to (1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations, and disclosures.income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies U.S. GAAP by making other changes. ASU 2019-12 will be effective for the annual periods beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. Earlier adoption is permitted. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.


3. Revenue Recognition
For our operating segments, Recorded Music and Music Publishing, the Company accounts for a contract when it has legally enforceable rights and obligations and collectability of consideration is probable. The Company identifies the performance obligations and determines the transaction price associated with the contract, which is then allocated to each performance obligation, using management’s best estimate of standalone selling price for arrangements with multiple performance obligations. Revenue is recognized when, or as, control of the promised services or goods is transferred to ourthe Company’s customers, and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods. An estimate of variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Certain of ourthe Company’s arrangements include licenses of intellectual property with consideration in the form of sales- and usage-based royalties. Royalty revenue is recognized when the subsequent sale or usage occurs using the best estimates available of the amounts that will be received by the Company.
10

Disaggregation of Revenue
OurThe Company’s revenue consists of the following categories, which aggregate into ourthe segments -– Recorded Music and Music Publishing (in millions):Publishing:
 For the Three Months Ended June 30, 2019 vs. 2018
 2019 2018 $ Change % Change
Revenue by Type       
Digital$584
 $519
 $65
 13 %
Physical95
 130
 (35) -27 %
Total Digital and Physical679
 649
 30
 5 %
Artist services and expanded-rights158
 85
 73
 86 %
Licensing76
 68
 8
 12 %
Total Recorded Music913
 802
 111
 14 %
Performance36
 51
 (15) -29 %
Digital65
 59
 6
 10 %
Mechanical13
 17
 (4) -24 %
Synchronization29
 28
 1
 4 %
Other4
 4
 —
 — %
Total Music Publishing147
 159
 (12) -8 %
Intersegment eliminations(2) (3) 1
 -33 %
Total Revenue$1,058
 $958
 $100
 10 %
Revenue by Geographical Location       
U.S. Recorded Music$395
 $356
 $39
 11 %
U.S. Music Publishing71
 69
 2
 3 %
Total U.S.466
 425
 41
 10 %
International Recorded Music518
 446
 72
 16 %
International Music Publishing76
 90
 (14) -16 %
Total International594
 536
 58
 11 %
Intersegment eliminations(2) (3) 1
 -33 %
Total Revenue$1,058
 $958
 $100
 10 %

For the Three Months Ended
March 31,		For the Six Months Ended
March 31,
For the Nine Months Ended
June 30,		 2019 vs. 20182020201920202019
2019 2018 $ Change % Change(in millions)(in millions)
Revenue by Type       Revenue by Type
Digital$1,744
 $1,491
 $253
 17 %Digital$626  $597  $1,259  $1,160  
Physical456
 500
 (44) -9 %Physical94  130  278  361  
Total Digital and Physical2,200
 1,991
 209
 10 %Total Digital and Physical720  727  1,537  1,521  
Artist services and expanded-rights458
 264
 194
 73 %Artist services and expanded-rights115  134  303  300  
Licensing229
 242
 (13) -5 %Licensing72  72  151  153  
Total Recorded Music2,887
 2,497
 390
 16 %Total Recorded Music907  933  1,991  1,974  
Performance135
 153
 (18) -12 %Performance41  46  87  99  
Digital195
 169
 26
 15 %Digital74  65  147  130  
Mechanical41
 55
 (14) -25 %Mechanical15  13  30  28  
Synchronization89
 90
 (1) -1 %Synchronization34  31  70  60  
Other10
 9
 1
 11 %Other2  3  5  6  
Total Music Publishing470
 476
 (6) -1 %Total Music Publishing166  158  339  323  
Intersegment eliminations(6) (7) 1
 -14 %Intersegment eliminations(2) (1) (3) (4) 
Total Revenue$3,351
 $2,966
 $385
 13 %
Total RevenuesTotal Revenues$1,071  $1,090  $2,327  $2,293  
Revenue by Geographical Location       Revenue by Geographical Location
U.S. Recorded Music$1,236
 $1,061
 $175
 16 %U.S. Recorded Music$380  $410  $833  $841  
U.S. Music Publishing219
 220
 (1) — %U.S. Music Publishing87  75  168  148  
Total U.S.1,455
 1,281
 174
 14 %Total U.S.467  485  1,001  989  
International Recorded Music1,651
 1,436
 215
 15 %International Recorded Music527  523  1,158  1,133  
International Music Publishing251
 256
 (5) -2 %International Music Publishing79  83  171  175  
Total International1,902
 1,692
 210
 12 %Total International606  606  1,329  1,308  
Intersegment eliminations(6) (7) 1
 -14 %Intersegment eliminations(2) (1) (3) (4) 
Total Revenue$3,351
 $2,966
 $385
 13 %
Total RevenuesTotal Revenues$1,071  $1,090  $2,327  $2,293  
Recorded Music
Recorded Music mainly involves selling, marketing, distribution and licensing of recorded music produced by ourthe Company’s recording artists. Recorded Music revenues are derived from four4 main sources, which include digital, physical, artist services and expanded rightsexpanded-rights and licensing.
Digital revenues are generated from the expanded universe of digital partners, including digital streaming services and digital download services. These licenses typically contain a single performance obligation, which is ongoing access to all intellectual property in an evolving content library, predicated on: (1)the business practice and contractual ability to remove specific content without a requirement to replace the content and without impact to minimum royalty guarantees and (2)the contracts not containing a specific listing of content subject to the license. Digital licensing contracts are generally long-term with consideration in the form of sales- and usage-based royalties that are typically received monthly. Certain contracts contain non-recoupable fixed fees or minimum guarantees, which are recoupable against royalties. Upon contract inception, the Company will assess whether a shortfall or breakage is expected (i.e., where the minimum guarantee will not be recouped through royalties) in order to determine timing of revenue recognition for the fixed fee or minimum guarantee.
For fixed fee and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is recognized proportionately over the contract term using an appropriate measure of progress which is typically recognizedbased on the Company’s digital partner’s subscribers or streaming activity as these are measures of access to an evolving catalog, or on a straight-line basis over the contractual term.basis. The Company updates its assessment of the transaction price each reporting period to see if anticipated royalty earnings exceed the minimum guarantee. For contracts where breakage is not expected, royalties are recognized as revenue as sales or usage occurs based upon the licensee’s usage reports and, when these reports are not available, revenue is based on historical data, industry information and other relevant trends.
11

Additionally, for certain licenses where the consideration is fixed and the intellectual property being licensed is static, revenue is recognized at the point in time when control of the licensed content is transferred to the customer.

Physical revenues are generated from the sale of physical products such as vinyl, CDs vinyl and DVDs. Revenues from the sale of physical Recorded Music products are recognized upon transfer of control to the customer, which typically occurs once the product has been shipped and the ability to direct use and obtain substantially all of the benefit from the asset have been transferred. In accordance with industry practice and as is customary in many territories, certain products, such as CDs and DVDs, are sold to customers with the right to return unsold items. Revenues from such sales are generally recognized upon shipment based on gross sales less a provision for future estimated returns.
Artist services and expanded-rights revenues are generated from artist services businesses and participations in expanded-rights associated with artists, including sponsorship, fan clubs, artist websites, merchandising, touring, concert promotion, ticketing and artist and brand management. Artist services and expanded-rights contracts are generally short term. Revenue is recognized as or when services are provided (e.g., at time of an artist’s event) assuming collectability is probable. In some cases, the Company is reliant on the artist to report revenue generating activities. For certain artist services and expanded-rights contracts, collectability is not considered probable until notification is received from the artist’s management.
Licensing revenues represent royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and videogames.video games. In certain territories, the Company may also receive royalties when sound recordings are performed publicly through broadcast of music on television, radio and cable and in public spaces such as shops, workplaces, restaurants, bars and clubs. Licensing contracts are generally short term. For fixed feefixed-fee contracts, revenue is recognized at the point in time when control of the licensed content is transferred to the customer. Royalty based contracts are recognized as the underlying sales or usage occurs.
Music Publishing
Music Publishing acts as a copyright owner and/or administrator of the musical compositions and generates revenues related to the exploitation of musical compositions (as opposed to recorded music). Music publishers generally receive royalties from the use of the compositionmusical compositions in public performances, digital and physical recordings and in combination with visual images. Music publishing revenues are derived from five5 main sources: mechanical, performance, synchronization, digital and other.
Performance revenues are received when the musical composition is performed publicly through broadcast of music on television, radio and cable, live performance at a concert or other venue (e.g., arena concerts and nightclubs), and performance of musicmusical compositions in staged theatrical productions. Digital revenues are generated with respect to the musical compositions being embodied in recordings sold inlicensed to digital streaming services and digital download services and for digital performance. Mechanical revenues are generated with respect to the musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs vinyl and DVDs. Synchronization revenues represent the right to use the composition in combination with visual images such as in films or television programs, television commercials and videogamesvideo games as well as from other uses such as in toys or novelty items and merchandise. Other revenues represent earnings for use in printed sheet music and other uses. Digital and synchronization revenue recognition is similar for both Recorded Music and Music Publishing, therefore refer to the discussion within Recorded Music.
Included in these revenue streams, excluding synchronization and other, are licenses with musicperforming rights organizations or collecting societies (e.g., ASCAP, BMI, SESAC and GEMA), which are long termlong-term contracts containing a single performance obligation, which is ongoing access to all intellectual property in an evolving content library. The most common form of consideration for these contracts is salessales- and usage-based royalties. The musiccollecting societies submit usage reports, typically with payment for royalties due, often on a quarterly or bi-annualbiannual reporting period, in arears.arrears. Royalties are recognized as the sale or usage occurs based upon usage reports and, when these reports are not available, royalties are estimated based on historical data, such as recent royalties reported, Company specificcompany-specific information with respect to changes in repertoire, industry information and other relevant trends. Also included in these revenue streams are smaller, short termshort-term contracts for specified content, which generally involve a fixed fee. For fixed feefixed-fee contracts, revenue is recognized at the point in time when control of the license is transferred to the customer.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers.
Sales Returns and Uncollectible Accounts
In accordance with practice in the recorded music industry and as customary in many territories, certain physical revenue products (such as CDs and DVDs) are sold to customers with the right to return unsold items. Revenues from such sales are recognized when the products are shipped based on gross sales less a provision for future estimated returns.

12

In determining the estimate of physical product sales that will be returned, management analyzes vendor sales of product, historical return trends, current economic conditions, changes in customer demand and commercial acceptance of the company'sCompany’s products. Based on this information, management reserves a percentage of each dollar of physical product sales that provide the customer with the right of return and records an asset for the value of the returned goods and liability for the amounts expected to be refunded.
Similarly, management evaluates accounts receivables to determine if they will ultimately be collected. In performing this evaluation, significant judgments and estimates are involved, including an analysis of specific risks on a customer-by-customer basis for larger accounts and customers and a receivables aging analysis that determines the percent that has historically been uncollected by aged category. The time between the CompanyCompany’s issuance of an invoice and payment due date is not significant; customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date. Based on this information, management provides a reserve for the estimated amounts believed to be uncollectible.
Based on management’s analysis of sales returns, refund liabilities of $25$23 million and $23 million were established at JuneMarch 31, 2020 and September 30, 2019, and refund liabilities of $28 million were established at September 30, 2018.respectively.
Based on management’s analysis of uncollectible accounts, reserves of $21 million and $17 million were established at June 30, 2019March 31, 2020 and September 30, 2018,2019, respectively.
Principal versus Agent Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service before transfer to the customer. When the Company concludes that it controls the good or service before transfer to the customer, the Company is considered a principal in the transaction and records revenue on a gross basis. When the Company concludes that it does not control the good or service before transfer to the customer but arranges for another entity to provide the good or service, the Company acts as an agent and records revenue on a net basis in the amount it earns for its agency service.
In the normal course of business, the Company acts as an intermediary with respect to certain payments received from third parties. For example, the Company distributes music content on behalf of third-party record labels. Based on the above guidance, the Company records the distribution of content on behalf of third-party record labels on a gross basis, subject to the terms of the contract, as the Company controls the content before transfer to the customer. Conversely, recorded music compilations distributed by other record companies where the Company has a right to participate in the profits are recorded on a net basis.
Deferred Revenue
Deferred revenue principally relates to fixed fees and minimum guarantees received in advance of the Company’s performance or usage by the licensee. Reductions in deferred revenue are a result of the Company’s performance under the contract or usage by the licensee.
Deferred revenue increased $247by $172 million during the ninesix months ended June 30, 2019March 31, 2020 related to cash received from our customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period. Revenues of $142$100 million were recognized during the ninesix months ended June 30, 2019March 31, 2020 related to the balance of deferred revenue at October 1, 2018.September 30, 2019. There were no other significant changes to deferred revenue during the reporting period.
Performance Obligations
The Company recognized revenue of $10$30 million and $45$35 million from performance obligations satisfied in previous periods for the threesix months ended March 31, 2020 and nine month periods ended June 30,March 31, 2019, respectively.
Wholly and partially unsatisfied performance obligations represent future revenues not yet recorded under long termlong-term intellectual property licensing contracts.contracts containing fixed fees, advances and minimum guarantees. Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2019March 31, 2020 are as follows (in millions):follows:
Rest of FY20FY21FY22ThereafterTotal
(in millions)
Remaining performance obligations$360  $767  $59  $—  $1,186  
Total$360  $767  $59  $—  $1,186  
13

 Rest of FY19 FY20 FY21 Thereafter Total
 (in millions)
Remaining performance obligations$51
 $138
 $94
 $7
 $290
Total$51
 $138
 $94
 $7
 $290


4. Acquisition of EMP
On October 10, 2018, Warner Music Group Germany Holding GmbH (“WMG Germany”), a limited liability company under the laws of Germany and an indirect subsidiary of Warner Music Group Corp., closed its previously announced acquisition (the “Acquisition”) of certain shares of E.M.P. Merchandising Handelsgesellschaft mbH, a limited liability company under the laws of Germany, all of the share capital of MIG Merchandising Investment GmbH, a limited liability company under the laws of Germany (“MIG”), certain shares of Large Popmarchandising BVBA, a limited liability company under the laws of Belgium (“Large”), and each of EMP Merchandising Handelsgesellschaft mbH and MIG’s direct and indirect subsidiaries (the “Subsidiaries” and, together with EMP Merchandising Handelsgesellschaft mbH, MIG and Large, “EMP”) from funds associated with Sycamore Partners, pursuant to the Sale and Purchase Agreement, dated as of September 11, 2018, by and between SP Merchandising Holding GmbH & Co. KG, a limited partnership under the laws of Germany, and WMG Germany (“Acquisition Agreement”). The cash consideration paid at closing of the Acquisition was approximately €166 million, which reflects an agreed enterprise value of EMP of approximately €155 million (equivalent to approximately $180 million), as adjusted for, among other items, net debt and estimates of working capital of EMP. The final purchase price paid was determined to be €165 million after finalization of purchase price adjustments, including working capital and other items.
The Acquisition was accounted for in accordance with ASC 805, using the acquisition method of accounting. The assets and liabilities of the Company, including identifiable intangible assets, have been measured at their fair value primarily using Level 3 inputs (see Note 13 for additional information on fair value inputs). Determining the fair value of the assets acquired and liabilities assumed requires judgment and involved the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset useful lives and market multiples, among other items. The use of different estimates and judgments could yield materially different results.
The excess of the purchase price, over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets and deferred tax adjustments, has been recorded to goodwill. The resulting goodwill has been allocated to our Recorded Music reportable segment. The recognized goodwill will not be deductible for income tax purposes. Any impairment charges made in future periods associated with goodwill will not be tax deductible.
The table below presents (i) the preliminary estimate of the Acquisition consideration as it relates to the acquisition of EMP by WMG Germany and (ii) the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of October 10, 2018 (in millions):
Purchase Price€155
Working Capital10
Final Purchase Price€165
Foreign Currency Rate at October 10, 20181.15
Final Purchase Price in U.S. dollars$190
Fair value of assets acquired and liabilities assumed 
Cash and equivalents$7
Accounts receivable, net3
Inventories37
Other current assets5
Property plant and equipment32
Intangible assets81
Accounts payable(18)
Other current liabilities(11)
Deferred revenue(7)
Deferred tax liabilities(25)
Other noncurrent liabilities(3)
Fair value of assets acquired and liabilities assumed101
Goodwill recorded89
Total purchase price allocated$190
At June 30, 2019, the Company updated the preliminary allocation recorded at December 31, 2018 based on revised estimates of fair value, which resulted in an increase in property plant and equipment, intangibles, deferred tax liabilities and a decrease to goodwill and resulted in a $2 million benefit to amortization in the quarter due to the update in the useful lives of the intangibles. The acquisition accounting is subject to revision based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired, including the determination of the final working capital adjustment pursuant to the mechanism set forth in the Acquisition Agreement.

Pro Forma Financial Information
The following unaudited pro forma information has been presented as if the Acquisition occurred on October 1, 2017. This information is based on historical results of operations, adjusted to give effect to pro forma events that are (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) expected to have a continuing impact on the Company’s combined results. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place at the beginning of fiscal 2018.
 Three Months Ended June 30, 2019 Three Months Ended June 30, 2018 Nine Months Ended June 30, 2019 Nine Months Ended June 30, 2018
 (in millions) (in millions)
Revenue$1,058
 $1,011
 $3,356
 $3,153
Operating income58
 29
 327
 201
Net income attributable to Warner
   Music Group
$13
 $321
 $166
 $320
Actual results related to EMP included in the Consolidated Statements of Operations for the three months ended June 30, 2019 consist of revenues of $59 million and operating income of $4 million.  Actual results related to EMP included in the Consolidated Statements of Operations for the nine months ended June 30, 2019 relate to the transition period from October 10, 2018 to June 30, 2019 and consist of revenues of $186 million and operating income of $8 million.

5. Comprehensive Income
Comprehensive income, which is reported in the accompanying consolidated statements of (deficit) equity,deficit, consists of net income and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income. For the Company, the components of other comprehensive income primarily consist of foreign currency translation gains and losses, minimum pension liabilities, and deferred gains and losses on financial instruments designated as hedges under ASC 815, Derivatives and Hedging, which include foreign exchange contracts. The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related taxestax benefit of approximately $1$6 million:
Foreign Currency Translation Loss (a)Minimum Pension Liability AdjustmentDeferred Gains (Losses) On Derivative Financial InstrumentsAccumulated Other Comprehensive Loss, net
 (in millions)
Balance at September 30, 2019$(218) $(14) $(8) $(240) 
Other comprehensive loss(8) —  (20) (28) 
Balance at March 31, 2020$(226) $(14) $(28) $(268) 

 
Foreign
Currency
Translation
Loss (a)
 
Minimum
Pension
Liability
Adjustment
 
Deferred Losses
On Derivative
Financial
Instruments
 
Accumulated
Other
Comprehensive
Loss, net
 (in millions)
Balance at September 30, 2018$(184) $(9) $3
 $(190)
Other comprehensive loss(17) —
 (12) (29)
Balance at June 30, 2019$(201) $(9) $(9) $(219)
__________________________
(a)Includes historical foreign currency translation related to certain intra-entity transactions.

5. Leases

The Company’s lease portfolio consists operating real estate leases for its corporate offices and, to a lesser extent, storage and other equipment. Under ASC 842, a contract is or contains a lease when (1) an explicitly or implicitly identified asset has been deployed in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company determines if an arrangement is or contains a lease at inception of the contract. For all leases (finance and operating), other than those that qualify for the short-term recognition exemption, the Company will recognize on the balance sheet a lease liability for its obligation to make lease payments arising from the lease and a corresponding ROU asset representing its right to use the underlying asset over the period of use based on the present value of lease payments over the lease term as of the lease commencement date. ROU assets are adjusted for initial direct costs, lease payments made and incentives. As the rates implicit in our leases are not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The lease term used to calculate the lease liability will include options to extend or terminate the lease when the option to extend or terminate is at the Company’s discretion and it is reasonably certain that the Company will exercise the option. Fixed payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of one year or less (“short-term leases”), the lease payments are recognized in the consolidated statement of operations on a straight-line basis over the lease term.
ASC 842 requires that only limited types of variable payments be included in the determination of lease payments, which affects lease classification and measurement. Variable lease costs, if any, are recognized as incurred and such costs are excluded from lease balances recorded on the consolidated balance sheet. The initial measurement of the lease liability and ROU asset are determined based on both the fixed lease payments and any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate). The Company initially measures these variable lease payments using the index or rate at lease commencement (i.e., the spot or gross index or rate applied to the base rental amount). All other variable lease payments are recognized in the period in which the payments are incurred.
The Company’s operating ROU assets are included in operating lease right-of-use assets and the Company’s current and non-current operating lease liabilities are included in operating lease liabilities, current and operating lease liabilities, noncurrent, respectively, in the Company’s balance sheet.
Operating lease liabilities are amortized using the effective interest method. That is, in each period, the liability will be increased to reflect the interest that is accrued on the related liability by using the appropriate discount rate and decreased by the lease payments made during the period. The subsequent measurement of the ROU asset is linked to the amount recognized as the lease liability. Accordingly, the ROU asset is measured as the lease liability adjusted by (1) accrued or prepaid rents (i.e., the aggregate difference between the cash payment and straight-line lease cost), (2) remaining unamortized initial direct costs and lease incentives, and (3) impairments of the ROU asset. Operating lease costs are included in Selling, general and administrative expenses.
14

For lease agreements that contain both lease and non-lease components, the Company has elected the practical expedient provided by ASC 842 that permits the accounting for these components as a single lease component (rather than separating the lease from the non-lease components and accounting for the components individually).
The Company enters into operating leases for buildings, office equipment, production equipment, warehouses, and other types of equipment. Our leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year.
Among the Company’s operating leases are its leases for the Ford Factory Building, located at 777 S. Santa Fe Avenue in Los Angeles, California, and for 27 Wrights Lane, Kensington, London. The landlord for both leases is an affiliate of Access. As of March 31, 2020, the aggregate lease liability related to these leases was $139 million.
There are no restrictions or covenants, such as those relating to dividends or incurring additional financial obligations, relating to our lease portfolio, and residual value guarantees are not significant.
The components of lease expense were as follows:
Three Months Ended
March 31, 2020		Six Months Ended
March 31, 2020
(in millions)
Lease Cost
Operating lease cost$12  $26  
Short-term lease cost—  —  
Variable lease cost2  5  
Sublease income—  —  
Total lease cost$14  $31  
Supplemental cash flow information related to leases was as follows:
Six Months Ended
March 31, 2020
(in millions)
Cash paid for amounts included in the measurement of operating lease liabilities$28 
Right-of-use assets obtained in exchange for operating lease obligations9 
Supplemental balance sheet information related to leases was as follows:
March 31,
2020
(in millions)
Operating Leases
Operating lease right-of-use assets$281 
Operating lease liabilities, current$39 
Operating lease liabilities, noncurrent312 
Total operating lease liabilities$351 
Weighted Average Remaining Lease Term
Operating leases9 years
Weighted Average Discount Rate
Operating leases4.57 %
15

Maturities of lease liabilities were as follows:
YearsOperating
Leases
(in millions)
2020$40  
202153  
202250  
202347  
202447  
Thereafter190  
Total lease payments427  
Less imputed interest(76) 
Total$351  
As of March 31, 2020, there have been no leases entered into that have not yet commenced.
6. Goodwill and Intangible Assets
Goodwill
The following analysis details the changes in goodwill for each reportable segment:
Recorded
Music		Music
Publishing		Total
(in millions)
Balance at September 30, 2019$1,297  $464  $1,761  
Acquisitions—  —  —  
Other adjustments—  —  —  
Balance at March 31, 2020$1,297  $464  $1,761  
 
Recorded
Music
 
Music
Publishing
 Total
(in millions)
Balance at September 30, 2018$1,228
 $464
 $1,692
Acquisitions (a)89
 —
 89
Divestitures—
 —
 —
Other adjustments (b)(9) —
 (9)
Balance at June 30, 2019$1,308
 $464
 $1,772
_______________________
(a)Relates to the acquisition of EMP during the nine months ended June 30, 2019.
(b)Other adjustments during the nine months ended June 30, 2019 represent foreign currency movements.
The Company performs its annual goodwill impairment test in accordance with ASC 350, Intangibles—Goodwill and otherOther (“ASC 350”) during the fourth quarter of each fiscal year as of July 1. The Company may conduct an earlier review if events or circumstances occur that would suggest the carrying value of the Company’s goodwill may not be recoverable. No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.
Intangible Assets
Intangible assets consist of the following:
Weighted-Average Useful LifeMarch 31,
2020		September 30,
2019
(in millions)
Intangible assets subject to amortization:
Recorded music catalog10 years$851  $855  
Music publishing copyrights26 years1,551  1,539  
Artist and songwriter contracts13 years835  841  
Trademarks18 years53  53  
Other intangible assets7 years62  59  
Total gross intangible asset subject to amortization3,352  3,347  
Accumulated amortization(1,708) (1,624) 
Total net intangible assets subject to amortization1,644  1,723  
Intangible assets not subject to amortization:
Trademarks and tradenamesIndefinite151  151  
Total net intangible assets$1,795  $1,874  
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Weighted
Average
Useful Life
 June 30,
2019		 September 30,
2018
  (in millions)
Intangible assets subject to amortization:     
Recorded music catalog10 years $861
 $870
Music publishing copyrights26 years 1,555
 1,540
Artist and songwriter contracts13 years 853
 864
Trademarks18 years 52
 12
Other intangible assets7 years 58
 26
Total gross intangible asset subject to amortization  3,379
 3,312
Accumulated amortization  (1,599) (1,461)
Total net intangible assets subject to amortization  1,780
 1,851
Intangible assets not subject to amortization:     
Trademarks and tradenamesIndefinite 153
 154
Total net intangible assets  $1,933
 $2,005


As of June 30, 2019, the Company disposed of $7 million of gross intangible assets that were fully amortized.


7. Debt
Debt Capitalization
Long-term debt, all of which was issued by Acquisition Corp., consists of the following:
March 31,
2020		September 30,
2019
(in millions)
Revolving Credit Facility (a)$—  $—  
Senior Term Loan Facility due 2023 (b)1,315  1,313  
5.000% Senior Secured Notes due 2023 (c)298  298  
4.125% Senior Secured Notes due 2024 (d)339  336  
4.875% Senior Secured Notes due 2024 (e)218  218  
3.625% Senior Secured Notes due 2026 (f)492  488  
5.500% Senior Notes due 2026 (g)321  321  
Total long-term debt, including the current portion (h)$2,983  $2,974  

 June 30,
2019		 September 30,
2018
(in millions)
Revolving Credit Facility (a)$—
 $—
Senior Term Loan Facility due 2023 (b)1,313
 1,310
5.625% Senior Secured Notes due 2022 (c)—
 246
5.000% Senior Secured Notes due 2023 (d)298
 297
4.125% Senior Secured Notes due 2024 (e)349
 399
4.875% Senior Secured Notes due 2024 (f)218
 247
3.625% Senior Secured Notes due 2026 (g)507
 —
5.500% Senior Notes due 2026 (h)321
 320
Total debt (i)$3,006
 $2,819
_______________________
(a)(a)Reflects $180 million of commitments under the Revolving Credit Facility available at both June 30, 2019 and September 30, 2018, less letters of credit outstanding of approximately $13 million at June 30, 2019 and $8 million at September 30, 2018. There were no loans outstanding under the Revolving Credit Facility at June 30, 2019 or September 30, 2018.
(b)Principal amount of $1.326 billion less unamortized discount of $3 million and unamortized deferred financing costs of $10 million and $12 million at June 30, 2019 and September 30, 2018, respectively.
(c)On May 16, 2019, Acquisition Corp. redeemed the remaining $221 million of its outstanding 5.625% Senior Notes due 2022. The Company recorded a loss on extinguishment of debt of approximately $4 million as a result of the debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs.
(d)Principal amount of $300 million less unamortized deferred financing costs of $2 million at both June 30, 2019 and September 30, 2018.
(e)Face amount of €311 million and €345 million at June 30, 2019 and September 30, 2018 respectively. Above amounts represent the dollar equivalent of such note at June 30, 2019 and September 30, 2018. Principal amount of $353 million and $402 million at June 30, 2019 and September 30, 2018, respectively, less unamortized deferred financing costs of $4 million and $3 million at June 30, 2019 and September 30, 2018, respectively.    
(f)Principal amount of $220 million and $250 million less unamortized deferred financing costs of $2 million and $3 million at June 30, 2019 and September 30, 2018, respectively.
(g)Face amount of €445 million at June 30, 2019. Above amounts represent the dollar equivalent of such note at June 30, 2019. Principal amount of $506 million, an additional issuance premium of $8 million, less unamortized deferred financing costs of $7 million at June 30, 2019.
(h)Principal amount of $325 million and $325 million less unamortized deferred financing costs of $4 million and $5 million at June 30, 2019 and September 30, 2018, respectively.
(i)Principal amount of debt of $3.030 billion and $2.851 billion, an additional issuance premium of $8 million and nil, less unamortized discount of $3 million and $4 million and unamortized deferred financing costs of $29 million and $28 million at June 30, 2019 and September 30, 2018, respectively.
December 2017 Senior Term Loan Credit Agreement Amendment
Facility, less letters of credit outstanding of approximately $13 million at both March 31, 2020 and September 30, 2019. There were 0 loans outstanding under the Revolving Credit Facility at March 31, 2020 or September 30, 2019. On December 6, 2017,April 3, 2020, Acquisition Corp. entered into an amendment (the “December 2017 Senior Term Loan Credit Agreement Amendment”) to the Senior Term LoanRevolving Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto, to,Facility which, among other things, reduceincreased the pricing termscommitments under the Revolving Credit Facility from an aggregate principal amount of its outstanding term loans, change certain incurrence thresholds governing$180 million to an aggregate principal amount of $300 million. For a more detailed description of the ability to incur debtchanges effected by the amendment, see Note 14.
(b)Principal amount of $1.326 billion at both March 31, 2020 and liens, change certain EBITDA add-backsSeptember 30, 2019 less unamortized discount of $3 million and increase the thresholds above which the excess cash flow sweep is triggered. The Company recorded a loss on extinguishment of debt of approximately $1$3 million which represented the discount and unamortized deferred financing costs related toof $8 million and $10 million at March 31, 2020 and September 30, 2019, respectively.
(c)Principal amount of $300 million less unamortized deferred financing costs of $2 million at both March 31, 2020 and September 30, 2019, respectively.
(d)Face amount of €311 million at both March 31, 2020 and September 30, 2019. Above amounts represent the prior tranchedollar equivalent of such note at March 31, 2020 and September 30, 2019. Principal amount of $342 million and $340 million less unamortized deferred financing costs of $3 million and $4 million at March 31, 2020 and September 30, 2019, respectively.
(e)Principal amount of $220 million less unamortized deferred financing costs of $2 million at both March 31, 2020 and September 30, 2019, respectively.
(f)Face amount of €445 million at both March 31, 2020 and September 30, 2019. Above amounts represent the dollar equivalent of such note at March 31, 2020 and September 30, 2019. Principal amount of $491 million and $487 million at March 31, 2020 and September 30, 2019, respectively, an additional issuance premium of $7 million, less unamortized deferred financing costs of $6 million at both March 31, 2020 and September 30, 2019.
(g)Principal amount of $325 million less unamortized deferred financing costs of $4 million at both March 31, 2020 and September 30, 2019.
(h)Principal amount of debt of the lenders that was replaced.

