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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, 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
(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 registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒
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  ☒    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 filerAccelerated filer
Non-accelerated filer
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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes      No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Class A Common StockWMGThe Nasdaq Stock Market LLC
As of August 4, 2020, there were 88,550,000 shares of Class A common stock and 421,450,000 shares of Class B common stock of the registrant outstanding. The registrant has filed all Exchange Act reports for the preceding 12 months.




WARNER MUSIC GROUP CORP.
INDEX
Page
Number




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Warner Music Group Corp.
Consolidated Balance Sheets (Unaudited)
June 30, 2020September 30, 2019
(in millions, except share data)
Assets
Current assets:
Cash and equivalents$532  $619  
Accounts receivable, net of allowances of $21 million and $17 million
732  775  
Inventories59  74  
Royalty advances expected to be recouped within one year188  170  
Prepaid and other current assets71  53  
Total current assets1,582  1,691  
Royalty advances expected to be recouped after one year230  208  
Property, plant and equipment, net310  300  
Operating lease right-of-use assets, net278  —  
Goodwill1,770  1,761  
Intangible assets subject to amortization, net1,624  1,723  
Intangible assets not subject to amortization152  151  
Deferred tax assets, net57  38  
Other assets145  145  
Total assets$6,148  $6,017  
Liabilities and Deficit
Current liabilities:
Accounts payable$205  $260  
Accrued royalties1,630  1,567  
Accrued liabilities346  492  
Accrued interest22  34  
Operating lease liabilities, current40  —  
Deferred revenue182  180  
Other current liabilities100  286  
Total current liabilities2,525  2,819  
Long-term debt3,000  2,974  
Operating lease liabilities, noncurrent306    
Deferred tax liabilities, net157  172  
Other noncurrent liabilities181  321  
Total liabilities$6,169  $6,286  
Deficit:
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized, 77,000,000 and 0 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively
$  $  
Class B common stock, $0.001 par value; 1,000,000,000 shares authorized, 433,000,000 and 505,830,022 issued and outstanding as of June 30, 2020 and September 30, 2019, respectively
1  1  
Additional paid-in capital1,899  1,127  
Accumulated deficit(1,685) (1,177) 
Accumulated other comprehensive loss, net(253) (240) 
Total Warner Music Group Corp. deficit(38) (289) 
Noncontrolling interest17  20  
Total deficit(21) (269) 
Total liabilities and deficit$6,148  $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,
2020201920202019
(in millions, except share and per share data)
Revenue$1,010  $1,058  $3,337  $3,351  
Costs and expenses:
Cost of revenue(527) (577) (1,727) (1,762) 
Selling, general and administrative expenses (a)(869) (372) (1,786) (1,102) 
Amortization expense(47) (51) (141) (160) 
Total costs and expenses(1,443) (1,000) (3,654) (3,024) 
Operating (loss) income(433) 58  (317) 327  
Loss on extinguishment of debt  (4)   (7) 
Interest expense, net(32) (36) (98) (108) 
Other (expense) income(3) (16) (12) 41  
(Loss) income before income taxes(468) 2  (427) 253  
Income tax (expense) benefit(51) 12  (44) (86) 
Net (loss) income(519) 14  (471) 167  
Less: Income attributable to noncontrolling interest(1) (1) (3) (1) 
Net (loss) income attributable to Warner Music Group Corp.$(520) $13  $(474) $166  
(a) Includes depreciation expense:$(15) $(15) $(53) $(43) 
Net (loss) income per share attributable to Warner Music Group Corp.’s stockholders:
Class A – Basic and Diluted$(1.03) $  $(1.09) $  
Class B – Basic and Diluted$(1.03) $0.03  $(0.94) $0.33  
Weighted average common shares:
Class A – Basic and Diluted20,307,6926,769,231
Class B – Basic and Diluted483,796,267501,991,944495,926,718501,991,944
See accompanying notes
2


Warner Music Group Corp.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2020201920202019
(in millions)
Net (loss) income$(519) $14  $(471) $167  
Other comprehensive income (loss), net of tax:
Foreign currency adjustment17  9  9  (17) 
Deferred loss on derivative financial instruments(2) (3) (22) (12) 
Other comprehensive income (loss), net of tax15  6  (13) (29) 
Total comprehensive (loss) income(504) 20  (484) 138  
Less: Income attributable to noncontrolling interest(1) (1) (3) (1) 
Comprehensive (loss) income attributable to Warner Music Group Corp.
$(505) $19  $(487) $137  
See accompanying notes
3


