SEC Filing | Warner Music Inc.

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wmg-8k_20180507.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 7, 2018

Warner Music Group Corp.

(Exact name of registrant as specified in its charter)

Delaware

001-32502

13-4271875

(State or other jurisdiction

or incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

1633 Broadway, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 275-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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. ☐

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On May 7, 2018, Warner Music Group Corp. issued an earnings release announcing its results for the quarter ended March 31, 2018, which is furnished as Exhibit 99.1 hereto.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference to such filing.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d)

Exhibits. The following Exhibit is furnished as part of this Current Report on Form 8-K.

Exhibit No.		Description

99.1		Earnings release issued by Warner Music Group Corp. on May 7, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Warner Music Group Corp.

Date: May 7, 2018	By:	/s/ Eric Levin
		Eric Levin
		Executive Vice President and Chief Financial Officer

wmg-ex991_6.htm

Exhibit 99.1

WARNER MUSIC GROUP CORP. REPORTS RESULTS FOR FISCAL SECOND QUARTER ENDED MARCH 31, 2018

•

Total revenue grew 16.7% or was up 10.4% in constant currency

•

Digital revenue grew 24.6% or was up 19.7% in constant currency

•

Net loss was $1 million versus net income of $20 million in the prior-year quarter

•

OIBDA was $152 million versus $141 million in the prior-year quarter

NEW YORK, New York, May 7, 2018—Warner Music Group Corp. today announced its second-quarter financial results for the period ended March 31, 2018.

“We’re having another excellent year with strong momentum around the world in both Recorded Music and Music Publishing,” said Steve Cooper, Warner Music Group’s CEO. “We’re investing heavily in A&R, digital innovation and the transformation of our operations to ensure that we are positioned for long-term success.”

“We showed strong revenue and OIBDA growth in our second quarter,” added Eric Levin, Warner Music Group’s Executive Vice President and CFO. “This is our eleventh consecutive quarter of year-over-year revenue growth and we’re proud of our ability to deliver robust results on a consistent basis.”

Total WMG

Total WMG Summary Results
(dollars in millions)
	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017		% Change
	(unaudited)			(unaudited)
Revenue	$	963		$	825		17	%
Digital revenue		547			439		25	%
Operating income		83			78		6	%
Adjusted operating income⁯⁽¹⁾		112			83		35	%
OIBDA⁽¹⁾		152			141		8	%
Adjusted OIBDA⁽¹⁾		181			146		24	%
Net (loss) income		(1	)		20	-
Adjusted net income ⁽¹⁾		28			25		12	%
Net cash provided by operating activities		0			70		-100	%


(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Revenue grew 16.7% (or 10.4% in constant currency). Growth in Recorded Music digital, physical and licensing revenue and all segments of Music Publishing revenue were partially offset by a decline in Recorded Music artist services and expanded-rights revenue. Revenue increased in all regions.

Digital revenue increased 24.6% (or 19.7% in constant currency), and represented 56.8% of total revenue, compared to 53.2% in the prior-year quarter.

Operating income was $83 million compared to $78 million in the prior-year quarter. OIBDA rose 7.8% to $152 million from $141 million in the prior-year quarter and OIBDA margin declined 1.3 percentage points to 15.8% from 17.1% in the prior-year quarter. The increase in operating income and OIBDA was largely the result of higher revenue partially offset by restructuring costs and an increase in facilities costs related to the Company’s Los Angeles office consolidation. Adjusted OIBDA rose 24.0%, benefiting from revenue growth and Adjusted OIBDA margin improved 1.1 percentage points to 18.8% as a result of revenue growth and revenue mix.

Net loss was $1 million compared to net income of $20 million in the prior-year quarter and Adjusted net income was $28 million compared to Adjusted net income of $25 million in the prior-year quarter. The net loss was primarily attributable to a loss on extinguishment of debt of $23 million related to the partial redemption of the Company’s 6.75% Senior Notes, and higher non-cash tax expense in the quarter related to a one-time tax benefit in the prior-year quarter, offset by higher operating income. These factors more than offset lower other expense largely related to a currency-related gain on intercompany loans and improved operating income.

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude certain costs related to the relocation of the Company’s U.S. shared service center to Nashville, the Company’s Los Angeles office consolidation and restructuring in the quarter, and certain costs mainly related to the Nashville relocation and PLG-related asset sales in the prior-year quarter. See below for calculations and reconciliations of OIBDA, Adjusted operating income, Adjusted OIBDA and Adjusted net income.

