What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2021-02-01 · 236 added, 142 removed, 661 unchanged (36% of the section changed)

35 unchanged sentences

Total liabilities $ 6,757 $ 6,455

Equity (deficit):

Class A common stock, $ 0.001 par value;

1,000,000,000 shares authorized, 111,167,356 and 88,578,361 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

1,000,000,000 shares authorized, 116,921,411 and 88,578,361 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

Class B common stock, $ 0.001 par value;

1,000,000,000 shares authorized, 403,184,814 and 421,450,000 issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

1,000,000,000 shares authorized, 397,461,268 and 421,450,000 issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

Additional paid-in capital 1,924 1,907

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(in millions, except share and per share data)

5 unchanged sentences

Total costs and expenses ( 1,099 ) ( 1,120 ) ( 2,238 ) ( 2,211 )

Operating income 196 165

Operating income (loss) 151 ( 49 ) 347 116

Interest expense, net ( 32 ) ( 33 ) ( 63 ) ( 66 )

Other expense ( 31 ) ( 5 )

Income before income taxes 134 127

Income tax expense ( 35 ) ( 5 )

Net income 99 122

Other income (expense) 49 ( 4 ) 18 ( 9 )

Income (loss) before income taxes 168 ( 86 ) 302 41

Income tax (expense) benefit ( 51 ) 12 ( 86 ) 7

Net income (loss) 117 ( 74 ) 216 48

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

Net income attributable to Warner Music Group Corp.

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

$ 117 $ ( 74 ) $ 215 $ 46

(a) Includes depreciation expense:

$ ( 19 ) $ ( 14 ) $ ( 38 ) $ ( 38 )

Net income per share attributable to common stockholders:

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

Class A – Basic and Diluted $ 0.23 $ — $ 0.41 $ —

7 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(in millions)

Net income $ 99 $ 122

Other comprehensive income, net of tax:

Net income (loss) $ 117 $ ( 74 ) $ 216 $ 48

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment ( 27 ) ( 15 ) 7 ( 8 )

Deferred gain on derivative financial instruments 3 3

Other comprehensive income, net of tax 37 10

Total comprehensive income 136 132

Deferred gain (loss) on derivative financial instruments 3 ( 23 ) 6 ( 20 )

Other comprehensive (loss) income, net of tax ( 24 ) ( 38 ) 13 ( 28 )

Total comprehensive income (loss) 93 ( 112 ) 229 20

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

Comprehensive income attributable to Warner Music Group Corp.

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

$ 93 $ ( 112 ) $ 228 $ 18

See accompanying notes

1 unchanged sentence

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended

Six Months Ended

(in millions)

3 unchanged sentences

Depreciation and amortization 148 132

Unrealized losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 45 5

Unrealized losses (gains) and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 4 ( 7 )

Deferred income taxes 14 ( 31 )

31 unchanged sentences

Consolidated Statements of Equity (Deficit) (Unaudited)

Three Months Ended December 31, 2020

Six Months Ended March 31, 2021

Common Stock Class B

3 unchanged sentences

Comprehensive

(Deficit) Non-controlling

Interest Total

Equity (Deficit) Non-controlling

Interest Total Equity (Deficit)

Shares Value Shares Value

3 unchanged sentences

Other comprehensive income, net of tax — — — — — — 13 13 — 13

Dividends ($ 0.12 per Class A and B share)

Dividends ($ 0.24 per share)

— — — — — ( 125 ) — ( 125 ) — ( 125 )

3 unchanged sentences

Shares issued under the Plan 4,321,259 — — — — — — — — —

Conversion of Class B shares 4,754,626 — ( 4,754,626 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 33,062 — — — — — — — — —

Balance at March 31, 2021 116,921,411 $ — 397,461,268 $ 1 $ 1,924 $ ( 1,659 ) $ ( 209 ) $ 57 $ 16 $ 73

Three Months Ended March 31, 2021

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity (Deficit) Non-controlling

Interest Total Equity (Deficit)

Shares Value Shares Value

(in millions, except share and per share data)

Balance at December 31, 2020 111,167,356 $ — 403,184,814 $ 1 $ 1,913 $ ( 1,713 ) $ ( 185 ) $ 16 $ 17 $ 33

Three Months Ended December 31, 2019

Net income — — — — — 117 — 117 — 117

Other comprehensive loss, net of tax — — — — — — ( 24 ) ( 24 ) — ( 24 )

Dividends ($ 0.12 per share)

— — — — — ( 63 ) — ( 63 ) — ( 63 )