New Revolving Credit Agreement
On January 31, 2018, the Company entered into a new revolving credit agreement (the “Revolving Credit Agreement”) for its Revolving Credit Facility$3.004 billion and terminated its existing revolving credit agreement (the “Old Revolving Credit Agreement”). The Revolving Credit Agreement differs from the Old Revolving Credit Agreement in that it, among other things, reduces the interest rate margin applicable to the loans, extends the maturity date thereunder, provides for the option to increase the commitments under the Company’s then existing revolving credit agreement, provides for greater flexibility to amend and extend the Company’s then existing revolving credit agreement and create$2.998 billion, an additional tranches thereunder, provides for greater flexibility over future amendments, increases the springing financial maintenance covenant to 4.75:1.00 and provides that the covenant shall not be tested unless at the endissuance premium of a fiscal quarter the outstanding amount of loans and drawings under letters of credit which have not been reimbursed exceeds $54$7 million and aligns the other negative covenants with those$8 million, less unamortized discount of the Senior Term Loan Credit Agreement. References to “Revolving Credit Facility” below in this Note 7 are to our new revolving credit facility.
March 2018 Senior Term Loan Credit Agreement Amendment
On March 14, 2018, Acquisition Corp. incurred $320$3 million of supplemental term loans (the “Supplemental Term Loans”) pursuant to an increase supplement (the “March 2018 Senior Term Loan Credit Agreement Supplement”) to the Senior Term Loan Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto (as amended, the “Senior Term Loan Credit Agreement”). The principal amount outstanding under the Senior Term Loan Credit Agreement including the Supplemental Term Loans is $1.326 billion.
Notes Offering
On March 14, 2018, Acquisition Corp. issued $325$3 million in aggregate principal amount of its 5.500% Senior Notes due 2026.  Acquisition Corp. used the net proceeds to pay the consideration in the tender offer for its 6.750% Senior Notes due 2022 (the “6.750% Senior Notes”) and to redeem the remaining 6.750% Senior Notes as described below.  
Tender Offer and Notes Redemption
On March 14, 2018, Acquisition Corp. accepted for purchase in connection with the tender offer for the 6.750% Senior Notes that had been validly tendered and not validly withdrawn at or prior to 5:00 p.m., New York City time on March 13, 2018 (the “Expiration Time”) thereby reducing the aggregate principal amount of the 6.750% Senior Notes by $523 million. Acquisition Corp. then issued a notice of redemption on March 14, 2018 with respect to the remaining $112 million of 6.750% Senior Notes outstanding that were not accepted for payment pursuant to the tender offer. Following payment of the 6.750% Senior Notes tendered at or prior to the Expiration Time, Acquisition Corp. deposited with the Trustee funds of $119 million to satisfy all obligations under the applicable indenture governing the 6.750% Senior Notes, including call premiums and interest through the date of redemption on April 15, 2018, for the remaining 6.750% Senior Notes not accepted for purchase in the tender offer. On April 15, 2018, Acquisition Corp. redeemed the remaining outstanding 6.750% Senior Notes. The Company recorded a loss on extinguishment of debt in connection with the tender offer of approximately $23 million as a result of the partial debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs inof $25 million and $29 million at March 2018. The Company incurred an additional loss on extinguishment of approximately $5 million in April 2018 related to the redemption on the remaining 6.750% Senior Notes, which represents the premium paid on early redemption31, 2020 and unamortized deferred financing costs.
June 2018 Senior Term Loan Credit Agreement Amendment
On June 7, 2018, Acquisition Corp. entered into an amendment (the “June 2018 Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto, to, among other things, reduce the pricing terms of its outstanding term loans, change certain incurrence thresholds governing the ability to incur debt and liens and exclude from the definition of “Senior Secured Indebtedness” certain liens that have junior lien priority on the collateral in relation to the outstanding term loans and the relevant guarantees, as applicable. The Company recorded a loss on extinguishment of debt of approximately $2 million, which represented the discount and unamortized deferred financing costs related to the prior tranche of debt of the lenders that was replaced.

September 30, 2019, respectively.
3.625% Senior Secured Notes Offerings
On October 9, 2018, Acquisition Corp. issued and sold €250 million in aggregate principal amount of 3.625% Senior Secured Notes due 2026 (the “3.625% Secured Notes”). Net proceeds of the offering were used to pay the purchase price of the acquisition of EMP, to redeem €34.5 million of the 4.125% Secured Notes (as described below), purchase $30 million of the Company’s 4.875% Senior Secured Notes (as described above) on the open market and to redeem $26.55 million of the 5.625% Senior Secured Notes (as described below).
On April 30, 2019, Acquisition Corp. issued and sold €195 million in aggregate principal amount of additional 3.625% Senior Secured Notes due 2026 (the "Additional Notes"“Additional Notes”). The Additional Notes and the 3.625% Secured Notes were treated as the same series for all purposes under the indenture that governs the 3.625% Secured Notes and the Additional Notes. Net proceeds of the offering were used to redeem all of the 5.625% Secured Notes due 2022.
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Partial Redemption of 4.125% Senior Secured Notes
On October 12, 2018, Acquisition Corp. redeemed €34.5 million aggregate principal amount of its 4.125% Senior Secured Notes due 2024 (the “4.125% Secured Notes”) using a portion of the proceeds from the offering of the 3.625% Secured Notes described above. The redemption price for the 4.125% Secured Notes was approximately €36.17 million, equivalent to 103% of the principal amount of the 4.125% Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was October 12, 2018. Following the partial redemption of the 4.125% Secured Notes, €310.5 million of the 4.125% Secured Notes remain outstanding. The Company recorded a loss on extinguishment of debt of approximately $2 million, which represents the premium paid on early redemption and unamortized deferred financing costs related to the partial redemption of this note.
Open Market Purchase
On October 9, 2018, Acquisition Corp. purchased, in the open market, $30 million aggregate principal amount of its outstanding 4.875% Senior Secured Notes due 2024 (the “4.875% Secured Notes”). The acquired notes were subsequently retired. Following retirement of the acquired notes, $220 million of the 4.875% Secured Notes remain outstanding. The Company recorded a loss on extinguishment of debt of less than $1 million, which represents the unamortized deferred financing costs related to the open market purchase.
Redemption of 5.625% Senior Secured Notes
On November 5, 2018, Acquisition Corp. redeemed $26.55 million aggregate principal amount of its 5.625% Senior Secured Notes due 2022 (the “5.625% Secured Notes”). The redemption price for the 5.625% Secured Notes was approximately $27.38 million, equivalent to 102.813% of the principal amount of the 5.625% Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was November 5, 2018. Following the partial redemption of the 5.625% Secured Notes, $220.95 million of the 5.625% Secured Notes remain outstanding. The Company recorded a loss on extinguishment of debt of approximately $1 million, which represents the premium paid on early redemption and unamortized deferred financing costs related to the partial redemption of this note.
On April 16, 2019, the Company issued a conditional notice of redemption for all of its 5.625% Secured Notes due 2022 currently outstanding. Settlement of the called 5.625% Secured Notes occurred on May 16, 2019. The Company recorded a loss on extinguishment of debt of approximately $4 million, which represents the premium paid on early redemption and unamortized deferred financing costs.

Interest Rates
The loans under the Revolving Credit Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving LIBOR”) subject to a zero floor, plus 1.75% per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or 1.875% per annum in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement), or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) the one-month Revolving LIBOR plus 1.0% per annum, plus, in each case, 0.75% per annum.annum in the case of Initial Revolving Loans, or 0.875% per annum in the case of 2020 Revolving Loans; provided that, in respect of 2020 Revolving Loans, the applicable margin with respect to such loans is subject to adjustment as set forth in the pricing grid in the Revolving Credit Agreement. Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.22x at March 31, 2020, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans. If there is a payment default at any time, then the interest rate applicable to overdue principal will be the rate otherwise applicable to such loan plus 2.0% per annum. Default interest will also be payable on other overdue amounts at a rate of 2.0% per annum above the amount that would apply to an alternative base rate loan.
The loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in U.S. dollars in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Term Loan LIBOR”) subject to a zero floor, plus 2.125% per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) one-month Term Loan LIBOR, plus 1.00% per annum, plus, in each case, 1.125% per annum. If there is a payment default at any time, then the interest rate applicable to overdue principal and interest will be the rate otherwise applicable to such loan plus 2.0% per annum. Default interest will also be payable on other overdue amounts at a rate of 2.0% per annum above the amount that would apply to an alternative base rate loan.
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The Company has entered into, and in the future may enter into, interest rate swaps to manage interest rate risk. Please refer to Note 10 of our consolidated financial statements for further discussion.
Maturity of Senior Term Loan Facility
The loans outstanding under the Senior Term Loan Facility mature on November 1, 2023.
Maturity of Revolving Credit Facility
TheAs of March 31, 2020, the maturity date of the Revolving Credit Facility iswas January 31, 2023. On April 3, 2020, Acquisition Corp. entered into an amendment to the Revolving Credit Facility which, among other things, extended the final maturity date of the Revolving Credit Facility from January 31, 2023 to April 3, 2025. For a more detailed description of the changes effected by the amendment, see Note 14.
Maturities of Senior Notes and Senior Secured Notes
As of June 30, 2019,March 31, 2020, there are no0 scheduled maturities of notes until 2023,, when $300 million is scheduled to mature. Thereafter, $1.404$1.378 billion is scheduled to mature.
Interest Expense, net
Total interest expense, net was $36$33 million and $33$36 million for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. Total interest expense net, was $108$66 million and $105$72 million for the ninesix months ended June 30, 2019March 31, 2020 and June 30, 2018, respectively.March 31, 2019. The weighted-average interest rate of the Company’s total debt was 4.5%4.2% at JuneMarch 31, 2020, 4.3% at September 30, 2019 and 4.7% at September 30, 2018 and June 30, 2018.March 31, 2019.
8. Commitments and Contingencies
Sirius XM
On September 11, 2013, the Company joined with Capitol Records, LLC, Sony Music Entertainment, UMG Recordings, Inc. and ABKCO Music & Records, Inc. in a lawsuit brought in California Superior Court against Sirius XM Radio Inc., alleging copyright infringement for Sirius XM’s use of pre-1972 sound recordings under California law.  A nation-wide settlement was reached on June 17, 2015 pursuantFrom time to which Sirius XM paid the plaintiffs, in the aggregate, $210 million on July 29, 2015 and the plaintiffs dismissed their lawsuit with prejudice.  The settlement resolved all past claims as to Sirius XM’s use of pre-1972 recordings owned or controlled by the plaintiffs and enabled Sirius XM, without any additional payment, to reproduce, perform and broadcast such recordings in the United States through December 31, 2017.  The allocation of the settlement proceeds among the plaintiffs was determined and the settlement proceeds were distributed accordingly. This resulted in a cash distribution to the Company of $33 million of which $28 million was recognized in revenue during the 2016 fiscal year and $4 million was recognized in revenue during the 2017 fiscal year. The balance of $1 million was recognized in the first quarter of the 2018 fiscal year. The Company is sharing its allocation of the settlement proceeds with its artists on the same basis as statutory revenue from Sirius XM is shared, i.e., the artist share of our allocation will be paid to artists by SoundExchange.

As part of the settlement, plaintiffs agreed to negotiate in good faith to grant Sirius XM a license to publicly perform the plaintiffs’ pre-1972 sound recordings for the five-year period running from January 1, 2018 to December 31, 2022.  Pursuant to the settlement, if the parties were unable to reach an agreement on license terms, the royalty rate for each license would be determined by binding arbitration on a willing buyer/willing seller standard.  On December 21, 2017, Sirius XM commenced a single arbitration against all of the plaintiffs in California through JAMS to determine the rate for the five-year period. On May 1, 2018, the Company filed a lawsuit against Sirius XM in New York state court to stay the California arbitration and to compel a separate arbitration in New York solely between Sirius XM and the Company.  On August 23, 2018, the Company filed a Stipulation of Discontinuance without Prejudice as to the New York state court action after Sirius XM agreed to participate in a separate arbitration with the Company in New York if the parties were unable to reach an agreement on pre-1972 license terms.  On March 28, 2019, the Company and Sirius XM entered into an agreement granting Sirius XM a license to publicly perform the Company’s pre-1972 sound recordings for the five-year period running from January 1, 2018 to December 31, 2022.
Other Matters
In addition to the matters discussed above,time the Company is involved in various litigationclaims and regulatorylegal proceedings arisingthat arise in the normalordinary course of business. Where itThe Company is determined, in consultation with counsel basedcurrently subject to several such claims and legal proceedings. Based on litigation and settlement risks, that a loss is probable and estimable in a given matter,currently available information, the Company establishes an accrual. In the currentlydoes not believe that resolution of pending proceedings, the amount of accrual is not material. An estimate of the reasonably possible lossmatters will have a material adverse effect on its financial condition, cash flows or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including (1) the results of ongoing discovery; (2) uncertain damage theoriesoperations. However, litigation is subject to inherent uncertainties, and demands; (3)there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a less than complete factual record; (4) uncertainty concerning legal theories and their resolution by courts or regulators; and (5) the unpredictable nature of the opposing party and its demands. However, the Company cannot predict with certainty the outcome of any litigation or the potential for future litigation. As such, the Company continuously monitors these proceedings as they develop and adjusts any accrual or disclosure as needed. Regardless of the outcome, litigation could have anmaterial adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company, including the Company’s brand value,whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors and it could have a material effect on the Company’s results of operations for a given reporting period.factors.
9. Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act contains significant revisions tosignificantly revised the U.S. federal corporate income tax provisions, including, but not limited to, a reduction of the U.S. federal corporate statutory tax rate from 35% to 21%, a one-time transition tax on accumulated foreign earnings, an income inclusion of global intangible low-taxed income (“GILTI”), a deduction against foreign-derived intangible income (“FDII”) and a new minimum tax, the base erosion anti-abuse tax (“BEAT”). In accordance with ASC 740, the Company recorded the effects of the Tax Act during the three months ended December 31, 2017. 
The reduction in U.S. federal corporate statutory tax rate from 35% to 21% was effective January 1, 2018.  The Tax Act requires companies with a fiscal year that begins before and ends after the effective date of the rate change to calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending September 30, 2018, the Company’s U.S. federal statutory income tax rate was 24.5%. For the fiscal year ending September 30, 2019, the Company will be subject to the U.S. federal corporate statutory tax rate of 21%.
The reduction in the U.S. federal corporate statutory tax rate required the Company to adjust its U.S. deferred tax assets and liabilities using the newly enacted tax rate of 21%. As a result, the Company recorded a U.S. income tax expense of $23 million for the reduction of its net U.S. deferred tax assets for the year ended September 30, 2018.  
The Company has not recorded any income tax liability related to the one-time transition tax on accumulated foreign earnings (“Transition Tax”) due to an overall deficit in accumulated foreign earnings.  GILTI, FDII and BEAT arewere effective for the Company’s fiscal year ending September 30, 2019. The Company expects that the impact of GILTI offset by FDII will increase its U.S. federal tax in fiscal 2019 due primarily to the negative impact of U.S. net operating loss carryforward utilization on the allowable GILTI and FDII deductions. The Company has elected to recognize the GILTI impact in the specific period in which it occurs.
As a result of final regulations regarding the interest expense allocation rules issued by the Internal Revenue Service in December 2019, the Company concluded that it is more likely than not that the entire amount of the Company’s deferred tax assets relating to foreign tax credit carryforwards will be realized. Consequently, the Company released its $33 million valuation allowance at September 30, 2019 relating to such deferred tax assets and recognized a corresponding U.S. tax benefit of $33 million during the quarter ended December 31, 2019. The Company will continue to weigh the evidence including the projections of sufficient future taxable income, foreign source income and the reversal of future taxable temporary differences to assess the future realization of our foreign tax credits.
For the three and ninesix months ended June 30, 2019,March 31, 2020, the Company recorded an income tax benefit of $12 million and expense of $86$7 million, respectively. The income tax benefit of $12 million for the three months ended June 30, 2019March 31, 2020 is lower than the expected tax benefit at the statutory tax rate of 21% primarily due to non-deductible expenses of our Senior Management Free Cash Flow Plan. The income tax benefit of $7 million for the six months ended March 31, 2020 is lower than the expected tax at the statutory tax rate of 21% primarily due to a change in components of forecasted income that resulted in a decreasetax benefit of the GILTI impact and highervaluation allowance release relating to foreign tax credit utilization.carryforwards and FDII, offset by
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non-deductible expenses of our Senior Management Free Cash Flow Plan, U.S. state and local taxes, foreign income taxed at rates higher than the U.S. statutory tax rate, withholding taxes and foreign losses with no tax benefit.
For the three and six months ended March 31, 2019, the Company recorded an income tax expense of $48 million and $98 million, respectively. The income tax expense for the ninethree and six months ended June 30,March 31, 2019 is higher than the expected tax at the statutory tax rate of 21% primarily due to GILTI, non-deductible long term incentive plan,expenses of our Senior Management Free Cash Flow Plan, U.S. state and local taxes, foreign income taxed at rates higher than the U.S. statutory tax rate, income withholding taxes and foreign losses with no tax benefit offset by the tax benefit of a reduction in foreign income tax rates.

For the three and nine months ended June 30, 2018, the Company recorded an income tax expense of $61 million and $132 million, respectively.  The income tax expense for the three months ended June 30, 2018 is lower than the expected tax at the blended statutory tax rate of 24.5% primarily due to recognition of a deferred tax asset related to a prior year intergroup transfer, $9 million change in provisional amount for the U.S. income tax reform and a release of uncertain tax positions partially offset by state tax expense. The income tax expense for the nine months ended June 30, 2018 is greater than the expected income tax expense at the blended statutory tax rate of 24.5% primarily due to a U.S. income tax expense of $17 million arising from a reduction in net U.S. deferred tax assets due to the change in the U.S. statutory tax rate, state tax expense, foreign income taxed at rates higher than the U.S. statutory tax rate, income withholding taxes, foreign losses with no tax benefit reduced by recognition of the deferred tax asset related to a prior year intergroup transfer and a release in uncertain tax positions.
The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of June 30, 2019March 31, 2020 could decrease by up to approximately $2$1 million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.
10. Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts and interest rate swaps, for the purposes of managing foreign currency exchange rate risk and interest rate risk on expected future cash flows. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
The Company enters into foreign currency forward exchange contracts primarily to hedge the risk that unremitted or future royalties and license fees owed to its domesticU.S. companies for the sale or anticipated sale,licensing of U.S.-copyrighted productsU.S.-based music and merchandise abroad may be adversely affected by changes in foreign currency exchange rates. The Company focuses on managing the level of exposure to the risk of foreign currency exchange rate fluctuations on its major currencies, which include the Euro, British pound sterling, Japanese yen, Canadian dollar, Swedish krona, Australian dollar, Brazilian real, Korean wanwon and Norwegian krone. The Company also may at times choose to hedge foreign currency risk associated with financing transactions such as third-party debt and other balance sheet items. The Company’s foreign currency forward exchange contracts have not been designated as hedges under the criteria prescribed in ASC 815. The Company records these contracts at fair value on its balance sheet and the related gains and losses are immediately recognized in the consolidated statement of operations where there is an offsetting entry related to royalties arethe underlying exposure.
In prior periods, certain foreign currency forward exchange contracts were designated and qualifyqualified as cash flow hedges under the criteria prescribed in ASC 815, Derivatives and Hedging.815. The Company recordsrecorded these contracts at fair value on its balance sheet and gains or losses on these contracts arewere deferred in equity (as a component of comprehensive loss). These deferred gains and losses arewere recognized in income in the period in which the related royalties and license fees being hedged arewere received and recognized in income. However, to the extent that any of these contracts arewere not considered to be perfectly effective in offsetting the change in the value of the royalties and license fees being hedged, any changes in fair value relating to the ineffective portion of these contracts arewere immediately recognized in the consolidated statement of operations.
The Company may at times choose to hedge foreign currency risk associated with financing transactions such as third-party debt and other balance sheet items. The foreign currency forward exchange contracts related to balance sheet items denominated in foreign currency are reviewed on a contract-by-contract basis and are designated accordingly. If these foreign currency forward exchange contracts do not qualify for hedge accounting, then the Company records these contracts at fair value on its balance sheet and the related gains and losses are immediately recognized in the statement of operations where there is an equal and offsetting entry related to the underlying exposure.
The Company has entered into, and in the future may enter into, interest rate swaps to manage interest rate risk. These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s long-term debt. The interest rate swap instruments are designated and qualify as cash flow hedges under the criteria prescribed in ASC 815, Derivatives and Hedging.815. The Company records these contracts at fair value on its balance sheet and gains or losses on these contracts are deferred in equity (as a component of comprehensive loss).
The fair value of foreign currency forward exchange contracts is determined by using observable market transactions of spot and forward rates (i.e., Level 2 inputs) which is discussed further in Note 13. Additionally, netting provisions are provided for in existing International Swap and Derivative Association Inc. agreements in situations where the Company executes multiple contracts with the same counterparty. As a result, net assets or liabilities resulting from foreign exchange derivatives subject to these netting agreements are classified within other current assets or other current liabilities in the Company’s consolidated balance sheets.
The Company’s hedged interest rate transactions as of June 30, 2019March 31, 2020 are expected to be recognized within 4 years. The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 13. Interest income or expense related to interest rate swaps is recognized in interest income, net in the same period as the related expense is recognized. The ineffective portions of interest rate swaps are recognized in other income/(expense), net in the period measured.

The Company monitors its positions with, and the credit quality of, the financial institutions that are party to any of its financial transactions.
20

As of June 30, 2019,March 31, 2020, the Company had outstanding hedge contracts for the sale of $153$243 million and the purchase of $93$142 million of foreign currencies at fixed rates that will be settled by September 2019.2020. As of June 30, 2019,March 31, 2020, the Company had $1 million of0 unrealized deferred gains or losses in comprehensive incomeloss related to foreign exchange hedging. As of September 30, 2018,2019, the Company had no0 outstanding hedge contracts and no0 deferred gains or losses in comprehensive loss related to foreign exchange hedging.
As of June 30, 2019 and September 30, 2018,March 31, 2020, the Company had outstanding $320$820 million in pay-fixed receive-variable interest rate swaps with $28 million of unrealized deferred losses in comprehensive income related to the interest rate swapswaps. As of September 30, 2019, the Company had outstanding $820 million in pay-fixed receive-variable interest rate swaps with $8 million andof unrealized deferred gainslosses in comprehensive income related to the interest rate swapswaps.
The Company recorded realized pre-tax losses of $2 million and unrealized pre-tax gains of $3 million respectively.  
related to its foreign currency forward exchange contracts in the consolidated statement of operations as other (expense) income for the six months ended March 31, 2020. The Company recorded realized pre-tax gains of $1 million and unrealized pre-tax gains of $4 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other income for the six months ended March 31, 2019. The unrealized pre-tax losses of the Company’s foreign exchange forward exchange contracts designated as cash flow hedges recorded in other comprehensive income duringwere $2 million for the ninesix months ended June 30, 2019 was $1 million. The unrealized pre-tax loss of the Company’s foreign exchange forward contracts designated as cash flow hedges recorded in other comprehensive income during the nine months ended June 30, 2018 was $1 million. March 31, 2019.
The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the ninesix months ended June 30, 2019 was $15March 31, 2020 were $25 million. The unrealized pre-tax gainslosses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income and the Consolidated Statement of Comprehensive Income during the ninesix months ended June 30, 2018 was $2March 31, 2019 were $9 million.
The following is a summary of amounts recorded in the Consolidated Balance Sheetsconsolidated balance sheets pertaining to the Company’s designated cash flows hedgesderivative instruments at June 30, 2019March 31, 2020 and September 30, 2018:2019:
March 31,
2020 (a)		September 30,
2019 (b)
(in millions)
Other current assets$3  $—  
Other current liabilities—  —  
Other noncurrent assets—  2  
Other noncurrent liabilities(36) (13) 

(a)$8 million and $5 million of foreign exchange derivative contracts in asset and liability positions, respectively, and $36 million of interest rate swaps in liability positions.
 June 30,
2019 (a)		 September 30,
2018 (b)
(in millions)
Other current assets$1
 $—
Other current liabilities—
 —
Other noncurrent assets—
 4
Other noncurrent liabilities11
 —
(b)$2 million and $13 million of interest rate swaps in asset and liability positions, respectively.
_______________________
(a)$4 million and $3 million of foreign exchange derivative contracts in asset and liability positions, respectively, and $11 million of interest rate swap in a liability position including non-designated cash flow hedges.
(b)$4 million of interest rate swap in an asset position.
11. Segment Information
As discussed more fully in Note 1, based on the nature of its products and services, the Company classifies its business interests into two2 fundamental operations: Recorded Music and Music Publishing, which also represent the reportable segments of the Company. Information as to each of these operations is set forth below. The Company evaluates performance based on several factors, of which the primary financial measure is operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (“OIBDA”). The Company has supplemented its analysis of OIBDA results by segment with an analysis of operating income (loss) by segment.
The accounting policies of the Company’s business segments are the same as those described in the summary of significant accounting policies included elsewhere herein. The Company accounts for intersegment sales at fair value as if the sales were to third parties. While intercompany transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses recognized by the segment that is counterparty to the transaction) are eliminated in consolidation, and therefore, do not themselves impact consolidated results.

21

Recorded
Music
 
Music
Publishing
 
Corporate
expenses and
eliminations
 TotalRecorded
Music		Music
Publishing		Corporate
expenses and
eliminations		Total
Three Months Ended(in millions)Three Months Ended(in millions)
June 30, 2019       
Revenue$913
 $147
 $(2) $1,058
March 31, 2020March 31, 2020    
RevenuesRevenues$907  $166  $(2) $1,071  
Operating income (loss)85
 18
 (45) 58
Operating income (loss)36  30  (115) (49) 
Amortization of intangible assets34
 17
 —
 51
Amortization of intangible assets30  17  —  47  
Depreciation of property, plant and equipment12
 1
 2
 15
Depreciation of property, plant and equipment10  1  3  14  
OIBDA131
 36
 (43) 124
OIBDA76  48  (112) 12  
June 30, 2018       
Revenue$802
 $159
 $(3) $958
March 31, 2019March 31, 2019
RevenuesRevenues$933  $158  $(1) $1,090  
Operating income (loss)67
 5
 (44) 28
Operating income (loss)134  27  (39) 122  
Amortization of intangible assets39
 17
 —
 56
Amortization of intangible assets37  18  —  55  
Depreciation of property, plant and equipment9
 2
 4
 15
Depreciation of property, plant and equipment9  2  3  14  
OIBDA115
 24
 (40) 99
OIBDA180  47  (36) 191  
Recorded
Music		Music
Publishing		Corporate
expenses and
eliminations		Total
Six Months EndedSix Months Ended(in millions)
March 31, 2020March 31, 2020
RevenuesRevenues$1,991  $339  $(3) $2,327  
Operating income (loss)Operating income (loss)227  44  (155) 116  
Amortization of intangible assetsAmortization of intangible assets59  35  —  94  
Depreciation of property, plant and equipmentDepreciation of property, plant and equipment31  2  5  38  
OIBDAOIBDA317  81  (150) 248  
March 31, 2019March 31, 2019
RevenuesRevenues$1,974  $323  $(4) $2,293  
Operating income (loss)Operating income (loss)297  49  (77) 269  
Amortization of intangible assetsAmortization of intangible assets75  34  —  109  
Depreciation of property, plant and equipmentDepreciation of property, plant and equipment19  3  6  28  
OIBDAOIBDA391  86  (71) 406  
 
Recorded
Music
 
Music
Publishing
 
Corporate
expenses and
eliminations
 Total
Nine Months Ended(in millions)
June 30, 2019       
Revenue$2,887
 $470
 $(6) $3,351
Operating income (loss)382
 67
 (122) 327
Amortization of intangible assets109
 51
 —
 160
Depreciation of property, plant and equipment31
 4
 8
 43
OIBDA522
 122
 (114) 530
June 30, 2018       
Revenue$2,497
 $476
 $(7) $2,966
Operating income (loss)276
 45
 (120) 201
Amortization of intangible assets113
 51
 —
 164
Depreciation of property, plant and equipment26
 5
 10
 41
OIBDA415
 101
 (110) 406
12. Additional Financial Information
Cash Interest and Taxes
The Company made interest payments of approximately $50$21 million and $41$28 million during the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. The Company made interest payments of approximately $120$65 million and $126$70 million during the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. The Company paid approximately $22$20 million and $11 million of income and withholding taxes, duringnet of refunds, for the three months ended June 30,March 31, 2020 and March 31, 2019, andrespectively. The Company paid approximately $15$40 million and $18 million of income and withholding taxes, net of refunds, during the threesix months ended June 30, 2018. The Company paid approximately $40 million of incomeMarch 31, 2020 and withholding taxes during the nine months ended June 30,March 31, 2019, and paid approximately $33 million of income and withholding taxes during the nine months ended June 30, 2018.respectively.
Special Cash Dividends
On January 8, 2018, the Company’s Board of Directors approved a special cash dividend of $125 million, which was paid on January 12, 2018 to stockholders of record as of January 11, 2018.
On May 7, 2018, the Company’s Board of Directors approved a special cash dividend of $300 million, which was paid on May 11, 2018 to stockholders of record as of May 7, 2018.
On August 7, 2018, the Company’s Board of Directors approved a special cash dividend of $500 million, which was paid on August 10, 2018 to stockholders of record as of August 7, 2018.

