What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2020-11-23 compared with 2019-11-27 · 663 added, 831 removed, 889 unchanged (63% of the section changed)

2 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Balance Sheets as of September 30, 2020 and September 30, 2019

Consolidated Statements of Operations for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018

Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2019, September 30, 2018 and September 30, 2017

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018

Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018

Consolidated Statements of (Deficit) Equity for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018

Notes to Consolidated Audited Financial Statements

Notes to Consolidated Financial Statements

Quarterly Financial Information

Supplementary Information—Consolidating Financial Statements

Financial Statement Schedule:

Schedule II—Valuation and Qualifying Accounts

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Management designed our internal control systems in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

Our internal control over financial reporting includes 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 our assets;

(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 are being made only in accordance with authorizations of management and directors 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.

Our internal control systems include the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified and are augmented by written policies, an organizational structure providing for division of responsibilities, careful selection and training of qualified financial personnel and a program of internal audits.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In conducting this assessment, management excluded the acquired business of EMP, which was acquired on October 10, 2018.

EMP represents approximately 4% of the Company’s total assets as of September 30, 2019 and approximately 5% of the Company’s total revenues for the fiscal year then ended.

EMP had $5 million in net income during the fiscal year ended September 30, 2019 as compared to consolidated net income of the Company of $258 million.

Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2019.

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

We have audited the accompanying consolidated balance sheets of Warner Music Group Corp.

and subsidiaries (the Company) as of September 30, 2019 and 2018 , the related consolidated statements of operations, comprehensive income, cash flows, and (deficit) equity, for each of the years in the three‑year period ended September 30, 2019 , and the related notes, and the related supplementary information, and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows and (deficit) equity for each of the years in the three-year period ended September 30, 2020, and the related notes, and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2020, in conformity with U.S.

1 unchanged sentence

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition as of October 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of October 1, 2019 due to the adoption of ASC Topic 842, Leases, and the Company changed its method of accounting for revenue recognition as of October 1, 2018 due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.

Basis for Opinion

3 unchanged sentences

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

13 unchanged sentences

2020 September 30,

(in millions)

(in millions, except share data)

Current assets:

1 unchanged sentence

Accounts receivable, net of allowances of $ 23 million and $ 17 million

Inventories 79 74

Royalty advances expected to be recouped within one year 220 170

3 unchanged sentences

Property, plant and equipment, net 331 300

Operating lease right-of-use assets, net 273 —

Goodwill 1,831 1,761

Intangible assets subject to amortization, net 1,653 1,723

1 unchanged sentence

Deferred tax assets, net 68 38

Liabilities and Equity

Other assets 153 145

Total assets $ 6,410 $ 6,017

Liabilities and Deficit

Current liabilities:

3 unchanged sentences

Accrued interest 30 34

Operating lease liabilities, current 39 —

Deferred revenue 297 180

2 unchanged sentences

Long-term debt 3,104 2,974

Operating lease liabilities, noncurrent 299 —

Deferred tax liabilities, net 163 172

1 unchanged sentence

Total liabilities $ 6,455 $ 6,286

Common stock ($0.001 par value;

10,000 shares authorized;

1,060 and 1,052 shares issued and outstanding as of September 30, 2019 and September 30, 2018, respectively)

Class A common stock, $ 0.001 par value;

1,000,000,000 shares authorized, 88,578,361 and 0 shares issued and outstanding as of September 30, 2020 and September 30, 2019, respectively

Class B common stock, $ 0.001 par value;

1,000,000,000 shares authorized, 421,450,000 and 505,830,022 issued and outstanding as of September 30, 2020 and September 30, 2019, respectively

Additional paid-in capital 1,907 1,127

2 unchanged sentences

Total Warner Music Group Corp.

deficit ( 63 ) ( 289 )

Noncontrolling interest 18 20

Total liabilities and equity

Total deficit ( 45 ) ( 269 )

Total liabilities and deficit $ 6,410 $ 6,017

See accompanying notes

1 unchanged sentence

Consolidated Statements of Operations

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

(in millions)

Fiscal Year Ended September 30,

2020 2019 2018

(in millions, except share and per share data)

Revenues $ 4,463 $ 4,475 $ 4,005

Costs and expenses:

3 unchanged sentences

Total costs and expenses ( 4,692 ) ( 4,119 ) ( 3,788 )

Operating income

Operating (loss) income ( 229 ) 356 217

Loss on extinguishment of debt ( 34 ) ( 7 ) ( 31 )

Interest expense, net ( 127 ) ( 142 ) ( 138 )

Other income (expense)

Income (loss) before income taxes

Income tax (expense) benefit

Other (expense) income ( 57 ) 60 394

(Loss) income before income taxes ( 447 ) 267 442

Income tax expense ( 23 ) ( 9 ) ( 130 )

Net (loss) income ( 470 ) 258 312

Income attributable to noncontrolling interest ( 5 ) ( 2 ) ( 5 )

Net income attributable to Warner Music Group Corp.

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

$ ( 475 ) $ 256 $ 307

(a) Includes depreciation expense of:

$ ( 71 ) $ ( 61 ) $ ( 55 )

Net (loss) income per share attributable to common stockholders:

Class A – Basic and Diluted $ ( 0.82 ) $ — $ —

Class B – Basic and Diluted $ ( 0.95 ) $ 0.51 $ 0.61

Weighted average common shares:

Class A – Basic and Diluted 26,897,115 — —

Class B – Basic and Diluted 477,624,846 501,991,944 502,630,835

See accompanying notes

Warner Music Group Corp.

Consolidated Statements of Comprehensive Income

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Consolidated Statements of Comprehensive Income (Loss)

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

Other comprehensive (loss) income, net of tax:

Net (loss) income $ ( 470 ) $ 258 $ 312

Other comprehensive income (loss), net of tax:

Foreign currency adjustment 37 ( 34 ) ( 13 )

1 unchanged sentence

Minimum pension liability 2 ( 5 ) 1

Other comprehensive (loss) income, net of tax

Total comprehensive income

Other comprehensive income (loss), net of tax 18 ( 50 ) ( 9 )

Total comprehensive (loss) income ( 452 ) 208 303

Income attributable to noncontrolling interest ( 5 ) ( 2 ) ( 5 )

Comprehensive income attributable to Warner Music Group Corp.

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

$ ( 457 ) $ 206 $ 298

See accompanying notes

1 unchanged sentence

Consolidated Statements of Cash Flows

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 470 ) $ 258 $ 312

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 261 269 261

Unrealized (gains) losses and remeasurement of foreign-denominated loans

Unrealized losses (gains) and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 54 ( 28 ) ( 3 )

Deferred income taxes ( 57 ) ( 68 ) 66

2 unchanged sentences

Non-cash interest expense 5 6 6

Equity-based compensation expense

Non-cash stock-based compensation expense 608 50 62

Changes in operating assets and liabilities:

Accounts receivable, net 18 ( 90 ) ( 43 )

Inventories ( 2 ) 3 ( 3 )

Royalty advances ( 108 ) ( 110 ) 31

2 unchanged sentences

Accrued interest ( 4 ) 3 ( 10 )

Operating lease liabilities ( 3 ) — —

Deferred revenue 114 ( 4 ) ( 4 )

8 unchanged sentences

Cash flows from financing activities

Proceeds from issuance of Acquisition Corp.

4.125% Senior Secured Notes

Proceeds from issuance of Acquisition Corp.

4.875% Senior Secured Notes

Proceeds from issuance of 3.875 % Senior Secured Notes due 2030

Proceeds from issuance of 2.750 % Senior Secured Notes due 2028

Proceeds from issuance of 3.000 % Senior Secured Notes due 2031

Repayment of 5.000 % Senior Secured Notes due 2023

Repayment of 4.875 % Senior Secured Notes due 2024

Repayment of 4.125 % Senior Secured Notes due 2024

Partial repayment of Senior Term Loan Facility due 2023 ( 506 ) — —

Proceeds from issuance of Acquisition Corp.

10 unchanged sentences

5.625 % Senior Secured Notes

Repayment of Acquisition Corp.

6.000% Senior Secured Notes

Repayment of Acquisition Corp.

6.250% Senior Secured Notes

Repayment of and redemption deposit for Acquisition Corp.

4 unchanged sentences

Dividends paid ( 344 ) ( 94 ) ( 925 )

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities ( 316 ) 88 ( 955 )

Effect of exchange rate changes on cash and equivalents 6 ( 7 ) ( 8 )

Net increase (decrease) in cash and equivalents

Net (decrease) increase in cash and equivalents ( 66 ) 105 ( 133 )

Cash and equivalents at beginning of period 619 514 647

3 unchanged sentences

Consolidated Statements of (Deficit) Equity

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Warner Music Group Corp.

Noncontrolling Interest

Total (Deficit) Equity

(in millions, except share amounts)

Balance at September 30, 2016

Other comprehensive income, net of tax

Disposal of noncontrolling interest related to divestiture

Common Stock Class B

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Warner Music Group Corp.

(Deficit) Equity Non-controlling Interest Total (Deficit) Equity

Shares Value Shares Value

(in millions, except share and per share data)

Balances at September 30, 2017 — $ — 503,392,885 $ 1 $ 1,127 $ ( 654 ) $ ( 181 ) $ 293 $ 15 $ 308

Net income — — — — — 307 — 307 5 312

Other comprehensive loss, net of tax — — — — — — ( 9 ) ( 9 ) — ( 9 )

Dividends ($ 1.84 per Class B share)

— — — — — ( 925 ) — ( 925 ) — ( 925 )

Distribution to noncontrolling interest holders — — — — — — — — ( 6 ) ( 6 )

Balance at September 30, 2017

Other — — ( 1,400,941 ) — — — — — — —

Balances 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 — — — — — 256 — 256 2 258

Other comprehensive loss, net of tax — — — — — — ( 50 ) ( 50 ) — ( 50 )

Dividends ($ 0.59 per Class B share)

— — — — — ( 300 ) — ( 300 ) — ( 300 )

Distribution to noncontrolling interest holders — — — — — — — — ( 3 ) ( 3 )

Balance at September 30, 2018

Other — — 3,838,078 — — — — — ( 4 ) ( 4 )

Balances 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

Net loss — — — — — ( 475 ) — ( 475 ) 5 ( 470 )

Other comprehensive loss, net of tax — — — — — — 18 18 — 18

Dividends ($ 0.12 per Class A share and $ 0.27 per Class B share)

— — — — — ( 137 ) — ( 137 ) — ( 137 )

Stock-based compensation expense — — — — 11 — — 11 — 11

Distribution to noncontrolling interest holders — — — — — — — — ( 7 ) ( 7 )

Balance at September 30, 2019

Cumulative effect of ASC 718 accounting policy change — — — — — 33 — 33 — 33

Modification of stock-based compensation plan — — — — 769 — — 769 — 769

Shares listed through IPO 88,550,000 — ( 88,550,000 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 28,361 — — — — — — — — —

Other — — 4,169,978 — — — — — — —

Balances at September 30, 2020 88,578,361 $ — 421,450,000 $ 1 $ 1,907 $ ( 1,749 ) $ ( 222 ) $ ( 63 ) $ 18 $ ( 45 )

See accompanying notes

Warner Music Group Corp.

Notes to Consolidated Audited Financial Statements

Notes to Consolidated Financial Statements

Description of Business

7 unchanged sentences

Acquisition of Warner Music Group by Access Industries

(“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”).

Pursuant to the 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., 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 New York Stock Exchange (the “NYSE”).

The Company continues to voluntarily file with the U.S.

The Company continued to voluntarily file with the U.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.

Initial Public Offering

On June 5, 2020, the Company completed an initial public offering (“IPO”) of 77,000,000 shares of Class A common stock of the Company, par value $ 0.001 per share (“Class A Common Stock”) at a public offering price of $ 25 per share.

The Company listed these shares on the NASDAQ stock market under the ticker symbol “WMG.” The offering consisted entirely of secondary shares sold by Access Industries, LLC (collectively with its affiliates, “Access”) and certain related selling stockholders.

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

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

Following the completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, Access and its affiliates held an aggregate of 421,450,000 shares of Class B common stock of the Company, par value $ 0.001 per share (“Class B Common Stock”), representing approximately 99 % of the total combined voting power of the Company’s outstanding common stock and approximately 83 % of the economic interest.

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

Risk Factors — Risks Related to Our Controlling Stockholder.

Recorded Music Operations

4 unchanged sentences

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

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

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

6 unchanged sentences

and various distribution centers and ventures operated internationally.

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

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

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

1 unchanged sentence

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.

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 attributable to each distribution channel varies by region and proportions may change as the introduction of new technologies continues.

8 unchanged sentences

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 musical compositions.

The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles with operations in over 60 countries through various subsidiaries, affiliates and non-affiliated licensees.

We own or control rights to more than 1.4 million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.