Warner Music Group Corp.
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
June 30,
20202019
(in millions)
Cash flows from operating activities
Net (loss) income$(471) $167  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization194  203  
Unrealized losses (gains) and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts
14  (6) 
Deferred income taxes(34) 25  
Loss on extinguishment of debt  7  
Net loss (gain) on divestitures and investments2  (27) 
Non-cash interest expense4  5  
Non-cash stock-based compensation expense600  28  
Changes in operating assets and liabilities:
Accounts receivable, net45  (50) 
Inventories16  12  
Royalty advances(41) (107) 
Accounts payable and accrued liabilities(113) (94) 
Royalty payables60  117  
Accrued interest(12) (13) 
Operating lease liabilities(2)   
Deferred revenue11  (17) 
Other balance sheet changes14  (1) 
Net cash provided by operating activities287  249  
Cash flows from investing activities
Acquisition of music publishing rights and music catalogs, net(28) (24) 
Capital expenditures(48) (82) 
Investments and acquisitions of businesses, net of cash received(11) (234) 
Net cash used in investing activities(87) (340) 
Cash flows from financing activities
Proceeds from issuance of Acquisition Corp. 3.625% Senior Secured Notes
  514  
Repayment of Acquisition Corp. 4.125% Senior Secured Notes
  (40) 
Repayment of Acquisition Corp. 4.875% Senior Secured Notes
  (30) 
Repayment of Acquisition Corp. 5.625% Senior Secured Notes
  (247) 
Call premiums paid and deposit on early redemption of debt  (5) 
Deferred financing costs paid(1) (7) 
Distribution to noncontrolling interest holder(6) (3) 
Dividends paid(281) (63) 
Net cash (used in) provided by financing activities(288) 119  
Effect of exchange rate changes on cash and equivalents1  (1) 
Net (decrease) increase in cash and equivalents(87) 27  
Cash and equivalents at beginning of period619  514  
Cash and equivalents at end of period$532  $541  
See accompanying notes
4


Warner Music Group Corp.
Consolidated Statements of Deficit (Unaudited)
Nine Months Ended June 30, 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
Non-controlling
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 loss—  —  —  —  —  (474) —  (474) 3  (471) 
Other comprehensive loss, net of tax—  —  —  —  —  —  (13) (13) —  (13) 
Dividends ($0.15 per share)
—  —  —  —  —  (75) —  (75) —  (75) 
Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  (6) (6) 
Modification of stock-based compensation plan—  —  —  —  769  —  —  769  —  769  
Stock-based compensation expense—  —  —  —  3  —  —  3  —  3  
Shares listed through IPO77,000,000  —  (77,000,000) —  —  —  —  —  —    
Other—  —  4,169,978  —  —  1  —  1  —  1  
Balance at June 30, 202077,000,000  $  433,000,000  $1  $1,899  $(1,685) $(253) $(38) $17  $(21) 

Three Months Ended June 30, 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
Non-controlling
Interest
Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at March 31, 2020  $  510,000,000  $1  $1,127  $(1,166) $(268) $(306) $21  $(285) 
Cumulative effect of ASC 718 accounting policy change
—  —  —  —  —    —    —    
Net loss—  —  —  —  —  (520) —  (520) 1  (519) 
Other comprehensive income, net of tax—  —  —  —  —  —  15  15  —  15  
Distribution to noncontrolling interest holders—  —  —  —  —  —  —  —  (5) (5) 
Modification of stock-based compensation plan—  —  —  —  769  —  —  769  —  769  
Stock-based compensation expense—  —  —  —  3  —  —  3  —  3  
Shares listed through IPO77,000,000  —  (77,000,000) —  —  —  —  —  —    
Other—  —  —  —  —  1  —  1    1  
Balance at June 30, 202077,000,000  $  433,000,000  $1  $1,899  $(1,685) $(253) $(38) $17  $(21) 
5


Nine Months Ended June 30, 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
Non-controlling
Interest
Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at September 30, 2018  $  501,991,944  $1  $1,127  $(1,272) $(190) $(334) $14  $(320) 
Cumulative effect of ASC 606 adoption—  —  —  —  —  139  —  139  11  150  
Net income—  —  —  —  —  166  —  166