What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-23 compared with 2020-11-23 · 373 added, 544 removed, 1008 unchanged (48% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report s of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

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Consolidated Statements of Cash Flows for the fiscal years ended September 30, 202 1 , September 30, 20 20 and September 30, 201 9

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

Consolidated Statements of Equity (Deficit) for the fiscal years ended September 30, 202 1 , September 30, 20 20 and September 30, 201 9

Notes to Consolidated Financial Statements

Quarterly Financial Information

Financial Statement Schedule:

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Warner Music Group Corp.:

To the Stockholders and Board of Directors

Warner Music Group Corp.:

Opinion on the Consolidated Financial Statements

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

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

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

and subsidiaries (the Company) as of September 30, 2021 and September 30, 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity (deficit) for each of the years in the three-year period ended September 30, 2021, and the related notes, and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and September 30, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 23, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

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

As discussed in Note 7 to the consolidated financial statements, the Company has changed its method of accounting for leases as of October 1, 2019 due to the adoption of ASC Topic 842, Leases .

Basis for Opinion

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Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sufficiency of audit evidence over Recorded Music digital revenue

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company generated $3,105 million of digital revenues within the Recorded Music segment, for the year ended September 30, 2021.

The Company’s Recorded Music digital revenue recognition process involves several applications responsible for the initiation, processing, and recording of transactions in accordance with the Company’s accounting policy.

We identified the evaluation of the sufficiency of audit evidence related to digital revenue in the Recorded Music segment as a critical audit matter.

Evaluating the sufficiency of audit evidence required especially subjective auditor judgment due to the multiple information technology (IT) applications, data interfaces, and processing used for the initiation, processing, and recording of transactions, and required involvement of IT professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over Recorded Music digital revenue.

We evaluated the design and tested the operating effectiveness of certain internal controls related to Recorded Music digital revenue process.

We involved IT professionals with specialized skills and knowledge, who assisted in evaluating general IT controls and application controls used in the Recorded Music digital revenue process.

For a selection of Recorded Music digital revenue agreements, we read the underlying agreements and evaluated the Company’s assessment of the contract terms in accordance with revenue recognition requirements.

For a sample of revenue transactions, we compared the amounts recognized to (1) underlying sales and usage statements received from customers and cash receipts, where applicable, and (2) underlying documentation, including contracts.

We evaluated sales and usage statements provided by customers received after year end to assess the accuracy of revenue recorded as of September 30, 2021.

For a sample of manual journal entries to Recorded Music digital revenue, which included amounts for contracts that contain non-recoupable fixed fees or minimum guarantees, we agreed amounts to underlying documentation and, where applicable, recalculated the Company’s determination of revenue recognized.

In addition, we evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed, including appropriateness of the nature and extent of such evidence.

We have served as the Company’s auditor since 2015.

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November 23, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Warner Music Group Corp.:

Opinion on Internal Control Over Financial Reporting

We have audited Warner Music Group Corp.

and subsidiaries' (the Company) internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity (deficit) for each of the years in the three-year period ended September 30, 2021, and the related notes, and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements), and our report dated November 23, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

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

New York, New York

November 23, 2021

Warner Music Group Corp.

Consolidated Balance Sheets

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Total assets $ 7,211 $ 6,410

Liabilities and Deficit

Liabilities and Equity (Deficit)

Current liabilities:

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Total liabilities $ 7,165 $ 6,455

Equity (deficit):

Class A common stock, $ 0.001 par value;

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Total Warner Music Group Corp.

deficit ( 63 ) ( 289 )

equity (deficit) 31 ( 63 )

Noncontrolling interest 15 18

Total deficit ( 45 ) ( 269 )

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

Total equity (deficit) 46 ( 45 )

Total liabilities and equity (deficit) $ 7,211 $ 6,410

See accompanying notes

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(in millions, except share and per share data)

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

Revenue $ 5,301 $ 4,463 $ 4,475

Costs and expenses:

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

Operating (loss) income ( 229 ) 356 217

Operating income (loss) 609 ( 229 ) 356

Loss on extinguishment of debt ( 22 ) ( 34 ) ( 7 )

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Other (expense) income ( 9 ) ( 57 ) 60

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

Income (loss) before income taxes 456 ( 447 ) 267

Income tax expense ( 149 ) ( 23 ) ( 9 )

Net (loss) income ( 470 ) 258 312

Net income (loss) 307 ( 470 ) 258

Income attributable to noncontrolling interest ( 3 ) ( 5 ) ( 2 )

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

$ ( 475 ) $ 256 $ 307

(a) Includes depreciation expense of:

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

$ 304 $ ( 475 ) $ 256

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

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

Class A – Basic and Diluted $ 0.58 $ ( 0.82 ) $ —

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Class B – Basic and Diluted 402,911,743 477,624,846 501,991,944

(a) Includes depreciation expense:

$ ( 77 ) $ ( 71 ) $ ( 61 )

See accompanying notes

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(in millions)

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

Net income (loss) $ 307 $ ( 470 ) $ 258

Other comprehensive income (loss), net of tax:

Foreign currency adjustment 7 37 ( 34 )

Deferred (loss) gain on derivative financial instruments ( 21 ) ( 11 ) 3

Deferred gain (loss) on derivative financial instruments 12 ( 21 ) ( 11 )

Minimum pension liability 1 2 ( 5 )

Other comprehensive income (loss), net of tax 20 18 ( 50 )

Total comprehensive (loss) income ( 452 ) 208 303

Total comprehensive income (loss) 327 ( 452 ) 208

Income attributable to noncontrolling interest ( 3 ) ( 5 ) ( 2 )

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

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

$ 324 $ ( 457 ) $ 206

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Cash flows from operating activities

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

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

Net income (loss) $ 307 $ ( 470 ) $ 258

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

Depreciation and amortization 306 261 269

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Investments and acquisitions of businesses, net of cash received ( 64 ) ( 94 ) ( 231 )

Proceeds from the sale of investments — — 516

Net cash (used in) provided by investing activities ( 219 ) ( 376 ) 405

Net cash used in investing activities ( 638 ) ( 219 ) ( 376 )

Cash flows from financing activities

Proceeds from issuance of 3.000 % Senior Secured Notes due 2031

Proceeds from increase supplement to Senior Term Loan Facility 325 — —

Proceeds from issuance of 2.250 % Senior Secured Notes due 2031

Redemption of 5.500 % Senior Notes due 2026

Redemption of 3.625 % Senior Secured Notes due 2026

Proceeds from issuance of 3.875 % Senior Secured Notes due 2030

Proceeds from issuance of 2.750 % Senior Secured Notes due 2028

Repayment of 5.000 % Senior Secured Notes due 2023

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Proceeds from issuance of Acquisition Corp.

5.500 % Senior Notes

Proceeds from supplement of Acquisition Corp.

Senior Term Loan Facility — — 320

Proceeds from issuance of Acquisition Corp.

3.625 % Senior Secured Notes

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5.625 % Senior Secured Notes

Repayment of and redemption deposit for Acquisition Corp.

6.750 % Senior Notes

Call premiums paid and deposit on early redemption of debt ( 23 ) ( 5 ) ( 23 )

Deferred financing costs paid ( 12 ) ( 17 ) ( 7 )

Distribution to noncontrolling interest holder ( 7 ) ( 3 ) ( 5 )

Call premiums paid on early redemption of debt ( 21 ) ( 23 ) ( 5 )

Distribution to noncontrolling interest holders ( 7 ) ( 7 ) ( 3 )

Dividends paid ( 265 ) ( 344 ) ( 94 )

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Warner Music Group Corp.

