What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-05-04 · 158 added, 153 removed, 744 unchanged (29% of the section changed)

37 unchanged sentences

Class A common stock, $ 0.001 par value;

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

1,000,000,000 shares authorized, 116,921,554 and 88,578,361 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively

Class B common stock, $ 0.001 par value;

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

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

Additional paid-in capital 1,934 1,907

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

7 unchanged sentences

Operating income (loss) 162 ( 433 ) 509 ( 317 )

Loss on extinguishment of debt ( 12 ) — ( 12 ) —

Interest expense, net ( 30 ) ( 32 ) ( 93 ) ( 98 )

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

Other (expense) income ( 18 ) ( 3 ) — ( 12 )

Income (loss) before income taxes 102 ( 468 ) 404 ( 427 )

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

Income tax expense ( 41 ) ( 51 ) ( 127 ) ( 44 )

Net income (loss) 61 ( 519 ) 277 ( 471 )

2 unchanged sentences

$ 61 $ ( 520 ) $ 276 $ ( 474 )

(a) Includes depreciation expense:

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

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

4 unchanged sentences

Class B – Basic and Diluted 397,461,268 483,796,267 404,933,311 495,926,718

(a) Includes depreciation expense:

$ ( 19 ) $ ( 15 ) $ ( 57 ) $ ( 53 )

See accompanying notes

Warner Music Group Corp.

Consolidated Statements of Comprehensive Income (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

1 unchanged sentence

Net income (loss) $ 61 $ ( 519 ) $ 277 $ ( 471 )

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency adjustment 12 17 19 9

Deferred gain (loss) on derivative financial instruments 3 ( 2 ) 9 ( 22 )

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

Other comprehensive income (loss), net of tax 15 15 28 ( 13 )

Total comprehensive income (loss) 76 ( 504 ) 305 ( 484 )

5 unchanged sentences

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended

Nine Months Ended

(in millions)

Cash flows from operating activities

Net income $ 216 $ 48

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

Net income (loss) $ 277 $ ( 471 )

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

Depreciation and amortization 227 194

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

Unrealized losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 17 14

Deferred income taxes 27 ( 34 )

Loss on extinguishment of debt 12 —

Net (gain) loss on divestitures and investments ( 26 ) 2

19 unchanged sentences

Proceeds from issuance of 3.000 % Senior Secured Notes due 2031

Proceeds from increase supplement to Senior Term Loan Facility 325 —

Repayment of 5.500 % Senior Notes due 2026

Deferred financing costs paid ( 8 ) ( 1 )

Distribution to noncontrolling interest holder ( 1 ) ( 1 )

Call premiums paid on early redemption of debt ( 8 ) —

Distribution to noncontrolling interest holders ( 6 ) ( 6 )

Dividends paid ( 187 ) ( 281 )

1 unchanged sentence

Effect of exchange rate changes on cash and equivalents 10 1

Net increase (decrease) in cash and equivalents 35 ( 135 )

Net decrease in cash and equivalents ( 111 ) ( 87 )

Cash and equivalents at beginning of period 553 619

3 unchanged sentences

Consolidated Statements of Equity (Deficit) (Unaudited)

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

Common Stock Class B

18 unchanged sentences

Shares issued under Omnibus Incentive Plan 33,205 — — — — — — — — —

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

Other — — — — — — — — 1 1

Balance at June 30, 2021 116,921,554 $ — 397,461,268 $ 1 $ 1,934 $ ( 1,660 ) $ ( 194 ) $ 81 $ 14 $ 95

Three Months Ended June 30, 2021

Common Stock Class B

7 unchanged sentences

(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

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

Net income — — — — — 61 — 61 — 61

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

Other comprehensive income, net of tax — — — — — — 15 15 — 15

Dividends ($ 0.12 per share)