Dividend Policy
The Company’s ability to pay dividends is restricted by covenants in the indentures governing ourits notes and in the credit agreements for ourthe Senior Term Loan Facility and the Revolving Credit Facility.
In the first quarter of fiscal year 2019, the Company instituted a regular quarterly dividend policy whereby it intends to pay a modest regular quarterly dividend in each of the first three fiscal quarterquarters and a variable dividend for the fourth fiscal quarter in an amount commensurate with cash expected to be generated from operations in such fiscal year, in each case, after taking into account other potential uses for cash, including acquisitions, investment in our business and repayment of indebtedness. On December 20, 2018 the Company’s Board of Directors approved the first dividend of $31.25 million which was paid on January 4, 2019. On March 26, 2019, the Company’s Board of Directors approved a dividend of $31.25 million which was paid on April 5, 2019. On June 28, 2019, the Company’s Board of Directors approved a dividend of $31.25 million paid on July 5, 2019 and recorded as an accrual on June 30, 2019. The declaration of each dividend will continue to be at the discretion of the Company’s Boardboard of Directors.directors.
Spotify Share Sale
22

On March 25, 2020, the Company’s board of directors declared a cash dividend of $37.5 million which was paid to stockholders on April 17, 2020 and recorded as an accrual as of March 31, 2020. On September 23, 2019, the Company’s board of directors declared a cash dividend of $206 million which was paid to stockholders on October 4, 2019 and recorded as an accrual as of September 30, 2019. On March 26, 2019, the Company’s board of directors declared a cash dividend of $31.25 million which was accrued as of March 31, 2019 and paid to stockholders on April 5, 2019.
Depreciation Expense
During the threesix months ended June 30, 2018,March 31, 2020, the Company sold allrecorded depreciation expense of its shares of common stock in Spotify Technology S.A. (“Spotify”) for cash proceeds of $504 million. In February 2016, the Company publicly announced that it would pay royalties in connection with these proceeds. The sale of shares resulted in an estimated pre-tax gain, net of the estimated royalty expense and other related costs, of $378$38 million, which has been recorded as other income (expense) inincluded a one-time charge of $10 million representing the quarter. Asdifference between the net book value of June 30, 2018,a building and its expected recoverable value.
COVID-19 Pandemic
On March 11, 2020, the estimated royalty expenseCOVID-19 outbreak was declared a global pandemic by the World Health Organization. Government-imposed mandates limiting public assembly and other related costs had been accrued,requiring that non-essential businesses close have adversely impacted the Company’s operations, including touring and were subsequently paid. The processing of the royalty expense resulted in advance recoveries of previously expensed royalty advances. The Company estimated the advance recoveries to be approximately $16 million, and recorded these advance recoveries as a credit within operating expense inphysical product distribution, for the three and ninesix months ended June 30, 2018. March 31, 2020. It is unclear how long the government-imposed mandates and restrictions will last and to what extent the global pandemic will impact demand for the Company’s music and related services, even after federal, state, local and foreign governmental restrictions are lifted over time.
The Company also recorded estimated tax expenseis not presently aware of $77 million associated withany events or circumstances arising from the net income onglobal pandemic that would require us to update any estimates, judgments or materially revise the salecarrying value of sharesour assets or liabilities. The Company’s estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the quarter.consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our consolidated financial statements.
13. Fair Value Measurements
ASC 820, Fair Value Measurement (“ASC 820”), defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
•Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
•Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

23

In accordance with the fair value hierarchy, described above, the following table showstables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of June 30, 2019March 31, 2020 and September 30, 2018.2019.
Fair Value Measurements as of March 31, 2020
(Level 1)(Level 2)(Level 3)Total
(in millions)
Other Current Assets:
Foreign Currency Forward Exchange Contracts (a)$—  $3  $—  $3  
Other Noncurrent Assets:
Equity Method Investment (d)—  28  —  28  
Other Noncurrent Liabilities:
Interest Rate Swap (c)—  (36) —  (36) 
Total$—  $(5) $—  $(5) 
 Fair Value Measurements as of June 30, 2019
(Level 1) (Level 2) (Level 3) Total
(in millions)
Other Current Assets:       
Foreign Currency Forward Exchange Contracts (a)$—
 $1
 $—
 $1
Other Current Liabilities:       
Contractual Obligations (b)—
 —
 (3) (3)
Other Noncurrent Assets:       
Equity Method Investment (d)—
 45
 —
 45
Other Noncurrent Liabilities:       
Contractual Obligations (b)—
 —
 (6) (6)
Interest Rate Swap (c)—
 (11) —
 (11)
Total$—
 $35
 $(9) $26

Fair Value Measurements as of September 30, 2019
(Level 1)(Level 2)(Level 3)Total
(in millions)
Other Current Liabilities:
Contractual Obligations (b)$—  $—  $(9) $(9) 
Other Noncurrent Assets:
Equity Method Investment (d)—  40  —  40�� 
Interest Rate Swap—  2  —  2  
Other Noncurrent Liabilities:
Interest Rate Swap—  (13) —  (13) 
Total$—  $29  $(9) $20  

(a)The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.
 Fair Value Measurements as of September 30, 2018
(Level 1) (Level 2) (Level 3) Total
(in millions)
Other Current Liabilities:       
Contractual Obligations (b)$—
 $—
 $(2) $(2)
Other Noncurrent Assets:       
Interest Rate Swap (c)—
 4
 —
 4
Other Noncurrent Liabilities:       
Contractual Obligations (b)—
 —
 (6) (6)
Total$—
 $4
 $(8) $(4)
(b)This represents purchase obligations and contingent consideration related to the Company’s various acquisitions. This is based on a probability weighted performance approach and it is adjusted to fair value on a recurring basis and any adjustments are included as a component of operating income in the statement of operations. These amounts were mainly calculated using unobservable inputs such as future earnings performance of the Company’s various acquisitions and the expected timing of the payment.
_______________________(c)The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of March 31, 2020 for contracts involving the same attributes and maturity dates.
(a)The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.
(b)This represents purchase obligations and contingent consideration related to the Company’s various acquisitions. This is based on a probability weighted performance approach and it is adjusted to fair value on a recurring basis and any adjustments are included as a component of operating income in the statement of operations. These amounts were mainly calculated using unobservable inputs such as future earnings performance of the Company’s various acquisitions and the expected timing of the payment.
(c)The fair value of the interest rate swap is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of June 30, 2019 for contracts involving the same attributes and maturity dates.
(d)
The fair value of equity method investment represents an equity method investment acquired during the nine months June 30, 2019 whereby the Company has elected the fair value option under ASC 825 – Financial Instruments.  The valuation is based upon quoted prices in active markets and model-based valuation techniques to determine fair value.
(d)The fair value of equity method investment represents an equity method investment acquired in fiscal 2019 whereby the Company has elected the fair value option under ASC 825, Financial Instruments (“ASC 825”). The valuation is based upon quoted prices in active markets and model-based valuation techniques to determine fair value.
The following table reconciles the beginning and ending balances of net assets and liabilities classified as Level 3:
 Total
(in millions)
Balance at September 30, 2018$(8)
Additions(2)
Reductions—
Payments1
Balance at June 30, 2019$(9)
Total
(in millions)
Balance at September 30, 2019$(9)
Additions— 
Reductions7 
Payments2 
Balance at March 31, 2020$— 
The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, inventories, and property, plant and equipment, are not required to be re-measured to fair value on a recurring basis. These assets are evaluated for impairment if certain triggering events occur. If such evaluation indicates that impairment exists, the asset is written down to its fair value. In addition, an impairment analysis is performed at least annually for goodwill and indefinite-lived intangible assets.

24

Equity Investments Without Readily Determinable Fair Value
The Company evaluates its equity investments without readily determinable fair values for impairment if factors indicate that a significant decrease in value has occurred. Beginning in October 2018, the Company prospectively adopted a new accounting standard on the accounting for equity investments that do not have readily determinable fair values. Refer to Note 2, “Summary of Significant Accounting Policies”, for further details. Under the new standard, theThe Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes. The Company did not record any impairment charges on these investments during the ninethree and six months ended June 30, 2019.March 31, 2020. In addition, there were no observable price changes events that were completed during the ninethree and six months ended June 30, 2019.March 31, 2020.
Fair Value of Debt
Based on the level of interest rates prevailing at June 30, 2019,March 31, 2020, the fair value of the Company’s debt was $3.083$2.890 billion. Based on the level of interest rates prevailing at September 30, 2018,2019, the fair value of the Company’s debt was $2.862$3.080 billion. The fair value of the Company’s debt instruments areis determined using quoted market prices from less active markets or by using quoted market prices for instruments with identical terms and maturities; both approaches are considered a Level 2 measurement.
14. Related PartySubsequent Events
On March 29, 2019,April 3, 2020, Acquisition Corp. entered into an affiliate of Access acquiredamendment (the “Second Amendment”) to the Ford Factory BuildingRevolving Credit Agreement, dated January 31, 2018 (as amended by the amendment dated October 9, 2019), among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured revolving credit facility (the “Revolving Credit Facility”) with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto. The Second Amendment (among other changes) (i) increases the commitments under the Revolving Credit Facility from an unaffiliated third party, located on 777 S. Santa Fe Avenue in Los Angeles, California.  The Ford Factory isaggregate principal amount of $180 million to an aggregate principal amount of $300 million, (ii) extends the Company’s Los Angeles, California headquarters and as such, the Company is the sole tenantfinal maturity date of the building acquired by Access. The existing lease agreement was assumed by AccessRevolving Credit Facility from January 31, 2023 to April 3, 2025, (iii) reduces the interest margin applicable to the loans upon purchaseachievement of certain leverage ratios based on a leverage-based pricing grid, (iv) reduces the buildingcommitment fee based on a leverage-based pricing grid and was not modified as a resultlimits commitment fees to be paid only on unused amounts of commitments, (v) increases the purchase. Rental payments by the Companymaximum letter of credit exposure permitted under the existing lease total approximately $10Revolving Credit Facility from $50 million per year, subject to annual fixed increases. The remaining lease term is approximately 11 years, after$90 million, (vi) increases the springing financial maintenance covenant from a Senior Secured Indebtedness to EBITDA Ratio of 4.75:1.00 to a Senior Secured Indebtedness to EBITDA Ratio of 5.00:1.00 and provides that the covenant shall not be tested unless at the end of a fiscal quarter the outstanding amount of loans and drawings under letters of credit which have not been reimbursed exceeds $105 million, (vii) adds covenant suspension upon achievement of an investment grade rating or a Total Indebtedness to EBITDA Ratio of 3.25:1.00, and (viii) adds certain exceptions and increases certain baskets in connection with Acquisition Corp.’s negative covenants, including those related to the Company may exercise a single option to extend the termincurrence of the lease for 10 years thereafter.indebtedness, liens and restricted payments.
25



WARNER MUSIC GROUP CORP.
Supplementary Information
Consolidating Financial Statements
The Company is the direct parent of Holdings, which is the direct parent of Acquisition Corp. As of June 30, 2019,March 31, 2020 Acquisition Corp. had issued and outstanding the 5.00%5.000% Senior Secured Notes due 2023, the 4.125% Senior Secured Notes due 2024, the 4.875% Senior Secured Notes due 2024, the 3.625% Senior Secured Notes due 2026 and the 5.50%5.500% Senior Notes due 2026 (together, the “Acquisition Corp. Notes”).
The Acquisition Corp. Notes are guaranteed by the Company and, in addition, are guaranteed by all of Acquisition Corp.’s domestic wholly-owned subsidiaries. The secured notes are guaranteed on a senior secured basis and the unsecured notes are guaranteed on an unsecured senior basis. The Company’s guarantee of the Acquisition Corp. Notes is full and unconditional. The guarantee of the Acquisition Corp. Notes by Acquisition Corp.’s domestic wholly-owned subsidiaries is full, unconditional and joint and several. The following condensed consolidating financial statements are also presented for the information of the holders of the Acquisition Corp. Notes and present the results of operations, financial position and cash flows of (i) Acquisition Corp., which is the issuer of the Acquisition Corp. Notes, (ii) the guarantor subsidiaries of Acquisition Corp., (iii) the non-guarantor subsidiaries of Acquisition Corp. and (iv) the eliminations necessary to arrive at the information for Acquisition Corp. on a consolidated basis. Investments in consolidated subsidiaries are presented under the equity method of accounting. There are no restrictions on Acquisition Corp.’s ability to obtain funds from any of its wholly-owned subsidiaries through dividends, loans or advances.
The Company and Holdings are holding companies that conduct substantially all of their business operations through Acquisition Corp. Accordingly, the ability of the Company and Holdings to obtain funds from their subsidiaries is restricted by the indentures for the Acquisition Corp. Notes and the credit agreements for the Acquisition Corp. Senior Credit Facilities, including the Revolving Credit Facility and the Senior Term Loan Facility.

26

Consolidating Balance Sheet (Unaudited)
June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Assets
Current assets:
Cash and equivalents$—  $271  $213  $—  $484  $—  $—  $—  $484  
Accounts receivable, net—  322  441  —  763  —  —  —  763  
Inventories—  11  54  —  65  —  —  —  65  
Royalty advances expected to be recouped within one year—  123  66  —  189  —  —  —  189  
Prepaid and other current assets—  17  65  —  82  —  —  —  82  
Total current assets—  744  839  —  1,583  —  —  —  1,583  
Due from (to) parent companies454  (655) 201  —  —  —  —  —  —  
Investments in and advances to consolidated subsidiaries2,293  2,813  —  (5,106) —  692  692  (1,384) —  
Royalty advances expected to be recouped after one year—  151  81  —  232  —  —  —  232  
Property, plant and equipment, net—  194  100  —  294  —  —  —  294  
Operating lease right-of-use assets, net—  208  73  —  281  —  —  —  281  
Goodwill—  1,369  392  —  1,761  —  —  —  1,761  
Intangible assets subject to amortization, net—  855  789  —  1,644  —  —  —  1,644  
Intangible assets not subject to amortization—  71  80  —  151  —  —  —  151  
Deferred tax assets, net—  47  8  —  55  —  —  —  55  
Other assets3  92  28  —  123  —  —  —  123  
Total assets$2,750  $5,889  $2,591  $(5,106) $6,124  $692  $692  $(1,384) $6,124  
Liabilities and Equity
Current liabilities:
Accounts payable$1  $153  $92  $—  $246  $—  $—  $—  $246  
Accrued royalties—  773  818  —  1,591  —  —  —  1,591  
Accrued liabilities—  367  197  —  564  —  —  —  564  
Accrued interest34  —  —  —  34  —  —  —  34  
Operating lease liabilities, current—  22  17  —  39  —  —  —  39  
Deferred revenue—  56  111  —  167  —  —  —  167  
Other current liabilities—  42  49  —  91  —  —  —  91  
Total current liabilities35  1,413  1,284  —  2,732  —  —  —  2,732  
Long-term debt2,983  —  —  —  2,983  —  —  —  2,983  
Operating lease liabilities, noncurrent—  252  60  —  312  —  —  —  312  
Deferred tax liabilities, net—  —  154  —  154  —  —  —  154  
Other noncurrent liabilities38  95  96  (1) 228  —  —  —  228  
Total liabilities3,056  1,760  1,594  (1) 6,409  —  —  —  6,409  
Total Warner Music Group Corp. (deficit) equity(306) 4,125  980  (5,105) (306) 692  692  (1,384) (306) 
Noncontrolling interest—  4  17  —  21  —  —  —  21  
Total equity(306) 4,129  997  (5,105) (285) 692  692  (1,384) (285) 
Total liabilities and equity$2,750  $5,889  $2,591  $(5,106) $6,124  $692  $692  $(1,384) $6,124  

27
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Assets:                 
Current assets:                 
Cash and equivalents$—
 $297
 $244
 $—
 $541
 $—
 $—
 $—
 $541
Accounts receivable, net—
 331
 413
 —
 744
 —
 —
 —
 744
Inventories—
 13
 54
 —
 67
 —
 —
 —
 67
Royalty advances expected to be recouped within one year—
 103
 68
 —
 171
 —
 —
 —
 171
Prepaid and other current assets—
 10
 47
 —
 57
 —
 —
 —
 57
Total current assets—
 754
 826
 —
 1,580
 —
 —
 —
 1,580
Due from (to) parent companies473
 (430) (43) —
 —
 —
 —
 —
 —
Investments in and advances to consolidated subsidiaries2,409
 2,394
 —
 (4,803) —
 809
 809
 (1,618) —
Royalty advances expected to be recouped after one year—
 126
 83
 —
 209
 —
 —
 —
 209
Property, plant and equipment, net—
 195
 101
 —
 296
 —
 —
 —
 296
Goodwill—
 1,370
 402
 —
 1,772
 —
 —
 —
 1,772
Intangible assets subject to amortization, net—
 902
 878
 —
 1,780
 —
 —
 —
 1,780
Intangible assets not subject to amortization—
 71
 82
 —
 153
 —
 —
 —
 153
Deferred tax assets, net—
 —
 7
 —
 7
 —
 —
 —
 7
Other assets5
 124
 29
 —
 158
 —
 —
 —
 158
Total assets$2,887
 $5,506
 $2,365
 $(4,803) $5,955
 $809
 $809
 $(1,618) $5,955
Liabilities and Deficit:                 
Current liabilities:                 
Accounts payable$—
 $127
 $81
 $—
 $208
 $—
 $—
 $—
 $208
Accrued royalties5
 803
 769
 —
 1,577
 —
 —
 —
 1,577
Accrued liabilities—
 234
 214
 —
 448
 —
 —
 —
 448
Accrued interest18
 —
 —
 —
 18
 —
 —
 —
 18
Deferred revenue—
 51
 119
 —
 170
 —
 —
 —
 170
Other current liabilities—
 42
 81
 —
 123
 —
 —
 —
 123
Total current liabilities23
 1,257
 1,264
 —
 2,544
 —
 —
 —
 2,544
Long-term debt3,006
 —
 —
 —
 3,006
 —
 —
 —
 3,006
Deferred tax liabilities, net—
 61
 175
 —
 236
 —
 —
 —
 236
Other noncurrent liabilities10
 182
 110
 —
 302
 —
 —
 —
 302
Total liabilities3,039
 1,500
 1,549
 —
 6,088
 —
 —
 —
 6,088
Total Warner Music Group Corp. (deficit) equity(152) 4,002
 801
 (4,803) (152) 809
 809
 (1,618) (152)
Noncontrolling interest—
 4
 15
 —
 19
 —
 —
 —
 19
Total equity(152) 4,006
 816
 (4,803) (133) 809
 809
 (1,618) (133)
Total liabilities and equity$2,887
 $5,506
 $2,365
 $(4,803) $5,955
 $809
 $809
 $(1,618) $5,955


Consolidating Balance Sheet
September 30, 20182019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Assets
Current assets:
Cash and equivalents$—  $386  $233  $—  $619  $—  $—  $—  $619  
Accounts receivable, net—  334  441  —  775  —  —  —  775  
Inventories—  11  63  —  74  —  —  —  74  
Royalty advances expected to be recouped within one year—  112  58  —  170  —  —  —  170  
Prepaid and other current assets—  12  41  —  53  —  —  —  53  
Total current assets—  855  836  —  1,691  —  —  —  1,691  
Due from (to) parent companies458  (531) 73  —  —  —  —  —  —  
Investments in and advances to consolidated subsidiaries2,272  2,567  —  (4,839) —  878  878  (1,756) —  
Royalty advances expected to be recouped after one year—  137  71  —  208  —  —  —  208  
Property, plant and equipment, net—  200  100  —  300  —  —  —  300  
Goodwill—  1,370  391  —  1,761  —  —  —  1,761  
Intangible assets subject to amortization, net—  884  839  —  1,723  —  —  —  1,723  
Intangible assets not subject to amortization—  71  80  —  151  —  —  —  151  
Deferred tax assets, net—  30  8  —  38  —  —  —  38  
Other assets7  115  23  —  145  —  —  —  145  
Total assets$2,737  $5,698  $2,421  $(4,839) $6,017  $878  $878  $(1,756) $6,017  
Liabilities and Equity
Current liabilities:
Accounts payable$—  $160  $100  $—  $260  $—  $—  $—  $260  
Accrued royalties4  813  750  —  1,567  —  —  —  1,567  
Accrued liabilities—  266  226  —  492  —  —  —  492  
Accrued interest34  —  —  —  34  —  —  —  34  
Deferred revenue—  42  138  —  180  —  —  —  180  
Other current liabilities—  221  65  —  286  —  —  —  286  
Total current liabilities38  1,502  1,279  —  2,819  —  —  —  2,819  
Long-term debt2,974  —  —  —  2,974  —  —  —  2,974  
Deferred tax liabilities, net—  —  172  —  172  —  —  —  172  
Other noncurrent liabilities14  200  107  —  321  —  —  —  321  
Total liabilities3,026  1,702  1,558  —  6,286  —  —  —  6,286  
Total Warner Music Group Corp. (deficit) equity(289) 3,992  847  (4,839) (289) 878  878  (1,756) (289) 
Noncontrolling interest—  4  16  —  20  —  —  —  20  
Total equity(289) 3,996  863  (4,839) (269) 878  878  (1,756) (269) 
Total liabilities and equity$2,737  $5,698  $2,421  $(4,839) $6,017  $878  $878  $(1,756) $6,017  

28
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Assets:                 
Current assets:                 
Cash and equivalents$—
 $169
 $345
 $—
 $514
 $—
 $—
 $—
 $514
Accounts receivable, net—
 262
 185
 —
 447
 —
 —
 —
 447
Inventories—
 18
 24
 —
 42
 —
 —
 —
 42
Royalty advances expected to be recouped within one year—
 79
 44
 —
 123
 —
 —
 —
 123
Prepaid and other current assets—
 15
 35
 —
 50
 —
 —
 —
 50
Total current assets—
 543
 633
 —
 1,176
 —
 —
 —
 1,176
Due from (to) parent companies488
 (214) (274) —
 —
 —
 —
 —
 —
Investments in and advances to consolidated subsidiaries2,018
 2,192
 —
 (4,210) —
 675
 675
 (1,350) —
Royalty advances expected to be recouped after one year—
 93
 60
 —
 153
 —
 —
 —
 153
Property, plant and equipment, net—
 155
 74
 —
 229
 —
 —
 —
 229
Goodwill—
 1,370
 322
 —
 1,692
 —
 —
 —
 1,692
Intangible assets subject to amortization, net—
 956
 895
 —
 1,851
 —
 —
 —
 1,851
Intangible assets not subject to amortization—
 71
 83
 —
 154
 —
 —
 —
 154
Deferred tax assets, net—
 —
 11
 —
 11
 —
 —
 —
 11
Other assets12
 55
 11
 —
 78
 —
 —
 —
 78
Total assets$2,518
 $5,221

$1,815
 $(4,210) $5,344
 $675
 $675
 $(1,350) $5,344
Liabilities and Deficit:                
Current liabilities:                
Accounts payable$—
 $200
 $81
 $—
 $281
 $—
 $—
 $—
 $281
Accrued royalties—
 869
 527
 —
 1,396
 —
 —
 —
 1,396
Accrued liabilities—
 195
 228
 —
 423
 —
 —
 —
 423
Accrued interest31
 —
 —
 —
 31
 —
 —
 —
 31
Deferred revenue—
 94
 114
 —
 208
 —
 —
 —
 208
Other current liabilities—
 2
 32
 —
 34
 —
 —
 —
 34
Total current liabilities31
 1,360
 982
 —
 2,373
 —
 —
 —
 2,373
Long-term debt2,819
 —
 —
 —
 2,819
 —
 —
 —
 2,819
Deferred tax liabilities, net—
 3
 162
 —
 165
 —
 —
 —
 165
Other noncurrent liabilities2
 197
 108
 —
 307
 —
 —
 —
 307
Total liabilities2,852
 1,560

1,252
 —
 5,664
 —
 —
 —
 5,664
Total Warner Music Group Corp. (deficit) equity(334) 3,656
 554
 (4,210) (334) 675
 675
 (1,350) (334)
Noncontrolling interest—
 5
 9
 —
 14
 —
 —
 —
 14
Total equity(334) 3,661
 563
 (4,210) (320) 675
 675
 (1,350) (320)
Total liabilities and equity$2,518
 $5,221
 $1,815
 $(4,210) $5,344
 $675
 $675
 $(1,350)
$5,344


Consolidating Statement of Operations (Unaudited)
For The Three Months Ended June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—  $484  $662  $(75) $1,071  $—  $—  $—  $1,071  
Costs and expenses:
Cost of revenue—  (248) (369) 82  (535) —  —  —  (535) 
Selling, general and administrative expenses—  (360) (171) (7) (538) —  —  —  (538) 
Amortization of intangible assets—  (21) (26) —  (47) —  —  —  (47) 
Total costs and expenses—  (629) (566) 75  (1,120) —  —  —  (1,120) 
Operating (loss) income—  (145) 96  —  (49) —  —  —  (49) 
Interest (expense) income, net(31) 1  (3) —  (33) —  —  —  (33) 
Equity gains from equity method investments(46) 62  —  (16) —  (75) (75) 150  —  
Other (expense) income, net(9) 3  2  —  (4) —  —  —  (4) 
Income (loss) before income taxes(86) (79) 95  (16) (86) (75) (75) 150  (86) 
Income tax benefit (expense)12  20  (19) (1) 12  —  —  —  12  
Net (loss) income(74) (59) 76  (17) (74) (75) (75) 150  (74) 
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Net (loss) income attributable to Warner Music Group Corp.$(74) $(59) $76  $(17) $(74) $(75) $(75) $150  $(74) 

29
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—
 $410
 $760
 $(112) $1,058
 $—
 $—
 $—
 $1,058
Costs and expenses:                 
Cost of revenue—
 (216) (442) 81
 (577) —
 —
 —
 (577)
Selling, general and administrative expenses—
 (198) (203) 29
 (372) —
 —
 —
 (372)
Amortization of intangible assets—
 (24) (27) —
 (51) —
 —
 —
 (51)
Total costs and expenses—
 (438) (672) 110
 (1,000) —
 —
 —
 (1,000)
Operating income (loss)—
 (28) 88
 (2) 58
 —
 —
 —
 58
Loss on extinguishment of debt(4) —
 —
 —
 (4) —
 —
 —
 (4)
Interest expense, net(30) —
 (6) —
 (36) —
 —
 —
 (36)
Equity gains from equity method investments43
 58
 —
 (101) —
 13
 13
 (26) —
Other (expense) income, net(8) 37
 (45) —
 (16) —
 —
 —
 (16)
Income before income taxes1
 67
 37
 (103) 2
 13
 13
 (26) 2
Income tax benefit12
 15
 9
 (24) 12
 —
 —
 —
 12
Net income13
 82
 46
 (127) 14
 13

13
 (26) 14
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Net income attributable to Warner Music Group Corp.$13
 $82
 $45
 $(127) $13
 $13
 $13
 $(26) $13


Consolidating Statement of Operations (Unaudited)
For The Three Months Ended June 30, 2018March 31, 2019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—  $461  $672  $(43) $1,090  $—  $—  $—  $1,090  
Costs and expenses:
Cost of revenue—  (214) (391) 46  (559) —  —  —  (559) 
Selling, general and administrative expenses—  (186) (166) (2) (354) —  —  —  (354) 
Amortization of intangible assets—  (25) (30) —  (55) —  —  —  (55) 
Total costs and expenses—  (425) (587) 44  (968) —  —  —  (968) 
Operating income—  36  85  1  122  —  —  —  122  
Loss on extinguishment of debt—  —  —  —  —  —  —  —  —  
Interest (expense) income, net(31) 1  (6) —  (36) —  —  —  (36) 
Equity gains from equity method investments130  34  —  (164) —  67  67  (134) —  
Other income (expense), net16  51  (38) —  29  —  —  —  29  
Income before income taxes115  122  41  (163) 115  67  67  (134) 115  
Income tax expense(48) (49) (26) 75  (48) —  —  —  (48) 
Net income67  73  15  (88) 67  67  67  (134) 67  
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Net income attributable to Warner Music Group Corp.$67  $73  $15  $(88) $67  $67  $67  $(134) $67  

30
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—
 $544
 $533
 $(119) $958
 $—
 $—
 $—
 $958
Costs and expenses:                 
Cost of revenue—
 (261) (346) 76
 (531) —
 —
 —
 (531)
Selling, general and administrative expenses—
 (252) (133) 42
 (343) —
 —
 —
 (343)
Amortization of intangible assets—
 (23) (33) —
 (56) —
 —
 —
 (56)
Total costs and expenses—
 (536) (512) 118
 (930) —
 —
 —
 (930)
Operating income (loss)—
 8
 21
 (1) 28
 —
 —
 —
 28
Loss on extinguishment of debt(7) —
 —
 —
 (7) —
 —
 —
 (7)
Interest (expense) income, net(27) 2
 (8) —
 (33) —
 —
 —
 (33)
Equity gains from equity method investments39
 23
 —
 (62) —
 320
 320
 (640) —
Other income (expense), net376
 (1) 19
 —
 394
 —
 —
 —
 394
Income before income taxes381
 32
 32
 (63) 382
 320
 320
 (640) 382
Income tax (expense) benefit(61) (62) 7
 55
 (61) —
 —
 —
 (61)
Net income (loss)320
 (30) 39
 (8) 321
 320
 320
 (640) 321
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Net income (loss) attributable to Warner Music Group Corp.$320
 $(30) $38
 $(8) $320

$320
 $320
 $(640) $320


Consolidating Statement of Operations (Unaudited)
For The NineSix Months Ended June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—  $1,058  $1,466  $(197) $2,327  $—  $—  $—  $2,327  
Costs and expenses:
Cost of revenue—  (555) (816) 171  (1,200) —  —  —  (1,200) 
Selling, general and administrative expenses—  (537) (406) 26  (917) —  —  —  (917) 
Amortization of intangible assets—  (43) (51) —  (94) —  —  —  (94) 
Total costs and expenses—  (1,135) (1,273) 197  (2,211) —  —  —  (2,211) 
Operating (loss) income—  (77) 193  —  116  —  —  —  116  
Interest (expense) income, net(62) 1  (5) —  (66) —  —  —  (66) 
Equity gains from equity method investments108  148  —  (256) —  45  45  (90) —  
Other (expense) income, net(7) 4  (6) —  (9) —  —  —  (9) 
Income before income taxes39  76  182  (256) 41  45  45  (90) 41  
Income tax benefit (expense)7  19  (42) 23  7  —  —  —  7  
Net income46  95  140  (233) 48  45  45  (90) 48  
Less: Income attributable to noncontrolling interest—  —  (2) —  (2) —  —  —  (2) 
Net income attributable to Warner Music Group Corp.$46  $95  $138  $(233) $46  $45  $45  $(90) $46  