Consolidated Statements of (Deficit) Equity

Consolidated Statements of Equity (Deficit)

Common Stock Class B

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

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

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity (Deficit) Non-controlling Interest Total

Shares Value Shares Value

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Balances at September 30, 2018 — $ — 501,991,944 $ 1 $ 1,127 $ ( 1,272 ) $ ( 190 ) $ ( 334 ) $ 14 $ ( 320 )

Net income — — — — — 307 — 307 5 312

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

Dividends ($ 1.84 per Class B share)

— — — — — ( 925 ) — ( 925 ) — ( 925 )

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

Other — — ( 1,400,941 ) — — — — — — —

Balances at September 30, 2018 — $ — 501,991,944 $ 1 $ 1,127 $ ( 1,272 ) $ ( 190 ) $ ( 334 ) $ 14 $ ( 320 )

Cumulative effect of ASC 606 adoption — — — — — 139 — 139 11 150

— — — — — 139 — 139 11 150

Net income — — — — — 256 — 256 2 258

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

Net income — — — — — 304 — 304 3 307

Other comprehensive income, net of tax — — — — — — 20 20 — 20

Dividends ($ 0.51 per share)

— — — — — ( 265 ) — ( 265 ) — ( 265 )

Stock-based compensation expense — — — — 35 — — 35 — 35

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

Exchange of Class B shares for Class A shares 19,234,103 — ( 19,234,106 ) — — — — — — —

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

Conversion of Class B shares 10,244,898 — ( 10,244,898 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 36,206 — — — — — — — — —

Other — — — — — — — — 1 1

Balances at September 30, 2021 122,414,827 $ — 391,970,996 $ 1 $ 1,942 $ ( 1,710 ) $ ( 202 ) $ 31 $ 15 $ 46

See accompanying notes

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is one of the world’s major music entertainment companies.

Acquisition of Warner Music Group by Access Industries

Pursuant to the Agreement and Plan of Merger, dated as of May 6, 2011 (the “Merger Agreement”), by and among the Company, AI Entertainment Holdings LLC (formerly Airplanes Music LLC), a Delaware limited liability company (“Parent”) and an affiliate of Access Industries, Inc., and Airplanes Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), on July 20, 2011 (the “Merger Closing Date”), Merger Sub merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

In connection with the Merger, the Company delisted its common stock from the New York Stock Exchange (the “NYSE”).

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

Securities and Exchange Commission (the “SEC”) current and periodic reports that would be required to be filed with the SEC pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as provided for in certain covenants contained in the instruments covering its outstanding indebtedness.

Initial Public Offering

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

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

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

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

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

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

Following the completion of the IPO, Access and its affiliates continue to hold all of the Class B common stock of the Company, par value $ 0.001 per share (“Class B Common Stock”), representing approximately 98 % of the total combined voting power of the Company’s outstanding common stock and approximately 76 % of the economic interest.

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

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We play an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music to marketing and promoting recording artists and their music.

In the United States, our Recorded Music business is conducted principally through our major record labels—Atlantic Records and Warner Records.

In October 2018, we launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels.

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

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

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

Internationally, we engage in the same activities as in the United States:

discovering and signing artists and distributing, selling, marketing and promoting their music.

In most cases, we also market, promote, distribute and sell the music of those recording artists for whom our domestic record labels have international rights.

In certain smaller markets, we license the right to distribute and sell our music to non-affiliated third-party record labels.

Our Recorded Music business’ distribution operations include Warner-Elektra-Atlantic Corporation (“WEA Corp.”), which markets, distributes and sells music and video products to retailers and wholesale distributors;

Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors;

and various distribution centers and ventures operated internationally.

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

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

Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations.

We also work side-by-side with our online and mobile partners to test new concepts.

We believe existing and new digital businesses will be a significant source of growth and will provide new opportunities to successfully monetize our assets and create new revenue streams.

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

As one of the world’s largest music entertainment companies, we believe we are well positioned to take advantage of growth in digital distribution and emerging technologies to maximize the value of our assets.

We have diversified our revenues beyond our traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers.

Under these agreements, we provide services to and participate in recording artists’ activities outside the traditional recorded music business such as touring, merchandising and sponsorships.

We have built and acquired artist services capabilities and platforms for marketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands we help create.

We believe that entering into expanded-rights deals and enhancing our artist services capabilities in areas such as merchandising, VIP ticketing, fan clubs, concert promotion and management has permitted us to diversify revenue streams and capitalize on other revenue opportunities.

This provides for improved long-term relationships with our recording artists and allows us to more effectively connect recording artists and fans.

Music Publishing Operations

While Recorded Music is focused on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself.

In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business garners a share of the revenues generated from use of the musical compositions.

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

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

Assembled over decades, our award-winning catalog includes over 80,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, techno, alternative and gospel.

Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.

We have an extensive production music catalog collectively branded as Warner Chappell Production Music.

In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business shares the revenues generated from use of the musical compositions with the songwriter or other rightsholders.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.

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

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

The Company has performed a review of all subsequent events through the date the financial statements were issued and has determined that no additional disclosures are necessary.

On February 28, 2020, the Company amended its certificate of incorporation to increase its authorized capital stock to 2,100,000,000 shares, consisting of 1,000,000,000 shares of Class A Common Stock, 1,000,000,000 shares of Class B Common Stock, and 100,000,000 shares of preferred stock, par value $ 1.00 per share.

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

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

2020 Omnibus Incentive Plan as of September 30, 2020.

See Note 13, Stock-Based Compensation Plans.

During the fiscal year ended September 30, 2021, Access converted 10,244,898 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 a conversion of Class B Common Stock for Class A Common Stock in the consolidated statements of equity.

Earnings per Share

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

Prior to the completion of the IPO, basic and diluted earnings (loss) per share were computed by dividing net income (loss) available to common stockholders by the weighted average number of outstanding common shares less shares issued for the exercise of the deferred equity units since these units were mandatorily redeemable in cash.

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.

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

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

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

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

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

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

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

See also Note 3, Earnings Per Share.

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Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period.

Resulting translation gains or losses are included in the accompanying consolidated statements of (deficit) equity as a component of accumulated other comprehensive loss.

Resulting translation gains or losses are included in the accompanying consolidated statements of equity (deficit) as a component of accumulated other comprehensive loss.

Recorded Music

As required by FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when, or as, control of the promised services or goods is transferred to our customers and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods.

The Company adopted ASC 606 as of October 1, 2018 using the modified retrospective method to all contracts not completed as of the date of adoption.

The Company’s revenue recognition process involves several applications that are responsible for the initiation and processing of transactions in order to recognize revenue in accordance with the Company’s policy and ASC 606.

Revenues from the sale or license of Recorded Music products through digital distribution channels are typically recognized when sale or usage occurs based on usage reports received from the customer.

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For certain licenses where the consideration is fixed and the intellectual property being licensed is static, revenue is recognized at the point in time when control of the licensed content is transferred to the customer.

Revenues from the sale of Recorded Music products through digital distribution channels are typically recognized when sale or usage occurs based on usage reports received from the customer.

Certain contracts contain non-recoupable fixed fees or minimum guarantees, which are recoupable against royalties.

Upon contract inception, the Company will assess whether a shortfall or breakage is expected (i.e., where the minimum guarantee will not be recouped through royalties) in order to determine timing of revenue recognition for the fixed fee or minimum guarantee.

For fixed fee and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is typically recognized using an appropriate measure of progress over the contractual term.

Certain contracts contain minimum guarantees, which are recoupable against royalties.

For fixed fee contracts and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is recognized using an appropriate measure of progress over the contractual term.

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

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

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

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

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

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

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

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

As required by the FASB ASC Subtopic 720-35, Advertising Costs (“ASC 720-35”), advertising costs, including costs to produce music videos used for promotional purposes, are expensed as incurred.

As required by the FASB ASC Subtopic 720-35, Advertising Costs (“ASC 720-35”), advertising costs are expensed as incurred.