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

Distribution to noncontrolling interest holders — — — — — — — — ( 1 ) ( 1 )

Exchange of Class B shares for Class A shares 968,920 — ( 968,920 ) — — — — — — —

Conversion of Class B Shares 4,754,626 — ( 4,754,626 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 30,509 — — — — — — — — —

Balance at March 31, 2021 116,921,411 $ — 397,461,268 $ 1 $ 1,924 $ ( 1,659 ) $ ( 209 ) $ 57 $ 16 $ 73

Six Months Ended March 31, 2020

Common Stock Class B

9 unchanged sentences

Cumulative effect of ASC 842 adoption — — — — — 7 — 7 — 7

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

Net income — — — — — 46 — 46 2 48

Other comprehensive income, net of tax — — — — — — 10 10 — 10

Dividends ($ 0.07 per Class B share)

Other comprehensive loss, net of tax — — — — — — ( 28 ) ( 28 ) — ( 28 )

Dividends ($ 0.15 per share)

— — — — — ( 75 ) — ( 75 ) — ( 75 )

1 unchanged sentence

Other — — 4,169,978 — — — — — — —

Balance at March 31, 2020 — $ — 510,000,000 $ 1 $ 1,127 $ ( 1,166 ) $ ( 268 ) $ ( 306 ) $ 21 $ ( 285 )

Three Months Ended March 31, 2020

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Deficit Non-controlling

Interest Total

Shares Value Shares Value

(in millions, except share and per share data)

Balance at December 31, 2019 — $ — 510,000,000 $ 1 $ 1,127 $ ( 1,088 ) $ ( 230 ) $ ( 190 ) $ 21 $ ( 169 )

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

Net loss — — — — — ( 74 ) — ( 74 ) — ( 74 )

Other comprehensive loss, net of tax — — — — — — ( 38 ) ( 38 ) — ( 38 )

Dividends ($ 0.07 per share)

— — — — — ( 37 ) — ( 37 ) — ( 37 )

Balance at March 31, 2020 — $ — 510,000,000 $ 1 $ 1,127 $ ( 1,166 ) $ ( 268 ) $ ( 306 ) $ 21 $ ( 285 )

See accompanying notes

61 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021.

Operating results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021.

The consolidated balance sheet at September 30, 2020 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S.

8 unchanged sentences

The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period.

As such, all references to December 31, 2020 and December 31, 2019 relate to the periods ended December 25, 2020 and December 27, 2019, respectively.

For convenience purposes, the Company continues to date its first-quarter financial statements as of December 31.

As such, all references to March 31, 2021 and March 31, 2020 relate to the periods ended March 26, 2021 and March 27, 2020, respectively.

For convenience purposes, the Company continues to date its second-quarter financial statements as of March 31.

The fiscal year ended September 30, 2020 ended on September 25, 2020.

6 unchanged sentences

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 is 31,169,099 shares of Class A Common Stock over the 10 -year period from the date of adoption, including up to 1,000,000 shares of our Class A Common Stock in connection with the IPO.

Since the IPO, a total of 30,914 shares of restricted stock has been issued under the Omnibus Incentive Plan to the Company’s directors, which includes 2,553 issued during the three months ended December 31, 2020.

Since the IPO, a total of 61,423 shares of restricted stock has been issued under the Omnibus Incentive Plan to the Company’s directors, which includes 30,509 and 33,062 shares issued during the three and six months ended March 31, 2021, respectively.

Refer to “Stock-Based Compensation” below regarding additional shares issued under our Omnibus Incentive Plan.

In connection with the Company’s Senior Management Cash Flow Plan (“the Plan”), equity units held by certain participants were required to be settled in December 2020.

This resulted in the redemption of Class A and Class B units held by certain participants in WMG Management Holdings, LLC (“Management LLC”) in exchange for 18,265,813 shares of Class B Common Stock.

In December 2020, all of the outstanding equity interests held by certain participants in the Second Amended and Restated Warner Music Group Corp.

Senior Management Free Cash Flow Plan (the “Plan”) were settled or redeemed in accordance with the terms of the Plan.

The Class A and Class B equity units held by certain participants in WMG Management Holdings, LLC (“Management LLC”) were redeemed in exchange for 18,265,183 shares of Class B Common Stock.

These shares of Class B Common Stock converted to shares of Class A Common Stock upon exchange.

Additionally, the Company issued a total of 4,321,259 additional shares of Class A Common Stock to settle the participants’ remaining deferred equity units previously issued under the Plan.