As of March 31, 2018, the Company reported a cash balance of $612 million, total debt of $2.947 billion and net debt (total long-term debt, which is net of deferred financing costs of $33 million, minus cash) of $2.335 billion.

Cash provided by operating activities was $0 compared to $70 million in the prior-year quarter. The change was largely a result of movements in working capital related to the payment of annual bonuses and other variable compensation, and timing of royalty payments. Free Cash Flow, defined below, was negative $22 million compared to $70 million in the prior-year quarter, reflecting the change in cash provided by operating activities, and the impact of sale of investments in the prior-year quarter.

Recorded Music

Recorded Music Summary Results
(dollars in millions)
	For the Three Months Ended March 31, 2018		For the Three Months Ended March 31, 2017		% Change
	(unaudited)		(unaudited)
Revenue	$	791	$	686		15	%
Digital revenue		491		400		23	%
Operating income		80		69		16	%
Adjusted operating income⁯⁽¹⁾		106		73		45	%
OIBDA⁽¹⁾		127		112		13	%
Adjusted OIBDA⁽¹⁾		153		116		32	%


(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Recorded Music revenue grew 15.3% (or 9.1% in constant currency). Growth in digital, physical and licensing revenue was partially offset by a decline in artist services and expanded-rights revenue. Digital growth reflects a continuing shift to streaming revenue. Licensing revenue rose due to higher broadcast fee income and increased synchronization activity. The increase in physical revenue was largely currency-related. The decline in artist services and expanded-rights revenue was largely due to increased concert promotion and merchandising activity in the prior-year quarter. Recorded Music revenue grew in all regions. Major sellers included Ed Sheeran, The Greatest Showman soundtrack album, Bruno Mars, WANIMA and Dua Lipa.

Recorded Music operating income was $80 million up from $69 million in the prior-year quarter, and operating margin was flat at 10.1%. OIBDA rose 13.4% to $127 million from $112 million in the prior-year quarter driven by revenue growth. OIBDA margin declined 0.2 percentage points to 16.1% due primarily to restructuring costs and an increase in facilities costs related to the Company’s Los Angeles office consolidation. Adjusted OIBDA was $153 million up from $116 million in the prior-year quarter and Adjusted OIBDA margin was up 2.4 percentage points to 19.3% reflecting the benefits of revenue mix.

Music Publishing

Music Publishing Summary Results
(dollars in millions)
	For the Three Months Ended March 31, 2018		For the Three Months Ended March 31, 2017		% Change
	(unaudited)		(unaudited)
Revenue	$	174	$	145		20	%
Digital revenue		57		43		33	%
Operating income		41		41		0	%
OIBDA⁽¹⁾		60		58		3	%


(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.

Music Publishing revenue rose 20.0% (or 13.7% in constant currency). Revenue grew in all segments – digital, performance, synchronization and mechanical.

Music Publishing operating income was flat at $41 million. Music Publishing OIBDA rose by $2 million to $60 million and Music Publishing OIBDA margin declined by 5.5 percentage points to 34.5%, largely due to revenue mix.

Financial details for the quarter can be found in the Company’s current Form 10-Q, for the period ended March 31, 2018, filed today with the Securities and Exchange Commission.

This morning, management will host a conference call to discuss the results at 8:30 A.M. EST. The call will be webcast at www.wmg.com.

About Warner Music Group

With its broad roster of new stars and legendary artists, Warner Music Group is home to a collection of the best-known record labels in the music industry including, Asylum, Atlantic, Big Beat, Canvasback, East West, Elektra, Erato, FFRR, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Warner Bros., Warner Classics and Warner Music Nashville, as well as Warner/Chappell Music, one of the world's leading music publishers with a catalog of more than one million copyrights worldwide.

"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995

This communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts" and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Please refer to our Annual Report on Form 10-K, Quarterly Report on Form 10-Qs and our other filings with the U.S. Securities and Exchange Commission concerning factors that could cause actual results to differ materially from those described in our forward-looking statements.

We maintain an Internet site at www.wmg.com. We use our website as a channel of distribution for material company information. Financial and other material information regarding Warner Music Group is routinely posted on and accessible at http://investors.wmg.com. In addition, you may automatically receive email alerts and other information about Warner Music Group by enrolling your email address through the “email alerts” section at http://investors.wmg.com. Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this communication.