Advertising expense amounted to approximately $ 149 million, $ 115 million and $ 108 million for the fiscal years ended September 30, 2021, September 30, 2020 and September 30, 2019, respectively.

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Stock-Based Compensation

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

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

In February 2020, the Company filed a Form S-1 registration statement with the SEC in connection with the IPO, which required a change in accounting policy during the three months ended March 31, 2020 from the intrinsic value method to fair value method in determining the basis of measurement of its stock-based compensation liability.

In determining fair value, the Company utilized an option pricing model for those awards with an option-like pay-off, which includes various inputs for volatility, term to exit, discount for lack of marketability, expected dividend yield and risk-free rates.

For awards with an equity-like pay-off, inputs for discount of lack of marketability and non-performance risk were considered.

The Company continued to use an income approach using a discounted cash flow model to determine its per-share value input within the model.

As a result of this change in accounting policy, the Company recorded a decrease to its stock-based compensation liability of $ 38 million as of March 31, 2020, which resulted in a decrease of $ 33 million, net of tax, to accumulated deficit for the fiscal year ended September 30, 2020.

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

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

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

The Company accounts for stock-based payments in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”).

Stock-based compensation consists primarily of restricted stock units (“RSUs”) granted to eligible employees and executives under the Omnibus Incentive Plan.

The Company measures compensation expense for RSUs based on the fair value of the award on the date of grant.

The grant date fair value is based on the closing market price of the Company’s Class A Common Stock on the date of grant.

The Company accounts for forfeitures as they occur.

Stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally four years except for certain one-year awards issued in connection with the IPO.

The Company also grants unvested restricted stock to the Company’s directors.

The Company recognizes stock-based compensation expense equal to the grant date fair value of the restricted stock, based on the closing stock price on grant date, on a straight-line basis over the requisite service period of the awards, which is generally one year.

The Company also recognizes stock-based compensation under the Second Amended and Restated Warner Music Group Corp.

Senior Management Free Cash Flow Plan (the “Plan”).

The awards outstanding under the Plan are equity-classified.

Prior to the Company’s IPO in June 2020, these awards were liability-classified under the recognition provision of ASC 718 and were re-measured at each reporting date until settlement.

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

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

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

Subsequent to the amendment, the awards issued under the Plan will no longer be adjusted for changes in the value of the Company’s common stock.

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

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

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

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.

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

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Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which established a new ASC Topic 842 (“ASC 842”) that introduces a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

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

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

The adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $ 366 million and ROU assets of $ 297 million, which is net of the historical deferred rent liability balance of $ 69 million, primarily related to real estate leases.

The Company also recorded a decrease to opening accumulated deficit of $ 7 million, net of taxes, related to previously deferred gains related to sale-leaseback transactions.

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

Rather, the Company will retain the conclusions reached for these items under ASC 840.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).

This ASU improves certain aspects of the hedge accounting model including making more risk management strategies eligible for hedge accounting and simplifying the assessment of hedge effectiveness.

ASU 2017-12 is effective for all annual periods beginning after December 15, 2018 and interim periods within those fiscal years.

Early adoption is permitted and requires a prospective adoption with a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption for existing hedging relationships.

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

Accounting Pronouncements Not Yet Adopted

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

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ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

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

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

The Company adopted ASU 2016-13 in the first quarter of fiscal 2021 and this adoption did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

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Earlier adoption is permitted.

The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.

The Company will adopt ASU 2019-12 beginning October 1, 2021 and this adoption is not expected to have a material impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

This ASU simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.

Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives.

Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares.

ASU 2020-06 will be effective for the interim and annual periods beginning after December 15, 2021.

Earlier adoption is permitted for periods beginning after December 15, 2020.

The Company will adopt ASU 2020-06 beginning October 1, 2021, and is evaluating the impact of the adoption of this standard on its financial statements.

Earnings per Share

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

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

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.

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

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

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

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

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

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

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

For the fiscal year ended September 30, 2020, the potentially dilutive common shares were excluded from the Class A Common Stock diluted loss per share calculation since their effects would have been anti-dilutive due to the net loss attributable to Class A Common Stock for the period.

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the fiscal year ended September 30, 2021.

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

In computing earnings per share subsequent to the completion of our IPO, the Company allocates 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 are allocated to Class A Common Stock and Class B Common Stock pro rata on a basic weighted average shares outstanding basis since the two classes of stock participate equally on a per share basis upon liquidation.

Prior to the completion of the IPO in fiscal 2020, the Company declared dividends totaling $ 75 million which were allocated solely to Class B Common Stock as there was no outstanding Class A Common Stock at the time these dividends were declared.

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

Subsequent to the completion of the IPO, and modification of our stock-based compensation awards as described in Note 12, the Class B Common Stock issued to Management LLC for the exercise of the vested deferred equity units is included in the basic weighted average number of outstanding shares of Class B Common Stock.

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

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

shares of Class A Common Stock.

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

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Basic and Diluted EPS:

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

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

$ 68 $ 236 $ ( 21 ) $ ( 454 ) $ — $ 256

Net income attributable to participating securities ( 4 ) — ( 1 ) — — —

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

Net income (loss) attributable to common stockholders $ 64 $ 236 $ ( 22 ) $ ( 454 ) $ — $ 256

Weighted average shares outstanding 110,560,517 402,911,743 26,897,115 477,624,846 0 501,991,944

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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.

Digital licensing contracts are generally long-term with consideration in the form of sales- and usage-based royalties that are typically received monthly.

Certain contracts contain non-recoupable fixed fees or minimum guarantees, which are recoupable against royalties.

For fixed fee and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is recognized proportionately over the contract term using an appropriate measure of progress which is typically based on the Company’s digital partner’s subscribers or streaming activity as these are measures of access to an evolving catalog, or on a straight-line basis.

Certain contracts contain minimum guarantees, which are recoupable against royalties.

For fixed fee contracts and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is recognized proportionately over the contract term using an appropriate measure of progress which is based on the Company’s digital partner’s subscribers or streaming activity as these are measures of access to an evolving catalog, or on a straight-line basis.

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

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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 advertising, merchandising including direct-to-consumer sales, touring, concert promotion, ticketing, sponsorship, fan clubs, artist websites, social publishing, and artist and brand management.

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

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For certain artist services and expanded-rights contracts, collectability is not considered probable until notification is received from the artist’s management.

Revenues from the sale of products sold through our e-commerce websites are recognized when control of the goods is transferred to the customer, which is upon receipt of finished goods by the customer.

Licensing revenues represent royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and video games.

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mechanical, performance, synchronization, digital and other.

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

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

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

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

Mechanical revenues are generated with respect to the musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs.

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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.

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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 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.

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Similarly, management evaluates accounts receivables to determine if they will ultimately be collected.

In performing this evaluation, significant judgments and estimates are involved, including an analysis of specific risks on a customer-by-customer basis for larger accounts and customers and a receivables aging analysis that determines the percent that has historically been uncollected by aged category.

The time between the Company’s issuance of an invoice and payment due date is not significant;

customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date.

Based on this information, management provides a reserve for the estimated amounts believed to be uncollectible.

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

Based on management’s analysis of sales returns, refund liabilities of $ 23 million and $ 24 million were established at September 30, 2021 and September 30, 2020, respectively.

Based on management’s analysis of uncollectible accounts, reserves of $ 23 million and $ 17 million were established at September 30, 2020 and September 30, 2019, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 20 million and $ 23 million were established at September 30, 2021 and September 30, 2020, respectively.

Principal versus Agent Revenue Recognition

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Based on the above guidance, the Company records the distribution of content of third-party record labels on a gross basis, subject to the terms of the contract, as the Company controls the content before transfer to the customer.

Conversely, recorded music compilations distributed by other record companies where the Company has a right to participate in the profits are recorded on a net basis.