As a result of these transactions, the participants received a total of 22,586,442 shares of Class A Common Stock in connection with the final settlement in December 2020 for all interests previously issued under the Plan.

The Company also issued a total of 4,321,259 additional shares of Class A Common Stock to settle the participants’ remaining deferred equity units previously issued under the Plan.

In March 2021, the Compensation Committee of the Board of Directors of the Company approved an amendment to the Plan that allowed certain remaining Plan participants to redeem a portion of their vested Class B equity units of Management LLC.

These Class B equity units were redeemed in exchange for a total of 968,920 shares of Class B Common Stock, which shares of Class B Common Stock converted to shares of Class A Common Stock upon the exchange.

In February 2021, Access converted 4,754,626 shares of Class B Common Stock to the same number of shares of Class A Common Stock, which it subsequently sold through open market sales, which is reflected as an exchange of Class B Common Stock for Class A Common Stock in the consolidated statements of equity for the three and six months ended March 31, 2021.

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 per share were computed by dividing net income 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.

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.

13 unchanged sentences

The Company will continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan and awards issued under the Omnibus Incentive Plan.

During the three months ended December 31, 2020, the Company approved the issuance of restricted stock units (“RSUs”) under the Omnibus Incentive Plan to eligible employees and executives.

For accounting purposes, vesting of such restricted stock units commenced during the period.

The Company recognized approximately $ 6 million of stock-based compensation expense for the three months ended December 31, 2020, which is included in additional paid-in capital, for its unvested share awards that were granted prior to the IPO and shares issued under the Omnibus Incentive Plan.

During the three and six months ended March 31, 2021, the Company granted restricted stock units (“RSUs”) under the Omnibus Incentive Plan to eligible employees and executives.

The Company recognized approximately $ 15 million and $ 21 million of non-cash stock-based compensation expense for the three and six months ended March 31, 2021, respectively, of which $ 11 million and $ 17 million was recorded to additional paid-in capital, and a remaining $ 4 million has been classified as a share-based compensation liability as of March 31, 2021.

The share-based liability represents executive awards that have not yet been granted under the Omnibus Incentive Plan, where a total value is known and settlement will occur in a variable number of RSUs.

The Company uses the estimated annual effective tax rate method in computing its interim tax provision.

14 unchanged sentences

(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;

(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.

5 unchanged sentences

Earnings per Share

The Company utilizes the two-class method to report earnings per share.

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

1 unchanged sentence

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 Company did not have any dilutive securities for the three months ended December 31, 2019.

The Company did not have any securities with a dilutive effect for the three and six months ended March 31, 2021 and 2020, respectively.

In computing earnings 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 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.

3 unchanged sentences

Refer to Note 2 for a description of current period activity.

Restricted stock units with anti-dilutive effect were excluded from the EPS calculation and they were not material for the three months ended December 31, 2020.

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three months ended December 31, 2020 and 2019 (in millions, except share and per share data):

Three Months Ended December 31,

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three and six months ended March 31, 2021 and 2020 (in millions, except share and per share data):

Three Months Ended March 31,

Class A Class B Class A Class B

6 unchanged sentences

Basic and Diluted EPS $ 0.23 $ 0.22 $ — $ ( 0.15 )

Six Months Ended March 31,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

$ 46 $ 169 $ — $ 46

Net income attributable to participating securities ( 3 ) — — —

Net income attributable to common stockholders $ 43 $ 169 $ — $ 46

Weighted average shares outstanding 103,922,919 408,669,332 0 501,991,944

Basic and Diluted EPS $ 0.41 $ 0.41 $ — $ 0.09

Revenue Recognition

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(in millions)

10 unchanged sentences

Synchronization 38 34 71 70

Other 3 2 5 5

Total Music Publishing 192 166 367 339

4 unchanged sentences

Music Publishing 96 87 187 168

565 467 1,137 1,001

International Recorded Music 590 527 1,270 1,158

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.

33 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 arrears.

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.

12 unchanged sentences

Based on this information, management provides a reserve for estimated credit losses.

Based on management’s analysis of sales returns, refund liabilities of $ 37 million and $ 24 million were established at December 31, 2020 and September 30, 2020, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 24 million and $ 23 million were established at December 31, 2020 and September 30, 2020, respectively.

Based on management’s analysis of sales returns, refund liabilities of $ 26 million and $ 24 million were established at March 31, 2021 and September 30, 2020, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 24 million and $ 23 million were established at March 31, 2021 and September 30, 2020, respectively.