Basis of Presentation

The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period. As such, all references to March 31, 2018 and March 31, 2017 relate to the periods ended March 30, 2018 and March 31, 2017, respectively. For convenience purposes, the Company continues to date its financial statements as of March 31. The fiscal year ended September 30, 2017 ended on September 29, 2017.

Figure 1. Warner Music Group Corp. - Consolidated Statements of Operations, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Revenue	$	963		$	825			17	%
Cost and expenses:
Cost of revenue		(488	)		(415	)		-18	%
Selling, general and administrative expenses		(337	)		(282	)		-20	%
Amortization expense		(55	)		(50	)		-10	%
Total costs and expenses	$	(880	)	$	(747	)		-18	%
Operating income	$	83		$	78			6	%
Loss on extinguishment of debt		(23	)		-		-
Interest expense, net		(36	)		(36	)		0	%
Other expense, net		(6	)		(19	)		68	%
Income before income taxes	$	18		$	23			-22	%
Income tax expense		(19	)		(3	)	-
Net (loss) income	$	(1	)	$	20		-
Less: Income attributable to noncontrolling interest		(2	)		(1	)		-100	%
Net (loss) income attributable to Warner Music Group Corp.	$	(3	)	$	19		-


	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Revenue	$	2,008		$	1,742			15	%
Costs and expenses:
Cost of revenue		(1,057	)		(911	)		-16	%
Selling, general and administrative expenses		(670	)		(558	)		-20	%
Amortization expense		(108	)		(101	)		-7	%
Total costs and expenses	$	(1,835	)	$	(1,570	)		-17	%
Operating income	$	173		$	172			1	%
Loss on extinguishment of debt		(24	)		(32	)		25	%
Interest expense, net		(72	)		(76	)		5	%
Other income, net		(2	)		-		-
Income before income taxes	$	75		$	64			17	%
Income tax expense		(71	)		(20	)	-
Net income	$	4		$	44			-91	%
Less: Income attributable to noncontrolling interest		(3	)		(3	)		0	%
Net income attributable to Warner Music Group Corp.	$	1		$	41			-98	%

Figure 2. Warner Music Group Corp. - Consolidated Balance Sheets at March 31, 2018 versus September 30, 2017
(dollars in millions)


	March 31,			September 30,
	2018			2017			% Change
	(unaudited)			(unaudited)
Assets
Current assets:
Cash and equivalents	$	612		$	647			-5	%
Redemption deposit		119			-		-
Accounts receivable, net		427			404			6	%
Inventories		39			39			0	%
Royalty advances expected to be recouped within one year		148			141			5	%
Prepaid and other current assets		62			44			41	%
Total current assets	$	1,407		$	1,275			10	%
Royalty advances expected to be recouped after one year		181			172			5	%
Property, plant and equipment, net		214			213			1	%
Goodwill		1,696			1,685			1	%
Intangible assets subject to amortization, net		2,037			2,090			-3	%
Intangible assets not subject to amortization		118			117			1	%
Deferred tax assets, net		52			97			-46	%
Other assets		77			69			12	%
Total assets	$	5,782		$	5,718			1	%
Liabilities and Equity
Current liabilities:
Accounts payable	$	203		$	208			-2	%
Accrued royalties		1,358			1,263			8	%
Accrued liabilities		340			365			-7	%
Accrued interest		27			41			-34	%
Deferred revenue		197			197			0	%
Current portion of long-term debt		111			-		-
Other current liabilities		37			26			42	%
Total current liabilities	$	2,273		$	2,100			8	%
Long-term debt		2,836			2,811			1	%
Deferred tax liabilities, net		194			190			2	%
Other noncurrent liabilities		274			309			-11	%
Total liabilities	$	5,577		$	5,410			3	%
Equity:
Common stock		-			-		-
Additional paid-in capital		1,128			1,128			0	%
Accumulated deficit		(778	)		(654	)		-19	%
Accumulated other comprehensive loss, net		(161	)		(181	)		-11	%
Total Warner Music Group Corp. equity	$	189		$	293			-35	%
Noncontrolling interest		16			15			7	%
Total equity		205			308			-33	%
Total liabilities and equity	$	5,782		$	5,718			1	%