Conversely, recorded music distributed by other record companies where the Company has a right to participate in the profits are recorded on a net basis.

Deferred Revenue

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

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

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

Deferred revenue increased by $ 585 million during the fiscal year ended September 30, 2021 and $ 527 million during the fiscal year ended September 30, 2020 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenue recognized during the fiscal years ended September 30, 2021 and 2020 which was included in the deferred revenue balance at the beginning of each respective period was $ 232 million and $ 157 million.

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

Performance Obligations

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

For the fiscal years ended September 30, 2021, 2020 and 2019, the Company recognized revenue of $ 64 million, $ 42 million and $ 51 million 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.

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Total $ 483 $ 306 $ 120 $ 1 $ 910

Acquisition of EMP

On October 10, 2018, Warner Music Group Germany Holding GmbH (“WMG Germany”), a limited liability company under the laws of Germany and an indirect subsidiary of Warner Music Group Corp., closed its previously announced acquisition (the “Acquisition”) of certain shares of E.M.P.

Merchandising Handelsgesellschaft mbH, a limited liability company under the laws of Germany, all of the share capital of MIG Merchandising Investment GmbH, a limited liability company under the laws of Germany (“MIG”), certain shares of Large Popmarchandising BVBA, a limited liability company under the laws of Belgium (“Large”) and each of EMP Merchandising Handelsgesellschaft mbH and MIG’s direct and indirect subsidiaries (the “Subsidiaries” and, together with EMP Merchandising Handelsgesellschaft mbH, MIG and Large, “EMP”) from funds associated with Sycamore Partners, pursuant to the Sale and Purchase Agreement, dated as of September 11, 2018, by and between SP Merchandising Holding GmbH & Co.

KG, a limited partnership under the laws of Germany, and WMG Germany (“Acquisition Agreement”).

The cash consideration paid at closing of the Acquisition was approximately € 166 million, which reflects an agreed enterprise value of EMP of approximately € 155 million (equivalent to approximately $ 180 million), as adjusted for, among other items, net debt and estimates of working capital of EMP.

The final purchase price paid was determined to be € 165 million after finalization of purchase price adjustments, including working capital and other items.

The Acquisition was accounted for in accordance with ASC 805, using the acquisition method of accounting.

The assets and liabilities of EMP, including identifiable intangible assets, have been measured at their fair value primarily using Level 3 inputs (see Note 19 for additional information on fair value inputs).

Determining the fair value of the assets acquired and liabilities assumed requires judgment and involved the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset useful lives and market multiples, among other items.

The use of different estimates and judgments could yield materially different results.

The excess of the purchase price, over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets and deferred tax adjustments, has been recorded to goodwill.

The resulting goodwill has been allocated to the Company’s Recorded Music reportable segment.

The recognized goodwill will not be deductible for income tax purposes.

Any impairment charges made in future periods associated with goodwill will not be tax deductible.

The table below presents (i) the Acquisition consideration as it relates to the acquisition of EMP by WMG Germany and (ii) the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of October 10, 2018 (in millions):

Purchase Price € 155

Working Capital 10

Final Purchase Price € 165

Foreign Currency Rate at October 10, 2018 1.15

Final Purchase Price in U.S.

dollars $ 190

Fair value of assets acquired and liabilities assumed

Cash and equivalents $ 7

Accounts receivable, net 3

Inventories 37

Other current assets 5

Property plant and equipment 32

Intangible assets 81

Accounts payable ( 18 )

Other current liabilities ( 11 )

Deferred revenue ( 7 )

Deferred tax liabilities ( 25 )

Other noncurrent liabilities ( 3 )

Fair value of assets acquired and liabilities assumed 101

Goodwill recorded 89

Total purchase price allocated $ 190

During fiscal 2019, the Company performed a preliminary allocation in the first and third quarters, which was finalized as of September 30, 2019.

The acquisition accounting was based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired, including determination of the final working capital adjustment made pursuant to the mechanism set forth in the Acquisition Agreement.

Pro Forma Financial Information

The following unaudited pro forma information has been presented as if the Acquisition occurred on October 1, 2017.

This information is based on historical results of operations, adjusted to give effect to pro forma events that are (i) directly attributable to the Acquisition;

(ii) factually supportable;

and (iii) expected to have a continuing impact on the Company’s combined results.

The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place at the beginning of fiscal 2018.

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

(in millions)

Revenue $ 4,480 $ 4,239

Operating income 356 215

Net income attributable to Warner Music Group Corp.

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

Comprehensive Income (Loss)

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

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.

GAAP, are excluded from net income.

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

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

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

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

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

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

Other comprehensive income 37 2 ( 21 ) 18

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

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Net Property, Plant and Equipment $ 364 $ 331

Depreciation Expense

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

The Company’s lease portfolio consists operating real estate leases for its corporate offices and, to a lesser extent, storage and other equipment.

The Company adopted FASB ASC Topic 842, Leases (“ASC 842”), on October 1, 2019 using the modified retrospective transition method.

Under ASC 842, a contract is or contains a lease when (1) an explicitly or implicitly identified asset has been deployed in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract.

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ROU assets are adjusted for initial direct costs, lease payments made and incentives.

As the rates implicit in our leases are not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of

lease payments.

This rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments.

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The initial measurement of the lease liability and ROU asset are determined based on fixed lease payments.

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

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

The Company’s operating ROU assets are included in operating lease right-of-use assets and the Company’s current and non-current operating lease liabilities are included in operating lease liabilities, current and operating lease liabilities, noncurrent, respectively, in the Company’s balance sheet.

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

The components of lease expense for the fiscal year ended September 30, 2020 were as follows (in millions):

The components of lease expense were as follows:

Fiscal Year Ended September 30,

(in millions)

Operating lease cost $ 55 $ 53

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Variable lease cost 11 8

Sublease income —

Total lease cost $ 68 $ 62

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

The Company incurred and recorded other occupancy expenses of $ 16 million and $ 18 million for the fiscal years ended September 30, 2021 and 2020, respectively.

Supplemental cash flow information related to leases was as follows:

Fiscal Year Ended September 30,

(in millions)

Cash paid for amounts included in the measurement of operating lease liabilities $ 59 $ 55

Right-of-use assets obtained in exchange for operating lease obligations 25 14

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

Supplemental balance sheet information related to leases was as follows:

September 30,

2021 September 30,

(in millions)

Operating Leases

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Weighted Average Remaining Lease Term

Operating leases 8 years

Operating leases 8 years 8 years

Weighted Average Discount Rate

Operating leases 4.69 % 4.58 %

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

Maturities of lease liabilities were as follows:

Fiscal Year Ended September 30, Operating

(in millions)

Thereafter 136

Total lease payments 395

Less imputed interest ( 70 )

Imputed interest ( 65 )

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

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Balances at September 30, 2021 $ 1,366 $ 464 $ 1,830

The decrease in goodwill during the fiscal year ended September 30, 2021 includes purchase price allocations for acquisitions closed during the fiscal year ended September 30, 2021 offset by measurement period adjustments for acquisitions which closed during the fiscal year ended September 30, 2020.

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

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

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

The other adjustments during both the fiscal years ended September 30, 2021 and September 30, 2020 primarily represent foreign currency movements.

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Total net intangible assets $ 2,171 $ 1,807

The increase in intangible assets during the fiscal year ended September 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 $ 471 million.

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

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The performance of the annual fiscal 2021 impairment analysis did not result in an impairment of the Company’s indefinite-lived intangible assets.

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

Based on the amount of intangible assets subject to amortization at September 30, 2021, the expected amortization for each of the next five fiscal years and thereafter are as follows:

Fiscal Year Ended September 30, Amortization

(in millions)

Thereafter 1,124

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

The expected amortization expense above reflects estimated useful lives assigned to the Company’s identifiable, finite-lived intangible assets primarily established in the accounting for the Merger and the PLG Acquisition.