The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, with operations in over 70 countries through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers.

We own or control rights to more than one 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 80,000 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.

14 unchanged sentences

If an entity is not deemed to be a VIE, the Company consolidates the entity if the Company has a controlling voting interest.

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, 1,000,000,000 shares of Class B Common Stock, 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 financial statements.

Upon completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, 88,550,000 shares of Class A Common Stock, 421,450,000 shares of Class B Common Stock and no shares of preferred stock were outstanding.

The Company has also issued 28,361 shares under the Warner Music Group Corp.

2020 Omnibus Incentive Plan as of September 30, 2020.

See Note 13, Stock-Based Compensation Plans.

Earnings per Share

The consolidated statements of operations present basic and diluted earnings per share (“EPS”).

Prior to the completion of the IPO, basic and diluted earnings (loss) per share were 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 since these units were mandatorily redeemable in cash.

As such, the deferred equity units were excluded from the denominator of the basic and diluted EPS calculation prior to the IPO completion.

Subsequent to the completion of the IPO, the Company utilizes the two-class method to report earnings (loss) per share.

The two-class method is an earnings (loss) allocation formula that determines earnings (loss) per share for each class of common stock according to dividends declared and participation rights in undistributed earnings (losses).

Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders.

Since there was a loss for the fiscal year ended September 30, 2020, no earnings were allocated to our participating securities or our post-modification deferred equity units that are no longer mandatorily redeemable in cash after the IPO.

See also Note 4, Revenue Recognition.

Royalty Costs and Royalty Advances

The Company incurs royalty costs that are payable to our recording artists and songwriters generated from the sale or license of our Recorded Music catalog and Music Publishing copyrights.

Royalties are calculated using negotiated rates in accordance with recording artist and songwriter contracts.

Calculations are based on revenue earned or user/usage measures or a combination of these.

There are instances where such data is not available to be processed and royalty cost calculations may be complex or involve judgments about significant volumes of data to be processed and analyzed.

In many instances, the Company commits to pay our recording artists and songwriters royalties in advance of future sales.

The Company accounts for these advances under the related guidance in FASB ASC Topic 928, Entertainment—Music (“ASC 928”).

Under ASC 928, the Company capitalizes as assets certain advances that it believes are recoverable from future royalties to be earned by the recording artist or songwriter.

Advances vary in both amount and expected life based on the underlying recording artist or songwriter.

The Company’s decision to capitalize an advance to a recording artist or songwriter as an asset requires significant judgment as to the recoverability of the advance.

The recoverability is assessed upon initial commitment of the advance based upon the Company’s forecast of anticipated revenue from the sale of future and existing albums or musical compositions.

Recoverability is assessed upon initial commitment of the advance based upon the Company’s forecast of anticipated revenue from the sale of future and existing albums or musical compositions.

In determining whether the advance is recoverable, the Company evaluates the current and past popularity of the recording artist or songwriter, the sales history of the recording artist or songwriter, the initial or expected commercial acceptability of the product, the current and past popularity of the genre of music that the product is designed to appeal to, and other relevant factors.

Based upon this information, the Company expenses the portion of any advance that it believes is not recoverable.

In most cases, advances to recording artists or songwriters without a history of success and evidence of current or past popularity will be expensed immediately.

Significant advances are individually assessed for recoverability continuously and at minimum on a quarterly basis.

As part of the ongoing assessment of recoverability, the Company monitors the projection of future sales based on the current environment, the recording artist’s or songwriter’s ability to meet their contractual obligations as well as the Company’s intent to support future album releases or musical compositions from the recording artist or songwriter.

Advances vary in both amount and expected life based on the underlying recording artist or songwriter.

To the extent that a portion of an outstanding advance is no longer deemed recoverable, that amount will be expensed in the period the determination is made.

2 unchanged sentences

Deferred advertising costs, which principally relate to advertisements that have been paid for but not been exhibited or services that have not been received, were not material for all periods presented.

Share-Based Compensation

The Company accounts for share-based payments as required by FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense.

Under the fair value recognition provision of ASC 718, equity classified share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.

Under the recognition provision of ASC 718, liability classified share-based compensation costs are measured each reporting date until settlement.

The Company’s policy is to measure share-based compensation costs using the intrinsic value method instead of fair value as it is not practical to estimate the volatility of its share price.

During fiscal year 2013, the Company initiated a long-term incentive plan that has liability classification for share-based compensation awards and continues to be effective through September 30, 2019 .

Stock-Based Compensation

The Company accounts for stock-based payments as required by ASC 718, Compensation—Stock Compensation (“ASC 718”).

Under the recognition provision of ASC 718, the Company’s liability classified stock-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 in connection with the IPO, which required a change in accounting policy during the three months ended March 31, 2020 from the intrinsic value method to fair value method in determining the basis of measurement of its stock-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 stock-based compensation liability of $ 38 million as of March 31, 2020, which resulted in a decrease of $ 33 million, net of tax, to accumulated deficit for the fiscal year ended September 30, 2020.

Upon completion of the IPO in June 2020, the Senior Management Free Cash Flow Plan (the “Plan”) was amended to remove the cash-settlement feature on all future redemptions.

As a result, all awards previously issued under the Plan will require settlement in Class A Common Stock.

The participants in such plan were also allowed to sell a pro rata portion, consistent with Access’s percentage reduction in shares of Class B Common Stock as a result of the IPO, of their vested profits interests and acquired units of the LLC holding company, Management LLC, in the IPO through a “tag-along right.”

Under the provision of ASC 718, the Company determined the Plan was modified as of June 3, 2020, and as such, converted the awards from liability-classified to equity-classified.

Prior to conversion, the Company performed a final measurement of its stock-based compensation liability under the fair value method.

The final measurement utilized the IPO listing price of $ 25 per share as the per-share value input within its fair value model.

Upon modification of the Plan, the Company reclassified a $ 769 million stock-based compensation liability to additional paid-in capital, which included $ 57 million associated with the awards settled through the IPO tag-along right on June 5, 2020.

In addition, the Company recognized approximately $ 11 million of stock-based compensation expense for the period of June 3, 2020 through September 30, 2020 for its unvested share awards that were granted prior to the IPO, which is included in additional paid-in capital.

Income taxes are provided using the asset and liability method presented by FASB ASC Topic 740, Income Taxes (“ASC 740”).

15 unchanged sentences

New Accounting Pronouncements

Adoption of New Revenue Recognition Standard

In May 2014, the FASB issued guidance codified in 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 fiscal year ended September 30, 2019 reflect the application of the new standard, while the reported results for the fiscal year ended September 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 the Company’s Recorded Music segment.

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 its 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,

Impact of Adoption

(in millions)

Accounts receivable, net

Total current assets

Liabilities and Equity

Accrued royalties

Accrued liabilities

Deferred revenue

Other current liabilities

Total current liabilities

Deferred tax liabilities, net

Other noncurrent liabilities

Total liabilities

Accumulated deficit

Noncontrolling interest

Total liabilities and equity

The disclosures of the impact of adoption on the consolidated statement of operations for the fiscal year ended September 30, 2019 , the consolidated balance sheet as of September 30, 2019 , and the consolidated statement of cash flows for the fiscal year ended September 30, 2019 are as follows:

Fiscal Year Ended September 30, 2019

Balances without adoption of ASC 606

Effect of Change

(in millions)

Cost and expenses:

Cost of revenue

Operating income

Income before income taxes

Income tax expense

Income attributable to noncontrolling interest

Net income attributable to Warner Music Group Corp.

September 30, 2019

Balances without adoption of ASC 606

Effect of Change

(in millions)

Accounts receivable, net

Total current assets

Deferred tax assets, net

Liabilities and Equity

Accounts payable

Accrued royalties

Accrued liabilities

Deferred revenue

Other current liabilities

Total current liabilities

Deferred tax liabilities, net

Other noncurrent liabilities

Total liabilities

Accumulated deficit

Noncontrolling interest

Total liabilities and equity

Fiscal Year Ended September 30, 2019

Balances without adoption of ASC 606

Effect of Change

(in millions)

Cash flows from operating activities

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable, net

Accounts payable and accrued liabilities

Royalty advances

Deferred revenue

Other balance sheet changes

Net cash provided by operating activities

Effect of exchange rate changes on cash and equivalents

Net increase in cash and equivalents

Cash and equivalents at beginning of period

Cash and equivalents at end of period

Recently Adopted Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).

This ASU will require that equity investments, except those investments under the equity method of accounting, are measured at fair value with changes in fair value recognized in net income.

The Company may elect to measure equity investments that do not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable prices.

The Company adopted ASU 2016-01 on October 1, 2018 and has elected to use the measurement alternative to measure its 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 fiscal year ended September 30, 2019 , there were no observable price change events that were completed related to its equity investments without readily determinable fair values.

In August 2016, the FASB issued ASU 2016-15, Statement 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 classified 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 current and 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.

The Company adopted ASU 2016-16 in the first quarter of fiscal 2019 and this adoption did not have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (“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”).

This ASU allows a reclassification from accumulated other comprehensive income to accumulated deficit for stranded tax effects resulting from the Tax Act.

ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period.

The Company adopted ASU 2018-02 in the first quarter of fiscal 2019 and this adoption did not have a significant impact on the Company’s financial statements.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which established a new ASC Topic 842 (“ASC 842”).

This 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 2016-02 will be effective for annual periods beginning after December 15, 2018, and interim periods within those years.

Earlier adoption is permitted.

In February 2016, the FASB issued ASU 2016-02, 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 a 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 expense recognition in the statement of operations.

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.

The Company will adopt ASU 2016-02 as of October 1, 2019, using the optional transition method provided by ASU 2018-11.

The Company is finalizing the evaluation of the adoption impact, but estimates the adoption of ASU 2016-02 will result in the recognition of ROU assets and lease liabilities of approximately $360 million upon adoption, primarily related to real estate leases.

Additionally, the Company will include expanded disclosures related to the amount, timing and judgments of the Company’s accounting for leases.

Upon transition, t he Company expects to elect the “package of three” practical expedient provided by ASC 842 and therefore will not (1) reassess whether any expired or existing contracts are or contain a lease, (2) reassess the lease classification for expired or existing leases and (3) reassess initial direct costs for any existing leases.

Under this option, entities do not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented.

The Company adopted ASU 2016-02 on October 1, 2019, using the modified retrospective transition method provided by ASU 2018-11.

The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $ 366 million and ROU assets of $ 297 million, which is net of the historical deferred 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 the “package of three” practical expedient provided by ASC 842 and therefore has not (1) reassessed whether any expired or existing contracts are or contain a lease, (2) reassessed the 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 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 a ccounting model including making more risk management strategies eligible for hedge accounting and simplifying the assessment of hedge effectiveness.

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, 2018 and interim periods within those fiscal years.

Early 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.

The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

The Company adopted ASU 2017-12 in the first quarter of fiscal 2020 and this adoption did not have a significant impact on the Company’s financial statements.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments (“ASU 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 carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

ASU 2016-13 will be effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years.

The Company will adopt ASU 2016-13 beginning October 1, 2020 and this adoption is not expected to have a material impact on the Company’s financial statements.

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 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.

Earnings per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to each class of stock by the weighted average number of outstanding common shares for each class of stock.

Diluted earnings (loss) per share is computed by dividing net income (loss) available to each class of stock by the weighted average number of outstanding common shares, plus dilutive potential common shares, which is calculated using the treasury-stock method.

Under the treasury-stock method, potential common shares are excluded from the computation of EPS in periods in which they have an anti-dilutive effect.

The potential dilutive effects of our deferred equity units, shares issued under the Omnibus Incentive Plan, and Class B Common Stock under an if-converted method have been excluded from the Class A Common Stock diluted earnings (loss) per share calculation since their effects would be anti-dilutive due to the net loss attributable to Class A Common Stock for the fiscal year ended September 30, 2020.

The Company did not have any dilutive securities for the fiscal years ended September 30, 2019 or September 30, 2018.

In computing earnings (loss) per share subsequent to the completion of our IPO, the Company has allocated dividends declared to Class A Common Stock and Class B Common Stock based on timing and amounts actually declared for each class of stock and the undistributed earnings (losses) have been allocated to Class A Common Stock and Class B Common Stock pro rata on a basic weighted average shares outstanding basis since the two classes of stock participate equally on a per share basis upon liquidation.

Prior to the completion of the IPO in fiscal 2020, the Company declared two dividends of $ 37.5 million each, for a total amount of $ 75 million, on December 26, 2019 and March 25, 2020, respectively, which were allocated solely to Class B Common Stock as there was no outstanding Class A Common Stock at the time these dividends were declared.

While Class A and Class B Common Stock have the same dividend rights, the allocation of all dividends declared prior to the IPO to Class B Common Stock has resulted in a different earnings (loss) per share for the two classes of common stock for the fiscal year ended September 30, 2020.