2 unchanged sentences

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

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 143 — — — — — — — — —

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

Other — — — — — — — — 1 1

Balance at June 30, 2021 116,921,554 $ — 397,461,268 $ 1 $ 1,934 $ ( 1,660 ) $ ( 194 ) $ 81 $ 14 $ 95

Nine Months Ended June 30, 2020

Common Stock Class B

10 unchanged sentences

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

Net income — — — — — 46 — 46 2 48

Net loss — — — — — ( 474 ) — ( 474 ) 3 ( 471 )

Other comprehensive loss, net of tax — — — — — — ( 13 ) ( 13 ) — ( 13 )

2 unchanged sentences

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

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

Stock-based compensation expense — — — — 3 — — 3 — 3

Shares listed through IPO 77,000,000 — ( 77,000,000 ) — — — — — — —

Other — — 4,169,978 — — 1 — 1 — 1

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

Three Months Ended March 31, 2020

Balance at June 30, 2020 77,000,000 $ — 433,000,000 $ 1 $ 1,899 $ ( 1,685 ) $ ( 253 ) $ ( 38 ) $ 17 $ ( 21 )

Three Months Ended June 30, 2020

Common Stock Class B

7 unchanged sentences

(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 )

Net loss — — — — — ( 520 ) — ( 520 ) 1 ( 519 )

Other comprehensive income, net of tax — — — — — — 15 15 — 15

Distribution to noncontrolling interest holders — — — — — — — — ( 5 ) ( 5 )

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

Stock-based compensation expense — — — — 3 — — 3 — 3

Shares listed through IPO 77,000,000 — ( 77,000,000 ) — — — — — — —

Other — — — — — 1 — 1 — 1

Balance at June 30, 2020 77,000,000 $ — 433,000,000 $ 1 $ 1,899 $ ( 1,685 ) $ ( 253 ) $ ( 38 ) $ 17 $ ( 21 )

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 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.

Operating results for the three and nine months ended June 30, 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 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.

As such, all references to June 30, 2021 and June 30, 2020 relate to the periods ended June 25, 2021 and June 26, 2020, respectively.

For convenience purposes, the Company continues to date its third-quarter financial statements as of June 30.

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 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.

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

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

6 unchanged sentences

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

17 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 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.

During the nine months ended June 30, 2021, the Company granted restricted stock units (“RSUs”) under the Omnibus Incentive Plan to eligible employees and executives.

The Company recognized approximately $ 12 million and $ 33 million of non-cash stock-based compensation expense for the three and nine months ended June 30, 2021, respectively, of which $ 10 million and $ 27 million was recorded to additional paid-in capital, and a remaining $ 6 million has been classified as a share-based compensation liability as of June 30, 2021.

The share-based compensation 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.

27 unchanged sentences

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 securities with a dilutive effect for the three and six months ended March 31, 2021 and 2020, respectively.

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and nine months ended June 30, 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.

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,

The following table sets forth the calculation of basic and diluted net income (loss) per common share under the two-class method for the three and nine months ended June 30, 2021 and 2020 (in millions, except share and per share data):

Three Months Ended June 30,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

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

$ 15 $ 46 $ ( 21 ) $ ( 499 )

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

Net income attributable to common stockholders $ 26 $ 90 $ — $ ( 74 )

Net income (loss) attributable to common stockholders $ 14 $ 46 $ ( 21 ) $ ( 499 )

Weighted average shares outstanding 116,890,959 397,461,268 20,307,692 483,796,267

Basic and Diluted EPS $ 0.12 $ 0.12 $ ( 1.03 ) $ ( 1.03 )

Six Months Ended March 31,

Nine Months Ended June 30,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

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

$ 61 $ 215 $ ( 7 ) $ ( 467 )

Net income attributable to participating securities ( 4 ) — — —

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

Net income (loss) attributable to common stockholders $ 57 $ 215 $ ( 7 ) $ ( 467 )

Weighted average shares outstanding 108,245,599 404,933,311 6,769,231 495,926,718

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

40 unchanged sentences

Revenues from the sale of physical Recorded Music products are recognized upon transfer of control to the customer, which typically occurs once the product has been shipped and the ability to direct use and obtain substantially all of the benefit from the asset have been transferred.