Principal versus Agent Revenue Recognition

9 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 by $ 128 million during the three months ended December 31, 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 $ 87 million were recognized during the three months ended December 31, 2020 related to the balance of deferred revenue at September 30, 2020.

Deferred revenue increased by $ 236 million during the six months ended March 31, 2021 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 155 million were recognized during the six months ended March 31, 2021 related to the balance of deferred revenue at September 30, 2020.

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

Performance Obligations

The Company recognized revenue of $ 20 million and $ 27 million from performance obligations satisfied in previous periods for the three months ended December 31, 2020 and December 31, 2019, respectively.

For the six months ended March 31, 2021 and March 31, 2020, the Company recognized revenue of $ 34 million and $ 30 million, respectively, from performance obligations satisfied in previous periods.

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 December 31, 2020 are as follows:

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2021 are as follows:

Rest of FY21 FY22 FY23 Thereafter Total

11 unchanged sentences

Other comprehensive income 7 — 6 13

Balances at December 31, 2020 $ ( 147 ) $ ( 12 ) $ ( 26 ) $ ( 185 )

Balances at March 31, 2021 $ ( 174 ) $ ( 12 ) $ ( 23 ) $ ( 209 )

______________________________________

26 unchanged sentences

The landlord for both leases is an affiliate of Access.

As of December 31, 2020, the aggregate lease liability related to these leases was $ 133 million.

As of March 31, 2021, the aggregate lease liability related to these leases was $ 131 million.

There are no restrictions or covenants, such as those relating to dividends or incurring additional financial obligations, relating to our lease portfolio, and residual value guarantees are not significant.

The components of lease expense were as follows:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2021 2020 2021 2020

(in millions)

5 unchanged sentences

Supplemental cash flow information related to leases was as follows:

Three Months Ended December 31,

Six Months Ended March 31,

(in millions)

18 unchanged sentences

Total lease payments 395

Less imputed interest ( 68 )

As of December 31, 2020, there have been no leases entered into that have not yet commenced.

Imputed interest ( 65 )

As of March 31, 2021, there have been no leases entered into that have not yet commenced.

Goodwill and Intangible Assets

5 unchanged sentences

Other adjustments (a) 6 — 6

Balances at December 31, 2020 $ 1,387 $ 464 $ 1,851

Balances at March 31, 2021 $ 1,378 $ 464 $ 1,842

______________________________________

(a) Other adjustments during the three months ended December 31, 2020 represent foreign currency movements

(a) Other adjustments during the six months ended March 31, 2021 represent foreign currency movements.

The Company performs its annual goodwill impairment test in accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”) during the fourth quarter of each fiscal year as of July 1.

3 unchanged sentences

Intangible assets consist of the following:

Weighted-Average Useful Life December 31,

Weighted-Average Useful Life March 31,

2021 September 30,

12 unchanged sentences

Total net intangible assets $ 2,081 $ 1,807

The increase in intangible assets during the three months ended December 31, 2020 primarily relates to two acquisition transactions of music-related assets within recorded music catalogs, music publishing copyrights, and artist and songwriter contracts for approximately $ 318 million.

The increase in intangible assets during the six months ended March 31, 2021 primarily relates to two acquisition transactions of music-related assets within recorded music catalogs, music publishing copyrights, and artist and songwriter contracts for approximately $ 318 million.

Debt Capitalization

3 unchanged sentences

Revolving Credit Facility (a) $ — $ —

Senior Term Loan Facility due 2023 (b) 815 814

3.625 % Senior Secured Notes due 2026 (c)

2.750 % Senior Secured Notes due 2028 (d)

3.875 % Senior Secured Notes due 2030 (e)

3.000 % Senior Secured Notes due 2031 (f)

5.500 % Senior Notes due 2026 (g)

Total long-term debt, including the current portion (h) $ 3,387 $ 3,104

Senior Term Loan Facility due 2028 820 820

3.625 % Senior Secured Notes due 2026 (€ 445 face amount)

2.750 % Senior Secured Notes due 2028 (€ 325 face amount)

3.875 % Senior Secured Notes due 2030

3.000 % Senior Secured Notes due 2031

5.500 % Senior Notes due 2026

Total long-term debt, including the current portion $ 3,387 $ 3,127

Issuance premium less unamortized discount and unamortized deferred financing costs ( 33 ) ( 23 )

Total long-term debt, including the current portion, net $ 3,354 $ 3,104

______________________________________

(a) Reflects $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 10 million at both December 31, 2020 and September 30, 2020.