Subsequent to the completion of the IPO, and modification of our stock-based compensation awards as described in Note 2, the Class B Common Stock issued to Management LLC for the exercise of the vested deferred equity units is included in the basic weighted average number of outstanding shares of Class B Common Stock.

Upon issuance to the participants in the Plan, the Class B Common Stock will be converted into Class A Common Stock and included in the basic weighted average number of outstanding shares of Class A Common Stock.

Since the shares expected to satisfy the vested portion of the deferred equity units are already included in the basic weighted average number of outstanding common shares, there is no potential dilutive effect associated with the vested portion of these stock-based compensation awards.

The following table sets forth the calculation of basic and diluted net income (loss) per common share under the two-class method (in millions, except share and per share data):

Fiscal Year Ended September 30,

2020 2019 2018

Class A Class B Class A Class B Class A Class B

Basic and Diluted EPS:

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

$ ( 21 ) $ ( 454 ) $ — $ 256 $ — $ 307

Net income attributable to participating securities ( 1 ) — — — — —

Net (loss) income attributable to common stockholders $ ( 22 ) $ ( 454 ) $ — $ 256 $ — $ 307

Weighted average shares outstanding 26,897,115 477,624,846 0 501,991,944 0 502,630,835

Basic and Diluted EPS $ ( 0.82 ) $ ( 0.95 ) $ — $ 0.51 $ — $ 0.61

Revenue Recognition

7 unchanged sentences

The Company’s revenue consists of the following categories, which aggregate into the segments – Recorded Music and Music Publishing:

For the Fiscal Year Ended September 30,

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

Revenue by Type

Digital $ 2,568 $ 2,343 $ 2,019

Physical 434 559 630

Total Physical and Digital 3,002 2,902 2,649

Artist services and expanded-rights 525 629 389

Licensing 283 309 322

Total Recorded Music 3,810 3,840 3,360

Performance 142 183 212

Digital 337 271 237

Mechanical 48 55 72

Synchronization 119 120 119

Other 11 14 13

Total Music Publishing 657 643 653

4 unchanged sentences

Music Publishing 325 300 294

1,934 1,956 1,754

International Recorded Music 2,201 2,184 1,900

8 unchanged sentences

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.

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.

1 unchanged sentence

For fixed fee and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is typically recognized on a straight-line basis or by other appropriate measures of progress over the contractual term.

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 based 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.

The Company updates its assessment of the transaction price each reporting period to see if anticipated royalty earnings exceed the minimum guarantee.

5 unchanged sentences

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 revenues are generated from artist services businesses and participations in expanded-rights associated with artists, including merchandising, touring, concert promotion, ticketing, sponsorship, fan clubs, artist websites and artist and brand management.

Artist services and expanded-rights contracts are generally short term.

12 unchanged sentences

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 musical compositions in staged theatrical productions.

Performance revenues are received when the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g.

bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs) and performance of musical compositions in staged theatrical productions.

Digital revenues are generated with respect to the musical compositions being embodied in recordings licensed to digital streaming services and digital download services and for digital performance.

5 unchanged sentences

The most common form of consideration for these contracts is sales- and usage-based royalties.

The collecting societies submit usage reports, typically with payment for royalties due, often on a quarterly or biannual reporting period, in arears.

The collecting societies submit usage reports, typically with payment for

royalties due, often on a quarterly or biannual reporting period, in 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-specific information with respect to changes in repertoire, industry information and other relevant trends.

19 unchanged sentences

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.

In the normal course of business, the Company distributes music content on behalf of third-party record labels.

Based on the above guidance, the Company records the distribution of content 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.

2 unchanged sentences

Reductions in deferred revenue are a result of the Company’s performance under the contract or usage by the licensee.

Deferred revenue increased $402 million during the twelve months ended September 30, 2019 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $159 million were recognized during the twelve months ended September 30, 2019 related to the balance of deferred revenue at October 1, 2018.

Deferred revenue increased by $ 527 million during the fiscal year ended September 30, 2020 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 157 million were recognized during the fiscal year ended September 30, 2020 related to the balance of deferred revenue at October 1, 2018.

There were no other significant changes to deferred revenue during the reporting period.

Performance Obligations

The Company recognized revenue of $51 million from performance obligations satisfied in previous periods for the twelve month period ended September 30, 2019 .

Wholly and partially unsatisfied performance obligations represent future revenues not yet recorded under long-term intellectual property licensing contracts.

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2019 are as follows (in millions):

The Company recognized revenue of $ 42 million and $ 51 million from performance obligations satisfied in previous periods for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

Wholly and partially unsatisfied performance obligations represent future revenues not yet recorded under long-term intellectual property licensing contracts containing fixed fees, advances and minimum guarantees.

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2020 are as follows:

FY21 FY22 FY23 Thereafter Total

(in millions)

Remaining performance obligations $ 888 $ 73 $ 1 $ — $ 962

Total $ 888 $ 73 $ 1 $ — $ 962

Acquisition of EMP

18 unchanged sentences

Final Purchase Price in U.S.

dollars $ 190

Fair value of assets acquired and liabilities assumed

1 unchanged sentence

Accounts receivable, net 3

Inventories 37

Other current assets 5

17 unchanged sentences

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.

Fiscal Year Ended

September 30, 2019

Fiscal Year Ended

September 30, 2018

Fiscal Year Ended September 30, 2019 Fiscal Year Ended September 30, 2018

(in millions)

Revenue $ 4,480 $ 4,239

Operating income 356 215

Net income attributable to Warner Music Group Corp.

Actual results related to EMP included in the consolidated statement of operations for the twelve months ended September 30, 2019 relate to the transition period from October 10, 2018 to September 30, 2019 and consist of revenues of $240 million and operating income of $8 million .

Comprehensive (Loss) Income

Comprehensive (loss) income, which is reported in the accompanying consolidated statements of (deficit) equity, consists of net (loss) income and other gains and losses affecting equity that, under U.S.

GAAP, are excluded from net (loss) income.

For the Company, the components of other comprehensive loss primarily consist of foreign currency translation losses, minimum pension liabilities and deferred gains and losses on financial instruments designated as hedges under ASC 815, which include foreign exchange contracts.

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of $4 million :

Foreign Currency Translation Loss

Minimum Pension Liability Adjustment

Deferred Gains (Losses) On Derivative Financial Instruments

Accumulated Other Comprehensive Loss, net

Actual results related to EMP included in the consolidated statement of operations for the fiscal year ended September 30, 2019 relate to the transition period from October 10, 2018 to September 30, 2019 and consist of revenues of $ 240 million and operating income of $ 8 million.

Comprehensive Income (Loss)

Comprehensive income (loss), which is reported in the accompanying consolidated statements of (deficit) equity, 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 (loss) 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, which include foreign exchange contracts.

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of approximately $ 7 million:

Foreign Currency Translation Loss (a) Minimum Pension Liability Adjustment Deferred Gains (Losses) On Derivative Financial Instruments Accumulated Other Comprehensive Loss, net

(in millions)

Balance at September 30, 2016

Other comprehensive income (a)

Amounts reclassified from accumulated other comprehensive income

Balance at September 30, 2017

Other comprehensive loss (a)

Balance at September 30, 2018

Other comprehensive loss (a)

Balance at September 30, 2019

Balances at September 30, 2017 $ ( 171 ) $ ( 10 ) $ — $ ( 181 )

Other comprehensive loss ( 13 ) 1 3 ( 9 )

Balances at September 30, 2018 $ ( 184 ) $ ( 9 ) $ 3 $ ( 190 )

Other comprehensive loss ( 34 ) ( 5 ) ( 11 ) ( 50 )

Balances at September 30, 2019 $ ( 218 ) $ ( 14 ) $ ( 8 ) $ ( 240 )

Other comprehensive income 37 2 ( 21 ) 18

Balances at September 30, 2020 $ ( 181 ) $ ( 12 ) $ ( 29 ) $ ( 222 )

______________________________________

Includes historical foreign currency translation related to certain intra-entity transactions that are no longer of a long-term investment nature of $0 million , $0 million and $(19) million during the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively.

(a) Includes historical foreign currency translation related to certain intra-entity transactions.

Property, Plant and Equipment

3 unchanged sentences

(in millions)

Land $ 12 $ 12

Buildings and improvements 179 186

4 unchanged sentences

Gross Property, Plant and Equipment $ 686 $ 607

Less accumulated depreciation

Accumulated depreciation ( 355 ) ( 307 )

Net Property, Plant and Equipment $ 331 $ 300

Depreciation Expense

During the fiscal year ended September 30, 2020, the Company recorded depreciation expense of $ 71 million, which included a one-time charge of $ 10 million representing the difference between the net book value of a building and its recoverable value.

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 statements 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 fixed lease payments.

Lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are variable and 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.

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 September 30, 2020, the aggregate lease liability related to these leases was $ 135 million.

See also Note 14, Related Party Transactions.

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 for the fiscal year ended September 30, 2020 were as follows (in millions):

Operating lease cost $ 53

Short-term lease cost 1

Variable lease cost 8

Sublease income —

Total lease cost $ 62

Supplemental cash flow information related to leases for the fiscal year ended September 30, 2020 was as follows (in millions):

Cash paid for amounts included in the measurement of operating lease liabilities $ 55

Right-of-use assets obtained in exchange for operating lease obligations 14

Supplemental balance sheet information related to leases as of September 30, 2020 was as follows (in millions):

Operating Leases

Operating lease right-of-use assets $ 273

Operating lease liabilities, current $ 39

Operating lease liabilities, noncurrent 299

Total operating lease liabilities $ 338

Weighted Average Remaining Lease Term

Operating leases 8 years

Weighted Average Discount Rate

Operating leases 4.58 %

Maturities of lease liabilities as of September 30, 2020 were as follows (in millions):

Thereafter 159

Total lease payments 408

Less imputed interest ( 70 )

As of September 30, 2020, there have been no leases entered into that have not yet commenced.

Goodwill and Intangible Assets

The following analysis details the changes in goodwill for each reportable segment:

Publishing Total

(in millions)

Balance at September 30, 2017

Balances at September 30, 2018 $ 1,228 $ 464 $ 1,692

Acquisitions 89 — 89

Other adjustments ( 20 ) — ( 20 )

Balance at September 30, 2018

Balances at September 30, 2019 $ 1,297 $ 464 $ 1,761

Acquisitions 47 — 47

Other adjustments 23 — 23

Balance at September 30, 2019

Balances at September 30, 2020 $ 1,367 $ 464 $ 1,831

The increase in goodwill during the fiscal year ended September 30, 2020 primarily relates to an acquisition in August 2020, which resulted in goodwill of $ 47 million.

The increase in goodwill during the fiscal year ended September 30, 2019 primarily relates to the EMP acquisition, which resulted in an increase in goodwill of $ 89 million.

Please refer to Note 5 of our consolidated financial statements for further discussion.

The increase in goodwill during the fiscal year ended September 30, 2018 primarily relates to finalizing the purchase accounting allocation for the Spinnin’ Records acquisition, which resulted in an increase in goodwill of $10 million .

The other adjustments during both the fiscal years ended September 30, 2020 and September 30, 2019 primarily represent foreign currency movements.

4 unchanged sentences

Intangible assets consist of the following:

Weighted-Average Useful Life

September 30,

Weighted-Average Useful Life September 30,

2020 September 30,

1 unchanged sentence

Intangible assets subject to amortization:

Recorded music catalog

Music publishing copyrights

Artist and songwriter contracts

Other intangible assets

Recorded music catalog 10 years $ 876 $ 855

Music publishing copyrights 26 years 1,597 1,539

Artist and songwriter contracts 13 years 862 841

Trademarks 16 years 81 53

Other intangible assets 6 years 84 59

Total gross intangible assets subject to amortization 3,500 3,347

2 unchanged sentences

Intangible assets not subject to amortization:

Trademarks and tradenames

Total net other intangible assets

Trademarks and tradenames Indefinite 154 151

Total net intangible assets $ 1,807 $ 1,874

The Company performs its annual indefinite-lived intangible assets impairment test in accordance with ASC 350 during the fourth quarter of each fiscal year as of July 1.

1 unchanged sentence

The performance of the annual fiscal 2020 impairment analysis did not result in an impairment of the Company’s indefinite-lived intangible assets.

The intangible balances presented include the final purchase accounting allocations resulting from the acquisitions of EMP and Spinnin’ Records for the fiscal years ended September 30, 2019 and September 30, 2018, respectively.

Based on the amount of intangible assets subject to amortization at September 30, 2019 , the expected amortization for each of the next five fiscal years and thereafter are as follows:

Fiscal Years Ended September 30,

(in millions)

Based on the amount of intangible assets subject to amortization at September 30, 2020, the expected amortization for each of the next five fiscal years and thereafter are as follows (in millions):

Thereafter 891

Total $ 1,653

The life of all acquired intangible assets is evaluated based on the expected future cash flows associated with the asset.