31
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—
 $1,352
 $2,286
 $(287) $3,351
 $—
 $—
 $—
 $3,351
Costs and expenses:                 
Cost of revenue—
 (653) (1,338) 229
 (1,762) —
 —
 —
 (1,762)
Selling, general and administrative expenses—
 (573) (586) 57
 (1,102) —
 —
 —
 (1,102)
Amortization of intangible assets—
 (74) (86) —
 (160) —
 —
 —
 (160)
Total costs and expenses—
 (1,300) (2,010) 286
 (3,024) —
 —
 —
 (3,024)
Operating income—
 52
 276
 (1) 327
 —
 —
 —
 327
Loss on extinguishment of debt(7) —
 —
 —
 (7) —
 —
 —
 (7)
Interest (expense) income, net(92) 2
 (18) —
 (108) —
 —
 —
 (108)
Equity gains from equity method investments345
 201
 —
 (546) —
 166
 166
 (332) —
Other income (expense), net6
 107
 (72) —
 41
 —
 —
 —
 41
Income before income taxes252
 362
 186
 (547) 253
 166
 166
 (332) 253
Income tax expense(86) (79) (41) 120
 (86) —
 —
 —
 (86)
Net income166
 283
 145
 (427) 167
 166
 166
 (332) 167
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Net income attributable to Warner Music Group Corp.$166
 $283
 $144
 $(427) $166
 $166
 $166
 $(332) $166


Consolidating Statement of Operations (Unaudited)
For The NineSix Months Ended June 30, 2018March 31, 2019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—  $942  $1,526  $(175) $2,293  $—  $—  $—  $2,293  
Costs and expenses:
Cost of revenue—  (437) (896) 148  (1,185) —  —  —  (1,185) 
Selling, general and administrative expenses—  (375) (383) 28  (730) —  —  —  (730) 
Amortization of intangible assets—  (50) (59) —  (109) —  —  —  (109) 
Total costs and expenses—  (862) (1,338) 176  (2,024) —  —  —  (2,024) 
Operating income—  80  188  1  269  —  —  —  269  
Loss on extinguishment of debt(3) —  —  —  (3) —  —  —  (3) 
Interest (expense) income, net(62) 2  (12) —  (72) —  —  —  (72) 
Equity gains from equity method investments302  143  —  (445) —  153  153  (306) —  
Other income (expense), net14  70  (27) —  57  —  —  —  57  
Income before income taxes251  295  149  (444) 251  153  153  (306) 251  
Income tax expense(98) (94) (50) 144  (98) —  —  —  (98) 
Net income153  201  99  (300) 153  153  153  (306) 153  
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Net income attributable to Warner Music Group Corp.$153  $201  $99  $(300) $153  $153  $153  $(306) $153  

32
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Revenue$—
 $1,626
 $1,703
 $(363) $2,966
 $—
 $—
 $—
 $2,966
Costs and expenses:                 
Cost of revenue—
 (760) (1,066) 238
 (1,588) —
 —
 —
 (1,588)
Selling, general and administrative expenses—
 (731) (406) 124
 (1,013) —
 —
 —
 (1,013)
Amortization of intangible assets—
 (70) (94) —
 (164) —
 —
 —
 (164)
Total costs and expenses—
 (1,561) (1,566) 362
 (2,765) —
 —

—
 (2,765)
Operating income—
 65
 137
 (1) 201
 —
 —
 —
 201
Loss on extinguishment of debt(31) —
 —
 —
 (31) —
 —
 —
 (31)
Interest (expense) income, net(87) 3
 (21) —
 (105) —
 —
 —
 (105)
Equity gains from equity method investments195
 99
 —
 (294) —
 321
 321
 (642) —
Other income, net376
 8
 8
 —
 392
 —
 —
 —
 392
Income before income taxes453
 175
 124
 (295) 457
 321
 321
 (642) 457
Income tax expense(132) (131) (21) 152
 (132) —
 —
 —
 (132)
Net income321
 44
 103
 (143) 325
 321
 321
 (642) 325
Less: income attributable to noncontrolling interest—
 (1) (3) —
 (4) —
 —
 —
 (4)
Net income attributable to Warner Music Group Corp.$321
 $43
 $100
 $(143) $321
 $321
 $321

$(642)
$321


Consolidating Statement of Comprehensive Income (Unaudited)
For The Three Months Ended June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Net (loss) income$(74) $(59) $76  $(17) $(74) $(75) $(75) $150  $(74) 
Other comprehensive loss, net of tax:  
Foreign currency adjustment(15) —  15  (15) (15) (15) (15) 30  (15) 
Deferred loss on derivative financial instruments(23) —  (23) 23  (23) (23) (23) 46  (23) 
Other comprehensive loss, net of tax(38) —  (8) 8  (38) (38) (38) 76  (38) 
Total comprehensive (loss) income(112) (59) 68  (9) (112) (113) (113) 226  (112) 
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Comprehensive (loss) income attributable to Warner Music Group Corp.$(112) $(59) $68  $(9) $(112) $(113) $(113) $226  $(112) 

33
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Net income$13
 $82
 $46
 $(127) $14
 $13
 $13
 $(26) $14
Other comprehensive income (loss), net of tax:                 
Foreign currency adjustment9
 —
 (9) 9
 9
 10
 10
 (20) 9
Deferred (loss) gains on derivatives(3) —
 1
 (1) (3) (3) (3) 6
 (3)
Other comprehensive income (loss), net of tax:6
 —
 (8) 8
 6
 7
 7
 (14) 6
Total comprehensive income19
 82
 38
 (119) 20
 20
 20
 (40) 20
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Comprehensive income attributable to Warner Music Group Corp.$19
 $82
 $37
 $(119) $19

$20
 $20
 $(40) $19


Consolidating Statement of Comprehensive Income (Unaudited)
For The Three Months Ended June 30, 2018March 31, 2019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Net income$67  $73  $15  $(88) $67  $67  $67  $(134) $67  
Other comprehensive (loss) income, net of tax: 
Foreign currency adjustment(10) —  10  (10) (10) (13) (13) 26  (10) 
Deferred loss on derivative financial instruments(3) —  —  —  (3) (3) (3) 6  (3) 
Other comprehensive (loss) income, net of tax(13) —  10  (10) (13) (16) (16) 32  (13) 
Total comprehensive income54  73  25  (98) 54  51  51  (102) 54  
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Comprehensive income attributable to Warner Music Group Corp.$54  $73  $25  $(98) $54  $51  $51  $(102) $54  

34
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Net income (loss)$320
 $(30) $39
 $(8) $321
 $320
 $320
 $(640) $321
Other comprehensive (loss) income, net of tax:                 
Foreign currency adjustment(31) —
 31
 (31) (31) (31) (31) 62
 (31)
Deferred loss on derivatives(3) —
 —
 —
 (3) (3) (3) 6
 (3)
Other comprehensive (loss) income, net of tax:(34) —
 31
 (31) (34) (34) (34) 68
 (34)
Total comprehensive income (loss)286
 (30) 70
 (39) 287
 286
 286
 (572) 287
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Comprehensive income (loss) attributable to Warner Music Group Corp.$286
 $(30) $69
 $(39) $286
 $286
 $286
 $(572) $286



Consolidating Statement of Comprehensive Income (Unaudited)
For The NineSix Months Ended June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Net income$46  $95  $140  $(233) $48  $45  $45  $(90) $48  
Other comprehensive loss, net of tax:  
Foreign currency adjustment(8) —  8  (8) (8) 28  28  (56) (8) 
Deferred loss on derivative financial instruments(20) —  (20) 20  (20) (8) (8) 16  (20) 
Other comprehensive loss, net of tax(28) —  (12) 12  (28) 25  25  (50) (28) 
Total comprehensive income18  95  128  (221) 20  70  70  (140) 20  
Less: Income attributable to noncontrolling interest—  —  (2) —  (2) —  —  —  (2) 
Comprehensive income attributable to Warner Music Group Corp.$18  $95  $126  $(221) $18  $70  $70  $(140) $18  

35
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Net income$166
 $283
 $145
 $(427) $167
 $166
 $166
 $(332) $167
Other comprehensive (loss) income, net of tax:                 
Foreign currency adjustment(17) —
 17
 (17) (17) (19) (19) 38
 (17)
Deferred loss on derivatives(12) —
 (1) 1
 (12) (12) (12) 24
 (12)
Other comprehensive (loss) income, net of tax:(29) —
 16
 (16) (29) (31) (31) 62
 (29)
Total comprehensive income137
 283
 161
 (443) 138
 135
 135
 (270) 138
Less: income attributable to noncontrolling interest—
 —
 (1) —
 (1) —
 —
 —
 (1)
Comprehensive income attributable to Warner Music Group Corp.$137
 $283
 $160
 $(443) $137
 $135
 $135
 $(270) $137


Consolidating Statement of Comprehensive Income (Unaudited)
For The NineSix Months Ended June 30, 2018March 31, 2019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Net income$153  $201  $99  $(300) $153  $153  $153  $(306) $153  
Other comprehensive (loss) income, net of tax: 
Foreign currency adjustment(26) —  26  (26) (26) (29) (29) 58  (26) 
Deferred loss on derivative financial instruments(9) —  (2) 2  (9) (9) (9) 18  (9) 
Other comprehensive (loss) income, net of tax(35) —  24  (24) (35) (38) (38) 76  (35) 
Total comprehensive income118  201  123  (324) 118  115  115  (230) 118  
Less: Income attributable to noncontrolling interest—  —  —  —  —  —  —  —  —  
Comprehensive income attributable to Warner Music Group Corp.$118  $201  $123  $(324) $118  $115  $115  $(230) $118  

36
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
(in millions)
Net income$321
 $44
 $103
 $(143) $325
 $321
 $321
 $(642) $325
Other comprehensive (loss) income, net of tax:                 
Foreign currency adjustment(13) —
 13
 (13) (13) (13) (13) 26
 (13)
Deferred loss on derivatives(1) —
 —
 —
 (1) (1) (1) 2
 (1)
Other comprehensive (loss) income, net of tax:(14) —
 13
 (13) (14) (14) (14) 28
 (14)
Total comprehensive income307
 44
 116
 (156) 311
 307
 307
 (614) 311
Less: income attributable to noncontrolling interest—
 (1) (3) —
 (4) —
 —
 —
 (4)
Comprehensive income attributable to Warner Music Group Corp.$307
 $43
 $113
 $(156) $307
 $307
 $307
 $(614) $307


Consolidating Statement of Cash Flows (Unaudited)
For The NineSix Months Ended June 30, 2019March 31, 2020
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Cash flows from operating activities         
Net income$46  $95  $140  $(233) $48  $45  $45  $(90) $48  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization—  74  58  —  132  —  —  —  132  
Unrealized gains and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts6  (3) (10) —  (7) —  —  —  (7) 
Deferred income taxes—  —  (31) —  (31) —  —  —  (31) 
Net loss on investments—  15  —  —  15  —  —  —  15  
Non-cash interest expense3  —  —  —  3  —  —  —  3  
Equity-based compensation expense—  160  —  —  160  —  —  —  160  
Equity gains, including distributions(108) (148) —  256  —  (45) (45) 90  —  
Changes in operating assets and liabilities:
Accounts receivable, net—  11  (5) —  6  —  —  —  6  
Inventories—  —  9  —  9  —  —  —  9  
Royalty advances—  (26) (21) —  (47) —  —  —  (47) 
Accounts payable and accrued liabilities—  80  (166) (23) (109) —  —  —  (109) 
Royalty payables—  (42) 80  —  38  —  —  —  38  
Accrued interest—  —  —  —  —  —  —  —  —  
Operating lease liabilities—  (2) —  —  (2) —  —  —  (2) 
Deferred revenue—  13  (27) —  (14) —  —  —  (14) 
Other balance sheet changes4  (18) (23) —  (37) —  —  —  (37) 
Net cash (used in) provided by operating activities(49) 209  4  —  164  —  —  —  164  
Cash flows from investing activities
Acquisition of music publishing rights and music catalogs, net—  (12) (6) —  (18) —  —  —  (18) 
Capital expenditures—  (18) (10) —  (28) —  —  —  (28) 
Investments and acquisitions of businesses, net of cash received—  (1) (4) —  (5) —  —  —  (5) 
Advances from issuer49  —  —  (49) —  —  —  —  —  
Net cash provided by (used in) investing activities49  (31) (20) (49) (51) —  —  —  (51) 
Cash flows from financing activities
Dividend by Acquisition Corp. to Holdings Corp.—  (244) —  —  (244) —  —  —  (244) 
Distribution to noncontrolling interest holder—  —  (1) —  (1) —  —  —  (1) 
Change in due (from) to issuer—  (49) —  49  —  —  —  —  —  
Net cash used in financing activities—  (293) (1) 49  (245) —  —  —  (245) 
Effect of exchange rate changes on cash and equivalents—  —  (3) —  (3) —  —  —  (3) 
Net decrease in cash and equivalents—  (115) (20) —  (135) —  —  —  (135) 
Cash and equivalents at beginning of period—  386  233  —  619  —  —  —  619  
Cash and equivalents at end of period$—  $271  $213  $—  $484  $—  $—  $—  $484  

37
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
 (in millions)
Cash flows from operating activities                 
Net income$166
 $283
 $145
 $(427) $167
 $166
 $166
 $(332) $167
Adjustments to reconcile net income to net cash provided by operating activities:                 
Depreciation and amortization—
 103
 100
 —
 203
 —
 —
 —
 203
Unrealized gains and remeasurement of foreign denominated loans(5) (1) —
 —
 (6) —
 —
 —
 (6)
Deferred income taxes—
 —
 25
 

 25
 

 

 

 25
Loss on extinguishment of debt7
 —
 —
 —
 7
 —
 —
 —
 7
Net gain on investments—
 (25) (2) —
 (27) —
 —
 —
 (27)
Non-cash interest expense5
 —
 —
 —
 5
 —
 —
 —
 5
Equity-based compensation expense—
 28
 —
 —
 28
 —
 —
 —
 28
Equity gains, including distributions(345) (201) —
 546
 —
 (166) (166) 332
 —
Changes in operating assets and liabilities:        

       

Accounts receivable, net—
 11
 (61) —
 (50) —
 —
 —
 (50)
Inventories—
 5
 7
 —
 12
 —
 —
 —
 12
Royalty advances—
 (57) (50) —
 (107) —
 —
 —
 (107)
Accounts payable and accrued liabilities—
 239
 (214) (119) (94) —
 —
 —
 (94)
Royalty payables5
 (82) 194
 —
 117
 —
 —
 —
 117
Accrued interest(13) —
 —
 —
 (13) —
 —
 —
 (13)
Deferred revenue—
 (45) 28
 —
 (17) —
 —
 —
 (17)
Other balance sheet changes3
 54
 (58) —
 (1) —
 —
 —
 (1)
Net cash (used in) provided by operating activities(177) 312
 114
 —
 249
 —
 —

—
 249
Cash flows from investing activities        

       

Acquisition of music publishing rights, net—
 (19) (5) —
 (24) —
 —
 —
 (24)
Capital expenditures—
 (70) (12) —
 (82) —
 —
 —
 (82)
Investments and acquisitions of businesses, net—
 (40) (194) —
 (234) —
 —
 —
 (234)
Advances from issuer(8) —
 —
 8
 —
 —
 —
 —
 —
Net cash used in investing activities(8) (129) (211) 8
 (340) —
 —
 —
 (340)
Cash flows from financing activities        

       

Proceeds from issuance of Acquisition Corp. 3.625% Sr Secured Notes due 2026514
 —
 —
 —
 514
 —
 —
 —
 514
Repayment of Acquisition Corp. 4.125% Senior Secured Notes(40) —
 —
 —
 (40) —
 —
 —
 (40)
Repayment of Acquisition Corp. 4.875% Senior Secured Notes(30) —
 —
 —
 (30) —
 —
 —
 (30)
Repayment of Acquisition Corp. 5.625% Senior Secured Notes(247) —
 —
 —
 (247) —
 —
 —
 (247)
Call premiums paid and deposit on early redemption of debt(5) —
 —
 —
 (5) —
 —
 —
 (5)
Deferred financing costs paid(7) —
 —
 —
 (7) —
 —
 —
 (7)
Distribution to noncontrolling interest holder—
 —
 (3) —
 (3) —
 —
 —
 (3)
Dividends paid—
 (63) —
 —
 (63) —
 —
 —
 (63)
Change in due to (from) issuer—
 8
 —
 (8) —
 —
 —
 —
 —
Net cash provided by (used in) financing activities185
 (55) (3) (8) 119
 —
 —
 —
 119
Effect of exchange rate changes on cash and equivalents—
 —
 (1) —
 (1) —
 —
 —
 (1)
Net increase (decrease) in cash and equivalents—
 128
 (101) —
 27
 —
 —
 —
 27
Cash and equivalents at beginning of period—
 169
 345
 —
 514
 —
 —
 —
 514
Cash and equivalents at end of period$—
 $297
 $244
 $—
 $541
 $—
 $—
 $—
 $541


Consolidating Statement of Cash Flows (Unaudited)
For The NineSix Months Ended June 30, 2018March 31, 2019
WMG
Acquisition
Corp.
(issuer)		Guarantor
Subsidiaries		Non-
Guarantor
Subsidiaries		EliminationsWMG
Acquisition
Corp.
Consolidated		WMG
Holdings
Corp.		Warner
Music
Group
Corp.		EliminationsWarner
Music
Group Corp.
Consolidated
(in millions)
Cash flows from operating activities         
Net income$153  $201  $99  $(300) $153  $153  $153  $(306) $153  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization—  68  69  —  137  —  —  —  137  
Unrealized gains and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts(20) (5) —  1  (24) —  —  —  (24) 
Deferred income taxes—  —  27  —  27  —  —  —  27  
Loss on extinguishment of debt3  —  —  —  3  —  —  —  3  
Net gain on investments—  (30) (2) —  (32) —  —  —  (32) 
Non-cash interest expense3  —  —  —  3  —  —  —  3  
Equity-based compensation expense—  14  —  —  14  —  —  —  14  
Equity gains, including distributions(302) (143) —  445  —  (153) (153) 306  —  
Changes in operating assets and liabilities:
Accounts receivable, net—  (16) (74) —  (90) —  —  —  (90) 
Inventories—  4  9  —  13  —  —  —  13  
Royalty advances—  (37) (24) —  (61) —  —  —  (61) 
Accounts payable and accrued liabilities—  218  (172) (146) (100) —  —  —  (100) 
Royalty payables6  (93) 133  —  46  —  —  —  46  
Accrued interest1  —  —  —  1  —  —  —  1  
Deferred revenue—  (44) 25  —  (19) —  —  —  (19) 
Other balance sheet changes4  41  (17) —  28  —  —  —  28  
Net cash (used in) provided by operating activities(152) 178  73  —  99  —  —  —  99  
Cash flows from investing activities
Acquisition of music publishing rights, net—  (11) (5) —  (16) —  —  —  (16) 
Capital expenditures—  (50) (9) —  (59) —  —  —  (59) 
Investments and acquisitions of businesses, net of cash received—  (26) (192) —  (218) —  —  —  (218) 
Proceeds from the sale of investments—  —  —  —  —  —  —  —  —  
Advances from issuer(24) —  —  24  —  —  —  —  —  
Net cash used in investing activities(24) (87) (206) 24  (293) —  —  —  (293) 
Cash flows from financing activities
Dividend by Acquisition Corp. to Holdings Corp.—  (31) —  —  (31) —  —  —  (31) 
Proceeds from issuance of Acquisition Corp. 3.625% Senior Notes due 2026287  —  —  —  287  —  —  —  287  
Repayment of Acquisition Corp. 4.125% Senior Secured Notes(40) —  —  —  (40) —  —  —  (40) 
Repayment of Acquisition Corp. 4.875% Senior Secured Notes(30) —  —  —  (30) —  —  —  (30) 
Repayment of Acquisition Corp. 5.625% Senior Secured Notes(27) —  —  —  (27) —  —  —  (27) 
Call premiums paid on and redemption deposit for early redemption of debt(2) —  —  —  (2) —  —  —  (2) 
Deferred financing costs paid(4) —  —  —  (4) —  —  —  (4) 
Distribution to noncontrolling interest holder—  (1) (1) —  (2) —  —  —  (2) 
Change in due to (from) issuer—  24  —  (24) —  —  —  —  —  
Net cash provided by (used in) financing activities184  (8) (1) (24) 151  —  —  —  151  
Effect of exchange rate changes on cash and equivalents—  —  (1) —  (1) —  —  —  (1) 
Net increase (decrease) in cash and equivalents8  83  (135) —  (44) —  —  —  (44) 
Cash and equivalents at beginning of period—  169  345  —  514  —  —  —  514  
Cash and equivalents at end of period$8  $252  $210  $—  $470  $—  $—  $—  $470  

38
 
WMG
Acquisition
Corp.
(issuer)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations 
WMG
Acquisition
Corp.
Consolidated
 
WMG
Holdings
Corp.
 
Warner
Music
Group
Corp.
 Eliminations 
Warner
Music
Group Corp.
Consolidated
 (in millions)
Cash flows from operating activities                 
Net income$321
 $44
 $103
 $(143) $325
 $321
 $321
 $(642) $325
Adjustments to reconcile net income to net cash provided by operating activities:                 
Depreciation and amortization—
 101
 104
 —
 205
 —
 —
 —
 205
Unrealized (gains) losses and remeasurement of foreign denominated loans(5) (3) 2
 —
 (6) —
 —
 —
 (6)
Deferred income taxes—
 —
 105
 —
 105
 —
 —
 —
 105
Loss on extinguishment of debt31
 —
 —
 —
 31
 —
 —
 —
 31
Net (gain) loss on divestitures and investments(503) 84
 34
 —
 (385) —
 —
 —
 (385)
Non-cash interest expense5
 —
 —
 —
 5
 —
 —
 —
 5
Equity-based compensation expense—
 52
 —
 —
 52
 —
 —
 —
 52
Equity gains, including distributions(195) (99) —
 294
 —
 (321) (321) 642
 —
Changes in operating assets and liabilities:        

        
Accounts receivable, net—
 (39) (4) —
 (43) —
 —
 —
 (43)
Inventories—
 (5) 4
 —
 (1) —
 —
 —
 (1)
Accounts payable and accrued liabilities—
 256
 (189) (151) (84) —
 —
 —
 (84)
Royalty payables—
 32
 81
 —
 113
 —
 —
 —
 113
Accrued interest(22) —
 —
 —
 (22) —
 —
 —
 (22)
Deferred revenue—
 30
 (30) —
 —
 —
 —
 —
 —
Other balance sheet changes(3) 82
 (109) —
 (30) —
 —
 —
 (30)
Net cash (used in) provided by operating activities(371) 535
 101
 —
 265
 —
 —
 —
 265
Cash flows from investing activities                 
Acquisition of music publishing rights, net—
 (7) (4) —
 (11) —
 —
 —
 (11)
Capital expenditures—
 (30) (10) —
 (40) —
 —
 —
 (40)
Investments and acquisitions of businesses, net—
 (14) —
 —
 (14) —
 —
 —
 (14)
Proceeds from the sale of investments504
 12
 —
 —
 516
 —
 —
 —
 516
Advances from issuer(108) —
 —
 108
 —
 —
 —
 —
 —
Net cash provided by (used in) investing activities396
 (39) (14) 108
 451
 —
 —
 —
 451
Cash flows from financing activities                 
Proceeds from issuance of Acquisition Corp. 5.50% Senior Notes325
 —
 —
 —
 325
 —
 —
 —
 325
Proceeds from supplement of Acquisition Corp. Senior Term Loan Facility320
 —
 —
 —
 320
 —
 —
 —
 320
Repayment of redemption deposit for Acquisition Corp. 6.75% Senior Notes(635) —
 —
 —
 (635) —
 —
 —
 (635)
Call premiums paid on and redemption deposit for early redemption of debt(23) —
 —
 —
 (23) —
 —
 —
 (23)
Deferred financing costs paid(12) —
 —
 —
 (12) —
 —
 —
 (12)
Distribution to noncontrolling interest holder—
 —
 (3) —
 (3) —
 —
 —
 (3)
Dividends paid—
 (397) (28) —
 (425) —
 —
 —
 (425)
Change in due to (from) issuer—
 108
 —
 (108) —
 —
 —
 —
 —
Net cash used in financing activities(25) (289) (31) (108) (453) —
 —
 —
 (453)
Effect of exchange rate changes on cash and equivalents—
 —
 (5) —
 (5) —
 —
 —
 (5)
Net increase in cash and equivalents—
 207
 51
 —
 258
 —
 —
 —
 258
Cash and equivalents at beginning of period—
 347
 300
 —
 647
 —
 —
 —
 647
Cash and equivalents at end of period$—
 $554
 $351
 $—
 $905
 $—
 $—
 $—
 $905


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. 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 June 30, 2019March 31, 2020 (the “Quarterly Report”).
“SAFE HARBOR” STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Quarterly Report, including, without limitation, statements regarding our future financial position, business strategy, cost savings, industry trends and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Such statements include, among others, our ability to compete in the highly competitive markets in which we operate, statements regarding our ability to develop talent and attract future talent, our ability to reduce future capital expenditures, our ability to monetize our music-based content, including through new distribution channels and formats to capitalize on the growth areas of the music industry, our ability to effectively deploy our capital, the development of digital music and the effect of digital distribution channels on our business, including whether we will be able to achieve higher margins from digital sales, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music industry, the effectiveness of our ongoing efforts to reduce overhead expenditures and manage our variable and fixed cost structure and our ability to generate expected cost savings from such efforts, our success in limiting piracy, the growth of the music industry and the effect of our and the music industry’s efforts to combat piracy on the industry, our intention to pay dividends or repurchase or retire our outstanding debt or notes in open market purchases, privately or otherwise, the impact on us of potential strategic transactions, our ability to fund our future capital needs and the effect of litigation on us. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Additionally, important factors could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report. As stated elsewhere in this Quarterly Report, such risks, uncertainties and other important factors include, among others:
•the failure of the digital portion of the global recorded music industry to grow or grow at a significant rate to offset declines in the physical portion of the global recorded music industry;
•downward pressure on our pricing and our profit margins and reductions in shelf space;
•our ability to identify, sign and retain artists and songwriters and the existence or absence of superstar releases;
•threats to our business associated with digital piracy;
•the significant threat posed to our business and the music industry by organized industrial piracy;
•the popular demand for particular recording artists and/or songwriters and albums and the timely completion of albums by major recording artists and/or songwriters;
•the diversity and quality of our portfolio of songwriters;
•the diversity and quality of our album releases;
•the impact of legitimate channels for digital distribution of our creative content;
•our dependence on a limited number of digital music services for the online sale of our music recordings and their ability to significantly influence the pricing structure for online music stores;
•our involvement in intellectual property litigation;
•our ability to continue to enforce our intellectual property rights in digital environments;
•the ability to develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music business;

•the impact of heightened and intensive competition in the recorded music and music publishing businesses and our inability to execute our business strategy;
39

•risks associated with our non-U.S. operations, including limited legal protections of our intellectual property rights and restrictions on the repatriation of capital;
•significant fluctuations in our operations, cash flows and valuation of our common stock from period to period;
•our inability to compete successfully in the highly competitive markets in which we operate;
•trends, developments or other events in some foreign countries in which we operate;
•local economic conditions in the countries in which we operate;
•our failure to attract and retain our executive officers and other key personnel;
•a significant portion of our revenues are subject to rate regulation either by government entities or by local third-party collectioncollecting societies throughout the world and rates on other income streams may be set by governmental proceedings, which may limit our profitability;
•an impairment in the carrying value of goodwill or other intangible and long-lived assets;
•unfavorable currency exchange rate fluctuations;
•our failure to have full control and ability to direct the operations we conduct through joint ventures;
•legislation limiting the terms by which an individual can be bound under a “personal services” contract;
•a potential loss of catalog if it is determined that recording artists have a right to recapture rights in their recordings under the U.S. Copyright Act;
•trends that affect the end uses of our musical compositions (which include uses in broadcast radio and television, film and advertising businesses);
•the growth of other products that compete for the disposable income of consumers;
•the impact of, and risks inherent in, acquisitions or business combinations;
•risks inherent to our outsourcing of information technology (“IT”) infrastructure and certain finance and accounting functions;
•our ability to maintain the security of information relating to our customers, employees and vendors and our music-based content;
•the fact that we have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost-savings;
•the impact of our substantial leverage on our ability to raise additional capital to fund our operations, on our ability to react to changes in the economy or our industry and on our ability to meet our obligations under our indebtedness;
•the ability to generate sufficient cash to service all of our indebtedness, and the risk that we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful;
•the fact that our debt agreements contain restrictions that limit our flexibility in operating our business;
•our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness, which may increase the risks created by our substantial indebtedness;
•the significant amount of cash required to service our indebtedness and the ability to generate cash or refinance indebtedness as it becomes due depends on many factors, some of which are beyond our control;
•risks of downgrade, suspension or withdrawal of the rating assigned by a rating agency to us could impact our cost of capital;
•risks relating to Access Industries, Inc. (“Access”), which, together with its affiliates, indirectly owns all of our outstanding capital stock, and controls our company and may have conflicts of interest with the holders of our debt or us in the future. Access may also enter into, or cause us to enter into, strategic transactions that could change the nature or structure of our business, capital structure or credit profile;
•risks related to evolving regulations concerning data privacy which might result in increased regulation and different industry standards;
•changes in law and government regulations, including as a result of the Tax Cuts and Jobs Act;
•risks related to our Senior Management Free Cash Flow Plan (the “Plan”), including the extent of any future non-cash charge(s) associated with share-based compensation costs related to the Plan;
40

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

•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, 2018.2019.
There may be other factors not presently known to us or which we currently consider to be immaterial that could cause our actual results to differ materially from those projected in any forward-looking statements we make. You should read carefully the “Risk Factors” section of this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report. We disclaim any duty to update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
INTRODUCTION
Warner Music Group Corp. (the “Company”) was formed on November 21, 2003. The Company is the direct parent of WMG Holdings Corp. (“Holdings”), which is the direct parent of WMG Acquisition Corp. (“Acquisition Corp.”). Acquisition Corp. is one of the world’s major music-based contentmusic entertainment companies.
On February 6, 2020, the Company filed a Form S-1 registration statement with the Securities and Exchange Commission (the “SEC”) for an initial public offering (“IPO”). The completion of the proposed IPO will depend on, among other things, the SEC review process and customary regulatory approvals, as well as market conditions. There can be no assurance that the proposed IPO will occur.
The Company and Holdings are holding companies that conduct substantially all of their business operations through their subsidiaries. The terms “we,” “us,” “our,” “ours,”“ours” and the “Company” refer collectively to Warner Music Group Corp. and its consolidated subsidiaries, except where otherwise indicated.
Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to the unaudited financial statements and footnotes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. MD&A is organized as follows:
Overview.•Business overview. This section provides a general description of our business, as well as a discussion of factors that we believe are important in understanding our results of operations and financial conditioncomparability and in anticipating future trends.
•Results of operations. This section provides an analysis of our results of operations for the three and ninesix months ended June 30, 2019March 31, 2020 and June 30, 2018.March 31, 2019. This analysis is presented on both a consolidated and segment basis.
•Financial condition and liquidity. This section provides an analysis of our cash flows for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018 as well as a discussion of our financial condition and liquidity as of June 30, 2019.March 31, 2020. The discussion of our financial condition and liquidity includes a summary of the key debt covenant compliance measures under our debt agreements.
Use of OIBDA
We evaluate our operating performance based on several factors, including our primary financial measure of operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (“OIBDA”). We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses and other non-operating income (loss). Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) attributable to Warner Music Group Corp. and other measures of financial performance reported in accordance with accounting principlesUnited States generally accepted in the United Statesaccounting principles (“U.S. GAAP”). In addition, our definition of OIBDA may differ from similarly titled measures used by other companies. A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp. is provided in our “Results of Operations.”