There were no loans outstanding under the Revolving Credit Facility at December 31, 2020 or September 30, 2020.

(b) Principal amount of $ 820 million at both December 31, 2020 and September 30, 2020 less unamortized discount of $ 1 million and $ 1 million and unamortized deferred financing costs of $ 4 million and $ 5 million at December 31, 2020 and September 30, 2020, respectively.

On January 20, 2021, Acquisition Corp.

entered into an amendment of the credit agreement governing the Senior Term Loan Facility which, among other things, extends the maturity date of its outstanding term loans from November 1, 2023 to January 20, 2028 and removes a number of negative covenants limiting the ability of Acquisition Corp.

to take various actions.

Above amounts represent the dollar equivalent of such note at December 31, 2020 and September 30, 2020.

Principal amount of $ 543 million and $ 519 million at December 31, 2020 and September 30, 2020, respectively, an additional issuance premium of $ 7 million, less unamortized deferred financing costs of $ 5 million at both December 31, 2020 and September 30, 2020.

(d) Face amount of € 325 million at both December 31, 2020 and September 30, 2020.

Above amounts represent the dollar equivalent of such note at December 31, 2020 and September 30, 2020.

Principal amount of $ 396 million and $ 379 million at

December 31, 2020 and September 30, 2020, respectively, less unamortized deferred financing costs of $ 4 million and $ 4 million at both December 31, 2020 and September 30, 2020.

(e) Principal amount of $ 535 million less unamortized deferred financing costs of $ 6 million at both December 31, 2020 and September 30, 2020.

(f) Principal amount of $ 800 million and $ 550 million at December 31, 2020 and September 30, 2020, respectively, less unamortized discount of $ 7 million at December 31, 2020 and unamortized deferred financing costs of $ 9 million and $ 6 million at December 31, 2020 and September 30, 2020, respectively.

On November 2, 2020, Acquisition Corp.

issued an additional $ 250 million in aggregate principal amount of its 3.000 % Senior Secured Notes due 2031.

(g) Principal amount of $ 325 million less unamortized deferred financing costs of $ 3 million and $ 4 million at December 31, 2020 and September 30, 2020.

(h) Principal amount of debt of $ 3.419 billion and $ 3.127 billion, an additional issuance premium of $ 7 million and $ 7 million, less unamortized discount of $ 8 million and $ 1 million and unamortized deferred financing costs of $ 31 million and $ 29 million at December 31, 2020 and September 30, 2020, respectively.

(a) Reflects $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 10 million at both March 31, 2021 and September 30, 2020.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2021 or September 30, 2020.

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

As of December 31, 2020 Acquisition Corp.

As of March 31, 2021 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.

5 unchanged sentences

The guarantee of the Acquisition Corp.

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

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.

8 unchanged sentences

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.

had 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”), but did not exercise its option to repurchase.

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

Following the Special Optional Redemption Election Date, Acquisition Corp.

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

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

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

Senior Term Loan Facility

On January 20, 2021, Acquisition Corp.

entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the credit agreement, dated November 1, 2012 (as amended by the amendments dated as of May 9, 2013, July 13, 2016, November 21, 2016, May 22, 2017, December 6, 2017 and June 7, 2018), among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing the Senior Term Loan Facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto (the “Senior Term Loan Credit Agreement”).

The Senior Term Loan Credit Agreement Amendment (among other changes) (i) extends the maturity date of its outstanding term loans from November 1, 2023 to January 20, 2028 and (ii) removes a number of negative covenants limiting the ability of Acquisition Corp.

to take various actions.

The remaining negative covenants are limited to restrictions on liens, restrictions on fundamental changes and change of control, and are in a form substantially similar to the negative covenants in the 2.750 % Senior Secured Notes due 2028, 3.875 % Senior Secured Notes due 2030 and 3.000 % Senior Secured Notes due 2031.

The Company recorded approximately $ 3 million of expenses associated with fees paid to third parties in connection with this debt modification and capitalized approximately $ 1 million in fees paid to creditors.

Revolving Credit Agreement Amendment

On March 1, 2021, Acquisition Corp.

entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018 (as amended by the amendments dated as of October 9, 2019 and April 3, 2020), among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Revolving Credit Agreement Amendment (among other changes) adds certain exceptions and increases the leverage ratio below which Acquisition Corp.