12 unchanged sentences

2.750 % Senior Secured Notes due 2028 (g)

5.500% Senior Notes due 2026 (h)

Total long-term debt, including the current portion (i)

Reflects $180 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $13 million and $8 million at September 30, 2019 and September 30, 2018 , respectively.

3.875 % Senior Secured Notes due 2030 (h)

3.000 % Senior Secured Notes due 2031 (i)

5.500 % Senior Notes due 2026 (j)

Total long-term debt, including the current portion (k) $ 3,104 $ 2,974

______________________________________

(a) Reflects $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 10 million and $ 13 million at September 30, 2020 and September 30, 2019, respectively.

There were no loans outstanding under the Revolving Credit Facility at September 30, 2020 or September 30, 2019.

Principal amount of $1.326 billion less unamortized discount of $3 million and $4 million and unamortized deferred financing costs of $10 million and $12 million at September 30, 2019 and September 30, 2018 , respectively.

On May 16, 2019, Acquisition Corp.

redeemed the remaining $221 million of its outstanding 5.625% Senior Notes due 2022.

(b) Principal amount of $ 820 million and $ 1.326 billion less unamortized discount of $ 1 million and $ 3 million and unamortized deferred financing costs of $ 5 million and $ 10 million at September 30, 2020 and September 30, 2019, respectively.

On August 12, 2020, Acquisition Corp.

made a partial repayment of $ 506 million under the Senior Term Loan Facility.

completed a cash tender offer for its 5.000 % Senior Secured Notes due 2023, pursuant to which $ 244 million of the 5.000 % Senior Secured Notes due 2023 were repurchased and the remaining notes were redeemed by Acquisition Corp.

on August 1, 2020.

The Company recorded a loss on extinguishment of debt of approximately $ 6 million as a result of the debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs.

Principal amount of $300 million less unamortized deferred financing costs of $2 million and $3 million at September 30, 2019 and September 30, 2018 , respectively.

Face amount of €311 million and €345 million at September 30, 2019 and September 30, 2018, respectively.

Above amounts represent the dollar equivalent of such note at September 30, 2019 and September 30, 2018 .

Principal amount of $340 million and $402 million less unamortized deferred financing costs of $4 million and $3 million at September 30, 2019 and September 30, 2018 , respectively.

Principal amount of $220 million and $250 million less unamortized deferred financing costs of $2 million and $3 million at September 30, 2019 and September 30, 2018 , respectively.

Face amount of €445 million at September 30, 2019 .

Above amounts represent the dollar equivalent of such note at September 30, 2019 .

Principal amount of $487 million , an additional issuance premium of $8 million , less unamortized deferred financing costs of $7 million at September 30, 2019 .

Principal amount of $325 million less unamortized deferred financing costs of $4 million and $5 million at September 30, 2019 and September 30, 2018 , respectively.

Principal amount of debt of $2.998 billion and $2.851 billion , an additional insurance 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 September 30, 2019 and September 30, 2018 , respectively.

(d) On June 30, 2020, Acquisition Corp.

redeemed all of the outstanding aggregate principal amount, or € 311 million, of its 4.125 % Senior Secured Notes due 2024.

The Company recorded a loss on extinguishment of debt of approximately $ 14 million as a result of the debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs.

(e) On June 30, 2020, Acquisition Corp.

redeemed all of the outstanding aggregate principal amount, or $ 220 million, of its 4.875 % Senior Secured Notes due 2024.

The Company recorded a loss on extinguishment of debt of approximately $ 10 million as a result of the debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs.

(f) Face amount of € 445 million at both September 30, 2020 and September 30, 2019.

Above amounts represent the dollar equivalent of such notes at September 30, 2020 and September 30, 2019.

Principal amount of $ 519 million and $ 487 million, an additional issuance premium of $ 7 million and $ 8 million, less unamortized deferred financing costs of $ 5 million and $ 7 million at September 30, 2020 and September 30, 2019, respectively.

(g) Face amount of € 325 million at September 30, 2020.

Above amounts represent the dollar equivalent of such notes at September 30, 2020.

Principal amount of $ 379 million less unamortized deferred financing costs of $ 4 million at September 30, 2020.

(h) Principal amount of $ 535 million less unamortized deferred financing costs of $ 6 million at September 30, 2020.

(i) Principal amount of $ 550 million less unamortized deferred financing costs of $ 6 million at September 30, 2020.

(j) Principal amount of $ 325 million less unamortized deferred financing costs of $ 4 million at both September 30, 2020 and September 30, 2019.

(k) Principal amount of debt of $ 3.127 billion and $ 2.998 billion, an additional issuance premium of $ 7 million and $ 8 million, less unamortized discount of $ 1 million and $ 3 million and unamortized deferred financing costs of $ 29 million and $ 29 million at September 30, 2020 and September 30, 2019, respectively.

The Company is the direct parent of Holdings, which is the direct parent of Acquisition Corp.

As of September 30, 2020 Acquisition Corp.

had issued and outstanding the 3.625 % Senior Secured Notes due 2026, the 5.500 % Senior Notes due 2026, the 2.750 % Senior Secured Notes due 2028, the 3.875 % Senior Secured Notes due 2030 and the 3.000 % Senior Secured Notes due 2031 (together, the “Acquisition Corp.

The 3.625 % Senior Secured Notes due 2026 and the 5.500 % Senior Notes due 2026 are guaranteed by the Company.

The Company’s guarantee of the Acquisition Corp.

Notes is full and unconditional.

All of the Acquisition Corp.

Notes are guaranteed by all of Acquisition Corp.’s domestic wholly-owned subsidiaries.

The guarantee of the Acquisition Corp.

Notes by Acquisition Corp.’s domestic wholly-owned subsidiaries is full, unconditional and joint and several.

The secured notes are guaranteed on a senior secured basis and the unsecured notes are guaranteed on an unsecured senior basis.

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, as well as the credit agreements for the Acquisition Corp.

Senior Credit Facilities, including the Revolving Credit Facility and the Senior Term Loan Facility.

Fiscal 2020 Transactions

Revolving Credit Agreement Amendment

On April 3, 2020, Acquisition Corp.

entered into an amendment (the “Second Amendment”) to the Revolving 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 aggregate principal amount of $ 180 million to an aggregate principal amount of $ 300 million, (ii) extends the final maturity date of the Revolving Credit Facility from January 31, 2023 to April 3, 2025, (iii) reduces the interest margin applicable to the loans upon achievement of certain leverage ratios based on a leverage-based pricing grid, (iv) reduces the commitment fee based on a leverage-based pricing grid and limits commitment fees to be paid only on unused amounts of commitments, (v) increases the maximum letter of credit exposure permitted under the Revolving Credit Facility from $ 50 million to $ 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 incurrence of indebtedness, liens and restricted payments.

The Company incurred approximately $ 1 million in financing fees associated with the Second Amendment which were capitalized and will be amortized over the amended term of the Revolving Credit Facility.

Redemption of 4.125 % Senior Secured Notes and 4.875 % Senior Secured Notes

On June 30, 2020, Acquisition Corp.

redeemed in full all of the outstanding aggregate principal amount of the 4.125 % Senior Secured Notes and 4.875 % Senior Secured Notes, equal to € 311 million aggregate principal amount of the 4.125 % Senior Secured Notes and $ 220 million aggregate principal amount of the 4.875 % Senior Secured Notes, using a portion of the proceeds from the offering of 3.875 % Senior Secured Notes and 2.750 % Senior Secured Notes described above.

The redemption price for the 4.125 % Senior Secured Notes was approximately € 322 million, equivalent to 103.094 % of the principal amount of the 4.125 % Senior Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was June 30, 2020.

The redemption price for the 4.875 % Senior Secured Notes was approximately $ 230 million, equivalent to 103.656 % of the principal amount of the 4.875 % Senior Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was June 30, 2020.

The Company recorded a loss on extinguishment of debt of approximately $ 24 million for the fiscal year ended 2020 as a result of these redemptions, which represents the premium paid on early redemption and unamortized deferred financing costs.

Tender Offer and Redemption of 5.000 % Senior Secured Notes

On June 16, 2020, Acquisition Corp.

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

On June 30, 2020, Acquisition Corp.

announced that $ 244 million of the aggregate principal amount of $ 300 million outstanding had tendered and been accepted in the tender offer.

Also on June 30, 2020, Acquisition Corp.

issued a notice of redemption calling the remaining outstanding 5.000 % Senior Secured Notes not tendered in the tender offer for redemption on August 1, 2020.

An additional $ 295,000 tendered and was accepted in the tender offer on July 14, 2020 and Acquisition Corp.

redeemed all 5.000 % Senior Secured Notes that were not tendered and accepted for purchase in the tender offer and consent solicitation on August

1, 2020 at the then-applicable redemption price of 101.250 %.

The Company recorded a loss on extinguishment of debt of approximately $ 6 million for the fiscal year ended 2020 as a result of this tender offer and redemption, which represents the premium to tender and unamortized deferred financing costs.

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

On June 29, 2020, Acquisition Corp.

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

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

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

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

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

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

under its existing credit facilities, subject to customary exceptions.

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

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

3.000 % Senior Secured Notes Offering

On August 12, 2020, Acquisition Corp.

issued and sold $ 550 million in aggregate principal amount of 3.000 % Senior Secured Notes due 2031 (the “ 3.000 % Senior Secured Notes”).

Net proceeds of the offering were used to repay a portion of the Senior Term Loan Facility and to pay certain other related fees and expenses.

Interest on the Notes will accrue at the rate of 3.000 % per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2021.

The Company recorded a loss on extinguishment of debt of approximately $ 4 million which represented unamortized discount and unamortized deferred financing cost associated with the portion of the term loan repaid.

Interest on the 3.000 % Senior Secured Notes will accrue at the rate of 3.000 % per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2021.

The 3.000 % Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of Acquisition Corp.’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of Acquisition Corp.

under its existing credit facilities, subject to customary exceptions.

The indenture governing the 3.000 % Senior Secured Notes contains covenants limiting, among other things, Acquisition Corp.’s ability and the ability of most of its subsidiaries to create liens and consolidate, merge, sell or otherwise dispose of all or substantially all of its assets.

Historical Transactions

December 2017 Senior Term Loan Credit Agreement Amendment

On December 6, 2017, Acquisition Corp.

entered into an amendment (the “December 2017 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, change certain EBITDA add-backs 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 million , which represented the discount and unamortized deferred financing costs related to the prior tranche of debt of the lenders that was replaced.

governing the ability to incur debt and liens, change certain EBITDA add-backs 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 million for the fiscal year ended September 30, 2018, which represented the discount and unamortized deferred financing costs related to the prior tranche of debt of the lenders that was replaced.

New Revolving Credit Agreement

1 unchanged sentence

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 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 end of a fiscal quarter the outstanding amount of loans and drawings under letters of credit which have not been reimbursed exceeds $ 54 million and aligns the other negative covenants with those of the Senior Term Loan Credit Agreement.

References to “Revolving Credit Facility” below in this Note 8 are to our new revolving credit facility.

March 2018 Senior Term Loan Credit Agreement Amendment

1 unchanged sentence

incurred $ 320 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 .

The principal amount outstanding under the Senior Term Loan Credit Agreement including the Supplemental Term Loans prior to the partial repayment with the proceeds of the 3.000 % Senior Secured Notes offering as described above was $ 1.326 billion.

Notes Offering

12 unchanged sentences

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 in 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 redemption and unamortized deferred financing costs.

The Company recorded a loss on extinguishment of debt in connection with the tender offer of approximately $ 23 million for the fiscal year ended September 30, 2018 as a result of the partial debt redemption, which represents the premium paid on early redemption and unamortized deferred financing costs in 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 redemption and unamortized deferred financing costs.

June 2018 Senior Term Loan Credit Agreement Amendment

1 unchanged sentence

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.

The Company recorded a loss on extinguishment of debt of approximately $ 2 million for the fiscal year ended September 30, 2018, which represented the discount and unamortized deferred financing costs related to the prior tranche of debt of the lenders that was replaced.

3.625 % Senior Secured Notes Offerings

1 unchanged sentence

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).

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 Acquisition Corp.’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.

7 unchanged sentences

Following the partial redemption of the 4.125 % Secured Notes, € 311 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.

The Company recorded a loss on extinguishment of debt of approximately $ 2 million for the fiscal year ended September 30, 2019, which represents the premium paid on early redemption and unamortized deferred financing costs related to the partial redemption of this note.

Open Market Purchase

3 unchanged sentences

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.

The Company recorded a loss on extinguishment of debt of less than $ 1 million for the fiscal year ended September 30, 2019, which represents the unamortized deferred financing costs related to the open market purchase.