Debt Capitalization

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Revolving Credit Facility (a) $ — $ —

Senior Term Loan Facility due 2023 (b) 814 1,313

5.000 % Senior Secured Notes due 2023 (c)

4.125 % Senior Secured Notes due 2024 (d)

4.875 % Senior Secured Notes due 2024 (e)

3.625 % Senior Secured Notes due 2026 (f)

2.750 % Senior Secured Notes due 2028 (g)

3.875 % Senior Secured Notes due 2030 (h)

3.000 % Senior Secured Notes due 2031 (i)

5.500 % Senior Notes due 2026 (j)

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

Senior Term Loan Facility due 2028 1,145 820

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

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

3.875 % Senior Secured Notes due 2030

2.250 % Senior Secured Notes due 2031 (€ 445 face amount)

3.000 % Senior Secured Notes due 2031

5.500 % Senior Notes due 2026 (b)

Total long-term debt, including the current portion $ 3,383 $ 3,127

Issuance premium less unamortized discount and unamortized deferred financing costs $ ( 37 ) $ ( 23 )

Total long-term debt, including the current portion, net $ 3,346 $ 3,104

______________________________________

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

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

On August 12, 2020, Acquisition Corp.

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

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

on August 1, 2020.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(b) In April 2021 the 5.500 % Senior Notes due 2026 were redeemed in full, and in August 2021 the 3.625 % Senior Secured 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 September 30, 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.

had issued and outstanding the 2.750 % Senior Secured Notes due 2028, the 3.875 % Senior Secured Notes due 2030, the 2.250 % Senior Secured Notes due 2031 and the 3.000 % Senior Secured Notes due 2031 (together, the “Acquisition Corp.

All of the Acquisition Corp.

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

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

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

The Company and Holdings are holding companies that conduct substantially all of their business operations through Acquisition Corp.

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Fiscal 2021 Transactions

Additional 3.000 % Senior Secured Notes

On November 2, 2020, Acquisition Corp.

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

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

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 Amendment

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, 3.000 % Senior Secured Notes due 2031 and 2.250 % 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 lenders.

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 % Senior 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 % Senior Notes.

The redemption price for the 5.500 % Senior Notes was approximately $ 343 million, equivalent to 102.750 % of the principal amount of the 5.500 % Senior 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, which represents the premium paid on early redemption and unamortized deferred financing costs.

2.250 % Senior Secured Notes Offering

On August 16, 2021, Acquisition Corp.

issued and sold € 445 million in aggregate principal amount of its 2.250 % Senior Secured Notes due 2031 (the “ 2.250 % Senior Secured Notes”).

Net proceeds of the offering, together with available cash, were used to redeem in full all of the outstanding 3.625 % Senior Secured Notes due 2026 (the “ 3.625 % Senior Secured Notes”), as described below.

Interest on the Notes will accrue at the rate of 2.250 % per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2022.

The 2.250 % Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of the Issuer’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of the Issuer under the Credit Facilities, subject to customary exceptions.

The indenture governing the 2.250 % Senior Secured Notes contains covenants limiting, among other things, Acquisition Corp.’s ability and the ability of most of its subsidiaries to create liens and consolidate, merge, sell or otherwise dispose of all or substantially all of its assets.

Redemption of 3.625 % Senior Secured Notes

On August 16, 2021, Acquisition Corp.

redeemed in full all of the outstanding 3.625 % Senior Secured Notes.

The redemption price for the 3.625 % Senior Secured Notes was approximately € 463 million, equivalent to 102.280 % of the principal amount of the 3.625 % Senior Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was August 16, 2021.

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

Historical Transactions

Revolving Credit Agreement Amendment

On April 3, 2020, Acquisition Corp.

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

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On June 30, 2020, Acquisition Corp.

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

offering of 3.875 % Senior Secured Notes and 2.750 % Senior Secured Notes described below.

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

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

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

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

redeemed all 5.000 % Senior Secured Notes that were not tendered and accepted for purchase in the tender offer and consent solicitation on August 1, 2020 at the then-applicable redemption price of 101.250 %.

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

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under its existing credit facilities, subject to customary exceptions.

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

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

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

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

3.000 % Senior Secured Notes Offering

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

Historical Transactions

December 2017 Senior Term Loan Credit Agreement Amendment

On December 6, 2017, Acquisition Corp.

entered into an amendment (the “December 2017 Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto, to, among other things, reduce the pricing terms of its outstanding term loans, change certain incurrence thresholds

governing the ability to incur debt and liens, change certain EBITDA add-backs and increase the thresholds above which the excess cash flow sweep is triggered.

The Company recorded a loss on extinguishment of debt of approximately $ 1 million for the fiscal year ended September 30, 2018, which represented the discount and unamortized deferred financing costs related to the prior tranche of debt of the lenders that was replaced.

New Revolving Credit Agreement

On January 31, 2018, the Company entered into a new revolving credit agreement (the “Revolving Credit Agreement”) for its Revolving Credit Facility, and terminated its existing revolving credit agreement (the “Old Revolving Credit Agreement”).

The Revolving Credit Agreement differs from the Old Revolving Credit Agreement in that it, among other things, reduces the interest rate margin applicable to the loans, extends the maturity date thereunder, provides for the option to increase the commitments under the Company’s then existing revolving credit agreement, provides for greater flexibility to amend and extend the Company’s then existing revolving credit agreement and create additional tranches thereunder, provides for greater flexibility over future amendments, increases the springing financial maintenance covenant to 4.75 :1.00 and provides that the covenant shall not be tested unless at the end of a fiscal quarter the outstanding amount of loans and drawings under letters of credit which have not been reimbursed exceeds $ 54 million and aligns the other negative covenants with those of the Senior Term Loan Credit Agreement.

March 2018 Senior Term Loan Credit Agreement Amendment

On March 14, 2018, Acquisition Corp.

incurred $ 320 million of supplemental term loans (the “Supplemental Term Loans”) pursuant to an increase supplement (the “March 2018 Senior Term Loan Credit Agreement Supplement”) to the Senior Term Loan Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto (as amended, the “Senior Term Loan Credit Agreement”).

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

Notes Offering

On March 14, 2018, Acquisition Corp.

issued $ 325 million in aggregate principal amount of its 5.500 % Senior Notes due 2026 .

Acquisition Corp.

used the net proceeds to pay the consideration in the tender offer for its 6.750 % Senior Notes due 2022 (the “ 6.750 % Senior Notes”) and to redeem the remaining 6.750 % Senior Notes as described below.

Tender Offer and Notes Redemption

On March 14, 2018, Acquisition Corp.

accepted for purchase in connection with the tender offer for the 6.750 % Senior Notes that had been validly tendered and not validly withdrawn at or prior to 5:00 p.m., New York City time on March 13, 2018 thereby reducing the aggregate principal amount of the 6.750 % Senior Notes by $ 523 million.

Acquisition Corp.

then issued a notice of redemption on March 14, 2018 with respect to the remaining $ 112 million of 6.750 % Senior Notes outstanding that were not accepted for payment pursuant to the tender offer.

Following payment of the 6.750 % Senior Notes tendered at or prior to the expiration time, Acquisition Corp.

deposited with the Trustee funds of $ 119 million to satisfy all obligations under the applicable indenture governing the 6.750 % Senior Notes, including call premiums and interest through the date of redemption on April 15, 2018, for the remaining 6.750 % Senior Notes not accepted for purchase in the tender offer.

On April 15, 2018, Acquisition Corp.

redeemed the remaining outstanding 6.750 % Senior Notes.

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

The Company incurred an additional loss on extinguishment of approximately $ 5 million in April 2018 related to the redemption on the remaining 6.750 % Senior Notes, which represents the premium paid on early redemption and unamortized deferred financing costs.