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

Senior Term Loan Facility Increase Supplement and Redemption of 5.500 % Senior Notes due 2026

On March 8, 2021, Acquisition Corp.

entered into an Increase Supplement (the “Increase Supplement”), dated as of March 8, 2021, among Acquisition Corp., the guarantors party thereto, WMG Holdings Corp., Credit Suisse AG, Cayman Islands Branch, as increasing lender, and Credit Suisse AG, as administrative agent, to the Senior Term Loan Credit Agreement, whereby prior to April 22, 2021 and subject to the satisfaction of certain conditions, Acquisition Corp.

may borrow additional term loans in an amount up to $ 325 million for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of up to $ 1,145 million.

The Increase Supplement was entered into to provide for the redemption of Acquisition Corp.’s 5.500 % Senior Notes due 2026 (the “ 5.500 % Notes”).

On April 14, 2021, Acquisition Corp.

borrowed additional term loans in an amount of $ 325 million under the Increase Supplement.

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

On April 15, 2021, Acquisition Corp.

redeemed all of the outstanding 5.500 % Notes.

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

Interest Rates

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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 3.15 x at December 31, 2020, the applicable margin for Eurodollar loans would be 1.625 % instead of 1.875 % and the applicable margin for ABR loans would be 0.625 % instead of 0.875 % in the case of 2020 Revolving Loans.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.98 x at March 31, 2021, the applicable margin for Eurodollar loans would be 1.375 % instead of 1.875 % and the applicable margin for ABR loans would be 0.375 % instead of 0.875 % in the case of 2020 Revolving Loans.

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.

interest will also be payable on other overdue amounts at a rate of 2.0 % per annum above the amount that would apply to an alternative base rate loan.

Default interest will also be payable on other overdue amounts at a rate of 2.0 % per annum above the amount that would apply to an alternative base rate loan.

The loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in U.S.

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Maturity of Senior Term Loan Facility

The loans outstanding under the Senior Term Loan Facility mature on November 1, 2023.

On January 20, 2021, Acquisition Corp.

to take various actions.

The loans outstanding under the Senior Term Loan Facility mature on January 20, 2028.

Maturity of Revolving Credit Facility

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Maturities of Senior Notes and Senior Secured Notes

As of December 31, 2020, there are no scheduled maturities of notes until 2026, when $ 868 million is scheduled to mature.

As of March 31, 2021, there are no scheduled maturities of notes until 2026, when $ 849 million is scheduled to mature.

Thereafter, $ 1.718 billion is scheduled to mature.

Following the redemption of the 5.500 % Notes in April 2021 as described in Note 15, the remaining principal amount of notes due in 2026 is $ 524 million related to the 3.625 % Senior Secured Notes due 2026.

Interest Expense, net

Total interest expense, net was $ 31 million and $ 33 million for the three months ended December 31, 2020 and December 31, 2019, respectively.

The weighted-average interest rate of the Company’s total debt was 3.7 % at December 31, 2020, 3.7 % at September 30, 2020 and 4.2 % at December 31, 2019.

Total interest expense, net was $ 32 million and $ 33 million for the three months ended March 31, 2021 and 2020, respectively, and $ 63 million and $ 66 million for the six months ended March 31, 2021 and 2020, respectively.

The weighted-average interest rate of the Company’s total debt was 3.7 % at March 31, 2021, 3.7 % at September 30, 2020 and 4.2 % at March 31, 2020.

Commitments and Contingencies

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As a result of final regulations regarding the interest expense allocation rules issued by the Internal Revenue Service in December 2019, the Company concluded that it is more likely than not that the entire amount of the Company’s deferred tax assets relating to foreign tax credit carryforwards will be realized.

Consequently, the Company released its $ 33 million valuation allowance

at September 30, 2019 relating to such deferred tax assets and recognized a corresponding U.S.

Consequently, the Company released its $ 33 million valuation allowance at September 30, 2019 relating to such deferred tax assets and recognized a corresponding U.S.

tax benefit of $ 33 million during the three months ended December 31, 2019.

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As a result of the IPO in June 2020, the Company is subject to limitation on the deductibility of executive compensation under Internal Revenue Code (“IRC”) Section 162(m).

For the three months ended December 31, 2020, the Company recorded an income tax expense of $ 35 million.

The income tax expense for the three months ended December 31, 2020 is higher than the expected tax expense at the statutory tax rate of 21% primarily due to U.S.

state and local taxes, foreign income taxed at rates higher than the US, and non-deductible executive compensation under IRC Section 162(m), offset by FDII and excess tax benefits from long term incentive plan.

For the three months ended December 31, 2019, the Company recorded an income tax expense of $ 5 million.