Redemption of 5.625 % Senior Secured Notes

3 unchanged sentences

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.

The Company recorded a loss on extinguishment of debt of approximately $ 1 million for the fiscal year ended September 30, 2019, 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, Acquisition Corp.

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.

The Company recorded a loss on extinguishment of debt of approximately $ 4 million for the fiscal year ended September 30, 2019, 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 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 3.05 x at September 30, 2020, the applicable margin for Eurodollar loans would be 1.625 % instead of 1.875 % and the applicable margin for ABR loans would be 0.625 % instead of 0.875 % in the case of 2020 Revolving Loans.

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.

9 unchanged sentences

Maturity of Revolving Credit Facility

The maturity date of the Revolving Credit Facility is January 31, 2023 .

The maturity date of the Revolving Credit Facility is April 3, 2025.

Maturities of Senior Notes and Senior Secured Notes

15 unchanged sentences

federal statutory income tax rate was 24.5 %.

For the fiscal year ending September 30, 2019, the Company was subject to the U.S.

For the fiscal years ending September 30, 2020 and 2019, the Company was subject to the U.S.

federal corporate statutory tax rate of 21%.

8 unchanged sentences

The Company has elected to recognize the GILTI impact in the specific period in which it occurs.

The domestic and foreign pretax income (loss) from continuing operations is as follows:

Fiscal Year Ended September 30,

The domestic and foreign pretax (loss) income from continuing operations is as follows:

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

Current and deferred income tax expense (benefit) provided are as follows:

Fiscal Year Ended September 30,

Domestic $ ( 655 ) $ 84 $ 347

Foreign 208 183 95

(Loss) income before income taxes $ ( 447 ) $ 267 $ 442

Current and deferred income tax expense provided are as follows:

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

Current $ 3 $ — $ —

Deferred ( 28 ) ( 49 ) 91

Current (a) 74 74 58

Deferred ( 28 ) ( 18 ) ( 26 )

Current 3 3 6

Deferred ( 1 ) ( 1 ) 1

Income tax expense $ 23 $ 9 $ 130

______________________________________

Includes withholding taxes of $17 million , $15 million and $13 million for the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively.

(a) Includes withholding taxes of $ 15 million, $ 17 million and $ 15 million for the fiscal years ended September 30, 2020, 2019 and 2018, respectively.

The differences between the U.S.

federal statutory income tax rate of 21.0% , 24.5% and 35.0% for the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively, and income taxes provided are as follows:

Fiscal Year Ended September 30,

federal statutory income tax rate of 21.0 %, 21.0 % and 24.5 % for the fiscal years ended September 30, 2020, 2019 and 2018, respectively, and income taxes provided are as follows:

Fiscal Year Ended September 30,

2020 2019 2018

(in millions)

8 unchanged sentences

Intergroup transfer — — ( 30 )

Foreign currency losses on intra-entity loans

IPO Costs 22 — —

Executive Compensation 2 — —

Non-deductible long term incentive plan 112 6 8

Income tax expense (benefit)

Income tax expense $ 23 $ 9 $ 130

During the fiscal year ended September 30, 2020, the Company recognized a net U.S.

tax benefit of $ 25 million primarily related to the release of a U.S.

deferred tax valuation allowance of $ 33 million offset by a write-off of expiring foreign tax credits of $ 10 million and a tax benefit of $ 15 million for the release of valuation allowances in Japan and various foreign jurisdictions.

During the fiscal year ended September 30, 2019, the Company recognized a U.S.

tax benefit of $59 million related to the release of a U.S.

deferred tax valuation allowance.

tax benefit of $ 59 million related to the release of valuation allowance on U.S.

foreign tax credits.

During the fiscal year ended September 30, 2018, the Company recognized a U.S.

tax expense of $23 million related to the reduction of net U.S.

tax expense of $ 23 million related to the reductions of net U.S.

deferred tax assets as a result of the Tax Act.

In addition, the Company recognized a net tax benefit of $30 million related to a prior-year intergroup transfer.

During the fiscal year ended September 30, 2017 ,

the Company released $125 million of the U.S.

valuation allowance related to U.S.

tax attributes and recognized a U.S.

tax benefit of $59 million related to foreign currency losses on intra-entity loans.

The foreign currency loss was previously reported in accumulated other comprehensive loss as the intra-entity loans were previously considered long-term in nature.

For the fiscal years ended September 30, 2020 and September 30, 2019, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized.

For the fiscal year ended September 30, 2019 , the Company released $59 million of the U.S.

For the fiscal year ended September 30, 2020 and September 30, 2019, the Company released $ 33 million and $ 59 million, respectively of the U.S.

valuation allowance related to foreign tax credit carryforwards.

10 unchanged sentences

Valuation allowance ( 45 ) ( 91 )

Net deferred tax assets

Deferred tax assets, net of valuation allowance 274 238

Deferred tax liabilities:

2 unchanged sentences

Net deferred tax liabilities $ ( 95 ) $ ( 134 )

During the three months ended September 30, 2019, the Company concluded that the positive evidence relating to the utilization of foreign tax credits outweighs the negative evidence with respect to a portion of the valuation allowance relating to its foreign tax credit carryovers.

This positive evidence includes the utilization of the remaining net operating loss carryforward during the fiscal year ended September 30, 2019, the utilization of current year and carryforward foreign tax credits for the first time during the fiscal year ended September 30, 2019, projections of sufficient future taxable income and foreign source income and the reversal of future taxable temporary differences.

As a result, the Company concluded that it is more likely than not that a substantial portion of the Company’s deferred tax assets relating to foreign tax credit carryforwards will be realized.

Consequently, the Company released $59 million of its $133 million valuation allowance at September 30, 2018 relating to such deferred tax assets and recognized a corresponding U.S.

tax benefit of $59 million during the quarter ended September 30, 2019.

Proposed regulations issued by the Internal Revenue Service in November 2018 may result in an increase in the amount of foreign tax credit carryforwards that are more likely than not to be realized and thus result in a further release of the Company’s valuation allowance for foreign tax credit carryforwards and a corresponding U.S.

tax benefit in the period in which such regulations are enacted.

Of the valuation allowance of $91 million at September 30, 2019 , $49 million relates to U.S.

tax attributes, of which $33 million relates to foreign tax credit carryforwards, $12 million relates to U.S.

state net operating loss carryforwards and $4 million relates to outside basis differences in investments.

During the fiscal year ended September 30, 2020, as a result of final regulations regarding the interest expense allocation rules issued by the Internal Revenue Service in December of 2019, the Company concluded that it is more likely than not that the entire amount of the Company’s deferred tax assets related to foreign tax credits carryforwards in the U.S.

will be realized.

The current levels of pre-tax income are sufficient to generate the minimum amount of future taxable income needed to support U.S.

assets realization.

In the fiscal year ended September 30, 2019, the Company concluded that the positive evidence relating to the utilization of foreign tax credits outweighs the negative evidence with respect to a portion of the valuation allowance on its foreign tax credit carryovers and released $ 59 million of its valuation allowance.

At September 30, 2020, the Company has no remaining U.S.

federal tax net operating loss carryforwards.

The Company also has tax net operating loss carryforwards, with no expiration date, in the U.K., France and Spain of $11 million , $88 million and $32 million , respectively, and other tax net operating loss carryforwards in state, local and foreign jurisdictions that expire in various periods.

The Company also has tax net operating loss carryforwards, with no expiration date, in France and Spain of $ 78 million and $ 29 million, respectively, and other tax net operating loss carryforwards in state, local and foreign jurisdictions that expire in various periods.

In addition, the Company has foreign tax credit carryforwards for U.S.

12 unchanged sentences

Balance at September 30, 2018 $ 18

Additions for current year tax positions

Additions for prior year tax positions 1

5 unchanged sentences

Included in the total unrecognized tax benefits at September 30, 2020 and September 30, 2019 are $ 12 million and $ 12 million, respectively, that if recognized, would reduce the effective income tax rate.

The Company’s gross unrecognized tax benefits decreased during the fiscal year ended September 30, 2019 by $7 million primarily due to a tax settlement in Germany and statute lapses.

The Company has determined that is reasonably possible that its existing reserve for uncertain tax positions as of September 30, 2020 could decrease by up to approximately $ 2 million related to various ongoing audits and settlement discussions in various foreign jurisdictions.

3 unchanged sentences

for tax years ended through September 30, 2013, in the U.K.

for the tax years ended through September 30, 2016, in Canada for tax years ended through September 30, 2013, in Germany for the tax years ended through September 30, 2009 and in Japan for the tax years ended through September 30, 2012.

for the tax years ended through September 30, 2017, in Germany for the tax years ended through September 30, 2014 and in France for the tax years ended through September 30, 2018.

The Company is at various stages in the tax audit process in certain foreign and local jurisdictions.

7 unchanged sentences

The Company’s contributions to the defined contribution plans are based upon a percentage of the employees’ elected contributions.

The Company’s defined contribution plan expense amounted to approximately $6 million for the fiscal year ended September 30, 2019 , $5 million for the fiscal year ended September 30, 2018 and $5 million for the fiscal year ended September 30, 2017 .

Share-Based Compensation Plans

The Company’s defined contribution plan expense

amounted to approximately $ 8 million for the fiscal year ended September 30, 2020, $ 6 million for the fiscal year ended September 30, 2019 and $ 5 million for the fiscal year ended September 30, 2018.

Stock-Based Compensation Plans

Warner Music Group Corp.

2020 Omnibus Incentive Plan

In connection with the IPO, the Company’s board of directors and stockholders approved the Warner Music Group Corp.

2020 Omnibus Incentive Plan, or the “Omnibus Incentive Plan.” The aggregate number of shares of common stock available for issuance under the Omnibus Incentive Plan were 31,169,099 shares of Class A Common Stock over the 10-year period from the date of adoption.

On August 14, 2020, the Company granted members of its Board of Directors a total of 28,361 shares of restricted common stock pursuant to the Omnibus Incentive Plan.

These grants represent compensation for board service for the period from the Company’s initial public offering until the Company’s 2021 regularly scheduled annual shareholder meeting, at which time the restricted stock will be vested.

Directors are entitled to dividends on this restricted stock during the vesting period.

As of September 30, 2020, there have been 28,361 shares issued under the Omnibus Incentive Plan.

Warner Music Group Corp.

Senior Management Free Cash Flow Plan

Effective January 1, 2013, eligible individuals were invited to participate in the Senior Management Free Cash Flow Plan (as amended, the “Plan”).

3 unchanged sentences

Participants also receive a grant of profit interests in a purposely established LLC holding company (the “LLC”) that represent an economic entitlement to future appreciation over an equivalent number of shares of Company stock (“matching units”).

Company’s board of directors authorized the issuance of up to 82.1918 shares of the Company’s common stock pursuant to the Plan, 41.0959 in respect of deferred equity units and 41.0959 in respect of matching units, as adjusted in accordance with the Plan.

The LLC currently owns approximately 60 issued and outstanding shares.

Each deferred equity unit is equivalent to 1/10,000 of a share of Company stock.

The Company’s board of directors authorized the issuance of up to 39,255,429.54 shares of the Company’s common stock pursuant to the Plan, 19,612,714.77 in respect of deferred equity units and 19,612,714.77 in respect of matching units, as adjusted in accordance with the Plan.

The LLC currently owns 23,640,925 shares of Class B Common Stock, which includes 4,169,978 of additional shares issued in connection with the December 2019 redemption whereby certain participants in the Plan elected to exchange their deferred equity units for shares of Class B Common Stock of the Company, which were immediately contributed to the LLC in exchange for Class A units of the LLC.

Each deferred equity unit is equivalent to a share of Company stock.

The Company credits units to active participants each Plan year at the time that annual free cash flow bonuses for such Plan year are determined (although certain participants have already received their complete allocations) and may grant unallocated units under the Plan to certain members of current or future management.

At the time that annual free cash flow bonuses for such Plan year are determined, a participant is credited a number of deferred equity units based on their respective allocation divided by the grant date intrinsic value and an equal number of the related matching units is vested.

The redemption price of the deferred equity units equals the fair market value of a fractional share of the Company’s stock on the date of the settlement and the redemption price for the matching units equals the excess, if any, of the then fair market value of one Company fractional share over the grant date intrinsic value of one fractional share.

The redemption price of the deferred equity units equals the fair market value of a share of the Company’s stock on the date of the settlement and the redemption price for the matching units equals the excess, if any, of the then fair market value of one Company fractional share over the grant date intrinsic value of one share.

Dividend distributions, if any, are also paid out on vested deferred equity units and are calculated on the same basis as the Company’s common shares.

The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation on an accelerated basis over the vesting period of the share award.

The Company accounts for share-based payments as required by ASC 718.

1 unchanged sentence

Under the recognition provision of ASC 718, liability classified share-based compensation costs are measured each reporting date until settlement.