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Use of Constant Currency
As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares revenue between periods as if exchange rates had remained constant period over period. We use revenue on a constant-currency basis as one measure to evaluate our performance. We calculate constant currency by calculating prior-year revenue using current-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant-currency basis as “excluding the impact of foreign currency exchange rates.” This revenue should be considered in addition to, not as a substitute for, revenue reported in accordance with U.S. GAAP. Revenue on a constant-currency basis, as we present them,it, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.
BUSINESS OVERVIEW
We are one of the world’s major music-based contentleading music entertainment companies. Our renowned family of iconic record labels, including Atlantic Records, Warner Records, Elektra Records and Parlophone Records, is home to many of the most popular and influential recording artists. In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 80,000 songwriters and composers, with a global collection of more than 1.4 million musical compositions. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing. A brief description of each of those operations is presented below.
Components of Our Operating Results
Recorded Music Operations
Our Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of recorded music producedcreated by such recording artists. We play an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music andto marketing and promoting recording artists and their products.music.
In the United States, our Recorded Music operations arebusiness is conducted principally through our major record labels—WarnerAtlantic Records and AtlanticWarner Records. In October 2018, we launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels. Our Recorded Music operationsbusiness also includeincludes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault. We also conduct our Recorded Music operationsbusiness through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’, Warner Classics and Warner Music Nashville.
Outside the United States, our Recorded Music activities arebusiness is conducted in more than 5070 countries through various subsidiaries, affiliates and non-affiliated licensees. Internationally, we engage in the same activities as in the United States: discovering and signing artists and distributing, selling, marketing and sellingpromoting their recorded music. In most cases, we also market, promote, distribute and distributesell the music of those recording artists for whom our domestic record labels have international rights. In certain smaller markets, we license the right to distribute and sell our recordsmusic to non-affiliated third-party record labels. Our international artist services operations include a network of concert promoters through which we provide resources to coordinate tours for our artists and other artists as well as management companies that guide artists with respect to their careers.
Our Recorded Music business’ distribution operations include Warner-Elektra-Atlantic Corporation (“WEA Corp.”), which markets, distributes and sells music and video products to retailers and wholesale distributors; Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.
In addition to our Recorded Music productsmusic being sold in physical retail outlets, our Recorded Music products aremusic is also sold in physical form to online physical retailers, such as Amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including digital download services such as Apple’s iTunes and Google Play, digital streaming services such as those of Amazon, Apple, Deezer, Napster, Soundcloud,SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, and digital radio services such as iHeart Radio Pandora and Sirius XM.SiriusXM and download services.
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We have integrated the exploitationmarketing of digital content into all aspects of our business, including artist and repertoire (“A&R”), marketing, promotion and distribution. Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations. We also work side-by-side with our online and mobile partners to test new concepts. We believe existing and new digital businesses will be a significant source of growth and will provide new opportunities to successfully monetize our assets and create new revenue streams. The proportion of digital revenues attributedattributable to each distribution channel varies by region and proportions may change as the roll outintroduction of new technologies continues. As an ownerone of the world’s largest music content,entertainment companies, we believe we are well positioned to take advantage of growth in digital distribution and emerging technologies to maximize the value of our assets.

We have diversified our revenues beyond our traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers. Under these agreements, we provide services to and participate in recording artists’ activities outside the traditional recorded music business such as touring, merchandising and sponsorships. We have built and acquired artist services capabilities and platforms for exploitingmarketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands we help create. We believe that entering into expanded-rights deals and enhancing our artist services capabilities in areas such as merchandising, VIP ticketing, fan clubs, concert promotion and management has permitted us to diversify revenue streams and capitalize on other revenue opportunities. This provides for improved long-term relationships with our recording artists and allows us to more effectively connect recording artists and fans.
Recorded Music revenues are derived from four main sources:
•Digital: the rightsholder receives revenues with respect to digital streaming and digital download services;
•Physical: the rightsholder receives revenues with respect to sales of physical products such as vinyl, CDs vinyl and DVDs;
•Artist services and expanded-rights: the rightsholder receives revenues with respect to our artist services businesses and our participation in expanded-rightsexpanded rights associated with our recording artists, including sponsorship, fan clubs, artist websites, merchandising, touring, concert promotion, ticketing and artist and brand management; and
Licensing:•Licensing: the rightsholder receives royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and videogames;video games; the rightsholder also receives royalties if sound recordings are performed publicly through broadcast of music on television, radio and cable, and in public spaces such as shops, workplaces, restaurants, bars and clubs.
The principal costs associated with our Recorded Music operationsbusiness are as follows:
•A&R costs—: the costs associated with (i) paying royalties to recording artists, producers, songwriters, other copyright holders and trade unions; (ii) signing and developing recording artists; and (iii) creating master recordings in the studio;
•Product costs—: the costs to manufacture, package and distribute products to wholesale and retail distribution outlets, the royalty costs associated with distributing products of independent labels to wholesale and retail distribution outlets, as well as the costs related to our artist services business;
•Selling and marketing expenses—: the costs associated with the promotion and marketing of recording artists and recorded music, products, including costs to produce music videos for promotional purposes and artist tour support; and
•General and administrative expenses—: the costs associated with general overhead and other administrative expenses.
Music Publishing Operations
While recorded musicRecorded Music is focused on exploitingmarketing, promoting, distributing and licensing a particular recording of a musical composition, music publishingMusic Publishing is an intellectual property business focused on the exploitationgenerating revenue from uses of the musical composition itself. In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business garners a share of the revenues generated from use of the composition.musical compositions.
OurThe operations of our Music Publishing operationsbusiness are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles with operations in over 5070 countries through various subsidiaries, affiliates and non-affiliated licensees.licensees and sub-publishers. We own or control rights to more than one1.4 million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions. Assembled over decades, our award-winning catalog includes over 70,00080,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, techno, alternative and gospel. Warner
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Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios. We have an extensive production music librarycatalog collectively branded as Warner Chappell Production Music.
Music Publishing revenues are derived from five main sources:
Performance:•Performance: the rightsholder receives revenues if the musical composition is performed publicly through broadcast of music on television, radio and cable, live performance at a concert or other venue (e.g., arena concerts and nightclubs), and performance of music in staged theatrical productions;
Digital:•Digital: the rightsholder receives revenues with respect to musical compositions embodied in recordings solddistributed in digital streaming services, digital download services and other digital performance;
music services;

Mechanical:•Mechanical: the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs vinyl and DVDs;
Synchronization:•Synchronization: the rightsholder receives revenues for the right to use the musical composition in combination with visual images such as in films or television programs, television commercials and videogamesvideo games as well as from other uses such as in toys or novelty items and merchandise; and
Other:•Other: the rightsholder receives revenues for use in printed sheet music and other uses.
The principal costs associated with our Music Publishing operationsbusiness are as follows:
•A&R costs—: the costs associated with (i) paying royalties to songwriters, co-publishers and other copyright holders in connection with income generated from the exploitationuses of their copyrighted works and (ii) signing and developing songwriters; and
•Selling and marketing, general overhead and other administrative expenses—: the costs associated with selling and marketing, general overhead and other administrative expenses.
Factors Affecting Results of Operations and Comparability
AcquisitionCOVID-19 Pandemic
In January 2020, a new strain of EMPcoronavirus, COVID-19, was identified in Wuhan, China. 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, the requirement that people stay in their homes has impacted our business in other ways, such as, making it impossible to hold live concert tours, adversely impacting our concert promotion business and the sale of merchandise, delaying the release of new recordings and disrupting the production and release of motion pictures and television programs, which has negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business. Our results of operations, cash flows and financial condition at and for the three and six months ended March 31, 2020 were adversely affected by the global pandemic. In addition to the impact resulting from the business disruption, the Company recognized one-time charges of $13 million impacting OIBDA and a total of $18 million impacting net income for the three and six months ended March 31, 2020.
On October 10, 2018, we acquired E.M.P. Merchandising Handelsgesellschaft mbH, a limited liability companySenior Management Free Cash Flow Plan
Our results of operations can be adversely affected by the Senior Management Free Cash Flow Plan (the “Plan”), which pays annual bonuses to certain executives based on our free cash flow and offers participants the opportunity to share in appreciation of the value of our common stock. The extent of the benefits awarded under the lawsPlan is affected by our operating results and the valuation or trading price of Germany,our common stock and, its subsidiaries, allas such, to the extent that either or both fluctuates, the value of the share capitalaward may increase or decrease materially, which could affect our cash flows and results of MIG Merchandising Investment GmbH, a limited liability company underoperations. We incurred charges associated with our Senior Management Free Cash Flow Plan of $169 million and $5 million for the laws of Germany,three months ended March 31, 2020 and its subsidiaries, and certain shares of Large Popmarchandising BVBA, a limited liability company under the laws of Belgium (together, “EMP”). EMP is a retailer of merchandise for many popular artists along with other forms of entertainment such as movies and TV.
Adoption of New Revenue Recognition Standard
In May 2014, the FASB issued guidance codified in ASC 606, Revenue from Contracts with Customers (“ASC 606”), which replaces the guidance in former ASC 605, Revenue Recognition and ASC 928-605, Entertainment – Music. The adoption of ASC 606 resulted in a change in the timing of revenue recognition in the Company’s Music Publishing segment as well as international broadcast rights within Recorded Music. Under the new revenue recognition rules, revenue is recordedMarch 31, 2019, respectively, based on best estimates available in the period of sale or usage whereas revenue was previously recorded when cash was received for both the licensing of publishing rights and international Recorded Music broadcast fees. Additionally, for certain licenses where the consideration is fixed and the intellectual property being licensed is static, revenue is recognized at the point in time when controlcurrently estimated value of the licensed content is transferred toCompany. We incurred charges of $167 million and $22 million for the customer.six months ended March 31, 2020 and March 31, 2019, respectively.
Other Business Models to Drive Incremental Revenue
Artist Services and Expanded-Rights Deals
As another meansthe recorded music industry has continued to offset declines in physicaltransition to a business model through which the majority of revenues and download revenues in Recorded Music,are generated from streaming, for many years we have signed recording artists to expanded-rights deals. Under our expanded-rights deals, we also participate in the recording artist’s revenue streams, other than fromin addition to recorded music sales, such as touring, merchandising and sponsorships. In addition to signing recording artists to expanded-rights deals, we have continued to make strategic investments to expand our Recorded Music business and open up new opportunities for our recording artists. Artist services and expanded-rights Recorded Music
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recorded music revenue, which includes revenue from expanded-rights deals as well as revenue from our artist services business, represented approximately 14%11% and 13% of our total revenue duringrevenues for the ninethree and six months ended June 30, 2019.March 31, 2020, respectively. Artist services and expanded-rights revenue will fluctuate from period to period depending upon recording artists’ touring schedules, among other things. Margins for the various artist services and expanded-rights revenue streams can vary significantly.significantly as well. The overall impact on margins will, therefore, depend on the composition of the various revenue streams in any particular period. For instance, participation in revenue from touring under our expanded-rights deals typically flows straight through to operating income with little associated cost. Revenue from some of our artist services businesses such as our management business and revenue from participation in touring and sponsorships under our expanded-rights deals are all high margin, while merchandising revenue under our expanded-rights deals and revenue from some of our artist services businesses such as our concert promotion businessesmerchandising tend to be lower margin than our traditional revenue streams in our Recorded Music.Music business.


RESULTS OF OPERATIONS
Three Months Ended June 30, 2019March 31, 2020 Compared with Three Months Ended June 30, 2018March 31, 2019
Consolidated Results
Revenues
Our revenues were composed of the following amounts (in millions):
For the Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Revenue by Type       Revenue by Type
Digital$584
 $519
 $65
 13 %Digital$626  $597  $29  5 %
Physical95
 130
 (35) -27 %Physical94  130  (36) -28 %
Total Digital and Physical679
 649
 30
 5 %Total Digital and Physical720  727  (7) -1 %
Artist services and expanded-rights158
 85
 73
 86 %Artist services and expanded-rights115  134  (19) -14 %
Licensing76
 68
 8
 12 %Licensing72  72  —  — %
Total Recorded Music913
 802
 111
 14 %Total Recorded Music907  933  (26) -3 %
Performance36
 51
 (15) -29 %Performance41  46  (5) -11 %
Digital65
 59
 6
 10 %Digital74  65  9  14 %
Mechanical13
 17
 (4) -24 %Mechanical15  13  2  15 %
Synchronization29
 28
 1
 4 %Synchronization34  31  3  10 %
Other4
 4
 —
 — %Other2  3  (1) -33 %
Total Music Publishing147
 159
 (12) -8 %Total Music Publishing166  158  8  5 %
Intersegment eliminations(2) (3) 1
 -33 %Intersegment eliminations(2) (1) (1) 100 %
Total Revenue$1,058
 $958
 $100
 10 %
Total RevenuesTotal Revenues$1,071  $1,090  $(19) -2 %
Revenue by Geographical Location    

 

Revenue by Geographical Location
U.S. Recorded Music$395
 $356
 $39
 11 %U.S. Recorded Music$380  $410  $(30) -7 %
U.S. Music Publishing71
 69
 2
 3 %U.S. Music Publishing87  75  12  16 %
Total U.S.466
 425
 41
 10 %Total U.S.467  485  (18) -4 %
International Recorded Music518
 446
 72
 16 %International Recorded Music527  523  4  1 %
International Music Publishing76
 90
 (14) -16 %International Music Publishing79  83  (4) -5 %
Total International594
 536
 58
 11 %Total International606  606  —  — %
Intersegment eliminations(2) (3) 1
 -33 %Intersegment eliminations(2) (1) (1) 100 %
Total Revenue$1,058
 $958
 $100
 10 %
Total RevenuesTotal Revenues$1,071  $1,090  $(19) -2 %
Total RevenueRevenues
Total revenue increasedrevenues decreased by $100$19 million, or 10%2%, to $1,058$1,071 million for the three months ended June 30, 2019March 31, 2020 from $958$1,090 million for the three months ended June 30, 2018, whichMarch 31, 2019. The decrease includes an increase$16 million of $59 million, or 6%, dueunfavorable currency exchange fluctuations. Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenue for the acquisition of EMP.three months ended March 31, 2020. Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 86% and 14% of total revenue for the three months ended June 30, 2019, respectively, and 83% and 17% of total revenue for the three months ended June 30, 2018, respectively.March 31, 2019. Prior to intersegment eliminations, U.S. and international revenues represented 44% and 56% of total revenuerevenues for both the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018.respectively.
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Total digital revenuerevenues after intersegment eliminations increased by $72$38 million, or 13%6%, to $648$699 million for the three months ended June 30, 2019March 31, 2020 from $576$661 million for the three months ended June 30, 2018.March 31, 2019. Total digital revenuerevenues represented 61%65% and 60%61% of consolidated revenuerevenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. Prior to intersegment eliminations, total digital revenuerevenues for the three months ended June 30, 2019 wasMarch 31, 2020 were comprised of U.S. revenuerevenues of $343$351 million and international revenuerevenues of $306$349 million, or 53% and 47%50% of total digital revenue, respectively.revenues for each of U.S and international revenues. Prior to intersegment eliminations, total digital revenuerevenues for the three months ended June 30, 2018 wasMarch 31, 2019 were comprised of U.S. revenuerevenues of $297$355 million and international revenuerevenues of $281$307 million, or 51%54% and 49%46% of total digital revenue,revenues, respectively.

Recorded Music revenue increasedrevenues decreased by $111$26 million, or 14%3%, to $913$907 million for the three months ended June 30, 2019March 31, 2020 from $802$933 million for the three months ended June 30, 2018, whichMarch 31, 2019. The decrease includes an increase$12 million of $59 million, or 7%, due to the acquisition of EMP and an increase of $7 million due to the adoption of ASC 606.unfavorable currency exchange fluctuations. U.S. Recorded Music revenues were $395$380 million and $356$410 million, or 43%42% and 44%, of consolidated Recorded Music revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Recorded Music revenues were $518$527 million and $446$523 million, or 57%58% and 56%, of consolidated Recorded Music revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall increasedecrease in Recorded Music revenue was driven by increasesdecreases in digital revenue,physical and artist services and expanded-rights revenue, and licensing revenue partially offset by decreasesincreases in digital revenue. Physical revenue decreased by $36 million primarily due to the continued shift from physical revenue. Revenue was also driven by top sellers includingrevenue to digital revenue, timing of releases and carryover success from Ed Sheeran, A Boogie Wit da Hoodie,in the prior-year quarter, and The Yellow Monkey. Digitallower physical sales due to the impact of COVID-19. Artist services and expanded-rights revenue increaseddecreased by $65$19 million primarily due to timing of touring activity and the impact of COVID-19, which resulted in tour postponements and decreased merchandising revenues. Partially offsetting these decreases was an increase of digital revenue by $29 million as a result of the continued growth in streaming services and the adoption of ASC 606.new releases, which include Dua Lipa as well as carryover success from Roddy Ricch, Tones and I, and Ed Sheeran. Revenue from streaming services grew by $92$49 million to $540$586 million for the three months ended June 30, 2019March 31, 2020 from $448$537 million for the three months ended June 30, 2018.March 31, 2019, which includes the impact of a one-time digital streaming license in the prior-year quarter. Digital revenue growth was partially offset by decreases in digital download and other digital declines of $27$20 million to $44$40 million for the three months ended June 30, 2019March 31, 2020 from $71$60 million for the three months ended June 30, 2018March 31, 2019 due to the continued shift to streaming services. Artist services and expanded-rightsDigital revenue increasedwas not materially impacted by $73 million primarily due to a $59 million increase related toCOVID-19 in the acquisition of EMP, higher merchandising and advertisingquarter.
Music Publishing revenues timing of larger tours in Japan and France, partially offset by a touring business divestment in Italy of $21 million. Licensing revenue increased by $8 million, primarily due to a $5 million increase from the adoption of ASC 606. Physical revenue decreased by $35 million primarily due to the continued shift from physical revenue to digital revenue as well as timing of releases.
Music Publishing revenues decreased by $12 million, or 8%5%, to $147$166 million for the three months ended June 30, 2019March 31, 2020 from $159$158 million for the three months ended June 30, 2018.March 31, 2019. U.S. Music Publishing revenues were $71$87 million and $69$75 million, or 48%52% and 43%47%, of consolidated Music Publishing revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Music Publishing revenues were $76$79 million and $90$83 million or 52%48% and 57%53%, of consolidated Music Publishing revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall decreaseincrease in Music Publishing revenue was mainly driven by increases in digital revenue of $9 million, synchronization revenue of $3 million and mechanical revenue of $2 million, partially offset by decreases in performance revenue of $15 million and mechanical revenue of $4 million, partially offset by increases in digital revenue of $6 million and synchronization revenue of $1$5 million. The decreases in performance and mechanical revenues were related to decreases in revenues as a result of the adoption of ASC 606 for $11 million, lost administrative rights, and lower market share. The increase in digital revenue includes a $4 million increase resulting from the adoption of ASC 606 andis primarily due to increases in streaming revenue driven by the continued growth in streaming services, partially offsetservices. The increase in synchronization revenue is attributable to higher TV and commercial income. The increase in mechanical revenue is due to timing of distributions. The decline in performance revenue is driven by decreases in digital download revenue.the impact from COVID-19 and timing distributions.
Revenue by Geographical Location
U.S. revenue increaseddecreased by $41$18 million, or 10%4%, to $466$467 million for the three months ended June 30, 2019March 31, 2020 from $425$485 million for the three months ended June 30, 2018.March 31, 2019. U.S. Recorded Music revenue increaseddecreased by $39$30 million, or 11%7%. The primary driver was the increase$14 million decrease in U.S. Recorded Music digital revenue, which increasedprimarily driven by $39the impact of a one-time digital streaming license in the prior-year quarter. Additionally, there was a decrease of U.S. Recorded Music physical revenue of $10 million driven by the continued growth in streaming services. Streaming revenue increased by $51 million, partially offset bygeneral market decline, impact of COVID-19 and timing of releases as well as a $11 million decline in digital download revenue.decrease of U.S. Recorded Music artist services and expanded-rights revenue also increased by $17of $7 million or 77%, driven by higher advertising and merchandising revenues.primarily due to the impact of COVID-19. Partially offsetting these increases is a decrease of U.S. Recorded Music physical revenue for $16 million driven by general market decline.declines was an increase in U.S. Music Publishing revenue increased by $2of $12 million, or 3%16%, to $71$87 million for the three months ended June 30, 2019March 31, 2020 from $69$75 million for the three months ended June 30, 2018.March 31, 2019. This was primarily driven by the increase in U.S. Music Publishing of $7$10 million in U.S. Music Publishing digital revenue due to the continued growth in streaming services partially offset by decreasesand the increase in performancesynchronization revenue of $4$2 million due to higher TV and mechanical revenue of $1 million primarily related to decreases in revenues associated with lost administrative rights and lower market share.commercial income.

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International revenue increased by $58was $606 million or 11%, to $594 million for both the three months ended June 30, 2019 from $536 million for the three months ended June 30, 2018, which includes $59 million related to the acquisition of EMP.March 31, 2020 and March 31, 2019. Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $84$16 million or 16%3%. International Recorded Music revenue increased $72by $4 million primarily due to increases in digital revenue of $26 million, artist services and expanded-rights revenue of $56 million and licensing revenue of $9$43 million, partially offset by decreases in physical revenue of $19$26 million and artist services and expanded-rights revenue of $12 million. The increase in International Recorded Music digital revenue was due to continued growth in streaming services internationally, partially offset by a decline in digital downloads. International Recorded Music artist services and expanded-rights revenue increased $56 million due to the acquisition of EMP, higher merchandising revenues, timing of larger tours in Japan and France, partially offset by the impact of a touring business divestment in Italy of $21 million. International Recorded Music licensing revenue increased $9 million primarily due to the impact of ASC 606. International Recorded Music physical revenue decreased by $19$26 million due to the continued shift from physical revenue to digital revenue.revenue, impact of COVID-19, timing of releases and carryover success in the prior-year quarter. International Recorded Music artist services and expanded-rights revenue decreased by $12 million primarily due to the impact of COVID-19, which resulted in tour postponements and decreased merchandising revenues. International Music Publishing revenue decreased from the prior-year quarter by $14$4 million or 16%, to $76$79 million for the three months ended June 30, 2019 from $90 million for the three months ended June 30, 2018.March 31, 2020. This was primarily driven by a decrease ofdecreases in performance revenue of $11$6 million primarily due to a decrease in revenues as a result of the adoption of ASC 606, lost administrative rights, and lower market share as well as a decrease of mechanical revenue of $3 million due to the impact of ASC 606.COVID-19 and timing of distributions, partially offset by an increase in mechanical revenue of $2 million.
Our cost of revenues was composed of the following amounts (in millions):
For the Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$372
 $366
 $6
 2%Artist and repertoire costs$360  $373  $(13) -3 %
Product costs205
 165
 40
 24%Product costs175  186  (11) -6 %
Total cost of revenues$577
 $531
 $46
 9%Total cost of revenues$535  $559  $(24) -4 %
Artist and repertoire costs increaseddecreased by $6$13 million, to $372$360 million for the three months ended June 30, 2019March 31, 2020 from $366$373 million for the three months ended June 30, 2018.March 31, 2019. Artist and repertoire costs as a percentage of revenue decreased to 35%remained constant at 34% for both the three months ended June 30, 2019 from 38% for the three months ended June 30, 2018 due to the acquisition of EMP, which has no artistMarch 31, 2020 and repertoire costs and therefore reduced our total artist and repertoire costs as a percent of revenue. Excluding EMP, artist and repertoire costs as a percentage of revenue was 37%, which is down from 38% compared to the prior year quarter, due to the adoption of ASC 606, timing of artist spend, and the prior year benefit for advance recoveries of $14 million resulting from the estimated artist share on the gain on sale of the Spotify shares.March 31, 2019.
Product costs increaseddecreased by $40$11 million, to $205$175 million for the three months ended June 30, 2019March 31, 2020 from $165$186 million for the three months ended June 30, 2018.March 31, 2019. Product costs as a percentage of revenue were 19%decreased to 16% for the three months ended June 30, 2019 andMarch 31, 2020 from 17% for the three months ended June 30, 2018. IncreasesMarch 31, 2019. Decreases in product costs relate to the acquisition of EMP of $27 million and revenue mix which were partially offset by the impact of a touring business divestment in Italy of $18 million.and favorable foreign currency exchange rates.
Selling, general and administrative expenses
Our selling, general and administrative expenses were composed of the following amounts (in millions):
For the Three Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$351  $171  $180  — %
Selling and marketing expense166  157  9  6 %
Distribution expense21  26  (5) -19 %
Total selling, general and administrative expense$538  $354  $184  52 %

(1)Includes depreciation expense of $14 million for both the three months ended March 31, 2020 and March 31, 2019.
 For the Three Months Ended June 30, 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$191
 $197
 $(6) -3 %
Selling and marketing expense155
 131
 24
 18 %
Distribution expense26
 15
 11
 73 %
Total selling, general and administrative expense$372
 $343
 $29
 8 %
______________________
(1)Includes depreciation expense of $15 million for the three months ended June 30, 2019 and June 30, 2018.
Total selling, general and administrative expense increased by $29$184 million, or 8%52%, to $372$538 million for the three months ended June 30, 2019March 31, 2020 from $343$354 million for the three months ended June 30, 2018.March 31, 2019. Expressed as a percentage of revenue, selling, general and administrative expense decreasedincreased to 35%50% for the three months ended June 30, 2019March 31, 2020 from 36%33% for the three months ended June 30, 2018.

General and administrative expense decreased by $6 million, or 3%, to $191 million for the three months ended June 30, 2019 from $197 million for the three months ended June 30, 2018. The decrease in general and administrative expense was mainlyMarch 31, 2019. This is primarily due to lowerthe increased expense associated with our Senior Management Free Cash Flow Plan of $21 million, partially offset by higher employee related costs and costs$164 million. Excluding the expense associated with our Senior Management Free Cash Flow Plan, selling, general and administrative expense as a percentage of revenue increased to 34% for the three months ended March 31, 2020 from 32% for the three months ended March 31, 2019.
47

General and administrative expense increased by $180 million to $351 million for the three months ended March 31, 2020 from $171 million for the three months ended March 31, 2019. The increase in general and administrative expense was mainly due to higher expense associated with our Senior Management Free Cash Flow Plan of $164 million, increases in legal and consulting costs related to the proposed IPO of $4 million, increases in bad debt provisions of $3 million associated with COVID-19 related physical distribution business disruptions and higher transformation initiatives.initiatives costs of $10 million. Expressed as a percentage of revenue, general and administrative expense decreasedincreased to 18%33% for the three months ended June 30, 2019March 31, 2020 from 21%16% for the three months ended June 30, 2018.  March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, general and administrative expense as a percentage of revenue increased to 17% for the three months ended March 31, 2020 from 15% for the three months ended March 31, 2019 due to the factors described above.
Selling and marketing expense increased by $24$9 million, or 18%6%, to $155$166 million for the three months ended June 30, 2019March 31, 2020 from $131$157 million for the three months ended June 30, 2018.March 31, 2019. The increase in selling and marketing expense was primarily due to an increase of $18 million related to the acquisition of EMPincreased spending on new releases and increased variable marketing expense on higher revenue in the quarter.developing artists. Expressed as a percentage of revenue, selling and marketing expense increased to 15% for the three months ended June 30, 2019March 31, 2020 from 14% for the three months ended June 30, 2018 mainlyMarch 31, 2019 due to the acquisition of EMP.factors described above.
Distribution expense was $21 million for the three months ended March 31, 2020 and $26 million for the three months ended June 30, 2019 and $15 million for the three months ended June 30, 2018.March 31, 2019. Expressed as a percentage of revenue, distribution expense increased to 3%was 2% for both the three months ended June 30, 2019 from 2% for three months ended June 30, 2018. The increase in distribution expense was primarily due to an increase of $8 million related to the acquisition of EMP.March 31, 2020 and March 31, 2019.
Reconciliation of Net Income Attributable to Warner Music Group Corp. and Operating Income to Consolidated OIBDA
As previously described, we use OIBDA as our primary measure of financial performance. The following table reconciles operating income to OIBDA, and further provides the components from net income attributable to Warner Music Group Corp. to operating income for purposes of the discussion that follows (in millions):
For the Three Months Ended
March 31,		2020 vs. 2019
For the Three Months Ended June 30, 2019 vs. 201820202019$ Change% Change
Net (loss) income attributable to Warner Music Group Corp.Net (loss) income attributable to Warner Music Group Corp. $(74) $67  $(141) — %
Income attributable to noncontrolling interestIncome attributable to noncontrolling interest—  —  —  — %
Net (loss) incomeNet (loss) income (74) 67  (141) — %
Income tax (benefit) expenseIncome tax (benefit) expense (12) 48  (60) — %
(Loss) income before income taxes(Loss) income before income taxes (86) 115  (201) — %
Other expense (income)Other expense (income) 4  (29) 33  — %
Interest expense, netInterest expense, net33  36  (3) -8 %
2019 2018 $ Change % Change
Net income attributable to Warner Music Group Corp.$13
 $320
 $(307) -96 %
Income attributable to noncontrolling interest1
 1
 —
 — %
Net income14
 321
 (307) -96 %
Income tax (benefit) expense(12) 61
 (73) — %
Income before income taxes2
 382
 (380) -99 %
Other expense (income), net16
 (394) 410
 — %
Interest expense, net36
 33
 3
 9 %
Loss on extinguishment of debt4
 7
 (3) -43 %
Operating income58
 28
 30
 — %
Operating (loss) incomeOperating (loss) income (49) 122  (171) — %
Amortization expense51
 56
 (5) -9 %Amortization expense47  55  (8) -15 %
Depreciation expense15
 15
 —
 — %Depreciation expense14  14  —  — %
OIBDA$124
 $99
 $25
 25 %OIBDA$12  $191  $(179) -94 %
OIBDA
OIBDA increaseddecreased by $25$179 million, or 25%94%, to $124$12 million for the three months ended June 30, 2019March 31, 2020 as compared to $99$191 million for the three months ended June 30, 2018March 31, 2019 as a result of lower revenues and higher revenues, lower general and administrative expenses, and an $18 million increase due to the adoption of ASC 606, partially offset by the prior year advance recoveries resulting from the gain on Spotify shares.expense associated with our Senior Management Free Cash Flow Plan. Expressed as a percentage of total revenue, OIBDA increasedmargin decreased to 12%1% for the three months ended June 30, 2019March 31, 2020 from 10%18% for the three months ended June 30, 2018March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, as a percentage of total revenue, OIBDA margin decreased to 17% for the three months ended March 31, 2020 from 18% for the three months ended March 31, 2019 due to the factors previously discussed.revenue mix.
Amortization expense
Our amortization expense decreased by $5$8 million, or 9%15%, to $51$47 million for the three months ended June 30, 2019March 31, 2020 from $56$55 million for the three months ended June 30, 2018.March 31, 2019. The decrease is primarily due to higher expense associated with the purchase accounting update in the prior year quarter for Spinnin' Records andcertain intangible assets becoming fully amortized.
48

Operating (loss) income
Our operating (loss) income increaseddecreased by $30$171 million to $58$49 million for the three months ended June 30, 2019March 31, 2020 from $28operating income of $122 million for the three months ended June 30, 2018.March 31, 2019. The increasedecrease in operating income was due to the factors that led to the increasedecrease in OIBDA.