The income tax expense for the three months ended December 31, 2019 is lower than the expected tax expense at the statutory tax rate of 21% primarily due to tax benefit of a release of a valuation allowance relating to foreign tax credit carryforwards and FDII, offset by non-deductible long term incentive plan, U.S.

For the three and six months ended March 31, 2021, the Company recorded an income tax expense of $ 51 million and $ 86 million, respectively.

The income tax expense for the three months ended March 31, 2021 is higher than the expected tax expense at the statutory tax rate of 21% primarily due to U.S.

state and local taxes, foreign income taxes at rates higher than the U.S., and non-deductible executive compensation under IRC Section 162(m), offset, by FDII.

The income tax expense for the six months ended March 31, 2021 is higher than the expected tax expense at the statutory tax rate of 21% primarily due to U.S.

state and local taxes, foreign income taxes at rates higher than the U.S., and non-deductible executive compensation under IRC Section 162(m), offset by FDII and excess tax benefits from long term incentive plan.

For the three and six months ended March 31, 2020, the Company recorded an income tax benefit of $ 12 million and $ 7 million, respectively.

The income tax benefit for the three months ended March 31, 2020 is lower than the expected tax benefit at the statutory tax rate of 21% primarily due to non-deductible expenses of the Plan.

The income tax benefit for the six months ended March 31, 2020 is lower than the expected tax benefit at the statutory rate of 21% primarily due to tax benefit of the valuation allowance release relating to foreign tax credit carryforwards and FDII, offset by non-deductible expenses of the Plan, U.S.

state and local taxes, foreign income taxed at rates higher than the U.S.

statutory tax rate, withholding taxes and foreign losses with no tax benefit.

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of December 31, 2020 could decrease by up to approximately $ 2 million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of March 31, 2021 could decrease by up to approximately $ 2 million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.

Derivative Financial Instruments

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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 December 31, 2020 are expected to be recognized within three years .

The Company’s hedged interest rate transactions as of March 31, 2021 are expected to be recognized within three 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 14.

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

As of December 31, 2020, the Company had outstanding hedge contracts for the sale of $ 270 million and the purchase of $ 176 million of foreign currencies at fixed rates that will be settled by September 2021.

As of December 31, 2020, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 26 million of unrealized deferred losses in comprehensive income related to the interest rate swaps.

As of March 31, 2021, the Company had outstanding hedge contracts for the sale of $ 243 million and the purchase of $ 149 million of foreign currencies at fixed rates that will be settled by September 2021.

As of March 31, 2021, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 23 million of unrealized deferred losses in comprehensive income related to the interest rate swaps.

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 income related to the interest rate swaps.

The Company recorded realized pre-tax losses of $ 1 million and unrealized 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 three months ended December 31, 2020.

The Company recorded realized pre-tax losses of $ 1 million and unrealized pre-tax losses of $ 3 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the three months ended December 31, 2019.

The unrealized pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the three months ended December 31, 2020 were $ 4 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at December 31, 2020 and September 30, 2020:

The Company recorded realized pre-tax losses of $ 2 million and no unrealized pre-tax gains or losses related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the six months ended March 31, 2021.

The Company recorded realized pre-tax losses of $ 2 million and unrealized pre-tax losses of $ 3 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the six months ended March 31, 2020.

The unrealized pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the six months ended March 31, 2021 were $ 8 million.

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 six months ended March 31, 2020 were $ 25 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at March 31, 2021 and September 30, 2020:

2021 (a) September 30,

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Three Months Ended (in millions)

December 31, 2020

March 31, 2021

Revenues $ 1,059 $ 192 $ ( 1 ) $ 1,250

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OIBDA 235 43 ( 50 ) 228

December 31, 2019

March 31, 2020

Revenues $ 907 $ 166 $ ( 2 ) $ 1,071

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OIBDA 76 48 ( 112 ) 12

Publishing Corporate

eliminations Total

Six Months Ended (in millions)

March 31, 2021

Revenues $ 2,220 $ 367 $ ( 2 ) $ 2,585

Operating income (loss) 407 40 ( 100 ) 347

Amortization of intangible assets 71 39 — 110

Depreciation of property, plant and equipment 26 3 9 38

OIBDA 504 82 ( 91 ) 495

March 31, 2020

Revenues $ 1,991 $ 339 $ ( 3 ) $ 2,327

Operating income (loss) 227 44 ( 155 ) 116

Amortization of intangible assets 59 35 — 94

Depreciation of property, plant and equipment 31 2 5 38

OIBDA 317 81 ( 150 ) 248

Additional Financial Information

Cash Interest and Taxes

The Company made interest payments of approximately $ 27 million and $ 44 million during the three months ended December 31, 2020 and December 31, 2019, respectively.