In accordance with industry practice and as is customary in many territories, certain products, such as CDs and DVDs, are sold to customers with the right to return unsold items.

In accordance with industry practice and as is customary in many territories, certain products, such as vinyl, CDs and DVDs, are sold to customers with the right to return unsold items.

Revenues from such sales are generally recognized upon shipment based on gross sales less a provision for future estimated returns.

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

Artist services and expanded-rights revenues are generated from artist services businesses and participation 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.

28 unchanged sentences

Sales Returns and Uncollectible Accounts

In accordance with practice in the recorded music industry and as customary in many territories, certain physical revenue products (such as vinyls, CDs and DVDs) are sold to customers with the right to return unsold items.

In accordance with practice in the recorded music industry and as customary in many territories, certain physical revenue products (such as vinyl, CDs and DVDs) are sold to customers with the right to return unsold items.

Revenues from such sales are recognized when the products are shipped based on gross sales less a provision for future estimated returns.

6 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 $ 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.

Based on management’s analysis of sales returns, refund liabilities of $ 29 million and $ 24 million were established at June 30, 2021 and September 30, 2020, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 19 million and $ 23 million were established at June 30, 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 $ 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.

Deferred revenue increased by $ 347 million during the nine months ended June 30, 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 $ 187 million were recognized during the nine months ended June 30, 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

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.

For the nine months ended June 30, 2021 and June 30, 2020, the Company recognized revenue of $ 57 million and $ 35 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 March 31, 2021 are as follows:

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2021 are as follows:

Rest of FY21 FY22 FY23 Thereafter Total

2 unchanged sentences

Total $ 283 $ 270 $ 119 $ 15 $ 687

Comprehensive Income (Loss)

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

Comprehensive Income

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

GAAP, are excluded from net income.

For the Company, the components of other comprehensive income (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, Derivatives and Hedging , which include foreign exchange contracts.

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

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax expense of approximately $ 3 million:

3 unchanged sentences

Other comprehensive income 19 — 9 28

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

Balances at June 30, 2021 $ ( 162 ) $ ( 12 ) $ ( 20 ) $ ( 194 )

______________________________________

26 unchanged sentences

The landlord for both leases is an affiliate of Access.

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

As of June 30, 2021, the aggregate lease liability related to these leases was $ 128 million.

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

The components of lease expense were as follows:

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

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

5 unchanged sentences

Total lease cost $ 17 $ 16 $ 51 $ 47

The Company incurred and recorded other occupancy expenses of $ 3 million and $ 11 million for the three and nine months ended June 30, 2021, respectively, and $ 4 million and $ 13 million for the three and nine months ended June 30, 2020, respectively.

Supplemental cash flow information related to leases was as follows:

Six Months Ended March 31,

Nine Months Ended June 30,

(in millions)

19 unchanged sentences

Imputed interest ( 70 )

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

As of June 30, 2021, there have been no leases entered into that have not yet commenced.

Goodwill and Intangible Assets

3 unchanged sentences

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

Acquisitions 5 — 5

Other adjustments (a) 6 — 6

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

Acquisitions (a) ( 7 ) — ( 7 )

Other adjustments (b) 12 — 12

Balances at June 30, 2021 $ 1,372 $ 464 $ 1,836

______________________________________

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

(a) Includes purchase price allocations for acquisitions closed during the nine months ended June 30, 2021 offset by measurement period adjustments for acquisitions which closed during the fiscal year ended September 30, 2020.

(b) Other adjustments during the nine months ended June 30, 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 March 31,

Weighted-Average Useful Life June 30,

2021 September 30,

12 unchanged sentences

Total net intangible assets $ 2,217 $ 1,807

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.