Loss on extinguishment of debt
We recorded a loss on extinguishment of debt for the three months ended June 30, 2019 in the amount of $4 million related to the redemption of the remaining 5.625% Senior Notes. We recorded a loss on extinguishment of debt in the amount of $7 million for the three months ended June 30, 2018 related to the June 2018 Senior Term Loan Credit Agreement and the redemption of the remaining 6.75% Senior Notes.
Interest expense, net
Our interest expense, net, increaseddecreased to $33 million for the three months ended March 31, 2020 from $36 million for the three months ended June 30,March 31, 2019 from $33 million for the three months ended June 30, 2018 due to a higher outstanding debt balance associated withdecline in LIBOR rates as well as lower interest rates resulting from the redemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes, partially offset by redemption activity.Notes.
Other expense (income), net
Other expense (income), net, for the three months ended June 30, 2019March 31, 2020 primarily includes the unrealized losslosses of $6$10 million on the mark-to-market of an equity method investment and a $5 million loss on our Euro denominated debt of $10 million. This compares to the gain on sale of the Spotify shares, net of estimated artist share and other related costs, of $378 million,investments, partially offset by foreign currency gains on our Euro denominatedEuro-denominated debt of $24$6 million. This compares to an unrealized gain of $15 million on the mark-to-market of an equity method investment, foreign currency gains on our Euro-denominated debt of $10 million and gains on derivative liabilities of $6 million, partially offset by currency exchange lossesgains on our intercompany loans of $11$5 million infor the three months ended June 30, 2018.March 31, 2019.
Income tax (benefit) expense
Our income tax (benefit) expense decreased by $73$60 million to a tax benefit of $12 million tax benefit for the three months ended June 30, 2019March 31, 2020 from $61$48 million of tax expense for the three months ended June 30, 2018.March 31, 2019. The change of $73$60 million in income tax (benefit) expense primarily relates to gain on sale of the Spotify shareslower pre-tax income in the three months ended June 30, 2018, partially offset by a tax benefit due to a change in components of forecasted taxable income.March 31, 2020.
Net Income(loss) income
Net (loss) income decreased by $307$141 million to $14$74 million for the three months ended June 30, 2019March 31, 2020 from net income of $321$67 million for the three months ended June 30, 2018March 31, 2019 as a result of the factors described above.
Noncontrolling interest
There was $1 million ofno income attributable to noncontrolling interest for both the three months ended June 30, 2019March 31, 2020 and June 30, 2018.March 31, 2019.
49

Business Segment Results
Revenue, operating income (loss) and OIBDA by business segment were as follows (in millions):
For the Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Recorded Music       Recorded Music
Revenue$913
 $802
 $111
 14 %
RevenuesRevenues$907  $933  $(26) -3 %
Operating income85
 67
 18
 27 %Operating income36  134  (98) -73 %
OIBDA131
 115
 16
 14 %OIBDA76  180  (104) -58 %
Music Publishing      

Music Publishing
Revenue147
 159
 (12) -8 %
RevenuesRevenues166  158  8  5 %
Operating income18
 5
 13
 — %Operating income30  27  3  11 %
OIBDA36
 24
 12
 50 %OIBDA48  47  1  2 %
Corporate expenses and eliminations      

Corporate expenses and eliminations
Revenue elimination(2) (3) 1
 -33 %
Revenue eliminationsRevenue eliminations(2) (1) (1) 100 %
Operating loss(45) (44) (1) 2 %Operating loss(115) (39) (76) — %
OIBDA loss(43) (40) (3) 8 %OIBDA loss(112) (36) (76) — %
Total      

Total
Revenue1,058
 958
 100
 10 %
Operating income58
 28
 30
 — %
RevenuesRevenues1,071  1,090  (19) -2 %
Operating (loss) incomeOperating (loss) income(49) 122  (171) — %
OIBDA124
 99
 25
 25 %OIBDA12  191  (179) -94 %
Recorded Music
Revenues
Recorded Music revenue increaseddecreased by $111$26 million, or 14%3%, to $913$907 million for the three months ended June 30, 2019March 31, 2020 from $802$933 million for the three months ended June 30, 2018.March 31, 2019. U.S. Recorded Music revenues were $395$380 million and $356$410 million, or 43%42% and 44%, of consolidated Recorded Music revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Recorded Music revenues were $518$527 million and $446$523 million, or 57%58% and 56%, of consolidated Recorded Music revenues for both the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall increasedecrease in Recorded Music revenue was mainly driven by streamingdecreases in physical and artist services and expanded-rights revenue, growth and the EMP acquisitionpartially offset by increases in digital revenue as described in the “Total Revenue”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 Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$282
 $252
 $30
 12%Artist and repertoire costs$264  $280  $(16) -6 %
Product costs205
 165
 40
 24%Product costs175  186  (11) -6 %
Total cost of revenues$487
 $417
 $70
 17%Total cost of revenues$439  $466  $(27) -6 %
Recorded Music cost of revenues increaseddecreased by $70$27 million, or 17%6%, to $487$439 million for the three months ended June 30, 2019March 31, 2020 from $417$466 million for the three months ended June 30, 2018.March 31, 2019. Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs remained constant at 31%decreased to 29% for both the three months ended June 30, 2019 and June 30, 2018. Excluding EMP, artist and repertoireMarch 31, 2020 from 30% for the three months ended March 31, 2019. The decrease is primarily attributable to lower artists related costs, asincluding a percentage of revenue increased to 33% primarily due to the prior year benefit for advance recoveries of $14 milliondecrease in spending resulting from the estimated artist share on the gain on saleimpact of the Spotify shares reducing the overall costs in the prior year.COVID-19. Expressed as a percentage of Recorded Music revenue, Recorded Music product costs increaseddecreased to 22%19% for the three months ended June 30, 2019March 31, 2020 from 21%20% for the three months ended June 30, 2018.March 31, 2019. The increasedecrease in product costs relates to the acquisition of EMP of $27 million and revenue mix which were partially offset by the impact of a touring business divestment in Italy of $18 million.and favorable foreign currency exchange rates.
50

Selling, general and administrative expense
Recorded Music selling, general and administrative expenses were composed of the following amounts (in millions):
For the Three Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$219  $117  $102  87 %
Selling and marketing expense162  153  9  6 %
Distribution expense21  26  (5) -19 %
Total selling, general and administrative expense$402  $296  $106  36 %

 For the Three Months Ended June 30, 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$128
 $134
 $(6) -4 %
Selling and marketing expense153
 130
 23
 18 %
Distribution expense26
 15
 11
 73 %
Total selling, general and administrative expense$307
 $279
 $28
 10 %
(1)Includes depreciation expense of $10 million and $9 million for the three months ended March 31, 2020 and for the three months ended March 31, 2019, respectively.
_________________
(1)Includes depreciation expense of $12 million and $9 million for the three months ended June 30, 2019 and for the three months ended June 30, 2018, respectively.
Recorded Music selling, general and administrative expense increased by $28$106 million, or 10%36%, to $307$402 million for the three months ended June 30, 2019March 31, 2020 from $279$296 million for the three months ended June 30, 2018.March 31, 2019. The decreaseincrease in general and administrative expense was primarily due to lowerhigher expense associated with our Senior Management Free Cash Flow Plan of $12$99 million partially offset by higher employeeand increases in bad debt provisions of $3 million associated with COVID-19 related costs.physical distribution business disruptions. The increase in selling and marketing expense was primarily due to $18 million resulting from the acquisition of EMPincreased spending on new releases and increased variable marketing expense on higher revenue in the quarter.developing artists. The increasedecrease in distribution expense was primarily due to $8 million in costs resulting from the acquisition of EMP in the quarter.revenue mix. Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreasedincreased to 34%44% for the three months ended June 30, 2019March 31, 2020 from 35%32% for the three months ended June 30, 2018.

March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, selling, general and administrative expense as a percentage of Recorded Music revenue increased to 33% for the three months ended March 31, 2020 from 31% for the three months ended March 31, 2019 due to the factors described above.
Operating income and OIBDA
Recorded Music OIBDA included the following amounts (in millions):
For the Three Months Ended
March 31,		2020 vs. 2019
For the Three Months Ended June 30, 2019 vs. 2018 20202019$ Change% Change
2019 2018 $ Change % Change
Operating Income$85
 $67
 $18
 27 %
Operating incomeOperating income$36  $134  $(98) -73 %
Depreciation and amortization46
 48
 (2) -4 %Depreciation and amortization40  46  (6) -13 %
OIBDA$131
 $115
 $16
 14 %OIBDA$76  $180  $(104) -58 %
Recorded Music OIBDA increaseddecreased by $16$104 million, or 14%58%, to $131$76 million for the three months ended June 30, 2019March 31, 2020 from $115$180 million for the three months ended June 30, 2018March 31, 2019 as a result of higherlower revenues and lower general and administrative expenses.higher expense associated with our Senior Management Free Cash Flow Plan. Excluding the expense associated with our Senior Management Free Cash Flow Plan, Recorded Music OIBDA decreased by $5 million, or 3%, for the three months ended March 31, 2020. Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA remained stable at 14%margin decreased to 8% for the three months ended June 30, 2019 and June 30, 2018.March 31, 2020 from 19% for the three months ended March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, OIBDA, as a percentage of Recorded Music OIBDA included a $6 million increase due torevenue, was 20% for both the adoption of ASC 606.three months ended March 31, 2020 and the three months ended March 31, 2019.
Recorded Music operating income increaseddecreased by $18$98 million to $85$36 million for the three months ended June 30, 2019March 31, 2020 from $67$134 million for the three months ended June 30, 2018 dueMarch 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, operating income increased by $1 million to $138 million for the factors that led tothree months ended March 31, 2020 from $137 million for the increase in Recorded Music OIBDA noted above.three months ended March 31, 2019.
Music Publishing
Revenues
Music Publishing revenues decreasedincreased by $12$8 million, or 8%5%, to $147$166 million for the three months ended June 30, 2019March 31, 2020 from $159$158 million for the three months ended June 30, 2018.March 31, 2019. U.S. Music Publishing revenues were $71$87 million and $69$75 million, or 48%52% and 43%47%, of consolidated Music Publishing revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Music Publishing revenues were $76$79 million and $90$83 million, or 52%48% and 57%53%, of consolidated Music Publishing revenues for the three months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
51

The overall decreaseincrease in Music Publishing revenue was mainly driven by the decrease instreaming revenue growth and higher synchronization and mechanical, partially offset by lower performance revenues associated with lost administrative rights and lower market share as described in the “Total Revenue”Revenues” and “Revenue by Geographical Location” sections above.
Cost of revenues
Music Publishing cost of revenues were composed of the following amounts (in millions):
For the Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$92
 $117
 $(25) -21 %Artist and repertoire costs$98  $94  $4  4 %
Total cost of revenues$92
 $117
 $(25) -21 %Total cost of revenues$98  $94  $4  4 %
Music Publishing cost of revenues decreasedincreased by $25$4 million, or 21%4%, to $92$98 million for the three months ended June 30, 2019March 31, 2020 from $117$94 million for the three months ended June 30, 2018.March 31, 2019. Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreased to 63%59% for the three months ended June 30, 2019March 31, 2020 from 74%60% for the three months ended June 30, 2018,March 31, 2019. This decrease is primarily dueattributable to higher revenue during the adoption of ASC 606, which resulted in a shift in the timing of recognition of revenues and certain related costs from a cash to an accrual basis.

quarter.
Selling, general and administrative expense
Music Publishing selling, general and administrative expenses were comprised of the following amounts (in millions):
For the Three Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$21  $19  $2  11 %
Selling and marketing expense—  —  —  — %
Total selling, general and administrative expense$21  $19  $2  11 %

 For the Three Months Ended June 30, 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$19
 $20
 $(1) -5 %
Selling and marketing expense1
 —
 1
 — %
Total selling, general and administrative expense$20
 $20
 $—
 — %
(1)Includes depreciation expense of $1 million and $2 million for the three months ended March 31, 2020 and the three months ended March 31, 2019, respectively.
_______________________
(1)Includes depreciation expense of $1 million for the three months ended June 30, 2019 and $2 million for the three months ended June 30, 2018.
Music Publishing selling, general and administrative expense remained flat at $20increased to $21 million for the three months ended June 30, 2019 and June 30, 2018.March 31, 2020 from $19 million for the three months ended March 31, 2019. Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense increased to 14% for the three months ended June 30, 2019 from 13% for the three months ended June 30, 2018.March 31, 2020 from 12% for the three months ended March 31, 2019 due to higher employee-related and restructuring costs.
Operating income and OIBDA
Music Publishing OIBDA included the following amounts (in millions):
For the Three Months Ended June 30, 2019 vs. 2018For the Three Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Operating income$18
 $5
 $13
 — %Operating income$30  $27  $3  11 %
Depreciation and amortization18
 19
 (1) -5 %Depreciation and amortization18  20  (2) -10 %
OIBDA$36
 $24
 $12
 50 %OIBDA$48  $47  $1  2 %
Music Publishing OIBDA increased by $12$1 million, or 50%2%, to $36$48 million for the three months ended June 30, 2019March 31, 2020 from $24$47 million for the three months ended June 30, 2018.March 31, 2019. Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA increasedmargin decreased to 24%29% for the three months ended June 30, 2019March 31, 2020 from 15%30% for the three months ended June 30, 2018.March 31, 2019. The increasedecrease was primarily due to $12 million from the adoptionhigher general and administrative expenses as a percentage of ASC 606, which resulted in a shift in the timing of recognition of revenues and certain related costs from a cash to an accrual basis.revenue.
Music Publishing operating income increased by $13$3 million to $18$30 million for the three months ended June 30, 2019March 31, 2020 from $5$27 million operating income for the three months ended June 30, 2018 largelyMarch 31, 2019 due to a transition in timing ofincreased revenues and related costs resulting from the adoption of ASC 606.lower amortization expense, partially offset by higher artist and repertoire and general and administrative costs.
52

Corporate Expenses and Eliminations
Our operating loss from corporate expenses and eliminations increased by $1$76 million for the three months ended June 30, 2019March 31, 2020 to $45$115 million from $44$39 million for the three months ended June 30, 2018.March 31, 2019, which primarily includes an increase of $65 million in variable compensation associated with our Senior Management Free Cash Flow Plan as well as higher costs related to transformation initiatives of $10 million.
Our OIBDA loss from corporate expenses and eliminations increased by $3$76 million for the three months ended June 30, 2019March 31, 2020 to $43$112 million from $40$36 million for the three months ended June 30, 2018.March 31, 2019 due to the operating loss factors noted above.

53

RESULTS OF OPERATIONS
NineSix Months Ended June 30, 2019March 31, 2020 Compared with NineSix Months Ended June 30, 2018March 31, 2019
Consolidated Results
Revenues
Our revenues were composed of the following amounts (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Revenue by Type       Revenue by Type
Digital$1,744
 $1,491
 $253
 17 %Digital$1,259  $1,160  $99  9 %
Physical456
 500
 (44) -9 %Physical278  361  (83) -23 %
Total Digital and Physical2,200
 1,991
 209
 10 %Total Digital and Physical1,537  1,521  16  1 %
Artist services and expanded-rights458
 264
 194
 73 %Artist services and expanded-rights303  300  3  1 %
Licensing229
 242
 (13) -5 %Licensing151  153  (2) -1 %
Total Recorded Music2,887
 2,497
 390
 16 %Total Recorded Music1,991  1,974  17  1 %
Performance135
 153
 (18) -12 %Performance87  99  (12) -12 %
Digital195
 169
 26
 15 %Digital147  130  17  13 %
Mechanical41
 55
 (14) -25 %Mechanical30  28  2  7 %
Synchronization89
 90
 (1) -1 %Synchronization70  60  10  17 %
Other10
 9
 1
 11 %Other5  6  (1) -17 %
Total Music Publishing470
 476
 (6) -1 %Total Music Publishing339  323  16  5 %
Intersegment eliminations(6) (7) 1
 -14 %Intersegment eliminations(3) (4) 1  -25 %
Total Revenue$3,351
 $2,966
 $385
 13 %
Total RevenuesTotal Revenues$2,327  $2,293  $34  1 %
Revenue by Geographical Location    

 
Revenue by Geographical Location
U.S. Recorded Music$1,236
 $1,061
 $175
 16 %U.S. Recorded Music$833  $841  $(8) -1 %
U.S. Music Publishing219
 220
 (1) — %U.S. Music Publishing168  148  20  14 %
Total U.S.1,455
 1,281
 174
 14 %Total U.S.1,001  989  12  1 %
International Recorded Music1,651
 1,436
 215
 15 %International Recorded Music1,158  1,133  25  2 %
International Music Publishing251
 256
 (5) -2 %International Music Publishing171  175  (4) -2 %
Total International1,902
 1,692
 210
 12 %Total International1,329  1,308  21  2 %
Intersegment eliminations(6) (7) 1
 -14 %Intersegment eliminations(3) (4) 1  -25 %
Total Revenue$3,351
 $2,966
 $385
 13 %
Total RevenuesTotal Revenues$2,327  $2,293  $34  1 %
Total RevenueRevenues
Total revenuerevenues increased by $385$34 million, or 13%1%, to $3,351$2,327 million for the ninesix months ended June 30, 2019March 31, 2020 from $2,966$2,293 million for the ninesix months ended June 30, 2018, whichMarch 31, 2019. The increase includes an increase$28 million of $186 million, or 6%, due to the acquisition of EMP and $29 million, or 1%, due to the adoption of the new revenue recognition standard ASC 606, Revenue from Contracts with Customers (“ASC 606”) in October 2018.unfavorable currency exchange fluctuations. Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 85% and 15% of total revenues for the six months ended March 31, 2020, respectively, and 86% and 14% of total revenuerevenues for the ninesix months ended June 30,March 31, 2019, respectively, and 84% and 16% of total revenue for the nine months ended June 30, 2018, respectively. Prior to intersegment eliminations, U.S. and international revenues represented 43% and 57% of total revenue for both the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018.respectively.
Total digital revenuerevenues after intersegment eliminations increased by $280$117 million, or 17%9%, to $1,936$1,405 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,656$1,288 million for the ninesix months ended June 30, 2018.March 31, 2019. Total digital revenuerevenues represented 58%60% and 56% of consolidated revenuerevenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. Prior to intersegment eliminations, total digital revenuerevenues for the ninesix months ended June 30, 2019 wasMarch 31, 2020 were comprised of U.S. revenuerevenues of $1,028$731 million and international revenuerevenues of $911$675 million, or 52% and 48% of total digital revenues, respectively. Prior to intersegment eliminations, total digital revenues for the six months ended March 31, 2019 were comprised of U.S. revenues of $685 million and international revenues of $605 million, or 53% and 47% of total digital revenue, respectively. Prior to intersegment eliminations, total digital revenue for the nine months ended June 30, 2018 was comprised of U.S. revenue of $854 million and international revenue of $806 million, or 51% and 49% of total digital revenue,revenues, respectively.

54

Recorded Music revenuerevenues increased by $390$17 million, or 16%1%, to $2,887$1,991 million for the ninesix months ended June 30, 2019March 31, 2020 from $2,497$1,974 million for the ninesix months ended June 30, 2018, whichMarch 31, 2019. The increase includes an increase$22 million of $186 million, or 7%, due to the acquisition of EMP, partially offset by the impact of a touring business divestment in Italy of $63 million.unfavorable currency exchange fluctuations. U.S. Recorded Music revenues were $1,236$833 million and $1,061$841 million, or 43%42% and 42%43%, of consolidated Recorded Music revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Recorded Music revenues were $1,651$1,158 million and $1,436$1,133 million, or 57%58% and 58%57%, of consolidated Recorded Music revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall increase in Recorded Music revenue was driven by increases in digital revenue and artist services and expanded-rights revenue, partially offset by decreases in physical revenue and licensing revenue. Digital revenue increased by $253$99 million as a result of the continued growth in streaming services a strong release schedule including top seller Johnny Hallyday, and strength of releases, which included new releases from Roddy Ricch and YoungBoy Never Broke Again as well as carryover success from Ed Sheeran, Tones and The Greatest Showman soundtrack, as well as the adoption of ASC 606.I and Lizzo. Revenue from streaming services grew by $312$136 million to $1,579$1,175 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,267$1,039 million for the ninesix months ended June 30, 2018.March 31, 2019. Digital revenue growth was partially offset by digital download and other digital declines of $59$37 million to $165$84 million for the ninesix months ended June 30, 2019March 31, 2020 from $224$121 million for the ninesix months ended June 30, 2018March 31, 2019 due to the continued shift to streaming services. Artist services and expanded-rights revenue increased by $194$3 million primarily due to a $186 million increase related to the acquisition of EMP, higher merchandising and advertising revenues and timing of larger tours in Japan and France, in the current year, partially offset by a touring business divestment in Italy of $63 million and the unfavorable impact of foreign currency exchange rates of $8 million.COVID-19, which resulted in tour postponements and decreased merchandising revenues. Physical revenue decreased by $44$83 million primarily due to the unfavorable impact of foreign currency exchange rates of $15 million, continued shift from physical revenue to digital revenue, partially offset bytiming of releases and prior-year success of new releases.Johnny Hallyday. Licensing revenue decreased by $13$2 million primarily duerelated to the unfavorable impact of foreign currency exchange rates of $8 million and higher broadcast fees in the prior year.rates.
Music Publishing revenues decreasedincreased by $6$16 million, or 1%5%, to $470$339 million for the ninesix months ended June 30, 2019March 31, 2020 from $476$323 million for the ninesix months ended June 30, 2018, which is partially offset by an increaseof $20 million due to the adoption of ASC 606.March 31, 2019. U.S. Music Publishing revenues were $219$168 million and $220$148 million, or 47%50% and 46%, of consolidated Music Publishing revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Music Publishing revenues were $251$171 million and $256$175 million, or 53%50% and 54%, of Music Publishing revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall decreaseincrease in Music Publishing revenue was mainly driven by increases in digital revenue of $17 million and synchronization revenue of $10 million, partially offset by decreases in performance revenue of $18 million and mechanical revenue of $14 million, partially offset by an increase in digital revenue of $26$12 million. The decreases in performance and mechanical revenues relate to revenues associated with lost administrative rights and lower market share, partially offset by a $6 million increase resulting from the impact of the adoption of ASC 606. The increase in digital revenue includes a $13 million increase resulting from the adoption of ASC 606 andis primarily due to increases in streaming revenue driven by the continued growth in streaming services, partially offsetservices. The increase in synchronization revenue is attributable to higher TV and commercial income. The decline in performance revenue is driven by a decrease in digital download revenue.timing of distributions and the impact of COVID-19.
Revenue by Geographical Location
U.S. revenue increased by $174$12 million, or 14%1%, to $1,455$1,001 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,281$989 million for the ninesix months ended June 30, 2018.March 31, 2019. U.S. Recorded Music revenue increaseddecreased by $175$8 million, or 16%1%. The primary driver was the decrease in U.S. Recorded Music physical revenue, which decreased by $35 million driven by general market decline and timing of releases. Partially offsetting this decrease was an increase inof U.S. Recorded Music digital revenue which increased by $158for $29 million driven by the continued growth in streaming services. Streaming revenue increased by $188$49 million, partially offset by a $30$20 million decline inof digital download revenue. U.S. Recorded Music artist services and expanded-rights revenue also increased by $41 million, or 53%, driven by higher advertising and merchandising revenues.other digital declines. U.S. Music Publishing revenue decreasedincreased by $1$20 million to $219$168 million for the ninesix months ended June 30, 2019March 31, 2020 from $220$148 million for the ninesix months ended June 30, 2018.March 31, 2019. This was primarily driven by decreasesthe increase in U.S. Music Publishing mechanicalof $17 million in digital revenue due to the continued growth in streaming services and the increase in synchronization revenue of $8$5 million due to higher TV and commercial income, partially offset by decreases in performance revenue of $7 million, and synchronization revenue of $2 million offset by increases in digital revenue of $16$1 million.
International revenue increased by $210$21 million, or 12%2%, to $1,902$1,329 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,692$1,308 million for the ninesix months ended June 30, 2018, which includes $186 million related to the acquisition of EMP.March 31, 2019. Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $294$49 million or 18%4%. International Recorded Music revenue increased $215by $25 million primarily due to increases in digital revenue of $95$70 million and artist services and expanded-rights revenue of $153$12 million, partially offset by decreases in physical revenue of $27$48 million and licensing revenue of $6$9 million. International Recorded Music digital revenue increased due to a $124 million increase in streaming revenue, partially offset by a $24 million decline in digital downloads. The increase in International Recorded Music streamingdigital revenue was due to continued growth in streaming services internationally, and strong release performance. Declinepartially offset by a decline in digital downloads is due to the continued shift to streaming services.downloads. International Recorded Music artist services and expanded-rights revenue increased by $12 million due to $186 million related to the acquisition of EMP, higher merchandising revenues in Japan and U.K., and timing of larger tours in Japan and France, in the current period, partially offset by the impact of a touring business divestmentCOVID-19, which resulted in Italy of $63 million and the unfavorable impact of foreign currency exchange rates of $8 million.tour postponements. International Recorded Music physical revenue decreased by $48 million due to the continued shift

from physical revenue to digital revenue, timing of releases and the unfavorable impact of foreign currency exchange rates of $15 million, partially offset by theprior-year physical success of new releases, including Johnny Hallyday. International Recorded Music licensing revenue decreased dueby $9 million primarily related to the unfavorable impact of foreign currency exchange rates of $8 million.and higher broadcast fees in the prior year. International Music Publishing revenue decreased by $5$4 million, or 2%, to $251$171 million for the ninesix months ended June 30, 2019March 31, 2020 from $256$175 million for the ninesix months ended June 30, 2018.March 31, 2019. This was primarily driven by decreases in International Music Publishing performance revenue of $11 million due to timing of distribution and the impact of COVID-19, partially offset by increases in synchronization revenue of $5 million due to higher TV and commercial income and mechanical revenue of $6 million partially offset by the increase in digital revenue of $10 million primarily due to the adoption of ASC 606 and growth in streaming.$2 million.
55

Our cost of revenues was composed of the following amounts (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$1,145
 $1,075
 $70
 7%Artist and repertoire costs$771  $773  $(2) — %
Product costs617
 513
 104
 20%Product costs429  412  17  4 %
Total cost of revenues$1,762
 $1,588
 $174
 11%Total cost of revenues$1,200  $1,185  $15  1 %
Artist and repertoire costs increaseddecreased by $70$2 million, to $1,145$771 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,075$773 million for the ninesix months ended June 30, 2018.March 31, 2019. Artist and repertoire costs as a percentage of revenue decreased to 33% for the six months ended March 31, 2020 from 34% for the ninesix months ended June 30, 2019 from 36% for the nine months ended June 30, 2018 due to the acquisition of EMP, which has noMarch 31, 2019. Decreases in artist and repertoire costs and therefore reduced our total artist and repertoirerelate to lower artist-related costs, asincluding a percent of revenue. Excluding EMP, artist and repertoire costs were flat at 36%, which includes the impact from the adoption of ASC 606 and is partially offset by a $14 million benefit for advance recoveriesdecrease in spending resulting from the estimated artist share on the gain on saleimpact of the Spotify shares in the prior year quarter.COVID-19.
Product costs increased by $104$17 million, to $617$429 million for the ninesix months ended June 30, 2019March 31, 2020 from $513$412 million for the ninesix months ended June 30, 2018.March 31, 2019. Product costs as a percentage of revenue wereremained constant at 18% for the ninesix months ended June 30, 2019March 31, 2020 and 17% for the nine months ended June 30, 2018. Increases in product costs relate to the acquisition of EMP of $89 million and revenue mix, which were partially offset by the impact of a touring business divestment in Italy of $55 million.March 31, 2019.
Selling, general and administrative expenses
Our selling, general and administrative expenses were composed of the following amounts (in millions):
For the Six Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$523  $351  $172  49 %
Selling and marketing expense339  317  22  7 %
Distribution expense55  62  (7) -11 %
Total selling, general and administrative expense$917  $730  $187  26 %

 For the Nine Months Ended
June 30, 2019		 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$542
 $579
 $(37) -6 %
Selling and marketing expense472
 383
 89
 23 %
Distribution expense88
 51
 37
 73 %
Total selling, general and administrative expense$1,102
 $1,013
 $89
 9 %
(1)Includes depreciation expense of $38 million and $28 million for the six months ended March 31, 2020 and March 31, 2019, respectively.
___________________
(1)Includes depreciation expense of $43 million and $41 million for the nine months ended June 30, 2019 and June 30, 2018, respectively.
Total selling, general and administrative expense increased by $89$187 million, or 9%26%, to $1,102$917 million for the ninesix months ended June 30, 2019March 31, 2020 from $1,013$730 million for the ninesix months ended June 30, 2018.March 31, 2019. Expressed as a percentage of revenue, selling, general and administrative expense decreasedincreased to 33%39% for the ninesix months ended June 30, 2019March 31, 2020 from 34%32% for the ninesix months ended June 30, 2018.
General and administrative expense decreased by $37 million, or 6%, to $542 million for the nine months ended June 30, 2019 from $579 million for the nine months ended June 30, 2018. The decrease in general and administrative expense was mainlyMarch 31, 2019. This is primarily due to lowerthe increased expense associated with our Senior Management Free Cash Flow Plan of $37$145 million and decreasesa one-time charge within depreciation expense of $10 million. Excluding the expense associated with our Senior Management Free Cash Flow Plan and one-time charge within depreciation expense, selling, general and administrative expense as a percentage of revenue increased to 32% for the six months ended March 31, 2020 from 31% for the six months ended March 31, 2019.
General and administrative expense increased by $172 million, or 49%, to $523 million for the six months ended March 31, 2020 from $351 million for the six months ended March 31, 2019. The increase in severancegeneral and restructuringadministrative expense was mainly due to higher expense associated with our Senior Management Free Cash Flow Plan of $145 million, a one-time charge within depreciation expense of $10 million, increases in legal and consulting costs related to the proposed IPO, increases in bad debt provisions of $27$3 million partially offset by higher employeeassociated with COVID-19 related costphysical distribution business disruptions and costs associated with transformation initiatives.initiatives of $17 million. Expressed as a percentage of revenue, general and administrative expense decreasedincreased to 16%23% for the ninesix months ended June 30, 2019March 31, 2020 from 20%15% for the ninesix months ended June 30, 2018.  