The Company’s policy is to measure share-based compensation costs to employees using the intrinsic value method instead of fair value as it is not practical to estimate the volatility of its share price on the grant date.

The intrinsic value method utilized by the Company is based on the estimated fair value of equity divided by the number of shares outstanding to determine a price per share.

The Company’s estimated fair value of equity is derived from a discounted cash flow model with adjustments for non-operating assets, less the estimated fair value of debt.

The Plan was liability classified from inception through June 3, 2020, upon completion of the IPO, further discussed herein.

For accounting purposes, the grant date was established at the point the Company and the participant reached a mutual understanding of the key terms and conditions, in this case the date at which the participant accepted the invitation to participate in the Plan.

1 unchanged sentence

The deferred and matching equity units have cash settlement dates that began in December 2018.

Upon the scheduled settlement in December 2018 , the Company settled 4,395.54 deferred equity units, including special deferred equity units, in cash totaling approximately $1 million , 86,496.04 in Company fractional shares (which were contributed to the LLC in exchange for Class A units of the LLC) with an estimated value of $26 million and 4,553.50 matching equity units in cash totaling approximately $1 million .

The deferred units will be settled at the participant’s election for cash equal to the fair market value of one fractional company share or a fractional company share.

The matching units will be settled for cash equal to the redemption price or fractional company shares of equivalent value.

At the end of the applicable redemption period, all outstanding units become mandatorily redeemable at the then redemption price.

Due to this mandatory redemption clause, the Company has classified the awards under the Plan as liability awards.

As of September 30, 2019 , total liabilities for the vested portion of the plan is $211 million , of which $108 million is eligible for redemption in fiscal 2020 and, therefore a current liability.

Dividend distributions, if any, are also paid out on vested deferred equity units and are calculated on the same basis as the Company’s common shares.

The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation on an accelerated basis over the vesting period of the share award.

Upon the scheduled settlement dates in December 2019 and December 2018, the Company settled 314,631.58 deferred equity units, including special deferred equity units, in cash totaling approximately $ 2 million, 8,359,629.35 in Company shares (which were contributed to the LLC in exchange for Class A units of the LLC) with an estimated value of $ 58 million and 217,312.53 matching equity units in cash totaling approximately $ 1 million.

Upon completion of the IPO in June 2020, the Plan was amended to remove the cash-settlement feature on all future redemptions.

As a result, all awards previously issued under the Plan will require settlement in Class A Common Stock.

The participants in such plan were also allowed to sell a pro rata portion, consistent with Access’s percentage reduction in shares of Class

B Common Stock as a result of the IPO, of their vested profits interests and acquired units of the LLC holding company, WMG Management Holdings, LLC (“Management LLC”), in the IPO through a “tag-along right.”

Under the provision of ASC 718, the Company determined the Plan was modified as of June 3, 2020, and as such, converted the awards from liability-classified to equity-classified.

Prior to conversion, the Company performed a final measurement of its stock-based compensation liability under the fair value method.

The final measurement utilized the IPO listing price of $ 25 per share as the per-share value input within its fair value model.

The following is a summary of the Company’s share awards:

Deferred Equity Units

Matching Equity Units

Deferred Equity Units Weighted-Average Intrinsic Value

Matching Equity Units Weighted-Average Intrinsic Value

Deferred Equity Units Weighted-Average Grant-Date Intrinsic Value

Matching Equity Units Weighted-Average Grant-Date Intrinsic Value

Deferred Equity Units Matching Equity Units Deferred Equity Units Weighted-Average Intrinsic Value Matching Equity Units Weighted-Average Intrinsic Value Deferred Equity Units Weighted-Average Grant-Date Intrinsic Value Matching Equity Units Weighted-Average Grant-Date Intrinsic Value

Unvested units at September 30, 2018 2,863,456 12,885,551 $ 6.37 $ 3.50 $ 3.12 $ —

Granted — — — — — —

Vested ( 962,709 ) ( 6,204,154 ) 7.71 5.10 3.09 —

Forfeited — — — — — —

Unvested units at September 30, 2019 1,900,747 6,681,397 $ 7.71 $ 4.60 $ 3.13 $ —

Granted — — — — — —

Vested ( 1,351,293 ) ( 2,369,536 ) 27.01 24.04 23.91 —

Forfeited — — — — — —

Unvested units at September 30, 2020 549,454 4,311,861 $ 27.01 $ 23.82 $ 23.82 $ —

2 unchanged sentences

The weighted-average grant date intrinsic value of deferred equity unit awards for the fiscal year ended September 30, 2019 was $ 3.13 .

The fair value of these

deferred equity units at September 30, 2018 was $304.22 .

The fair value of these deferred equity units at September 30, 2019 was $ 7.71 .

The weighted-average grant date intrinsic value of deferred equity unit awards for the fiscal year ended September 30, 2018 was $ 3.12 .

8 unchanged sentences

Management Agreement

Upon completion of the Merger, the Company and Holdings entered into the Management Agreement, dated as of the Merger Closing Date, pursuant to which Access provides the Company and its subsidiaries with financial, investment banking, management, advisory and other services.

Pursuant to the Management Agreement, the Company pays to Access an annual fee and reimburses Access for certain expenses incurred performing services under the agreement.

The annual fee is payable quarterly.

Upon completion of the Merger, the Company and Holdings entered into the Management Agreement, dated as of the Merger Closing Date, pursuant to which Access provided the Company and its subsidiaries with financial, investment banking, management, advisory and other services.

Pursuant to the Management Agreement, the Company paid to Access an annual fee on quarterly basis and reimbursed Access for certain expenses incurred performing services under the agreement.

The Company and Holdings agreed to indemnify Access and certain of its affiliates against all liabilities arising out of performance of the Management Agreement.

Such costs incurred by the Company were approximately $11 million , $16 million and $9 million for the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively.

As a result of the completion of the IPO, the Management Agreement terminated in accordance with its terms and the Company paid to Access a one-time termination fee and a fee for transaction services in an aggregate amount of $ 60 million.

Company recorded these fees within selling, general and administrative expenses in the consolidated statements of operations for the fiscal year ended September 30, 2020.

Prior to the termination of the Management Agreement, the Company incurred costs associated with the Management Agreement of approximately $ 7 million, $ 11 million and $ 16 million for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018, respectively.

Such amounts have been included as a component of selling, general and administrative expense in the accompanying consolidated statements of operations.

6 unchanged sentences

The remaining lease term is approximately 10 years, after which the Company may exercise a single option to extend the term of the lease for 10 years thereafter.

On July 15, 2016, a subsidiary of the Company, Warner Music Inc., entered into a license agreement with Cooper Investment Partners LLC, for the use of office space in the Company’s corporate headquarters at 1633 Broadway, New York, New York.

The license fee of $16,967.21 per month, was based on the per foot lease costs to the Company of its headquarters space, which represented market terms.

For the fiscal year ended September 30, 2019 , an immaterial amount was recorded as rental income.

The space is occupied by Cooper Investment Partners LLC, which is a private equity fund that pursues a wide range of investment opportunities.

Cooper, CEO and director of the Company, is the Managing Partner of Cooper Investment Partners LLC.

On August 13, 2015, a subsidiary of the Company, Warner Music Inc., entered into a license agreement with Access for the use of office space in the Company’s corporate headquarters at 1633 Broadway, New York, New York.

9 unchanged sentences

The Company has also authorized Deezer to include the Company’s sound recordings in Deezer’s streaming services where such services are offered as a bundle with third-party services or products (e.g., telco services or hardware products), for which Deezer is also required to make payments to the Company.

Deezer paid to the Company an aggregate amount of approximately $49 million in connection with the foregoing arrangements during the fiscal year ended September 30, 2019 .

Deezer paid to the Company an aggregate amount of approximately $ 42 million, $ 49 million and $ 39 million in connection with the foregoing arrangements during the fiscal years ended September 30, 2020, 2019 and 2018, respectively.

In addition, in connection with these arrangements, (i) the Company was issued, and currently holds, warrants to purchase shares of Deezer S.A.

2 unchanged sentences

Warner Chappell has licenses with Deezer for use of repertoire on the service in Europe, which the Company refers to as a PEDL license (referencing the Company’s Pan European Digital Licensing initiative), and for territories in Latin America.

For the PEDL and Latin American licenses for the fiscal year ended September 30, 2019 , Deezer paid the Company an additional approximately $1 million .

For the PEDL and Latin American licenses for the fiscal years ended September 30, 2020 and 2019, Deezer paid the Company an additional approximately $ 2 million and $ 1 million, respectively.

Deezer also licenses other publishing rights controlled by Warner Chappell through statutory licenses or through various collecting societies.

License Agreements with Snap

In 2020, a subsidiary of the Company entered into a worldwide (excluding China) recorded music license agreement for a 24-month term and Warner Chappell also entered into a 2-year license with Snap, Inc.

covering the personal, non-commercial use of up to 60 second song clips from WMG’s catalog in messages across Snap properties.

The Company earned approximately $ 500,000 in connection with the foregoing deals during the fiscal year ended September 30, 2020.

The Company’s Chairman, Michael Lynton, is also a director of Snap, Inc.

Distribution Agreement with Mattel

In 2020, a subsidiary of the Company entered into a 3-year digital distribution and physical license of the existing catalog plus new material of Mattel Inc.

The Company earned approximately $ 200,000 in connection with the foregoing arrangements during the fiscal year ended September 30, 2020.

The Company’s director, Ynon Kreiz, is also the CEO of Mattel Inc.

Investment in Tencent Music Entertainment Group

2 unchanged sentences

On October 3, 2018, WMG China acquired the shares pursuant to the share subscription agreement.

Music Publishing Agreement

Val Blavatnik (the son of our director and controlling shareholder, Len Blavatnik) entered into a music publishing contract with Warner-Tamerlane Publishing Corp., dated September 7, 2018, pursuant to which, in fiscal 2019 , he was paid $162,500 in advances recoupable from royalties otherwise payable to him from the licensing of musical compositions written or co-written by him.

Loan Agreement with Max Lousada

On April 16, 2018, the Company loaned $227,000 to Mr.

Lousada in exchange for a promissory note.

Lousada was obligated to repay this loan upon the earliest of specified events, including April 30, 2019, termination of his employment, the event of a default (as specified therein) or if the Company or one of its affiliates becomes an issuer of publicly traded stock.

Lousada repaid this loan prior to April 30, 2019 .

Commitments and Contingencies

The Company occupies various facilities and uses certain equipment under operating leases.

Net rent expense was approximately $84 million , $80 million and $62 million for the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively.

At September 30, 2019 , future minimum payments under non-cancelable operating leases are as follows:

(in millions)

The future minimum payments reflect the amounts owed under lease arrangements and do not include any fair market value adjustments that would have been recorded as a result of the Merger.

Talent Advances

1 unchanged sentence

Such commitments generally become due only upon delivery and Company acceptance of albums from the recording artists or future musical compositions from songwriters and publishers.

Additionally, such commitments are typically cancelable at the Company’s discretion, generally without penalty.

Additionally, such commitments are typically cancellable at the Company’s discretion, generally without penalty.

Based on contractual obligations and the Company’s expected release schedule, aggregate firm commitments to such talent approximated $ 442 million and $ 428 million as of September 30, 2020 and September 30, 2019, respectively.

Other off-balance sheet, firm commitments, which primarily include minimum funding commitments to investees, amounted to approximately $ 12 million and $ 10 million at September 30, 2020 and September 30, 2019, respectively.

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 SiriusXM Radio Inc., alleging copyright infringement for SiriusXM’s use of pre-1972 sound recordings under California law.

A nation-wide settlement was reached on June 17, 2015 pursuant to which SiriusXM 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 SiriusXM’s use of pre-1972 recordings owned or controlled by the plaintiffs and enabled SiriusXM, 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 SiriusXM 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 SiriusXM 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 , SiriusXM 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 SiriusXM in New York state court to stay the California arbitration and to compel a separate arbitration in New York solely between SiriusXM 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 SiriusXM 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 SiriusXM entered into an agreement granting SiriusXM 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, the Company is involved in various litigation and regulatory proceedings arising in the normal course of business.

The Company is involved in various litigation and regulatory proceedings arising in the normal course of business.

Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a given matter, the Company establishes an accrual.

15 unchanged sentences

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 won and Norwegian krone.

The foreign currency forward exchange contracts related to royalties are designated and qualify as cash flow hedges under the criteria prescribed in ASC 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).

These deferred gains and losses are recognized in income in the period in which the related royalties and license fees being hedged are received and recognized in income.

However, to the extent that any of these contracts are 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 are 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 consolidated statement of operations where there is an equal and offsetting entry related to the underlying exposure.

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 the underlying exposure.

In prior periods, certain foreign currency forward exchange contracts were designated and qualified as cash flow hedges under the criteria prescribed in ASC 815.