The increase in intangible assets during the nine months ended June 30, 2021 primarily relates to certain acquisition transactions of music-related assets within recorded music catalogs, music publishing copyrights, and artist and songwriter contracts for approximately $ 470 million.

Debt Capitalization

8 unchanged sentences

3.000 % Senior Secured Notes due 2031

5.500 % Senior Notes due 2026

5.500 % Senior Notes due 2026 (b)

Total long-term debt, including the current portion $ 3,398 $ 3,127

2 unchanged sentences

______________________________________

(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.

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

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

(b) In April 2021, the 5.500 % Senior Notes due 2026 were redeemed in full.

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

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.

As of June 30, 2021 Acquisition Corp.

had issued and outstanding the 3.625 % Senior Secured 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 are guaranteed by the Company.

The Company’s guarantee of the 3.625 % Senior Secured Notes due 2026 is full and unconditional.

All of the Acquisition Corp.

1 unchanged sentence

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.

31 unchanged sentences

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.

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.

The Company recorded a loss on extinguishment of debt of approximately $ 12 million for the three and nine months ended June 30, 2021, which represents the premium paid on early redemption and unamortized deferred financing costs.

Interest Rates

1 unchanged sentence

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 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.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.00 x at June 30, 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.

10 unchanged sentences

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

Maturities of Senior Notes and Senior Secured Notes

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

Maturities of Senior Secured Notes

As of June 30, 2021, there are no scheduled maturities of notes until 2026, when $ 531 million is scheduled to mature.

Thereafter, $ 1.722 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 $ 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.

Total interest expense, net was $ 30 million and $ 32 million for the three months ended June 30, 2021 and 2020, respectively, and $ 93 million and $ 98 million for the nine months ended June 30, 2021 and 2020, respectively.

The weighted-average interest rate of the Company’s total debt was 3.4 % at June 30, 2021, 3.7 % at September 30, 2020 and 4.0 % at June 30, 2020.

Commitments and Contingencies

15 unchanged sentences

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 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.

For the three and nine months ended June 30, 2021, the Company recorded an income tax expense of $ 41 million and $ 127 million, respectively.

The income tax expense for the three months ended June 30, 2021 is higher than the expected tax expense at the statutory tax rate of 21% primarily due to income tax arising from an increase in our net U.K.

deferred tax liability due to the change in the U.K.

future statutory tax rate, 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 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.

The income tax expense for the nine months ended June 30, 2021 is higher than the expected tax expense at the statutory tax rate of 21% primarily due to income tax arising from an increase in our net U.K.

deferred tax liability due to the change in the U.K.

future statutory tax rate, 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 the Plan.

For the three and nine months ended June 30, 2020, the Company recorded an income tax expense of $ 51 million and $ 44 million, respectively.

The income tax expense for the three months ended June 30, 2020 is higher than the expected tax benefit at the statutory tax rate of 21% primarily due to non-deductible expenses of the Plan, non-deductible transaction costs and non-deductible executive compensation under IRC Section 162(m).

The income tax expense for the nine months ended June 30, 2020 is higher than the expected tax benefit at the statutory rate of 21% primarily due to non-deductible expenses of the Plan, non-deductible transaction costs and non-deductible executive compensation under IRC Section 162(m), offset by the tax benefit of the valuation allowance release relating to foreign tax credit carryforwards.

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of June 30, 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 March 31, 2021 are expected to be recognized within three years .

The Company’s hedged interest rate transactions as of June 30, 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 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 June 30, 2021, the Company had outstanding hedge contracts for the sale of $ 131 million and the purchase of $ 85 million of foreign currencies at fixed rates that will be settled by September 2021.

As of June 30, 2021, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 20 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 $ 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:

The Company recorded realized pre-tax losses of $ 4 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 nine months ended June 30, 2021.

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 nine months ended June 30, 2021 were $ 12 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 nine months ended June 30, 2020 were $ 29 million.