Figure 3. Warner Music Group Corp. - Summarized Statements of Cash Flows, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017
	(unaudited)			(unaudited)
Net cash provided by operating activities	$	-		$	70
Net cash used in investing activities		(22	)		-
Net cash used in financing activities		(146	)		(55	)
Effect of foreign currency exchange rates on cash and equivalents		4			6
Net (decrease) increase in cash and equivalents	$	(164	)	$	21


	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017
	(unaudited)			(unaudited)
Net cash provided by operating activities	$	136		$	226
Net cash used in investing activities		(28	)		(12	)
Net cash used in financing activities		(149	)		(93	)
Effect of foreign currency exchange rates on cash and equivalents		6			(4	)
Net (decrease) increase in cash and equivalents	$	(35	)	$	117

Figure 4. Warner Music Group Corp. - Recorded Music Digital Revenue Summary, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018		For the Three Months Ended March 31, 2017
	(unaudited)		(unaudited)
Streaming	$	415	$	300
Downloads and Other Digital		76		100
Total Recorded Music Digital Revenue	$	491	$	400

	For the Six Months Ended March 31, 2018		For the Six Months Ended March 31, 2017
	(unaudited)		(unaudited)
Streaming	$	819	$	611
Downloads and Other Digital		153		191
Total Recorded Music Digital Revenue	$	972	$	802

Supplemental Disclosures Regarding Non-GAAP Financial Measures

We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:

OIBDA

OIBDA reflects our operating income before non-cash depreciation of tangible assets and non-cash amortization of intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses, and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. 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 revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.

Figure 5. Warner Music Group Corp. - Reconciliation of Net Income to OIBDA, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Net (loss) income attributable to Warner Music Group Corp.	$	(3	)	$	19		-
Income attributable to noncontrolling interest		2			1			100	%
Net (loss) income	$	(1	)	$	20		-
Income tax expense		19			3		-
Income including income taxes	$	18		$	23			-22	%
Other expense, net		6			19			-68	%
Interest expense, net		36			36			0	%
Loss on extinguishment of debt		23			-		-
Operating income	$	83		$	78			6	%
Amortization expense		55			50			-10	%
Depreciation expense		14			13			-8	%
OIBDA	$	152		$	141			8	%
Operating income margin		8.6	%		9.5	%
OIBDA margin		15.8	%		17.1	%


	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Net income attributable to Warner Music Group Corp.	$	1		$	41			-98	%
Income attributable to noncontrolling interest		3			3			0	%
Net income	$	4		$	44			-91	%
Income tax expense		71			20		-
Income including income taxes	$	75		$	64			17	%
Other expense net		2			-		-
Interest expense, net		72			76			-5	%
Loss on extinguishment of debt		24			32			-25	%
Operating income	$	173		$	172			1	%
Amortization expense		108			101			-7	%
Depreciation expense		26			25			-4	%
OIBDA	$	307		$	298			3	%
Operating income margin		8.6	%		9.9	%
OIBDA margin		15.3	%		17.1	%

Figure 6. Warner Music Group Corp. - Reconciliation of Segment Operating Income to OIBDA, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Total WMG operating income – GAAP	$	83		$	78			6	%
Depreciation and amortization expense		(69	)		(63	)		-10	%
Total WMG OIBDA	$	152		$	141			8	%
Operating income margin		8.6	%		9.5	%
OIBDA margin		15.8	%		17.1	%

Recorded Music operating income - GAAP	$	80		$	69			16	%
Depreciation and amortization expense		(47	)		(43	)		-9	%
Recorded Music OIBDA	$	127		$	112			13	%
Recorded Music operating income margin		10.1	%		10.1	%
Recorded Music OIBDA margin		16.1	%		16.3	%

Music Publishing operating income - GAAP	$	41		$	41			0	%
Depreciation and amortization expense		(19	)		(17	)		-12	%
Music Publishing OIBDA	$	60		$	58			3	%
Music Publishing operating income margin		23.6	%		28.3	%
Music Publishing OIBDA margin		34.5	%		40.0	%


	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017			% Change
	(unaudited)			(unaudited)
Total WMG operating income - GAAP	$	173		$	172			1	%
Depreciation and amortization expense		(134	)		(126	)		-6	%
Total WMG OIBDA	$	307		$	298			3	%
Operating income margin		8.6	%		9.9	%
OIBDA margin		15.3	%		17.1	%

Recorded Music operating income - GAAP	$	209		$	192			9	%
Depreciation and amortization expense		(91	)		(85	)		-7	%
Recorded Music OIBDA	$	300		$	277			8	%
Recorded Music operating income margin		12.3	%		12.9	%
Recorded Music OIBDA margin		17.7	%		18.7	%