The Company paid approximately $ 17 million and $ 20 million of income and withholding taxes, net of refunds, for the three months ended December 31, 2020 and December 31, 2019, respectively.

The Company made interest payments of approximately $ 37 million and $ 21 million during the three months ended March 31, 2021 and 2020, respectively, and approximately $ 64 million and $ 65 million during the six months ended March 31, 2021 and 2020, respectively.

The Company paid approximately $ 35 million and $ 20 million of income and withholding taxes, net of refunds, for the three months ended March 31, 2021 and 2020, respectively, and approximately $ 52 million and $ 40 million of income and withholding taxes, net of refunds, for the six months ended March 31, 2021 and 2020, 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.

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

On 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, which was paid to stockholders on December 1, 2020.

The Company paid an aggregate of approximately $ 62 million in cash dividends to stockholders and participating security holders for the three months ended December 31, 2020.

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

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

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 three months ended December 31, 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.

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The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

In accordance with the fair value hierarchy, described above, the following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of December 31, 2020 and September 30, 2020.

Fair Value Measurements as of December 31, 2020

Fair Value Measurements as of March 31, 2021

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

(in millions)

Other Current Assets:

Foreign Currency Forward Exchange Contracts (a) $ — $ 1 $ — $ 1

Other Current Liabilities:

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Equity Method Investment (c) — 67 — 67

Equity Investment with Readily Determinable Fair Value (d) — 32 — 32

Other Noncurrent Liabilities:

Contractual Obligations (b) — — ( 12 ) ( 12 )

Interest Rate Swaps (d) — ( 34 ) — ( 34 )

Interest Rate Swaps (e) — ( 30 ) — ( 30 )

Total $ — $ 69 $ ( 16 ) $ 53

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Contractual Obligations (b) — — ( 4 ) ( 4 )

Interest Rate Swaps (d) — ( 38 ) — ( 38 )

Interest Rate Swaps (e) — ( 38 ) — ( 38 )

Total $ — $ 9 $ ( 6 ) $ 3

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(b) This represents contingent consideration related to an acquisition.

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.

This is based on a probability weighted performance approach and it is adjusted to fair value on a recurring basis and any adjustments are typically included as a component of operating income in the consolidated statements of operations.

This amount was mainly calculated using unobservable inputs such as future earnings performance of the acquiree and the expected timing of the payment.

(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”).

(c) This 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.

(d) 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 December 31, 2020 for contracts involving the same attributes and maturity dates.

(d) This represents an equity investment with a readily determinable fair value that was acquired and subsequently became publicly traded during the six months ended March 31, 2021.

The Company has measured its investment to fair value in accordance with ASC 321, Investments—Equity Securities, based on quoted prices in active markets.

The Company recognized an unrealized gain on this equity investment of $ 12 million for both the three and six months ended March 31, 2021, which was recorded as a component of other income in the consolidated statements of operations.

(e) The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of March 31, 2021 for contracts involving the same attributes and maturity dates.

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

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Additions ( 10 )

Balance at December 31, 2020 $ ( 7 )

Balance at March 31, 2021 $ ( 16 )

Additions to net liabilities during the six months ended March 31, 2021 includes a measurement period adjustment of $ 7 million to contingent consideration for an August 2020 acquisition.

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.

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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 three months ended December 31, 2020.

In addition, there were no observable price changes events that were completed during the three months ended December 31, 2020.

The Company did not record any impairment charges on these investments during the three and six months ended March 31, 2021.

In addition, there were no observable price changes events that were completed during the three and six months ended March 31, 2021.

Fair Value of Debt

Based on the level of interest rates prevailing at December 31, 2020, the fair value of the Company’s debt was $ 3.468 billion.

Based on the level of interest rates prevailing at March 31, 2021, the fair value of the Company’s debt was $ 3.371 billion.

Based on the level of interest rates prevailing at September 30, 2020, the fair value of the Company’s debt was $ 3.137 billion.

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Subsequent Events

Senior Term Loan Facility

On January 20, 2021, Acquisition Corp.

to take various actions.

On April 14, 2021, Acquisition Corp.

borrowed additional term loans in an amount of $ 325 million under the Increase Supplement.

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

On April 15, 2021, Acquisition Corp.

redeemed all of the outstanding 5.500 % Notes.

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

What changed 10-Q

Item 1. Financial Statements