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

2021 (a) September 30,

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Three Months Ended (in millions)

March 31, 2021

June 30, 2021

Revenues $ 1,152 $ 189 $ ( 1 ) $ 1,340

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OIBDA 250 43 ( 52 ) 241

March 31, 2020

June 30, 2020

Revenues $ 861 $ 149 $ — $ 1,010

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eliminations Total

Six Months Ended (in millions)

March 31, 2021

Nine Months Ended (in millions)

June 30, 2021

Revenues $ 3,372 $ 556 $ ( 3 ) $ 3,925

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OIBDA 754 125 ( 143 ) 736

March 31, 2020

June 30, 2020

Revenues $ 2,852 $ 488 $ ( 3 ) $ 3,337

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Cash Interest and Taxes

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 made interest payments of approximately $ 28 million and $ 43 million during the three months ended June 30, 2021 and 2020, respectively, and approximately $ 92 million and $ 108 million during the nine months ended June 30, 2021 and 2020, respectively.

The Company paid approximately $ 37 million and $ 18 million of income and withholding taxes, net of refunds, for the three months ended June 30, 2021 and 2020, respectively, and approximately $ 89 million and $ 58 million of income and withholding taxes, net of refunds, for the nine months ended June 30, 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 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.

On May 13, 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 June 1, 2021.

The Company paid an aggregate of approximately $ 62 million and $ 187 million, or $ 0.12 and $ 0.36 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 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 and six months ended March 31, 2021.

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.

Government-imposed mandates limiting public assembly and restrictions on non-essential businesses have adversely impacted the Company’s operations for the three and nine months ended June 30, 2021 and June 30, 2020, including touring and live events.

While global vaccination efforts are underway and businesses are beginning to reopen, the continued impact of COVID-19, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 cannot be predicted.

As such, it is unclear how long the global pandemic will last and to what extent it will impact demand for the Company’s music and related services.

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.

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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 March 31, 2021 and September 30, 2020.

Fair Value Measurements as of March 31, 2021

Fair Value Measurements as of June 30, 2021

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

(in millions)

Other Current Assets:

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

Other Current Liabilities:

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

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

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

Other Noncurrent Assets:

Equity Method Investment (c) — 67 — 67

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

Equity Method Investment (b) — 54 — 54

Equity Investment with Readily Determinable Fair Value (c) 39 — — 39

Other Noncurrent Liabilities:

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

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

Contractual Obligations (a) — — ( 13 ) ( 13 )

Interest Rate Swaps (d) — ( 26 ) — ( 26 )

Total $ 39 $ 28 $ ( 17 ) $ 50

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Other Current Liabilities:

Contractual Obligations (b) $ — $ — $ ( 2 ) $ ( 2 )

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

Other Noncurrent Assets:

Equity Method Investment (c) — 47 — 47

Equity Method Investment (b) — 47 — 47

Other Noncurrent Liabilities:

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

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

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

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

Total $ — $ 9 $ ( 6 ) $ 3

______________________________________

(a) The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.

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

(a) 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 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) 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”).

(b) 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) 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.

(c) This represents an equity investment with a readily determinable fair value that was acquired and subsequently became publicly traded during the nine months ended June 30, 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 Company recognized an unrealized gain on this equity investment of $ 7 million and $ 19 million for the three and nine months ended June 30, 2021, respectively, which was recorded as other income in the consolidated statements of operations.

(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 June 30, 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 ( 11 )

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.

Balance at June 30, 2021 $ ( 17 )

Additions to net liabilities during the nine months ended June 30, 2021 include a measurement period adjustment of $ 7 million to contingent consideration for a fiscal 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 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.

The Company did not record any impairment charges on these investments during the three and nine months ended June 30, 2021 and 2020.

In addition, there were no observable price changes events that were completed during the three and nine months ended June 30, 2021 and 2020.

Fair Value of Debt

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 June 30, 2021, the fair value of the Company’s debt was $ 3.383 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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both approaches are considered a Level 2 measurement.

Subsequent Events

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