June 2018 Senior Term Loan Credit Agreement Amendment

On June 7, 2018, Acquisition Corp.

entered into an amendment (the “June 2018 Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement, dated November 1, 2012, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto, to, among other things, reduce the pricing terms of its outstanding term loans, change certain incurrence thresholds governing the ability to incur debt and liens and exclude from the definition of “Senior Secured Indebtedness” certain liens that have junior lien priority on the collateral in relation to the outstanding term loans and the relevant guarantees, as applicable.

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

3.625 % Senior Secured Notes Offerings

On October 9, 2018, Acquisition Corp.

issued and sold € 250 million in aggregate principal amount of 3.625 % Senior Secured Notes due 2026 (the “ 3.625 % Secured Notes”).

Net proceeds of the offering were used to pay the purchase price of the acquisition of EMP, to redeem € 34.5 million of the 4.125 % Secured Notes (as described below), purchase $ 30 million of Acquisition Corp.’s 4.875 % Senior Secured Notes (as described above) on the open market and to redeem $ 26.55 million of the 5.625 % Senior Secured Notes (as described below).

On April 30, 2019, Acquisition Corp.

issued and sold € 195 million in aggregate principal amount of additional 3.625 % Senior Secured Notes due 2026 (the “Additional Notes”).

The Additional Notes and the 3.625 % Secured Notes were treated as the same series for all purposes under the indenture that governs the 3.625 % Secured Notes and the Additional Notes.

Net proceeds of the offering were used to redeem all of the 5.625 % Secured Notes due 2022.

Partial Redemption of 4.125 % Senior Secured Notes

On October 12, 2018, Acquisition Corp.

redeemed € 34.5 million aggregate principal amount of its 4.125 % Senior Secured Notes due 2024 (the “ 4.125 % Secured Notes”) using a portion of the proceeds from the offering of the 3.625 % Secured Notes described above.

The redemption price for the 4.125 % Secured Notes was approximately € 36.17 million, equivalent to 103 % of the principal amount of the 4.125 % Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was October 12, 2018.

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

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

Open Market Purchase

On October 9, 2018, Acquisition Corp.

purchased, in the open market, $ 30 million aggregate principal amount of its outstanding 4.875 % Senior Secured Notes due 2024 (the “ 4.875 % Secured Notes”).

The acquired notes were subsequently retired.

Following retirement of the acquired notes, $ 220 million of the 4.875 % Secured Notes remain outstanding.

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

Redemption of 5.625 % Senior Secured Notes

On November 5, 2018, Acquisition Corp.

redeemed $ 26.55 million aggregate principal amount of its 5.625 % Senior Secured Notes due 2022 (the “ 5.625 % Secured Notes”).

The redemption price for the 5.625 % Secured Notes was approximately $ 27.38 million, equivalent to 102.813 % of the principal amount of the 5.625 % Secured Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was November 5, 2018.

Following the partial redemption of the 5.625 % Secured Notes, $ 220.95 million of the 5.625 % Secured Notes remain outstanding.

The Company recorded a loss on extinguishment of debt of approximately $ 1 million for the fiscal year ended September 30, 2019, which represents the premium paid on early redemption and unamortized deferred financing costs related to the partial redemption of this note.

On April 16, 2019, Acquisition Corp.

issued a conditional notice of redemption for all of its 5.625 % Secured Notes due 2022 currently outstanding.

Settlement of the called 5.625 % Secured Notes occurred on May 16, 2019.

The Company recorded a loss on extinguishment of debt of approximately $ 4 million for the fiscal year ended September 30, 2019, which represents the premium paid on early redemption and unamortized deferred financing costs.

Interest Rates

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Maturity of Senior Term Loan Facility

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

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

Maturity of Revolving Credit Facility

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

Maturities of Senior Notes and Senior Secured Notes

Maturities of Senior Secured Notes

As of September 30, 2021, there are no scheduled maturities of notes until 2028, when $ 381 million is scheduled to mature.

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government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”).

The Tax Act contains significant revisions to U.S.

The Tax Act significantly revised the U.S.

federal corporate income tax provisions, including, but not limited to, a reduction of the U.S.

1 unchanged sentence

In accordance with ASC 740, the Company recorded the effects of the Tax Act during the three months ended December 31, 2017.

The reduction in U.S.

federal corporate statutory tax rate from 35% to 21% was effective January 1, 2018.

The Tax Act requires companies with a fiscal year that begins before and ends after the effective date of the rate change to calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date.

As a result, for the fiscal year ending September 30, 2018, the Company’s U.S.

federal statutory income tax rate was 24.5 %.

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

federal corporate statutory tax rate of 21%.

The reduction in the U.S.

federal corporate statutory tax rate required the Company to adjust its U.S.

deferred tax assets and liabilities using the newly enacted tax rate of 21%.

As a result, the Company recorded a U.S.

income tax expense of $ 23 million for the reduction of its net U.S.

deferred tax assets for the fiscal year ended September 30, 2018.

The Company has not recorded any income tax liability related to the one-time transition tax on accumulated foreign earnings (“Transition Tax”) due to an overall deficit in accumulated foreign earnings.

1 unchanged sentence

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

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

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

Fiscal Year Ended September 30,

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Foreign 274 208 183

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

Income (loss) before income taxes $ 456 $ ( 447 ) $ 267

Current and deferred income tax expense provided are as follows:

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The differences between the U.S.

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

federal statutory income tax rate of 21.0 % for each of the fiscal years ended September 30, 2021, 2020 and 2019 and income taxes provided are as follows:

Fiscal Year Ended September 30,

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Impact of GILTI and FDII ( 4 ) 2 ( 4 )

Intergroup transfer — — ( 30 )

IPO Costs — 22 —

2 unchanged sentences

Income tax expense $ 149 $ 23 $ 9

During the fiscal year ended September 30, 2021, the Company recognized $ 10 million of income tax expense arising from an increase in our net U.K.

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

future statutory tax rate, which was offset by $ 4 million of excess tax benefits from long term incentive plan, and $ 6 million for the release of valuation allowances in Mexico and various foreign jurisdictions.

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

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foreign tax credits.

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

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

deferred tax assets as a result of the Tax Act.

For the fiscal years ended September 30, 2021 and September 30, 2020, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized.

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

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

valuation allowance related to foreign tax credit carryforwards.

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Net deferred tax liabilities $ ( 176 ) $ ( 95 )

During the fiscal year ended September 30, 2021, the Company utilized a substantial portion of its foreign tax credit carryforwards in the U.S.

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

deferred tax assets realization.

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

will be realized.

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

assets realization.

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

At September 30, 2021, the Company has no remaining U.S.

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As of September 30, 2021 and September 30, 2020, the Company had accrued $ 4 million and $ 4 million of interest and penalties, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including interest and penalties, are as follows (in millions):

Balance at September 30, 2017 $ 19

Additions for current year tax positions 3

Additions for prior year tax positions 3

Subtractions for prior year tax positions ( 7 )

Balance at September 30, 2018 $ 18

Additions for prior year tax positions 1

Subtractions for prior year tax positions ( 7 )

Balance at September 30, 2019 $ 12

The following table reflects changes in the gross unrecognized tax benefits, including interest and penalties:

Fiscal Year Ended September 30,

2021 2020 2019

(in millions)

Gross unrecognized tax benefits - beginning of period $ 12 $ 12 $ 18

Additions for prior year tax positions 3 3 1

Subtractions for prior year tax positions ( 3 ) ( 3 ) ( 7 )

Balance at September 30, 2020 $ 12

Gross unrecognized tax benefits - end of period $ 12 $ 12 $ 12

Included in the total unrecognized tax benefits at September 30, 2021 and September 30, 2020 are $ 12 million and $ 12 million, respectively, that if recognized, would reduce the effective income tax rate.