Music Publishing operating income - GAAP	$	40		$	39			3	%
Depreciation and amortization expense		(37	)		(35	)		-6	%
Music Publishing OIBDA	$	77		$	74			4	%
Music Publishing operating income margin		12.6	%		14.5	%
Music Publishing OIBDA margin		24.3	%		27.5	%

Adjusted Operating Income (Loss), Adjusted OIBDA and Adjusted Net Income (Loss)

Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) is operating income (loss), OIBDA and net income (loss), respectively, adjusted to exclude the impact of certain items that affect comparability. Factors affecting period-to-period comparability of the unadjusted measures in the quarter included the items listed in Figure 8 below. We use Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) to evaluate our actual operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies in our industry and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), OIBDA and net income (loss) attributable to Warner Music Group Corp. as indicators of operating performance, and they may not be comparable to similarly titled measures employed by other companies.

Figure 7. Warner Music Group Corp. - Reconciliation of Reported to Adjusted Results, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


For the Three Months Ended March 31, 2018
	Total WMG Operating Income			Recorded Music Operating Income			Music Publishing Operating Income			Total WMG OIBDA			Recorded Music OIBDA			Music Publishing OIBDA			Net (loss) income
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Reported Results	$	83		$	80		$	41		$	152		$	127		$	60		$	(1	)
Factors Affecting Comparability:
Restructuring		22			21			-			22			21			-			22
One-Time Compensation Payment		1			1			-			1			1			-			1
L.A. Office Consolidation		3			3			-			3			3			-			3
Nashville Shared Service Costs		3			1			-			3			1			-			3
Adjusted Results	$	112		$	106		$	41		$	181		$	153		$	60		$	28

Adjusted Margin		11.6	%		13.4	%		23.6	%		18.8	%		19.3	%		34.5	%


For the Three Months Ended March 31, 2017
	Total WMG Operating Income			Recorded Music Operating Income			Music Publishing Operating Income			Total WMG OIBDA			Recorded Music OIBDA			Music Publishing OIBDA			Net income
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Reported Results	$	78		$	69		$	41		$	141		$	112		$	58		$	20
Factors Affecting Comparability:
Costs and Loss on PLG-Related Asset Sales		2			2			-			2			2			-			2
Nashville Shared Service Costs		3			2			-			3			2			-			3
Adjusted Results	$	83		$	73		$	41		$	146		$	116		$	58		$	25

Adjusted Margin		10.1	%		10.6	%		28.3	%		17.7	%		16.9	%		40.0	%

For the Six Months Ended March 31, 2018
	Total WMG Operating Income			Recorded Music Operating Income			Music Publishing Operating Income			Total WMG OIBDA			Recorded Music OIBDA			Music Publishing OIBDA			Net income
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Reported Results	$	173		$	209		$	40		$	307		$	300		$	77		$	4
Factors Affecting Comparability:
Restructuring		25			23			-			25			23			-			25
One-Time Compensation Payment		4			4			-			4			4			-			4
L.A. Office Consolidation		7			7			-			7			7			-			7
Nashville Shared Service Costs		6			2			-			6			2			-			6
Adjusted Results	$	215		$	245		$	40		$	349		$	336		$	77		$	46

Adjusted Margin		10.7	%		14.5	%		12.6	%		17.4	%		19.8	%		24.3	%


For the Six Months Ended March 31, 2017
	Total WMG Operating Income			Recorded Music Operating Income			Music Publishing Operating Income			Total WMG OIBDA			Recorded Music OIBDA			Music Publishing OIBDA			Net income
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Reported Results	$	172		$	192		$	39		$	298		$	277		$	74		$	44
Factors Affecting Comparability:
Costs and Loss on PLG-Related Asset Sales		4			4			-			4			4			-			4
Nashville Shared Service Costs		5			3			-			5			3			-			5
Adjusted Results	$	181		$	199		$	39		$	307		$	284		$	74		$	53

Adjusted Margin		10.4	%		13.4	%		14.5	%		17.6	%		19.2	%		27.5	%

Constant Currency

Because 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 revenue helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We use results on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency results by applying current-year foreign currency exchange rates to prior-year results. However, a limitation of the use of the constant-currency results as a performance measure is that it does not reflect the impact of exchange rates on our revenue. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant-currency basis, as we present them, 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.