March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, general and administrative expense as a percentage of revenue increased to 15% for the six months ended March 31, 2020 from 14% for the six months ended March 31, 2019 due to the factors described above.
Selling and marketing expense increased by $89$22 million, or 23%7%, to $472$339 million for the ninesix months ended June 30, 2019March 31, 2020 from $383$317 million for the ninesix months ended June 30, 2018.March 31, 2019. The increase in selling and marketing expense was primarily due to an increase of $55 million related to the acquisition of EMP and increased variable marketing expense on higher revenue in the quarter.and increased spending on new releases and developing artists. Expressed as a percentage of revenue, selling and marketing expense increased to 15% for the six months ended March 31, 2020 from 14% for the ninesix months ended June 30,March 31, 2019 from 13% for the nine months ended June 30, 2018 mainly due to the acquisition of EMP.factors described above.
56

Distribution expense was $88$55 million for the ninesix months ended June 30, 2019March 31, 2020 and $51$62 million for the ninesix months ended June 30, 2018.March 31, 2019. Expressed as a percentage of revenue, distribution expense increaseddecreased to 2% for the six months ended March 31, 2020 from 3% for the ninesix months ended June 30, 2019 from 2% for the nine months ended June 30, 2018 mainlyMarch 31, 2019. The decrease in distribution costs is due to $26 million in costs resulting from the acquisition of EMP.revenue mix.
Reconciliation of Net Income Attributable to Warner Music Group Corp. and Operating Income to Consolidated OIBDA
As previously described, we use OIBDA as our primary measure of financial performance. The following table reconciles operating income to OIBDA, and further provides the components from net income attributable to Warner Music Group Corp. to operating income for purposes of the discussion that follows (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Net income attributable to Warner Music Group Corp.$166
 $321
 $(155) -48 %Net income attributable to Warner Music Group Corp.  $46  $153  $(107) -70 %
Income attributable to noncontrolling interest1
 4
 (3) -75 %Income attributable to noncontrolling interest2  —  2  — %
Net income167
 325
 (158) -49 %Net income  48  153  (105) -69 %
Income tax expense86
 132
 (46) -35 %
Income tax (benefit) expenseIncome tax (benefit) expense (7) 98  (105) — %
Income before income taxes253
 457
 (204) -45 %Income before income taxes  41  251  (210) -84 %
Other income, net(41) (392) 351
 -90 %
Other expense (income)Other expense (income) 9  (57) 66  — %
Interest expense, net108
 105
 3
 3 %Interest expense, net66  72  (6) -8 %
Loss on extinguishment of debt7
 31
 (24) -77 %Loss on extinguishment of debt—  3  (3) -100 %
Operating income327
 201
 126
 63 %Operating income  116  269  (153) -57 %
Amortization expense160
 164
 (4) -2 %Amortization expense94  109  (15) -14 %
Depreciation expense43
 41
 2
 5 %Depreciation expense38  28  10  36 %
OIBDA$530
 $406
 $124
 31 %OIBDA$248  $406  $(158) -39 %
OIBDA
OIBDA increaseddecreased by $124$158 million, or 31%39%, to $530$248 million for the ninesix months ended June 30, 2019March 31, 2020 as compared to $406 million for the ninesix months ended June 30, 2018March 31, 2019 as a result of higher revenues and lowerselling, general and administrative expenses. Expressed as a percentage of total revenue, OIBDA increasedmargin decreased to 16%11% for the ninesix months ended June 30, 2019March 31, 2020 from 14%18% for the ninesix months ended June 30, 2018 largelyMarch 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, as a percentage of total revenue, OIBDA margin decreased to 18% for the six months ended March 31, 2020 from 19% for the six months ended March 31, 2019 due to $32 million related to the transition in timing of revenues and related costs resulting from the adoption of ASC 606, $16 million related to the acquisition of EMP, and lower general and administrative expenses.  factors previously discussed.
Amortization expense
Our amortization expense decreased by $4$15 million, or 2%14%, to $160$94 million for the ninesix months ended June 30, 2019March 31, 2020 from $164$109 million for the ninesix months ended June 30, 2018,March 31, 2019. The decrease is primarily due to the impact of foreign currency exchange rates andcertain intangible assets becoming fully amortized, partially offset by an increase in amortizable assets.amortized.
Operating income
Our operating income increaseddecreased by $126$153 million to $327$116 million for the ninesix months ended June 30, 2019March 31, 2020 from $201$269 million for the ninesix months ended June 30, 2018.March 31, 2019. The increasedecrease in operating income was due to the factors that led to the increasedecrease in OIBDA.
Loss on extinguishment of debt
There was no loss on extinguishment of debt for the six months ended March 31, 2020. We recorded a loss on extinguishment of debt in the amount of $7$3 million for the ninesix months ended June 30,March 31, 2019, which represents the unamortized deferred financing costs related to the partial redemption of the 4.125% Senior Secured Notes and 5.625% Senior Secured Notes, in addition toand the open market purchases of the 4.875% Senior Secured Notes. We recorded a loss on extinguishment of debt in the amount of $31 million for the nine months ended June 30, 2018, which represents the premium paid on early redemption and unamortized deferred financing costs related to the June 2018 Senior Term Loan Credit Agreement Amendment, the redemption of the 6.75% Senior Notes and the December 2017 Senior Term Loan Credit Agreement Amendment.

Interest expense, net
Our interest expense, net, increaseddecreased to $108$66 million for the ninesix months ended June 30, 2019March 31, 2020 from $105$72 million for the ninesix months ended June 30, 2018 primarily driven byMarch 31, 2019 due to a decline in LIBOR rates as well as lower interest rates resulting from the higher debt balance fromredemption of the 5.625% Senior Secured Notes and issuance of the 3.625% Senior Secured Notes during the current period, partially offset by redemption activity.Notes.
57

Other income,expense (income), net
Other income,expense (income), net, for the ninesix months ended June 30, 2019March 31, 2020 primarily includes the unrealized gainlosses of $25$10 million on the mark-to-market of an equity method investment, the loss on our Euro-denominated debt of $6 million and $5 million relating to a loss on investments,partially offset by currency exchange gains on our intercompany loans of $12 million. This compares to an unrealized gain of $30 million on the mark-to-market of an equity method investment and $6 million unrealized gains on hedging activity and foreign currency gains on our Euro denominatedEuro-denominated debt of $10$20 million and $4 million unrealized gains on hedging activity. This compares to other income, net for the ninesix months ended June 30, 2018 which primarily includes the gain on sale of the Spotify shares, net of estimated artist share and other related costs, of $378 million, foreign currency gains on our Euro denominated debt of $7 million, gains on derivative liabilities of $4 million, and a $7 million gain on investments, partially offset by currency exchange losses on intercompany loans of $3 million.March 31, 2019.
Income tax (benefit) expense
Our income tax expense decreased by $46$105 million to $86a tax benefit of $7 million for the ninesix months ended June 30, 2019March 31, 2020 from $132$98 million of a tax expense for the ninesix months ended June 30, 2018.March 31, 2019. The change of $46$105 million in income tax expense primarily relates to higherlower pre-tax income and U.S tax expense for the reductionrelease of our net U.S. deferred tax assets as a result of the change in the U.S. corporate statutory tax rate included in the nine months ended June 30, 2018 as compared to the tax impact of the GILTI for the nine months ended June 30, 2019.

In connection with the proposed regulations issued by the Internal Revenue Service in November 2018, the Company is evaluating the impact of these proposed regulations to its valuation allowance foron foreign tax credits of approximately $133$33 million as of June 30, 2019.  Subject toduring the regulations being enacted as proposed, the regulations may result in a change to the amount of foreign tax credits that is more likely than not to be realized and thus result in a reduction to the valuation allowance.six months ended March 31, 2020.
Net Income
Net income decreased by $158$105 million to $167$48 million for the ninesix months ended June 30, 2019March 31, 2020 from net income of $325$153 million for the ninesix months ended June 30, 2018March 31, 2019 as a result of the factors described above.
Noncontrolling interest
There was $1$2 million of income attributable to noncontrolling interest for the ninesix months ended June 30, 2019 primarily due to the adoption of ASC 606. There was $4 million ofMarch 31, 2020 and no income attributable to noncontrolling interest for the threesix months ended June 30, 2018.

March 31, 2019.
Business Segment Results
Revenue, operating income (loss) and OIBDA by business segment were as follows (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Recorded Music       Recorded Music
Revenue$2,887
 $2,497
 $390
 16 %
RevenuesRevenues$1,991  $1,974  $17  1 %
Operating income382
 276
 106
 38 %Operating income227  297  (70) -24 %
OIBDA522
 415
 107
 26 %OIBDA317  391  (74) -19 %
Music Publishing      

Music Publishing
Revenue470
 476
 (6) -1 %
RevenuesRevenues339  323  16  5 %
Operating income67
 45
 22
 49 %Operating income44  49  (5) -10 %
OIBDA122
 101
 21
 21 %OIBDA81  86  (5) -6 %
Corporate expenses and eliminations      

Corporate expenses and eliminations
Revenue elimination(6) (7) 1
 -14 %
Revenue eliminationsRevenue eliminations(3) (4) 1  -25 %
Operating loss(122) (120) (2) 2 %Operating loss(155) (77) (78) — %
OIBDA loss(114) (110) (4) 4 %OIBDA loss(150) (71) (79) — %
Total      

Total
Revenue3,351
 2,966
 385
 13 %
RevenuesRevenues2,327  2,293  34  1 %
Operating income327
 201
 126
 63 %Operating income116  269  (153) -57 %
OIBDA530
 406
 124
 31 %OIBDA248  406  (158) -39 %
Recorded Music
Revenues
Recorded Music revenue increased by $390$17 million, or 16%1%, to $2,887$1,991 million for the ninesix months ended June 30, 2019March 31, 2020 from $2,497$1,974 million for the ninesix months ended June 30, 2018.March 31, 2019. U.S. Recorded Music revenues were $1,236$833 million and $1,061$841 million, or 43%42% and 42%43%, of consolidated Recorded Music revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Recorded Music revenues were $1,651$1,158 million and $1,436$1,133 million, or 57%58% and 58%57%, of consolidated Recorded Music revenues for both the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
58

The overall increase in Recorded Music revenue was mainly driven by streaming revenue growth, strong releases, and the EMP acquisitionpartially offset by decreases in physical revenue as described in the “Total Revenue”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 Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$857
 $761
 $96
 13%Artist and repertoire costs$558  $575  $(17) -3 %
Product costs617
 513
 104
 20%Product costs429  412  17  4 %
Total cost of revenues$1,474
 $1,274
 $200
 16%Total cost of revenues$987  $987  $—  — %
Recorded Music cost of revenues increased by $200 million, or 16%, to $1,474remained flat at $987 million for both the ninesix months ended June 30, 2019 from $1,274 million for the nine months ended June 30, 2018.March 31, 2020 and March 31, 2019. Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 30%28% for the ninesix months ended June 30, 2019March 31, 2020 from 31%29% for the ninesix months ended June 30, 2018.March 31, 2019. The decrease is primarily attributable to lower artist-related costs, including a decrease in artist and repertoire costs as a percentage of revenue was primarily due to the acquisition of EMP, which has no artist and repertoire costs and therefore reduced our total artist and repertoire costs as a percentage of revenue. Excluding EMP, artist and repertoire costs as a percentage of revenue increased to 32% due to a prior year benefit of $14 millionspending resulting from the estimated artist share on the gain on saleimpact of the Spotify shares.COVID-19. Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained flat atincreased to 22% for the six months ended March 31, 2020 from 21% for the ninesix months ended June 30, 2019March 31, 2019. The increase in product costs relates to revenue mix and June 30, 2018.

impact of costs associated with tours in France.
Selling, general and administrative expense
Recorded Music selling, general and administrative expenses were composed of the following amounts (in millions):
For the Six Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$332  $243  $89  37 %
Selling and marketing expense331  310  21  7 %
Distribution expense55  62  (7) -11 %
Total selling, general and administrative expense$718  $615  $103  17 %

(1)Includes depreciation expense of $31 million and $19 million for the six months ended March 31, 2020 and March 31, 2019, respectively.
 For the Nine Months Ended
June 30, 2019		 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$371
 $406
 $(35) -9 %
Selling and marketing expense463
 377
 86
 23 %
Distribution expense88
 51
 37
 73 %
Total selling, general and administrative expense$922
 $834
 $88
 11 %
______________________
(1)Includes depreciation expense of $31 million and $26 million for the nine months ended June 30, 2019 and June 30, 2018, respectively.
Recorded Music selling, general and administrative expense increased by $88$103 million, or 11%17%, to $922$718 million for the ninesix months ended June 30, 2019March 31, 2020 from $834$615 million for the ninesix months ended June 30, 2018.March 31, 2019. The decreaseincrease in general and administrative expense was primarily due to lowerhigher expense associated with our Senior Management Free Cash Flow Plan of $22$88 million and decreasesa one-time charge within depreciation expense of $10 million, increases in severance and restructuring costsbad debt provisions of $21$3 million associated with COVID-19 related physical distribution business disruptions partially offset by higher related employee costs.employee-related expenses. The increase in selling and marketing expense was primarily due to $55 million resulting from the acquisition of EMP and increased variable marketing expense on higher revenue in the quarter.quarter and increased spending on new releases and developing artists. The increasedecrease in distribution expense was primarily due to $26 million in costs resulting from the acquisition of EMP in the quarter.revenue mix. Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreasedincreased to 32%36% for the ninesix months ended June 30, 2019March 31, 2020 from 33%31% for the ninesix months ended June 30, 2018 mainly due toMarch 31, 2019. Excluding the acquisitionexpense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, selling, general and administrative expense as a percentage of EMP.Recorded Music revenue remained flat at 30% for both the six months ended March 31, 2020 and March 31, 2019.
Operating income and OIBDA
Recorded Music OIBDA included the following amounts (in millions):
For the Six Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
Operating income$227  $297  $(70) -24 %
Depreciation and amortization90  94  (4) -4 %
OIBDA$317  $391  $(74) -19 %
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 For the Nine Months Ended
June 30, 2019		 2019 vs. 2018
 2019 2018 $ Change % Change
Operating Income$382
 $276
 $106
 38%
Depreciation and amortization140
 139
 1
 1%
OIBDA$522
 $415
 $107
 26%

Recorded Music OIBDA increaseddecreased by $107$74 million, or 26%19%, to $522$317 million for the ninesix months ended June 30, 2019March 31, 2020 from $415$391 million for the ninesix months ended June 30, 2018March 31, 2019 as a result of higher revenues and lower general and administrative expenses. Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA increasedmargin decreased to 18%16% for the ninesix months ended June 30, 2019March 31, 2020 from 17%20% for the ninesix months ended June 30, 2018.March 31, 2019. Excluding the expense associated with our Senior Management Free Cash Flow Plan, OIBDA, as a percentage of Recorded Music OIBDA included increases of $16 million fromrevenue, remained constant at 21% for both the acquisition of EMPsix months ended March 31, 2020 and $8 million due to the adoption of ASC 606.March 31, 2019.
Recorded Music operating income increaseddecreased by $106$70 million to $382$227 million for the ninesix months ended June 30, 2019March 31, 2020 from $276$297 million for the ninesix months ended June 30, 2018March 31, 2019 due to the factors that led towithin the increase in Recorded Music OIBDA decrease noted above. Excluding the expense associated with our Senior Management Free Cash Flow Plan and the one-time charge within depreciation expense, Recorded Music operating income increased $28 million due to higher revenues and lower amortization expense within the quarter.
Music Publishing
Revenues
Music Publishing revenues decreasedincreased by $6$16 million, or 1%5%, to $470$339 million for the ninesix months ended June 30, 2019March 31, 2020 from $476$323 million for the ninesix months ended June 30, 2018.March 31, 2019. U.S. Music Publishing revenues were $219$168 million and $220$148 million, or 47%50% and 46%, of consolidated Music Publishing revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively. International Music Publishing revenues were $251$171 million and $256$175 million, or 53%50% and 54%, of consolidated Music Publishing revenues for the ninesix months ended June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, respectively.
The overall decreaseincrease in Music Publishing revenue was mainly driven by a decrease in revenues associated with lost administrative rightsstreaming revenue growth and lower market sharehigher synchronization, partially offset by the increase in digital revenue resulting from the adoption of ASC 606,lower performance revenues as described in the “Total Revenue”Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues
Music Publishing cost of revenues were composed of the following amounts (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Artist and repertoire costs$294
 $321
 $(27) -8 %Artist and repertoire costs$216  $202  $14  7 %
Total cost of revenues$294
 $321
 $(27) -8 %Total cost of revenues$216  $202  $14  7 %
Music Publishing cost of revenues decreasedincreased by $27$14 million, or 8%7%, to $294$216 million for the ninesix months ended June 30, 2019March 31, 2020 from $321$202 million for the ninesix months ended June 30, 2018.March 31, 2019. Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues decreasedincreased to 64% for the six months ended March 31, 2020 from 63% for the ninesix months ended June 30,March 31, 2019, from 67% for the nine months ended June 30, 2018, primarily due to the adoption of ASC 606, which resulted in a shift in therevenue mix and timing of recognition of revenuesartist and certain related costs from a cash to an accrual basis.repertoire investments.
Selling, general and administrative expense
Music Publishing selling, general and administrative expenses were comprised of the following amounts (in millions):
For the Six Months Ended
March 31,		2020 vs. 2019
20202019$ Change% Change
General and administrative expense (1)$43  $37  $6  16 %
Selling and marketing expense1  1  —  — %
Total selling, general and administrative expense$44  $38  $6  16 %

(1)Includes depreciation expense of $2 million and $3 million for the six months ended March 31, 2020 and March 31, 2019, respectively.
 For the Nine Months Ended
June 30, 2019		 2019 vs. 2018
 2019 2018 $ Change % Change
General and administrative expense (1)$56
 $58
 $(2) -3 %
Selling and marketing expense2
 1
 1
 100 %
Total selling, general and administrative expense$58
 $59
 $(1) -2 %
_______________________
(1)Includes depreciation expense of $4 million and $5 million for the nine months ended June 30, 2019 and for the nine months ended June 30, 2018, respectively.
Music Publishing selling, general and administrative expense decreased by $1 million, or 2%,increased to $58$44 million for the ninesix months ended June 30, 2019March 31, 2020 from $59$38 million for the ninesix months ended June 30, 2018.March 31, 2019 due to higher employee-related and restructuring costs. Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained flat atincreased to 13% for the six months ended March 31, 2020 from 12% for the ninesix months ended June 30,March 31, 2019 and for the nine months ended June 30, 2018.due to factors described above.
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Operating income and OIBDA
Music Publishing OIBDA included the following amounts (in millions):
For the Nine Months Ended
June 30, 2019		 2019 vs. 2018For the Six Months Ended
March 31,		2020 vs. 2019
2019 2018 $ Change % Change20202019$ Change% Change
Operating income$67
 $45
 $22
 49 %Operating income$44  $49  $(5) -10 %
Depreciation and amortization55
 56
 (1) -2 %Depreciation and amortization37  37  —  — %
OIBDA$122
 $101
 $21
 21 %OIBDA$81  $86  $(5) -6 %
Music Publishing OIBDA increaseddecreased by $21$5 million, or 21%6%, to $122$81 million for the ninesix months ended June 30, 2019March 31, 2020 from $101$86 million for the ninesix months ended June 30, 2018.March 31, 2019. Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA increasedmargin decreased to 26%24% for the ninesix months ended June 30, 2019March 31, 2020 from 21%27% for the ninesix months ended June 30, 2018.March 31, 2019. The increasedecrease was primarily due to $24 million from the adoption of ASC 606, which resulted in a shift in the timing of recognition of revenueshigher artist and certain related costs from a cash to an accrual basis.repertoire and general and administrative expenses.
Music Publishing operating income increaseddecreased by $22$5 million to $67$44 million for the ninesix months ended June 30, 2019March 31, 2020 from $45$49 million operating income for the ninesix months ended June 30, 2018March 31, 2019 largely due to a transitionthe factors that led to the decrease in timing of revenues and related costs resulting from the adoption of ASC 606.

Music Publishing OIBDA noted above.
Corporate Expenses and Eliminations
Our operating loss from corporate expenses and eliminations increased by $2$78 million to $122$155 million for the ninesix months ended June 30, 2019March 31, 2020 from $120$77 million for the ninesix months ended June 30, 2018.March 31, 2019 which primarily relates to an increase of $57 million in variable compensation expense associated with our Senior Management Free Cash Flow Plan as well as higher corporate-related costs and costs related to transformation initiatives of $17 million.
Our OIBDA loss from corporate expenses and eliminations increased by $4$79 million to $114$150 million for the ninesix months ended June 30, 2019March 31, 2020 from $110$71 million for the ninesix months ended June 30, 2018.March 31, 2019 due to the operating loss factors noted above.
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FINANCIAL CONDITION AND LIQUIDITY
Financial Condition at June 30, 2019March 31, 2020
At June 30, 2019,March 31, 2020, we had $3.006$2.983 billion of debt (which is net of $25 million of deferred financing costs), $484 million of cash and equivalents (net debt of $2.499 billion, defined as total debt, less cash and equivalents and deferred financing costs) and $306 million of Warner Music Group Corp. deficit. This compares to $2.974 billion of debt (which is net of $29 million of deferred financing costs), $541$619 million of cash and equivalents (net debt of $2.465 billion, defined as total long-term debt, less cash and equivalents and deferred financing costs) and $152 million of Warner Music Group Corp. deficit. This compares to $2.819 billion of debt (which is net of $28 million of deferred financing costs), $514 million of cash and equivalents (net debt of $2.305$2.355 billion) and $334$289 million of Warner Music Group Corp. deficit at September 30, 2018.2019.
Cash Flows
The following table summarizes our historical cash flows.flows (in millions). The financial data for the ninesix months ended June 30,March 31, 2020 and March 31, 2019 and June 30, 2018 are unaudited and arehave been derived from our interim financial statements included elsewhere herein. The cash flow is composed of the following (in millions):
 For the Nine Months Ended
June 30, 2019
 2019 2018
Cash provided by (used in):   
Operating Activities$249
 $265
Investing Activities(340) 451
Financing Activities119
 (453)
For the Six Months Ended
March 31,
20202019
Cash provided by (used in):
Operating activities$164  $99  
Investing activities(51) (293) 
Financing activities(245) 151  
Operating Activities
Cash provided by operating activities was $249$164 million for the ninesix months ended June 30, 2019March 31, 2020 as compared with cash provided by operating activities of $265$99 million for the ninesix months ended June 30, 2018.March 31, 2019. The $16$65 million decreaseincrease in cash provided by operating activities was primarily due to an increase in royalty advances and royalty payments,timing of working capital partially offset an OIBDA increase of $124 million.by higher cash taxes.
Investing Activities
Cash used in investing activities was $340$51 million for the ninesix months ended June 30, 2019March 31, 2020 as compared with cash provided byused in investing activities of $451$293 million for the ninesix months ended June 30, 2018.March 31, 2019. The $340$51 million of cash used in investing activities in the ninesix months ended June 30,March 31, 2020 consisted of $5 million relating to investments, $28 million relating to capital expenditures and $18 million to acquire music publishing rights and recorded music catalogs. The $293 million of cash used in investing activities in the six months ended March 31, 2019 consisted of the $183 million relating to the acquisition of EMP, net of cash and cash equivalents acquired, $47$35 million relating to the acquisition of equity investments, $82$59 million relating to capital expendituresexpenditure and $24 million to acquire music publishing rights. The $451 million of cash provided by investing activities in the nine months ended June 30, 2018 consisted of $516 million of proceeds from sale of investments, partially offset by $40 million of capital expenditures, which increased due to investment in IT and costs incurred related to the build-out of our Los Angeles office, $14 million of investments and acquisitions and $11$16 million to acquire music publishing rights.

Financing Activities
Cash used in financing activities was $245 million for the six months ended March 31, 2020 as compared with cash provided by financing activities was $119of $151 million for the ninesix months ended June 30, 2019 compared to $453March 31, 2019. The $245 million of cash used in financing activities for the ninesix months ended June 30, 2018.March 31, 2020 consisted of dividends paid of $244 million and distributions to noncontrolling interest holders of $1 million. The $119$151 million of cash provided by financing activities for the ninesix months ended June 30,March 31, 2019 consisted of proceeds of $514$287 million from the issuance of Acquisition Corp.’s 3.625% Senior Secured Notes due 2026 partially offset by deferred financing costs paid of $7$4 million, the repayment of Acquisition Corp.'s 5.625% Secured Notes due 2022 of $247 million including call premiums paid of $5 million, partial repayment of Acquisition Corp.’s 4.125% Senior Secured Notes due 2024 of $40 million, and 4.875% Senior Secured Notes due 2024 of $30 million and 5.625% Senior Secured Notes due 2022 of $27 million, including call premiums paid of $2 million, for an aggregate $185$99 million, dividends paid of $63$31 million and distributions to noncontrolling interest holders of $3 million. The $453 million of cash used in financing activities for the nine months ended June 30, 2018 consisted of the repayment of and deposit for Acquisition Corp.’s 6.75% Senior Notes of $635 million, special cash dividends paid of $425 million, call premiums paid on and redemption deposit for early redemption of $23 million, deferred financing costs paid of $12 million, and a distribution to our non-controlling interest holders of $3 million, partially offset by proceeds from issuance of Acquisition Corp.’s 5.50% Senior Notes of $325 million, and proceeds from the issuance of Acquisition Corp.’s Senior Term Loan Facility of $320$2 million.
Liquidity
Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and equivalents and funds available for drawing under our Revolving Credit Facility. These sources of liquidity are needed to fund our debt service requirements, working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and any dividends, prepayments of debt or repurchases or retirement of our outstanding debt or notes in open market purchases, privately negotiated purchases or otherwise, we may elect to pay or make in the future. Certain of our executive officers participate in the Plan, which permits those executive officers to defer all or a portion of their free cash flow bonuses and receive grants of indirect equity interests in the Company. Payments under the Plan, which could be material, are influenced by the Company’s valuation and other market factors, including valuations of similar companies. In connection with preparing for the proposed IPO, we amended the Plan to
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provide that, following completion of the proposed IPO, Plan participants would no longer have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in WMG Management Holdings LLC (“Management LLC”). Instead, following the proposed IPO, all deferred interests under the Plan would be settled in or redeemed with shares of our common stock. These amendments are only effective if the proposed IPO occurs prior to December 31, 2020. If the proposed IPO does not occur by such date and the Plan is not further amended, participants will have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in Management LLC. Based on the valuation at quarter-end, we would expect the total cash payments associated with the deferred payments and indirect equity interests under the Plan to be $400 million, with the majority expected to be paid in fiscal 2021.
We believe that our existingprimary sources of cashliquidity will be sufficient to support our existing operations over the next twelve months.
In August 2019, we announced that we were beginning a financial transformation initiative to upgrade our information technology and finance infrastructure over the next two years, including related systems and processes, for which we currently expect upfront costs to be approximately $120 million, which includes capital expenditures of approximately $40 million to $50 million (approximately half of which is expected to be incurred in the 2020 fiscal year and the remainder of which is expected to be incurred in the 2021 fiscal year). There has been a slight delay in the timing of the transformation initiative as a result of COVID-19 but it is still expected to be completed over the next two years. Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million once fully implemented. We expect that our primary sources of liquidity will be sufficient to fund these expenditures.
Revolving Credit Facility
On January 31, 2018, Acquisition Corp. entered into the revolving credit agreement (as amended by the amendment dated October 9, 2019 and as further amended, amended and restated or otherwise modified from time to time, the “Revolving Credit Agreement”) for a senior secured revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto (the “Revolving Credit Facility”). 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. For a more detailed description of the changes effected by the Second Amendment, see Note 14 to our unaudited interim consolidated financial statements for the three and six months ended March 31, 2020, included in Part I to this Quarterly Report.
Acquisition Corp. is the borrower under the Revolving Credit Agreement which provides for a revolving credit facility in the amount of up to $300 million and includes a $90 million letter of credit sub-facility. Amounts are available under the Revolving Credit Facility in U.S. dollars, euros or pounds sterling. The Revolving Credit Agreement permits loans for general corporate purposes and may also be utilized to issue letters of credit. Borrowings under the Revolving Credit Agreement bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving LIBOR”) plus 1.875% per annum, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month Revolving LIBOR plus 1.00% per annum, plus, in each case, 0.875% per annum; provided that, for each of clauses (i) and (ii), the applicable margin with respect to such loans is subject to adjustment upon achievement of certain leverage ratios as set forth in a leverage-based pricing grid in the Revolving Credit Agreement. Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.22x at March 31, 2020, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans.
Existing Debt as of June 30, 2019March 31, 2020
As of June 30, 2019,March 31, 2020, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):
Revolving Credit Facility (a)$—
Senior Term Loan Facility due 2023 (b)1,313
5.625% Senior Secured Notes due 2022 (c)—
5.000% Senior Secured Notes due 2023 (d)298
4.125% Senior Secured Notes due 2024 (e)349
4.875% Senior Secured Notes due 2024 (f)218
3.625% Senior Secured Notes due 2026 (g)507
5.500% Senior Notes due 2026 (h)321
Total long-term debt, including the current portion (i)$3,006
_______________________
(a)Reflects $180 million of commitments under the Revolving Credit Facility available at June 30, 2019 less letters of credit outstanding of approximately $13 million at June 30, 2019. There were no loans outstanding under the Revolving Credit Facility at June 30, 2019.
(a)$— 
Senior Term Loan Facility due 2023 (b)Principal amount of $1.326 billion less unamortized discount of $3 million and unamortized deferred financing costs of $10 million at June 30, 2019.
1,315 
5.000% Senior Secured Notes due 2023 (c)
On May 16, 2019, Acquisition Corp. redeemed the remaining $221 million of its outstanding 5.625%298 
4.125% Senior Secured Notes due 2024 (d)339 
4.875% Senior Secured Notes due 2024 (e)218 
3.625% Senior Secured Notes due 2026 (f)492 
5.500% Senior Notes due 2022. The Company recorded a loss on extinguishment of debt of approximately $4 million as a result of the debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs.
2026 (g)321 
(d)Total long-term debt, including the current portion (h)Principal amount of $300 million less unamortized deferred financing costs of $2 million at June 30, 2019.$2,983 
(e)Face amount of €311 million at June 30, 2019. Above amount represents the dollar equivalent of such note at June 30, 2019. Principal amount of $353 million at June 30, 2019, less unamortized deferred financing costs of $4 million at June 30, 2019.    
(f)Principal amount of $220 million less unamortized deferred financing costs of $2 million at June 30, 2019.
(g)Face amount of €445 million at June 30, 2019. Above amount represents the dollar equivalent of such note at June 30, 2019. Principal amount of $506 million, an additional issuance premium of $8 million, less unamortized deferred financing costs of $7 million at June 30, 2019.
(h)Principal amount of $325 million less unamortized deferred financing costs of $4 million at June 30, 2019.
(i)Principal amount of debt of $3.030 billion, an additional issuance premium of $8 million, less unamortized discount of $3 million and unamortized deferred financing costs of $29 million at June 30, 2019.    
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(a)Reflects $180 million of commitments under the Revolving Credit Facility available at March 31, 2020, less letters of credit outstanding of approximately $13 million at March 31, 2020. There were no loans outstanding under the Revolving Credit Facility at March 31, 2020. On April 3, 2020, Acquisition Corp. entered into an amendment to the Revolving Credit Facility which, among other things, increased the commitments under the Revolving Credit Facility from an aggregate principal amount of $180 million to an aggregate principal amount of $300 million. For a more detailed description of the changes effected by the amendment, see Note 14 to our unaudited interim consolidated financial statements for the three and six months ended March 31, 2020, included in Part 1 in this Quarterly Report.
(b)Principal amount of $1.326 billion less unamortized discount of $3 million and unamortized deferred financing costs of $8 million at March 31, 2020.
(c)Principal amount of $300 million less unamortized deferred financing costs of $2 million at March 31, 2020.
(d)Face amount of €311 million. Above amount represents the dollar equivalent of such note at March 31, 2020. Principal amount of $342 million less unamortized deferred financing costs of $3 million at March 31, 2020.
(e)Principal amount of $220 million less unamortized deferred financing costs of $2 million at March 31, 2020.
(f)Face amount of €445 million at March 31, 2020. Above amount represents the dollar equivalent of such note at March 31, 2020. Principal amount of $491 million, an additional issuance premium of $7 million, less unamortized deferred financing costs of $6 million at March 31, 2020.
(g)Principal amount of $325 million less unamortized deferred financing costs of $4 million at March 31, 2020.
(h)Principal amount of debt of $3.004 billion, an additional issuance premium of $7 million, less unamortized discount of $3 million and unamortized deferred financing costs of $25 million at March 31, 2020.
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, 2018.2019.