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

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of September 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.

The Company and its subsidiaries file income tax returns in the U.S.

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

The Company’s defined contribution plan expense

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

The Company’s defined contribution plan expense amounted to approximately $ 9 million for the fiscal year ended September 30, 2021, $ 8 million for the fiscal year ended September 30, 2020 and $ 6 million for the fiscal year ended September 30, 2019.

Stock-Based Compensation Plans

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

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

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

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

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

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

2020 Omnibus Incentive Plan, or the “Omnibus Incentive Plan.” The Omnibus Incentive Plan provides for the grant of incentive stock options, restricted stock, restricted stock units (“RSUs”), performance awards and stock appreciation rights to employees, consultants and directors.

The aggregate number of shares of common stock authorized 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.

To date, the Company has issued both RSUs and restricted stock under the Omnibus Incentive Plan.

The RSUs were granted to eligible employees and executives, and the restricted stock was granted to members of the Company’s Board of Directors.

Except in the case of certain awards issued in connection with the IPO, holders of RSUs and restricted stock are entitled to dividends during the vesting period.

As of September 30, 2021, there have been 64,567 shares of Class A Common Stock issued, which includes 64,424 shares of restricted stock issued under the Omnibus Incentive Plan.

As of September 30, 2021, there were 31,104,532 shares of Class A Common Stock available to be issued.

Warner Music Group Corp.

Senior Management Free Cash Flow Plan

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

Effective January 1, 2013, eligible individuals were invited to participate in the Plan.

Eligible individuals include any employee, consultant or officer of the Company or any of its affiliates, who is selected by the Company’s Compensation Committee to participate in the Plan.

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

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

The LLC currently owns 4,406,819 shares of Class B Common Stock.

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

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

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

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

ASC 718 requires all share-based payments to employees to be recognized as compensation expense.

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

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

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

ASC 718 requires all stock-based payments to employees to be recognized as compensation expense.

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

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

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

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

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

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

As a result, all awards previously issued under the Plan required settlement in equity.

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

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

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

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

Subsequent to the amendment, the awards issued under the Plan will no longer be adjusted for changes in the value of the Company’s common stock.

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

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.

In December 2020, all of the outstanding equity interests held by certain participants in 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 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.

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.

The following table summarizes the activity for the Company’s unvested share awards under the Plan:

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

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Unvested units at September 30, 2021 — 2,008,283 $ — $ 41.02 $ — $ —

The weighted-average grant date intrinsic value of deferred equity unit awards for the fiscal year ended September 30, 2020 was $ 23.82 .

The fair value of these deferred equity units at September 30, 2020 was $ 27.01 .

As of September 30, 2021, there were no remaining unvested deferred equity unit awards outstanding.

The weighted-average grant date intrinsic value of deferred equity unit awards for the fiscal year ended September 30, 2020 was $ 23.82 .

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

Compensation Expense

The Company recognized non-cash share-based compensation expense of $ 608 million, free cash flow compensation expense of $ 16 million and dividend expense related to the equity units of $ 1 million for the fiscal year ended September 30, 2020.

The Company recognized non-cash share-based compensation expense of $ 50 million, free cash flow compensation expense of $ 15 million and dividend expense related to the equity units of $ 7 million for the fiscal year ended September 30, 2019.

The Company recognized non-cash share-based compensation expense of $ 62 million, free cash flow compensation expense of $ 19 million and dividend expense related to the equity units of $ 27 million for the fiscal year ended September 30, 2018.

In addition, at September 30, 2020, September 30, 2019 and September 30, 2018, the Company had approximately $ 14 million, $ 16 million and $ 18 million, respectively, of unrecognized compensation costs related to its unvested share awards.

As of September 30, 2020, the remaining weighted-average period over which total compensation related to unvested awards is expected to be recognized is 1 year.

As September 30, 2021, 2020 and 2019, the Company had approximately $ 4 million, $ 14 million and $ 16 million, respectively, of unrecognized compensation costs related to its unvested share awards.

As of September 30, 2021, the remaining weighted-average period over which total compensation related to unvested awards is expected to be recognized is less than 1 year.

Restricted Stock Units

The following table summarizes the activity for the Company’s unvested RSUs:

Share Units Weighted-Average Grant

Date Fair Value Aggregate

Intrinsic Value

(in thousands)

Unvested and outstanding balance as of September 30, 2020 — $ — $ —

Granted 1,604,922 32.23

Vested ( 217 ) 36.87

Forfeited/canceled ( 69,338 ) 30.83

Unvested and outstanding balance as of September 30, 2021 1,535,367 $ 32.29 $ 67,879

As of September 30, 2021, total unrecognized compensation cost related to unvested RSUs was approximately $ 26 million, which is expected to be recognized over a weighted-average period of approximately 2.9 years.

The Company expects to satisfy the vesting of RSUs by issuing new shares of its Class A Common Stock.

Stock-Based Compensation Expense

Stock-based compensation expense is included in the consolidated statements of operations as selling, general and administrative expenses.

The Company recognized non-cash stock-based compensation expense of $ 45 million and free cash flow compensation expense of $ 5 million for the fiscal year ended September 30, 2021.

The Company recognized non-cash stock-based compensation expense of $ 608 million, free cash flow compensation expense of $ 16 million and dividend expense related to the equity units of $ 1 million for the fiscal year ended September 30, 2020.

The Company recognized non-cash stock-based compensation expense of $ 50 million, free cash flow compensation expense of $ 15 million and dividend expense related to the equity units of $ 7 million for the fiscal year ended September 30, 2019.

Related Party Transactions

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

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

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

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

As the Management Agreement was terminated in June 2020, the Company incurred no costs associated with the Management Agreement for the fiscal year ended September 30, 2021.

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

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

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The existing lease agreement was assumed by Access upon purchase of the building and was not modified as a result of the purchase.

Rental payments by the Company under the existing lease total approximately $ 13 million per year, subject to annual fixed increases.

Rental payments by the Company under the existing lease for the fiscal 2021 year were approximately $ 13 million and are subject to annual fixed increases throughout the remainder of the lease term.

The remaining lease term is approximately 9 years, after which the Company may exercise a single option to extend the term of the lease for 10 years thereafter.

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

The license fee of $ 2,775 per month, plus an IT support fee of $ 1,000 per month, was based on the per foot lease costs to the Company of its headquarters space, which represented market terms.

For the fiscal year ended September 30, 2020, an immaterial amount was recorded as rental income.

The space is occupied by The Blavatnik Archive, which is dedicated to the discovery and preservation of historically distinctive and visually compelling artifacts, images and stories that contribute to the study of 20th century Jewish, WWI and WWII history.

On July 29, 2014, AI Wrights Holdings Limited, an affiliate of Access, entered into a lease and related agreements with Warner Chappell Music Limited and WMG Acquisition (UK) Limited, subsidiaries of the Company, for the lease of 27 Wrights Lane, Kensington, London.

The Company had been the tenant of the building which Access acquired.

Subsequent to the change in ownership, the parties entered into the lease and related agreements pursuant to which, on January 1, 2015, the rent was increased to £ 3,460,250 per year and the term was extended for an additional five years from December 24, 2020 to December 24, 2025, with a market rate rent review beginning December 25, 2020.

License Agreements with Deezer

Access owns a controlling equity interest in Deezer S.A., which was formerly known as Odyssey Music Group (“Odyssey”), a French company that controls and operates a music streaming service, formerly through Odyssey’s subsidiary, Blogmusik SAS (“Blogmusik”), under the name Deezer (“Deezer”), and is represented on Deezer S.A.’s Board of Directors.

Subsidiaries of the Company have been a party to license arrangements with Deezer since 2008, which provide for the use of the Company’s sound recordings on Deezer’s ad-supported and subscription streaming services worldwide (excluding Japan) in exchange for fees paid by Deezer.