The Company recorded these contracts at fair value on its balance sheet and gains or losses on these contracts were deferred in equity (as a component of comprehensive income (loss)).

These deferred gains and losses were recognized in income in the period in which the related royalties and license fees being hedged were received and recognized in income.

However, to the extent that any of these contracts were 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 were immediately recognized in the consolidated statement of operations.

The Company has entered into, and in the future may enter into, interest rate swaps to manage interest rate risk.

1 unchanged sentence

The interest rate swap instruments are designated and qualify as cash flow hedges under the criteria prescribed in ASC 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 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 income (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 19.

2 unchanged sentences

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 September 30, 2019 are expected to be recognized within five years .

The Company’s hedged interest rate transactions as of September 30, 2020 are expected to be recognized within four 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 19.

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.

Interest income or expense related to interest rate swaps is recognized in interest income (expense), net in the same period as the related expense is recognized.

The ineffective portions of interest rate swaps are recognized in other income (expense) 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.

1 unchanged sentence

As of September 30, 2019, the Company had no outstanding hedge contracts and no deferred gains or losses in comprehensive loss related to foreign exchange hedging.

As of September 30, 2020, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 29 million of unrealized deferred losses in comprehensive loss related to the interest rate swaps.

As of September 30, 2019, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 8 million of unrealized deferred losses in comprehensive income related to the interest rate swaps.

As of September 30, 2018 , the Company had outstanding $320 million in pay-fixed receive-variable interest rate swaps with $3 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.

The pre-tax losses 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 twelve months ended September 30, 2019 was $11 million , net.

The pre-tax gains 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 twelve months ended September 30, 2018 was $4 million .

The following is a summary of amounts recorded in the Consolidated Balance Sheets pertaining to the Company’s designated cash flows hedges at September 30, 2019 and September 30, 2018 :

September 30, 2019 (a)

September 30, 2018 (b)

The Company recorded realized pre-tax losses of $ 4 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the fiscal year ended September 30, 2020.

The Company recorded realized pre-tax gains of $ 3 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other income for the fiscal year ended September 30, 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 fiscal year ended September 30, 2020 were $ 27 million.

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive loss during the fiscal year ended September 30, 2019 were $ 11 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at September 30, 2020 and September 30, 2019:

September 30, 2020 (a) September 30, 2019 (b)

(in millions)

2 unchanged sentences

______________________________________

$2 million and $13 million of interest rate swaps in asset and liability positions, respectively.

$4 million of interest rate swap in an asset position.

(a) $ 38 million of interest rate swaps in liability positions.

(b) $ 2 million and $ 13 million of interest rate swaps in asset and liability positions, respectively.

Segment Information

7 unchanged sentences

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.

Recorded Music

Music Publishing

Corporate expenses and eliminations

Publishing Corporate

eliminations Total

(in millions)

Revenues $ 3,810 $ 657 $ ( 4 ) $ 4,463

Operating income (loss) 175 81 ( 485 ) ( 229 )

1 unchanged sentence

Depreciation of property, plant and equipment 55 5 11 71

OIBDA 349 157 ( 474 ) 32

Total assets 2,483 2,656 1,271 6,410

Capital expenditures 28 1 56 85

Revenues $ 3,840 $ 643 $ ( 8 ) $ 4,475

Operating income (loss) 439 92 ( 175 ) 356

1 unchanged sentence

Depreciation of property, plant and equipment 45 5 11 61

OIBDA 623 166 ( 164 ) 625

Total assets 2,217 2,581 1,219 6,017

Capital expenditures 29 3 72 104

Revenues $ 3,360 $ 653 $ ( 8 ) $ 4,005

Operating income (loss) 307 84 ( 174 ) 217

1 unchanged sentence

Depreciation of property, plant and equipment 35 7 13 55

OIBDA 480 159 ( 161 ) 478

Capital expenditures 20 3 51 74

Revenues relating to operations in different geographical areas are set forth below for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018.

Total assets relating to operations in different geographical areas are set forth below as of September 30, 2019 and September 30, 2018 .

Total long-lived assets relating to operations in different geographical areas, which consist of property, plant and equipment, net and operating lease right-of-use assets, net, are set forth below as of September 30, 2020 and September 30, 2019.

2020 2019 2018

Revenues Long-lived Assets Revenues Long-lived Assets Revenues

(in millions)

2 unchanged sentences

All other territories 1,978 129 1,923 79 1,658

Total $ 4,463 $ 604 $ 4,475 $ 300 $ 4,005

Customer Concentration

In the fiscal year ended September 30, 2020, the Company had two customers, Spotify and Apple, that individually represented 10% or more of total revenues, whereby Spotify represented 17 %, and Apple represented 14 % of total revenues.

In the fiscal year ended September 30, 2019, the Company had two customers, Spotify and Apple, that individually represented 10% or more of total revenues, whereby Spotify represented 14 %, and Apple represented 13 % of total revenues.

In the fiscal year ended September 30, 2018, the Company had two customers, Apple and Spotify, that individually represented 10% or more of total revenues, whereby Apple represented 15 %, and Spotify represented 14 % of total revenues.

In the fiscal year ended September 30, 2017 , the Company had one customer, Apple, that individually represented 14% of total revenues.

These customers’ revenues are included in both the Company’s Recorded Music and Music Publishing segments and the Company expects that the Company’s license agreements with these customers will be renewed in the normal course of business.

2 unchanged sentences

The Company made interest payments of approximately $ 128 million, $ 138 million and $ 148 million during the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018, respectively.

The Company paid approximately $63 million , $49 million and $40 million of foreign income and withholding taxes, net of refunds, for the fiscal years ended September 30, 2019 , September 30, 2018 and September 30, 2017 , respectively.

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

On September 23, 2019 , the Company’s board of directors declared a cash dividend of $206.25 million which was paid to stockholders on October 4, 2019 and recorded as an accrual as of September 30, 2019 .

The Company paid approximately $ 81 million, $ 63 million and $ 49 million of income and withholding taxes, net of refunds, for the fiscal years ended September 30, 2020, September 30, 2019 and September 30, 2018, respectively.

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

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

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

The Company paid the first dividend under this policy of $ 0.12 per share in September 2020.

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

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

Prior to the completion of the IPO, in fiscal 2020 the Company paid an aggregate of $ 281 million in cash dividends to common stockholders, $ 75 million of which was declared by the Company’s board of directors in fiscal 2020 and $ 206 million of which was declared by the Company’s board of directors in fiscal 2019 and recorded as an accrual as of September 30, 2019.

On August 14, 2020, the Company’s board of directors declared a cash dividend of $ 0.12 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans which was paid on September 1, 2020.

For fiscal year 2020, the Company paid an aggregate of $ 344 million in cash dividends to stockholders and participating security holders.

For fiscal year 2019, the Company paid an aggregate of $ 94 million in cash dividends to stockholders.

For fiscal year 2018, the Company paid an aggregate of $ 925 million in cash dividends to stockholders, which reflected proceeds from the sale of Spotify shares acquired in the ordinary course of business.

For fiscal year 2017 , the Company paid an aggregate of $84 million in cash dividends to stockholders.

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 fiscal quarter and a variable dividend for the fourth fiscal quarter in an amount commensurate with cash expected to be generated from operations in such fiscal year, in each case, after taking into account other potential uses for cash, including acquisitions, investment in our business and repayment of indebtedness.

The declaration of each dividend will continue to be at the discretion of the Board.

On November 13, 2020, the Company’s board of directors declared a cash dividend of $ 0.12 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, payable on December 1, 2020 to stockholders of record as of the close of business on November 24, 2020.

COVID-19 Pandemic

On March 11, 2020, the COVID-19 outbreak was declared a global pandemic by the World Health Organization.

Government-imposed mandates limiting public assembly and restrictions on non-essential businesses have adversely impacted the Company’s operations, including touring and physical product distribution, for the fiscal year ended September 30, 2020.

It is unclear how long 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 as federal, state, local and foreign governments start to lift restrictions.

The Company is not presently aware of any events or circumstances arising from the global pandemic that would require us to update any estimates, judgments or materially revise the carrying value of our 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 consolidated financial statements.

Actual results could differ from estimates, and any such differences may be material to our consolidated financial statements.

Spotify Share Sale

21 unchanged sentences

Fair Value Measurements as of September 30, 2020

(Level 1) (Level 2) (Level 3) Total

(in millions)

1 unchanged sentence

Contractual Obligations (a) $ — $ — $ ( 2 ) $ ( 2 )

Other Non-Current Assets:

Other Noncurrent Assets:

Equity Method Investment (c) — 47 — 47

Interest Rate Swap (b)

Other Non-Current Liabilities:

Interest Rate Swap (b)

Other Noncurrent Liabilities:

Contractual Obligations (a) — — ( 4 ) ( 4 )

Interest Rate Swaps (b) — ( 38 ) — ( 38 )

Total $ — $ 9 $ ( 6 ) $ 3

Fair Value Measurements as of September 30, 2019

(Level 1) (Level 2) (Level 3) Total

(in millions)

2 unchanged sentences

Other Noncurrent Assets:

Interest Rate Swaps

Other Non-Current Liabilities:

Contractual Obligations (a)

This represents purchase obligations and contingent consideration related to the Company’s various acquisitions.

Equity Method Investment (c) — 40 — 40

Interest Rate Swap — 2 — 2

Other Noncurrent Liabilities:

Interest Rate Swap — ( 13 ) — ( 13 )

Total $ — $ 29 $ ( 9 ) $ 20

______________________________________

(a) 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 consolidated statements 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.

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 September 30, 2019 for contracts involving the same attributes and maturity dates.

The fair value of equity method investment represents an equity method investment acquired during the fiscal year ended September 30, 2019 whereby the Company has elected the fair value option under ASC 825, Financial Instruments (“ASC 825”).

(b) 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 September 30, 2020 for contracts involving the same attributes and maturity dates.

(c) 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:

The following table reconciles the beginning and ending balances of net liabilities classified as Level 3:

(in millions)

Balance at September 30, 2019 $ ( 9 )

Additions ( 6 )

Balance at September 30, 2020 $ ( 6 )

Additions to net liabilities during the fiscal year ended September 30, 2020 relate to contingent consideration of $6 million recognized in connection with an acquisition in August 2020 and represent a non-cash investing activity for fiscal year ended September 30, 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.

4 unchanged sentences

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, the 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 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 fiscal year ended September 30, 2020.

3 unchanged sentences

Based on the level of interest rates prevailing at September 30, 2019, the fair value of the Company’s debt was $ 3.080 billion.

The fair value of the Company’s debt instruments are determined using quoted market prices from less active markets or by using quoted market prices for instruments with identical terms and maturities;

The fair value of the Company’s debt instruments is 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.

Subsequent Events

Additional 3.000 % Senior Secured Notes

On November 2, 2020, Acquisition Corp.

issued and sold $ 250 million of additional 3.000 % Senior Secured Notes (the “Additional Notes”).

Interest on the Additional Notes will accrue at the rate of 3.000 % per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2021.

Acquisition Corp.

has the option to repurchase all or a portion of the Additional Notes at any time on one or more occasions on or prior to the fifth business day after December 18, 2020 (the “Special Optional Redemption Election Date”) by giving notice at least five business days prior to such time at the special optional redemption price equal to the issue price of the Additional Notes (excluding accrued interest for the period prior to the settlement date) plus 1% of the principal amount thereof together with accrued and unpaid interest on such Additional Notes from August 12, 2020 (or the most recent interest payment date on which interest was paid) to but excluding the redemption date.

The Additional Notes are not initially fungible with the 3.000 % Senior Secured Notes issued on August 12, 2020 (the “Original Notes”).

To the extent that any Additional Notes remain outstanding following the Special Optional Redemption Election Date, Acquisition Corp.

will cause the Additional Notes to bear the same CUSIP and ISIN numbers as the Original Notes (the “CUSIP Merger Event”).

Until the CUSIP Merger Event, the Additional Notes will have identical terms as the Original Notes (other than the issue date, the issue price and the special optional redemption provision).

After the CUSIP Merger Event, the Additional Notes will have identical terms as (other than the issue date and the issue price), and will be fungible with, and be treated as a single series of senior secured debt securities with, the Original Notes.

The proceeds of the issuance and sale of the aforementioned Additional Notes, in conjunction with cash on hand of approximately $ 90 million, were used to fund two acquisitions of music and music-related assets for aggregate cash consideration of $ 338 million.

With the closing of these transactions, Acquisition Corp.

does not intend to exercise the option to repurchase any of the Additional Notes on or prior to the Special Optional Redemption Election Date and, following the CUSIP Merger Event, the Additional Notes will be fungible with, and be treated as a single series of senior secured debt securities with, the Original Notes.

WARNER MUSIC GROUP CORP.