Figure 8. Warner Music Group Corp. - Revenue by Geography and Segment, Three and Six Months Ended March 31, 2018 versus March 31, 2017 As Reported and Constant Currency
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017			For the Three Months Ended March 31, 2017
	As reported			As reported			Constant
	(unaudited)			(unaudited)			(unaudited)
US revenue
Recorded Music	$	335		$	305		$	305
Music Publishing		88			76			76
International revenue
Recorded Music		456			381			420
Music Publishing		86			69			77
Intersegment eliminations		(2	)		(6	)		(6	)
Total Revenue	$	963		$	825		$	872

Revenue by Segment:
Recorded Music
Digital	$	491		$	400		$	417
Physical		147			142			154
Total Digital and Physical		638			542			571
Artist services and expanded-rights		74			81			88
Licensing		79			63			66
Total Recorded Music		791			686			725
Music Publishing
Performance		59			50			55
Digital		57			43			44
Mechanical		20			17			18
Synchronization		35			32			33
Other		3			3			3
Total Music Publishing		174			145			153
Intersegment eliminations		(2	)		(6	)		(6	)
Total Revenue	$	963		$	825		$	872

Total Digital Revenue	$	547		$	439		$	457

	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017			For the Six Months Ended March 31, 2017
	As reported			As reported			Constant
	(unaudited)			(unaudited)			(unaudited)


US revenue
Recorded Music	$	705		$	650		$	650
Music Publishing		151			127			127
International revenue
Recorded Music		990			833			900
Music Publishing		166			142			154
Intersegment eliminations		(4	)		(10	)		(10	)
Total Revenue	$	2,008		$	1,742		$	1,821

Revenue by Segment:
Recorded Music
Digital	$	972		$	802		$	828
Physical		370			369			390
Total Digital and Physical		1,342			1,171			1,218
Artist services and expanded-rights		179			171			183
Licensing		174			141			149
Total Recorded Music		1,695			1,483			1,550
Music Publishing
Performance		102			87			93
Digital		110			86			89
Mechanical		38			33			34
Synchronization		62			58			59
Other		5			5			6
Total Music Publishing		317			269			281
Intersegment eliminations		(4	)		(10	)		(10	)
Total Revenue	$	2,008		$	1,742		$	1,821

Total Digital Revenue	$	1,080		$	883		$	912

Free Cash Flow

Free Cash Flow reflects our cash flow provided by operating activities less capital expenditures and cash paid or received for investments. We use Free Cash Flow, among other measures, to evaluate our operating performance. Management believes Free Cash Flow provides investors with an important perspective on the cash available to fund our debt service requirements, ongoing 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. As a result, Free Cash Flow is a significant measure of our ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of our operating performance. We believe the presentation of Free Cash Flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method management uses.

Because Free Cash Flow is not a measure of performance calculated in accordance with U.S. GAAP, Free Cash Flow should not be considered in isolation of, or as a substitute for, net income (loss) as an indicator of operating performance or cash flow provided by operating activities as a measure of liquidity. Free Cash Flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, Free Cash Flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Because Free Cash Flow deducts capital expenditures and cash paid or received for investments from “net cash provided by operating activities” (the most directly comparable U.S. GAAP financial measure), users of this information should consider the types of events and transactions that are not reflected. We provide below a reconciliation of Free Cash Flow to the most directly comparable amount reported under U.S. GAAP, which is “net cash provided by operating activities.”

Figure 9. Warner Music Group Corp. - Calculation of Free Cash Flow, Three and Six Months Ended March 31, 2018 versus March 31, 2017
(dollars in millions)


	For the Three Months Ended March 31, 2018			For the Three Months Ended March 31, 2017
	(unaudited)			(unaudited)
Net cash provided by operating activities	$	-		$	70
Less: Capital expenditures		13			10
Less: Net cash received for investments		9			(10	)

Free Cash Flow	$	(22	)	$	70


	For the Six Months Ended March 31, 2018			For the Six Months Ended March 31, 2017
	(unaudited)			(unaudited)
Net cash provided by operating activities	$	136		$	226
Less: Capital expenditures		29			18
Less: Net cash received for investments		(1	)		(6	)

Free Cash Flow	$	108		$	214

###

Media Contact:	Investor Contact:
James Steven	Lori Scherwin
(212) 275-2213	(212) 275-4850
James.Steven@wmg.com	Investor.Relations@wmg.com