Dividend PolicyDividends
The Company’s ability to pay dividends is restricted by covenants in the indentures governing ourits notes and in the credit agreements for ourthe Senior Term Loan Facility and the Revolving Credit Facility.
In the first quarter of fiscal year 2019, the Company instituted a regular quarterly dividend policy whereby it intends to pay a modest regular quarterly dividend in each of the first three fiscal quarterquarters and a variable dividend for the fourth fiscal quarter in an amount commensurate with cash expected to be generated from operations in such fiscal year, in each case, after taking into account other potential uses for cash, including acquisitions, investment in our business and repayment of indebtedness. On December 20, 2018 the Company’s Board of Directors approved the first dividend of $31.25 million which was paid on January 4, 2019. On March 26, 2019, the Company’s Board of Directors approved a dividend of $31.25 million which was paid on April 5, 2019. On June 28, 2019, the Company’s Board of Directors approved a dividend of $31.25 million paid on July 5, 2019 and recorded as an accrual on June 30, 2019. The declaration of each dividend will continue to be at the discretion of the Company’s Boardboard of Directors.directors.
On March 25, 2020, the Company’s board of directors declared a cash dividend of $37.5 million which was paid to stockholders on April 17, 2020 and recorded as an accrual as of March 31, 2020. On September 23, 2019, the Company’s board of directors declared a cash dividend of $206 million which was paid to stockholders on October 4, 2019 and recorded as an accrual as of September 30, 2019. On March 26, 2019, the Company’s board of directors declared a cash dividend of $31.25 million which was accrued as of March 31, 2019 and paid to stockholders on April 5, 2019.
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 June 30, 2019.March 31, 2020. With respect to the Revolving Credit Facility, the discussion below now reflects the covenants in effect under the Second Amendment, dated as of April 3, 2020.
On January 18, 2019, we delivered a notice to the administrative agent under each of our Revolving Credit Facility andthe Senior Term Loan Facility and the trustee under the indentures governing each of the Acquisition Corp.Senior Notes and the Secured Notes changing the Fixed GAAP Date, as defined under each such facility and the indentures, to October 1, 2018. Under the Revolving Credit Facility, the Fixed GAAP Date is set for April 3, 2020, other than in respect of capital leases, which are frozen at November 1, 2012.
OurThe Revolving Credit Facility contains a springing leverage ratio that is tied to a ratio based on Consolidated EBITDA, which is defined under the Credit Agreement governing the Revolving Credit Facility.Agreement. Our ability to borrow funds under ourthe 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. EBITDA as defined in the Revolving Credit Facility is based on Consolidated EBITDA differsNet Income (as defined in the Revolving Credit Facility), both of which terms differ from the termterms “EBITDA” and “net income” as it isthey are commonly used. For example, the definitioncalculation of Consolidated EBITDA under the Revolving Credit Facility, in addition to adjusting net income to exclude interest expense, income taxes and depreciation and amortization, also adjusts net income by excluding items or expenses not typically excluded in the calculation of “EBITDA” such as, among other items, (1) the amount of any restructuring charges or reserves; (2) any non-cash charges (including any impairment charges); (3) any net loss resulting from hedging currency
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exchange risks; (4) the amount of management, monitoring, consulting and advisory fees paid to Access under the Management Agreement (as defined in the Credit Agreement);Access; (5) business optimization expenses (including consolidation initiatives, severance costs and other costs relating to initiatives aimed at profitability improvement); (6) transaction expenses andexpenses; (7) equity-based compensation expense. Itexpense; and (8) certain extraordinary, unusual or non-recurring items. The definition of EBITDA under the Revolving Credit Facility also includes an adjustmentadjustments for the pro forma impact of certain projected cost-savingscost savings, operating expense reductions and synergies.synergies and any quality of earnings analysis prepared by independent certified public accountants in connection with an acquisition, merger, consolidation or other investment. The indentures governing our notes and ourthe Senior Term Loan Facility use financial measures called “Consolidated EBITDA” or “EBITDA” and “Consolidated Net Income”, that have the same definition assimilar (but not identical) definitions to EBITDA and Consolidated EBITDANet Income, each as defined under the Revolving Credit Agreement governingAgreement.
EBITDA as defined in the Revolving Credit Facility.
Consolidated EBITDAFacility (referred to in this section as “Adjusted EBITDA”) is presented herein because it is a material component of the leverage ratio contained in ourthe Revolving Credit Agreement. Non-compliance with the leverage ratio could result in the inability to use ourthe Revolving Credit Facility, which could have a material adverse effect on our results of operations, financial position and cash flow. ConsolidatedAdjusted EBITDA does not represent net income or cash from operating activities as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While ConsolidatedAdjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. ConsolidatedAdjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations. In particular, the definition of ConsolidatedAdjusted EBITDA in the Revolving Credit Agreement allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income. However, these are expenses that may recur, vary greatly and are difficult to predict.
ConsolidatedAdjusted EBITDA as presented below is not a measure of the performance of our business and should not be used by investors as an indicator of performance for any future period. Further, our debt instruments require that it be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four quarter period or any complete fiscal year. In addition, our debt instruments require that the leverage ratio be calculated on a pro forma basis for certain transactions including acquisitions as if such transactions had occurred on the first date of the measurement period and may include expected cost savings and synergies resulting from or related to any such transaction. There can be no assurances that any such cost savings or synergies will be achieved in full.

In addition, Adjusted EBITDA is a key measure used by our management to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of those limitations include: (1) it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue for our business; (2) it does not reflect the significant interest expense or cash requirements necessary to service interest or principal payments on our indebtedness; and (3) it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments. In particular, this measure adds back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income; however, these are expenses that may recur, vary greatly and are difficult to predict. In addition, Adjusted EBITDA is not the same as net income or cash flow provided by operating activities as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. 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. GAAP.
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The following is a reconciliation of net income, which is a U.S. GAAP measure of our operating results, to pro forma ConsolidatedAdjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended March 31, 2020, and for the twelve months ended March 31, 2019. In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to pro forma ConsolidatedAdjusted EBITDA ratio, which we refer to as the Leverage Ratio, under ourthe Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended June 30, 2019.March 31, 2020. The terms and related calculations are defined in the Revolving Credit Agreement. All amounts in the reconciliation below reflect Acquisition Corp. (in millions, except ratio)ratios):
Twelve Months Ended
March 31, 2020		Twelve Months Ended
March 31, 2019
Net Income$153  $462  
Income tax (benefit) expense (97) 158  
Interest expense, net137  138  
Depreciation and amortization264  264  
Loss on extinguishment of debt (a)4  9  
Net gain on divestitures and sale of securities (b)(2) (8) 
Restructuring costs (c)25  45  
Net hedging losses and foreign exchange gains (d)(18) (44) 
Management fees (e)11  17  
Transaction costs (f)4  3  
Business optimization expenses (g)37  18  
Equity based compensation expense (h)196  50  
Other non-cash charges (i)39  (30) 
Pro forma impact of cost savings initiatives and specified transactions (j)2  15  
Adjusted EBITDA (k)$755  $1,097  
Senior Secured Indebtedness (l)$2,428  
Leverage Ratio (m)3.22x  

(a)Reflects net loss incurred on the early extinguishment of our debt incurred as part of the May 2019 redemption of the remaining 5.625% Secured Notes for the twelve months ended March 31, 2020. For the twelve months ended March 31, 2019, reflects net loss incurred on the early extinguishment of our debt incurred as part of the June 2018 Senior Term Loan Credit Agreement amendments, the October 2018 partial redemption of 4.125% Secured Notes, the October 2018 open market purchase of our 4.875% Senior Secured Notes and the November 2018 partial redemption of 5.625% Secured Notes.
(b)Reflects net gain on sale of securities and, for the twelve months ended March 31, 2019, net gain on divestitures.
(c)Reflects severance costs and other restructuring related expenses.
(d)Reflects net losses from hedging activities and unrealized gains or losses due to foreign exchange on our Euro-denominated debt and intercompany transactions.
(e)Reflects management fees paid to Access, including an annual fee and related expenses. Pursuant to the Company’s and Holdings’ management agreement with Access, the annual fee is equal to the greater of a base amount of approximately $9 million and 1.5% of Adjusted EBITDA.
(f)Reflects expenses related to transaction costs, which includes qualifying costs associated with the proposed IPO for the twelve months ended March 31, 2020.
(g)Reflects primarily costs associated with IT systems updates and other transformation initiatives and, for the twelve
months ended March 31, 2019, costs associated with U.S. shared services relocation.
(h)Reflects equity-based compensation expense related to the Warner Music Group Corp. Senior Management Free Cash Flow Plan.
(i)Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market of an equity method investment, investment losses (gains) and other non-cash impairments.
(j)Reflects expected savings resulting from transformation initiatives and restructuring programs for the twelve months ended March 31, 2020 and reflects expected savings resulting from transformation initiatives and pro forma impact of specified transactions, including pro forma adjustments related to the acquisition of EMP for the twelve months ended March 31, 2019.
(k)The Adjusted EBITDA as of the twelve months ended March 31, 2019 includes a net gain of $389 million, pre-tax, related to the sale of the Spotify shares acquired in the ordinary course of business. Excluding the impact of this gain, Adjusted EBITDA for the twelve months ended March 31, 2019 was $708 million.
(l)Reflects the principal balance of senior secured debt at Acquisition Corp. of approximately $2.678 billion less cash of $250 million.
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 Twelve Months Ended
June 30, 2019
Net Income$154
Income tax expense84
Interest expense, net141
Depreciation and amortization260
Loss on extinguishment of debt (a)7
Net gain on divestitures and sale of securities (b)(3)
Restructuring costs (c)43
Net hedging gains and foreign exchange losses (d)(11)
Management fees (e)17
Transaction costs (f)3
Business optimization expenses (g)19
Equity based compensation expense (h)38
Other non-cash activity (i)(25)
Pro forma impact of transformation initiatives and specified transactions (j)8
Pro Forma Consolidated EBITDA$735
Senior Secured Indebtedness (k)$2,505
Leverage Ratio (l)3.41x
_______________________
(a)Reflects net loss incurred on the early extinguishment of our debt incurred as part of the October 2018 partial redemption of 4.125% Secured Notes, the October 2018 open market purchase of our 4.875% Senior Secured Notes, the November 2018 partial redemption of 5.625% Secured Notes, and May 2019 redemption of the remaining 5.625% Secured Notes.
(b)Reflects net gain on divestitures and sale of securities.
(c)Reflects severance costs and other restructuring related expenses.
(d)Reflects net losses from hedging activities and unrealized losses due to foreign exchange on our Euro denominated debt and intercompany transactions.
(e)Reflects management fees paid to Access, including an annual fee and related expenses. Pursuant to the Company’s and Holdings’ management agreement with Access, the base amount of the annual fee is approximately $9 million, subject to certain potential upward adjustments, in addition to a $7 million increase in fiscal 2018.
(f)Reflects expenses related to transaction and other related costs.
(g)Reflects primarily costs associated with IT systems updates and U.S. shared services relocation and other transformation initiatives.
(h)Reflects equity-based compensation expense related to the Warner Music Group Corp. Senior Management Free Cash Flow Plan.
(i)Reflects non-cash activity, including the unrealized gain on the mark-to-market of an equity method investment.
(j)Reflects expected savings resulting from transformation initiatives and pro forma impact of specified transactions, including pro forma adjustments related to the acquisition of EMP.
(k)Reflects the principal balance of senior secured debt at Acquisition Corp. of approximately $2.705 billion less cash of $200 million.
(l)Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Pro Forma Consolidated EBITDA as of the twelve months ended June 30, 2019. This is calculated net of cash and equivalents of the Company as of June 30, 2019 not exceeding $200 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 $54 million at the end of a fiscal quarter, the maximum leverage ratio permitted under our Revolving Credit Facility is 4.75:1.00. The Company’s Revolving Credit Facility does not impose any “leverage ratio” restrictions 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 $54 million at the end of a fiscal quarter.

(m)Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Pro Forma Adjusted EBITDA as of the twelve months ended March 31, 2020. This is calculated net of cash and equivalents of the Company as of March 31, 2020 not exceeding $250 million. 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. 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.
Summary
Management believes that funds generated from our operations and borrowings under ourthe 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. We also have additional borrowing capacity under our indentures and the Senior Term Loan Facility. However, our ability to continue to fund these items and to reduce debt may be affected by general economic, financial, competitive, legislative and regulatory factors, as well as other industry-specific factors such as the ability to control music piracy and the continued transition from physical to digital salesformats in the recorded music and music publishing businesses.industries. It could also be affected by the severity and duration of natural or man-made disasters, including pandemics such as COVID-19. We and our affiliates continue to evaluate opportunities to, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to pay dividends or prepay outstanding debt or repurchase or retire Acquisition Corp.’s outstanding debt or debt securities in open market purchases, privately negotiated purchases or otherwise. The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings. In addition, we may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, we may seek to refinance ourthe Senior Credit Facilities or our outstanding debt or debt securities with existing cash and/or with funds provided from additional borrowings. Certain of our executive officers participate in the Plan, which permits those executive officers to defer all or a portion of their free cash flow bonuses and receive grants of indirect equity interests in the Company. Payments under the Plan, which could be material, are influenced by the Company’s valuation and other market factors, including valuations of similar companies.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in Note 1314 to our audited Consolidated Financial Statementsconsolidated financial statements for the fiscal year ended September 30, 2018,2019, the Company is exposed to market risk arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates. As of June 30, 2019,March 31, 2020, other than as described below, there have been no material changes to the Company’s exposure to market risk since September 30, 2018.2019.
Foreign Currency Risk
Within our global business operations we have transactional exposures that may be adversely affected by changes in foreign currency exchange rates relative to the U.S. dollar. We may at times choose to use foreign exchange currency derivatives, primarily forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies, such as unremitted or future royalties and license fees owed to our U.S. domestic companies for the sale merchandising, or anticipated sale,licensing of U.S.-copyrighted products soldU.S.-based music and merchandise abroad that may be adversely affected by changes in foreign currency exchange rates. We focus on managing the level of exposure to the risk of foreign currency exchange rate fluctuations on major currencies, which can include the Euro, British Pound, Euro,pound sterling, Japanese Yen,yen, Canadian Dollar,dollar, Swedish Krona,krona, Australian Dollar,dollar, Brazilian Real,real, Korean Wonwon and Norwegian Krone,krone, and in many cases we have natural hedges where we have expenses associated with local operations that offset the revenue in local currency and our Euro-denominated debt, which can offset declines in the Euro. As of June 30, 2019,March 31, 2020, the Company had outstanding hedge contracts for the sale of $153$243 million and the purchase of $93$142 million of foreign currencies at fixed rates. Subsequent to June 30, 2019,March 31, 2020, certain of our foreign exchange contracts expired.
The fair value of foreign exchange contracts is subject to changes in foreign currency exchange rates. For the purpose of assessing the specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments. For foreign exchange forward contracts outstanding at June 30, 2019,March 31, 2020, we typically perform a sensitivity analysis assuming a hypothetical 10% depreciation of the U.S. dollar against foreign currencies from prevailing foreign currency exchange rates and assuming no change in interest rates. The fair value of the foreign exchange forward contracts would have decreased by $5$10 million based on this analysis. Hypothetically, even if there was a decrease in the fair value of the forward contracts, because our foreign exchange contracts are entered into for hedging purposes, these losses would be largely offset by gains on the underlying transactions.
Interest Rate Risk
We had $3.030$3.004 billion of principal debt outstanding at June 30, 2019,March 31, 2020, of which $1.326 billion was variable ratevariable-rate debt and $1.704$1.678 billion was fixed ratefixed-rate debt. As such, we are exposed to changes in interest rates. At June 30, 2019,March 31, 2020, 56% of the Company’s debt was at a fixed rate. In addition, as of June 30, 2019,March 31, 2020, we have the option under all of our floating rate debt under ourthe Senior Term Loan Facility to select a one, two, three or six-monthsix month LIBOR rate. To manage interest rate risk on $320$820 million of U.S. dollar denominated variable ratedollar-denominated variable-rate debt, the Company has entered into interest rate swaps to effectively convert the floating interest rates to a fixed interest rate on a portion of its variable-rate debt.
Based on the level of interest rates prevailing at June 30, 2019,March 31, 2020, the fair value of the fixed rateCompany’s fixed-rate and variable ratevariable-rate debt was approximately $3.083$2.890 billion. Further, as of March 31, 2020, based on the amount of its fixed ratethe Company’s fixed-rate debt, a 25 basis point increase or decrease in the level of interest rates would decrease the fair value of the fixed ratefixed-rate debt by approximately $4$5 million or increase the fair value of the fixed ratefixed-rate debt by approximately $13$20 million. This potential increase or decreasefluctuation is based on the simplified assumption that the level of fixed-rate debt remains constant with an immediate across the board increase or decrease in the level of interest rates with no subsequent changes in rates for the remainder of the period.
Inflation Risk

Inflationary factors such as increases in overhead costs may adversely affect our results of operations. We do not believe that inflation has had a material effect on our business, financial condition or results of operations to date. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases for services. Our inability or failure to do so could harm our business, financial condition or results of operations.

ITEM 4. CONTROLS AND PROCEDURES
Certification
The certifications of the principal executive officer and the principal financial officer (or persons performing similar functions) required by Rules 13a-14(a) and 15d-14(a) of the Exchange Act (the “Certifications”) are filed as exhibits to this report. This section of the report contains the information concerning the evaluation of ourthe Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) (“Disclosure Controls”) and changes to internal control over financial
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reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) (“Internal Controls”) referred to in the Certifications and this information should be read in conjunction with the Certifications for a more complete understanding of the topics presented.
Introduction
The Securities and Exchange Commission’s (“SEC”) rules define “disclosure controls and procedures” as controls and procedures that are designed to ensure that information required to be disclosed by public companies in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by public companies in the reports that they file or submit under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The SEC’s rules define “internal control over financial reporting” as a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Boardboard of Directors,directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or U.S. GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
OurThe Company’s management, including theits principal executive officer and principal financial officer, does not expect that our Disclosure Controls or Internal Controls will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in any and all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our companythe Company have been detected. Further, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected even when effective Disclosure Controls and Internal Controls are in place.
Evaluation of Disclosure Controls and Procedures
Based on our management’s evaluation (with the participation of ourthe Company’s principal executive officer and principal financial officer), as of the end of the period covered by this report, ourthe Company’s principal executive officer and principal financial officer have concluded that ourthe Company’s Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by usthe Company in reports that we fileit files or submitsubmits under the Exchange Act will be recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Beginning October 1, 2018, we implemented the new revenue standard pursuant to Financial Accounting Standards Board, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. As a result of this adoption, we recorded a material decrease to opening accumulated deficit as of October 1, primarily due to the transition from a cash basis to accrual basis accounting.  As such, we implemented changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, training, contract review requirements, and gathering of information provided for the disclosures required in our SEC interim and annual filings. There werehave been no other changes in our internal control over financial reporting that occurredor other factors during the quarterthree months ended June 30, 2019,March 31, 2020 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting. The Company has not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 global pandemic. The Company will continue to monitor and assess the impact of the COVID-19 situation and our ability to maintain the design and operating effectiveness of internal controls over financial reporting.

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PART II. OTHER INFORMATION
ITEM  1.LEGAL PROCEEDINGS
Sirius XM
On September 11, 2013, the Company joined with Capitol Records, LLC, Sony Music Entertainment, UMG Recordings, Inc. and ABKCO Music & Records, Inc. in a lawsuit brought in California Superior Court against Sirius XM Radio Inc., alleging copyright infringement for Sirius XM’s use of pre-1972 sound recordings under California law.  A nation-wide settlement was reached on June 17, 2015 pursuantITEM 1. LEGAL PROCEEDINGS
From time to which Sirius XM paid the plaintiffs, in the aggregate, $210 million on July 29, 2015 and the plaintiffs dismissed their lawsuit with prejudice.  The settlement resolved all past claims as to Sirius XM’s use of pre-1972 recordings owned or controlled by the plaintiffs and enabled Sirius XM, without any additional payment, to reproduce, perform and broadcast such recordings in the United States through December 31, 2017.  The allocation of the settlement proceeds among the plaintiffs was determined and the settlement proceeds were distributed accordingly. This resulted in a cash distribution to the Company of $33 million of which $28 million was recognized in revenue during the 2016 fiscal year and $4 million was recognized in revenue during the 2017 fiscal year. The balance of $1 million was recognized in the first quarter of the 2018 fiscal year. The Company is sharing its allocation of the settlement proceeds with its artists on the same basis as statutory revenue from Sirius XM is shared, i.e., the artist share of our allocation will be paid to artists by SoundExchange.
As part of the settlement, plaintiffs agreed to negotiate in good faith to grant Sirius XM a license to publicly perform the plaintiffs’ pre-1972 sound recordings for the five-year period running from January 1, 2018 to December 31, 2022.  Pursuant to the settlement, if the parties are unable to reach an agreement on license terms, the royalty rate for each license will be determined by binding arbitration on a willing buyer/willing seller standard.  On December 21, 2017, Sirius XM commenced a single arbitration against all of the plaintiffs in California through JAMS to determine the rate for the five-year period. On May 1, 2018, the Company filed a lawsuit against Sirius XM in New York state court to stay the California arbitration and to compel a separate arbitration in New York solely between Sirius XM and the Company.  On August 23, 2018, the Company filed a Stipulation of Discontinuance without Prejudice as to the New York state court action after Sirius XM agreed to participate in a separate arbitration with the Company in New York if the parties were unable to reach an agreement on pre-1972 license terms.  On March 28, 2019, the Company and Sirius XM entered into an agreement granting Sirius XM a license to publicly perform the Company’s pre-1972 sound recordings for the five-year period running from January 1, 2018 to December 31, 2022.
Other Matters
In addition to the matter discussed above,time the Company is involved in various litigationclaims and regulatorylegal proceedings arisingthat arise in the normalordinary course of business. Where itThe Company is determined, in consultation with counsel basedcurrently subject to several such claims and legal proceedings. Based on litigation and settlement risks, that a loss is probable and estimable in a given matter,currently available information, the Company establishes an accrual. In the currentlydoes not believe that resolution of pending proceedings, the amount of accrual is not material. An estimate of the reasonably possible lossmatters will have a material adverse effect on its financial condition, cash flows or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including (1) the results of ongoing discovery; (2) uncertain damage theoriesoperations. However, litigation is subject to inherent uncertainties, and demands; (3)there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a less than complete factual record; (4) uncertainty concerning legal theories and their resolution by courts or regulators; and (5) the unpredictable nature of the opposing party and its demands. However, the Company cannot predict with certainty the outcome of any litigation or the potential for future litigation. As such, the Company continuously monitors these proceedings as they develop and adjusts any accrual or disclosure as needed. Regardless of the outcome, litigation could have anmaterial adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company, including the Company’s brand value,whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors and it could have a material effect on the Company’s results of operations for a given reporting period.factors.

ITEM 1A. RISK FACTORS

ITEM 1A.RISK FACTORS
In addition to the other information contained in this Quarterly Report on Form 10-Q, certain risk factors should be considered carefully in evaluating our business. A wide range of risks may affect our business and financial results, now and in the future. We consider the risks described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,2019, and the risks set forth below to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results.
The Company’s results of operations, cash flows and financial condition are expected to be adversely impacted by the coronavirus pandemic.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In January 2020, a new strain of coronavirus, COVID-19, was identified in Wuhan, China. On March 11, 2020, the World Health Organization declared a pandemic. The pandemic has had and will have an adverse effect on our results of operations, cash flows and financial condition.
While physical revenue streams – physical revenue in our Recorded Music business and mechanical revenue in our Music Publishing business – have declined significantly over the last decade, the virus outbreak has resulted in declines in our physical revenue streams related to disruptions in manufacturing and physical supply chains, the mandated closure of physical retailers, the requirement that people stay in their homes and our decisions to delay the release of new recordings from artists with a more physical consumer base.
The requirement that people stay in their homes has negatively affected our business in other ways. It has ended live concert tours, adversely impacting our concert promotion business and our sale of tour merchandise. It has made it more difficult for artists to engage in marketing efforts around the release of their new recordings which, in some cases, has led to our decisions to delay the release of those recordings. It has delayed the release of new recordings by impeding the types of collaboration among artists, songwriters, producers, musicians, engineers and studios which are necessary for the delivery of those recordings. The cessation in the production of motion pictures and television programs has negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.
It has been widely reported that advertisers have reduced their advertising spend as a result of the COVID-19 pandemic. We expect this will result in a corresponding decline in licensing revenue and ad-supported digital revenue in our Recorded Music business and synchronization, performance and ad-supported digital revenue in our Music Publishing business.
The severity and the duration of the pandemic is difficult to predict but it is expected that the pandemic will materially and adversely affect the global economy, creating risk around the timing and collectability of our accounts receivable and leading to a decline in consumer discretionary spending which, in turn, could have a negative impact on our results of operations, cash flows and financial condition.
Given the uncertainty around the extent and timing of the potential future spread or mitigation of the virus and around the imposition or relaxation of protective measures, we cannot at this time reasonably estimate the impact to our future results of operations, cash flows and financial condition.
Our valuation may fluctuate significantly from period to period and our cash flows or results of operations in any reporting period may be affected by changes in our valuation.
Our results of operations for the three and six months ended March 31, 2020 were adversely affected by the Senior Management Free Cash Flow Plan (the “Plan”), which pays annual bonuses to certain executives based on our free cash flow and
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offers participants the opportunity to share in appreciation of the value of our common stock. The extent of the benefits awarded under the Plan is affected by our operating results and the valuation or trading price of our common stock and, as such, to the extent that either or both fluctuates, the value of the award may increase or decrease materially, which could affect our cash flows and results of operations. We incurred charges associated with our Senior Management Free Cash Flow Plan of $169 million and $5 million for the three months ended March 31, 2020 and March 31, 2019, respectively, based on the currently estimated value of the Company. We incurred charges of $167 million and $22 million for the six months ended March 31, 2020 and March 31, 2019, respectively. If we complete the proposed IPO, the benefits awarded under the Plan will be determined by our trading price.
In connection with preparing for the proposed IPO, we amended the Plan to provide that, following completion of the proposed IPO, Plan participants would no longer have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in WMG Management Holdings LLC (“Management LLC”). Instead, following the proposed IPO, all deferred interests under the Plan would be settled in or redeemed with shares of our common stock. These amendments are only effective if the proposed IPO occurs prior to December 31, 2020. If the proposed IPO does not occur by such date and the Plan is not further amended, participants will have the option to settle deferred accounts in cash or to be paid in cash for redemption of their vested interests in Management LLC. Based on the valuation at quarter end, we would expect the total payments associated with the deferred payments and indirect equity interests under the Plan to be $400 million, with the majority expected to be paid in fiscal 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Not applicable.

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ITEM 6.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 6. EXHIBITS
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Exhibit

Number
Description
3.1*
10.1***3.2*
10.2*
10.2***
31.1*
10.3***
31.1*
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2*
31.2*
32.1**
32.1**
32.2**
32.2**
101.1*
101.1*Financial statements from the Quarterly Report on Form 10-Q of Warner Music Group Corp. for the quarter ended June 30, 2019,March 31, 2020, filed on August 6, 2019,May 7, 2020, formatted in XBRL:iXBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated StatementStatements of Comprehensive Loss,Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of EquityDeficit and (vi) Notes to Consolidated Interim Financial Statements

__________________________* Filed herewith
*Filed herewith
**Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference
***Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 30, 2019 (File No. 001-32502).

** Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
August 6, 2019
May 7, 2020
WARNER MUSIC GROUP CORP.
WARNER MUSIC GROUP CORP.
By:
By:
/s/S/    STEPHENCOOPER
Name:
Title:
Stephen Cooper
Title:

Chief Executive Officer

(Principal Executive Officer)
By:
/s/ERIC LEVIN
Name:
Title:
By:
/S/    ERIC LEVIN
Name:Eric Levin
Title:

Chief Financial Officer (Principal Financial

Officer and Principal Accounting Officer)


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