2 unchanged sentences

Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

(in millions)

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

(in millions, except share data)

Revenues $ 1,126 $ 1,010 $ 1,071 $ 1,256

Costs and expenses:

3 unchanged sentences

Total costs and expenses ( 1,038 ) ( 1,443 ) ( 1,120 ) ( 1,091 )

Operating income

Operating income (expense) 88 ( 433 ) ( 49 ) 165

Loss on extinguishment of debt ( 34 ) — — —

Interest expense, net ( 29 ) ( 32 ) ( 33 ) ( 33 )

Other income (expense)

Income before income taxes

Other expense ( 45 ) ( 3 ) ( 4 ) ( 5 )

(Loss) income before income taxes ( 20 ) ( 468 ) ( 86 ) 127

Income tax benefit (expense) 21 ( 51 ) 12 ( 5 )

Net income (loss) 1 ( 519 ) ( 74 ) 122

Income attributable to noncontrolling interest ( 2 ) ( 1 ) — ( 2 )

Net income attributable to Warner Music Group Corp.

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

$ ( 1 ) $ ( 520 ) $ ( 74 ) $ 120

(a) Includes depreciation expense of:

$ ( 18 ) $ ( 15 ) $ ( 14 ) $ ( 24 )

Net (loss) income per share attributable to common stockholders:

Class A – Basic and Diluted $ 0.00 $ ( 1.03 ) $ — $ —

Class B – Basic and Diluted $ 0.00 $ ( 1.03 ) $ ( 0.15 ) $ 0.24

Weighted average common shares:

Class A – Basic and Diluted 87,280,769 20,307,692 — —

Class B – Basic and Diluted 422,719,231 483,796,267 501,991,944 501,991,944

Quarterly operating results can be disproportionately affected by a particularly strong or weak quarter.

4 unchanged sentences

Three Months Ended

September 30,

(in millions)

September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018

(in millions, except share data)

Revenues $ 1,124 $ 1,058 $ 1,090 $ 1,203

Costs and expenses:

7 unchanged sentences

Other income (expense) 19 ( 16 ) 29 28

(Loss) income before income taxes

Income before income taxes 14 2 115 136

Income tax benefit (expense) 77 12 ( 48 ) ( 50 )

Net (loss) income

Net income 91 14 67 86

Income attributable to noncontrolling interest ( 1 ) ( 1 ) — —

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

Net income attributable to Warner Music Group Corp.

$ 90 $ 13 $ 67 $ 86

(a) Includes depreciation expense of:

$ ( 18 ) $ ( 15 ) $ ( 14 ) $ ( 14 )

Net income per share attributable to common stockholders:

Class A – Basic and Diluted $ — $ — $ — $ —

Class B – Basic and Diluted $ 0.18 $ 0.03 $ 0.13 $ 0.17

Weighted average common shares:

Class A – Basic and Diluted — — — —

Class B – Basic and Diluted 501,991,944 501,991,944 501,991,944 501,991,944

Quarterly operating results can be disproportionately affected by a particularly strong or weak quarter.

1 unchanged sentence

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 September 30, 2019 Acquisition Corp.

had issued and outstanding the 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 5.500% Senior Notes due 2026 (together, the “Acquisition Corp.

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.

Consolidating Balance Sheet

September 30, 2019

(in millions)

Current assets:

Cash and equivalents

Accounts receivable, net

Royalty advances expected to be recouped within one year

Prepaid and other current assets

Total current assets

Due from (to) parent companies

Investments in and advances to consolidated subsidiaries

Royalty advances expected to be recouped after one year

Property, plant and equipment, net

Intangible assets subject to amortization, net

Intangible assets not subject to amortization

Deferred tax assets, net

Liabilities and Equity

Current liabilities:

Accounts payable

Accrued royalties

Accrued liabilities

Accrued interest

Deferred revenue

Other current liabilities

Total current liabilities

Long-term debt

Deferred tax liabilities, net

Other noncurrent liabilities

Total liabilities

Total Warner Music Group Corp.

(deficit) equity

Noncontrolling interest

Total liabilities and equity

Consolidating Balance Sheet

September 30, 2018

(in millions)

Current assets:

Cash and equivalents

Accounts receivable, net

Royalty advances expected to be recouped within one year

Prepaid and other current assets

Total current assets

Due from (to) parent companies

Investments in and advances to consolidated subsidiaries

Royalty advances expected to be recouped after one year

Property, plant and equipment, net

Intangible assets subject to amortization, net

Intangible assets not subject to amortization

Deferred tax assets, net

Liabilities and Equity

Current liabilities:

Accounts payable

Accrued royalties

Accrued liabilities

Accrued interest

Deferred revenue

Other current liabilities

Total current liabilities

Long-term debt

Deferred tax liabilities, net

Other noncurrent liabilities

Total liabilities

Total Warner Music Group Corp.

(deficit) equity

Noncontrolling interest

Total liabilities and equity

Consolidating Statement of Operations

For The Fiscal Year Ended September 30, 2019

(in millions)

Costs and expenses:

Cost of revenue

Selling, general and administrative expenses

Amortization of intangible assets

Total costs and expenses

Operating income

Loss on extinguishment of debt

Interest expense, net

Equity gains from consolidated subsidiaries

Other income (expense), net

Income before income taxes

Income tax (expense) benefit

Income attributable to noncontrolling interest

Net income attributable to Warner Music Group Corp.

Consolidating Statement of Operations

For The Fiscal Year Ended September 30, 2018

(in millions)

Costs and expenses:

Cost of revenue

Selling, general and administrative expenses

Amortization of intangible assets

Total costs and expenses

Operating income

Loss on extinguishment of debt

Interest (expense) income, net

Equity gains from consolidated subsidiaries

Other income, net

Income before income taxes

Income tax expense

Income attributable to noncontrolling interest

Net income attributable to Warner Music Group Corp.

Consolidating Statement of Operations

For The Fiscal Year Ended September 30, 2017

(in millions)

Costs and expenses:

Cost of revenue

Selling, general and administrative expenses

Amortization of intangible assets

Total costs and expenses

Operating income (loss)

Loss on extinguishment of debt

Interest (expense) income, net

Equity gains from consolidated subsidiaries

Other expense, net

(Loss) income before income taxes

Income tax benefit (expense)

Income attributable to noncontrolling interest

Net income attributable to Warner Music Group Corp.

Consolidating Statement of Comprehensive Income

For The Fiscal Year Ended September 30, 2019

(in millions)

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment

Deferred loss on derivative financial instruments

Minimum pension liability

Other comprehensive (loss) income, net of tax

Total comprehensive income

Income attributable to noncontrolling interest

Comprehensive income attributable to Warner Music Group Corp.

Consolidating Statement of Comprehensive Income

For The Fiscal Year Ended September 30, 2018

(in millions)

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment

Deferred gain on derivative financial instruments

Minimum pension liability

Other comprehensive (loss) income, net of tax

Total comprehensive income

Income attributable to noncontrolling interest

Comprehensive income attributable to Warner Music Group Corp.

Consolidating Statement of Comprehensive Income

For The Fiscal Year Ended September 30, 2017

(in millions)

Other comprehensive income (loss), net of tax:

Foreign currency adjustment

Deferred loss on derivative financial instruments

Minimum pension liability

Other comprehensive income (loss), net of tax

Total comprehensive income

Income attributable to noncontrolling interest

Comprehensive income attributable to Warner Music Group Corp.

Consolidating Statement of Cash Flows

For The Fiscal Year Ended September 30, 2019

(in millions)

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Unrealized (gains) losses and remeasurement of foreign-denominated loans

Deferred income taxes

Loss on extinguishment of debt

Net gain on divestitures and investments

Non-cash interest expense

Equity-based compensation expense

Equity gains, including distributions

Changes in operating assets and liabilities:

Accounts receivable, net

Royalty advances

Accounts payable and accrued liabilities

Royalty payables

Accrued interest

Deferred revenue

Other balance sheet changes

Net cash (used in) provided by operating activities

Cash flows from investing activities

Acquisition of music publishing rights and music catalogs, net

Capital expenditures

Investments and acquisitions of businesses, net of cash received

Advance to Issuer

Net cash used in investing activities

Cash flows from financing activities

Dividend by Acquisition Corp.

to Holdings Corp.

Proceeds from issuance of Acquisition Corp.

3.625% Senior Notes due 2026

Repayment of Acquisition Corp.

4.125% Senior Secured Notes

Repayment of Acquisition Corp.

4.875% Senior Secured Notes

Repayment of Acquisition Corp.

5.625% Senior Secured Notes

Call premiums paid on early redemption of debt

Deferred financing costs paid

Distribution to noncontrolling interest holder

Change in due to (from) issuer

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and equivalents

Net increase (decrease) in cash and equivalents

Cash and equivalents at beginning of period

Cash and equivalents at end of period

Consolidating Statement of Cash Flows

For The Fiscal Year Ended September 30, 2018

(in millions)

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Unrealized gains/losses and remeasurement of foreign-denominated loans

Deferred income taxes

Loss on extinguishment of debt

Net loss (gain) on divestitures and investments

Non-cash interest expense

Equity-based compensation expense

Equity losses (gains), including distributions

Changes in operating assets and liabilities:

Accounts receivable, net

Royalty advances

Accounts payable and accrued liabilities

Royalty payables

Accrued interest

Deferred revenue

Other balance sheet changes

Net cash (used in) provided by operating activities

Cash flows from investing activities

Acquisition of music publishing rights, net

Capital expenditures

Investments and acquisitions of businesses, net

Divestitures, net

Advance to Issuer

Net cash provided by (used in) investing activities

Cash flows from financing activities

Dividend by Acquisition Corp.

to Holdings Corp.

Proceeds from issuance of Acquisition Corp.

5.500% Senior Notes

Proceeds from issuance of Acquisition Corp.

Senior Term Loan Facility

Repayment of Acquisition Corp.

6.750% Senior Secured Notes

Call premiums paid on early redemption of debt

Deferred financing costs paid

Distribution to noncontrolling interest holder

Change in due (from) to issuer

Net cash used in financing activities

Effect of exchange rate changes on cash and equivalents

Net increase in cash and equivalents

Cash and equivalents at beginning of period

Cash and equivalents at end of period

Consolidating Statement of Cash Flows

For The Fiscal Year Ended September 30, 2017

(in millions)

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Unrealized gains/losses and remeasurement of foreign-denominated loans

Deferred income taxes

Loss on extinguishment of debt

Net loss (gain) on divestitures and investments

Non-cash interest expense

Equity-based compensation expense

Equity losses (gains), including distributions

Changes in operating assets and liabilities:

Accounts receivable, net

Royalty advances

Accounts payable and accrued liabilities

Royalty payables

Accrued interest

Deferred revenue

Other balance sheet changes

Net cash (used in) provided by operating activities

Cash flows from investing activities

Acquisition of music publishing rights, net

Capital expenditures

Investments and acquisitions of businesses, net

Divestitures, net

Advance to Issuer

Net cash provided by (used in) investing activities

Cash flows from financing activities

Dividend by Acquisition Corp.

to Holdings Corp.

Proceeds from issuance of Acquisition Corp.

4.125% Senior Secured Notes

Proceeds from issuance of Acquisition Corp.

4.875% Senior Secured Notes

Proceeds from issuance of Acquisition Corp.

Senior Term Loan Facility

Repayment of Acquisition Corp.

6.000% Senior Secured Notes

Repayment of Acquisition Corp.

6.250% Senior Secured Notes

Repayment of Acquisition Corp.

5.625% Senior Secured Notes

Call premiums paid on early redemption of debt

Deferred financing costs paid

Distribution to noncontrolling interest holder

Dividends paid

Change in due (from) to issuer

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and equivalents

Net increase in cash and equivalents

Cash and equivalents at beginning of period

Cash and equivalents at end of period

WARNER MUSIC GROUP CORP.

Schedule II — Valuation and Qualifying Accounts

Balance at Beginning of Period

Additions Charged to Cost and Expenses

Balance at End of Period

Description Balance at Beginning of Period Additions Charged to Cost and Expenses Deductions Balance at End of Period

(in millions)

Year Ended September 30, 2019

Fiscal Year Ended September 30, 2020

Allowance for doubtful accounts $ 17 $ 11 $ ( 5 ) $ 23

1 unchanged sentence

Allowance for deferred tax asset 91 1 ( 47 ) 45

Year Ended September 30, 2018

Fiscal Year Ended September 30, 2019

Allowance for doubtful accounts $ 18 $ 3 $ ( 4 ) $ 17

1 unchanged sentence

Allowance for deferred tax asset 206 4 ( 119 ) 91

Year Ended September 30, 2017

Fiscal Year Ended September 30, 2018

Allowance for doubtful accounts $ 18 $ 4 $ ( 4 ) $ 18

3 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data