Access owns an equity interest in Deezer S.A., which was formerly known as Odyssey Music Group (“Odyssey”), a French company that controls and operates a music streaming service, formerly through Odyssey’s subsidiary, Blogmusik SAS (“Blogmusik”), under the name Deezer (“Deezer”), and is represented on Deezer S.A.’s Board of Directors.

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

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

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

For the PEDL and Latin American licenses for the fiscal years ended September 30, 2021, 2020 and 2019, Deezer paid the Company an additional approximately $ 2 million, $ 2 million and $ 1 million, respectively.

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

License Agreements with Snap

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

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

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

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

Distribution Agreement with Mattel

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

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

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

Investment in Tencent Music Entertainment Group

On October 1, 2018, WMG China LLC (“WMG China”), an affiliate of the Company, entered into a share subscription agreement with Tencent Music Entertainment Group pursuant to which WMG China agreed to purchase 37,162,288 ordinary shares of Tencent Music Entertainment Group for $ 100 million.

On October 1, 2018, WMG China LLC (“WMG China”), an affiliate of the Company, entered into a share subscription agreement with Tencent Music Entertainment Group pursuant to which WMG China purchased 37,162,288 ordinary shares of Tencent Music Entertainment Group for $ 100 million.

WMG China is 80 % owned by AI New Holdings 5 LLC, an affiliate of Access, and 20 % owned by the Company.

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

On November 4, 2021, WMG China distributed to the Company, the Company’s equity interest in Tencent Music Entertainment Group.

Commitments and Contingencies

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The Company records these contracts at fair value on its balance sheet and the related gains and losses are immediately recognized in the consolidated statement of operations where there is an offsetting entry related to the underlying exposure.

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

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

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

However, to the extent that any of these contracts were not considered to be perfectly effective in offsetting the change in the value of the royalties and license fees being hedged, any changes in fair value relating to the ineffective portion of these contracts were immediately recognized in the consolidated statement of operations.

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

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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 September 30, 2020 are expected to be recognized within four years .

The Company’s hedged interest rate transactions as of September 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 18.

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The Company recorded realized 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 fiscal year ended September 30, 2021.

The Company recorded realized pre-tax gains of $ 3 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other income for the fiscal year ended September 30, 2019.

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

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the fiscal year ended September 30, 2021 were $ 15 million.

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(a) $ 22 million of interest rate swaps in liability positions.

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

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

Segment Information

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United States $ 2,363 $ 439 $ 1,934 $ 426 $ 1,956

Germany 662 52 511 43 504

United Kingdom 620 43 551 49 596

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Customer Concentration

In the fiscal year ended September 30, 2021, the Company had three customers, Spotify, Apple and YouTube, that individually represented 10% or more of total revenues, whereby Spotify represented 18 %, Apple represented 13 % and YouTube represented 11 % of total revenues.

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

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

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

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

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The Company paid approximately $ 124 million, $ 81 million and $ 63 million of income and withholding taxes, net of refunds, for the fiscal years ended September 30, 2021, September 30, 2020 and September 30, 2019, respectively.

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

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

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

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

The Company’s ability to pay dividends may be restricted by covenants in the credit agreement for the Revolving Credit Facility which are currently suspended but which will be reinstated if Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increases above 3.50 :1.00 and the term loans do not achieve an investment grade rating.

The Company intends to pay quarterly cash dividends to holders of its Class A Common Stock and Class B Common Stock.

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

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

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

On August 13, 2021, the Company’s board of directors declared a cash dividend of $ 0.15 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid on September 1, 2021.

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

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

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

The Company paid cash dividends to stockholders and participating security holders of $ 265 million, $ 344 million and $ 94 million for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

On November 9, 2021, the Company’s board of directors declared a cash dividend of $ 0.15 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, payable on December 1, 2021 to stockholders of record as of the close of business on November 23, 2021.

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

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

It is unclear how long government-imposed mandates and restrictions will last and to what extent the global pandemic will impact demand for the Company’s music and related services, even as federal, state, local and foreign governments start to lift restrictions.

Government-imposed mandates limiting public assembly and restrictions on non-essential businesses have adversely impacted the Company’s operations for the fiscal year ended September 30, 2021, including touring and live events.

As global vaccination efforts are underway and businesses are beginning to reopen, revenues improved due to the partial recovery of certain COVID-19 impacted revenue streams despite a rise in COVID-19 cases associated with the Delta variant.

The continued impact of COVID-19, including increases in infection rates, new variants, renewed governmental action to slow the spread of COVID-19 and to what extent it will impact the Company’s music and related services cannot be predicted.

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

Spotify Share Sale

During the fiscal year ended September 30, 2018, the Company sold all of its shares of common stock in Spotify Technology S.A.

(“Spotify”) for cash proceeds of $ 504 million.

In February 2016, the Company publicly announced that it would pay royalties in connection with these proceeds.

The sale of shares resulted in an estimated pre-tax gain, net of the estimated royalty expense and other related costs, of $ 382 million, which was recorded as other income (expense) for the fiscal year ended September 30, 2018.

As of September 30, 2018, the estimated royalty expense and other related costs had been accrued, and were subsequently paid.

The processing of the royalty expense resulted in advance recoveries of previously expensed royalty advances.

The Company calculated the advance recoveries to be $ 12 million, and recorded these advance recoveries as a credit within operating expense for the fiscal year ended September 30, 2018.

The Company also recorded estimated tax expense of $ 77 million associated with the net income on the sale of shares in fiscal year ended September 30, 2018.

Additionally, the cash proceeds received in connection with the sale of shares have been reflected as an investing activity on the statement of cash flows within proceeds from the sale of investments for the fiscal year ended September 30, 2018.

Fair Value Measurements

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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 table shows the fair value of the Company’s financial instruments that are required to be measured at fair value as of September 30, 2020 and September 30, 2019.

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 September 30, 2021 and September 30, 2020.

Fair Value Measurements as of September 30, 2021

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Other Noncurrent Assets:

Equity Method Investment (c) — 47 — 47

Equity Method Investment (b) 26 — — 26

Equity Investment with Readily Determinable Fair Value (c) 37 — — 37

Other Noncurrent Liabilities:

Contractual Obligations (a) — — ( 15 ) ( 15 )

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

Interest Rate Swaps (d) — ( 22 ) — ( 22 )

Total $ 63 $ ( 22 ) $ ( 19 ) $ 22

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Other Noncurrent Assets:

Equity Method Investment (c) — 40 — 40

Interest Rate Swap — 2 — 2

Equity Method Investment (b) — 47 — 47

Other Noncurrent Liabilities:

Interest Rate Swap — ( 13 ) — ( 13 )

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

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

Total $ — $ 9 $ ( 6 ) $ 3

______________________________________

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

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

These amounts were mainly calculated using unobservable inputs such as future earnings performance of the Company’s various acquisitions and the expected timing of the payment.

(b) The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of September 30, 2020 for contracts involving the same attributes and maturity dates.

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

The valuation is based upon quoted prices in active markets and model-based valuation techniques to determine fair value.

(a) This represents contingent consideration related to a fiscal 2020 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.

(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.

(c) This represents an equity investment with a readily determinable fair value that was acquired and subsequently became publicly traded during the fiscal year ended September 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 $ 17 million for the fiscal year ended September 30, 2021, 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 September 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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Balance at September 30, 2021 $ ( 19 )

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

Additions to net liabilities during the fiscal year ended September 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.

13 unchanged sentences

Subsequent Events

Additional 3.000 % Senior Secured Notes

3.750 % Senior Secured Notes Offering

On November 17, 2021, Acquisition Corp.

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

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

Acquisition Corp.

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

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

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

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

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

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

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

With the closing of these transactions, Acquisition Corp.

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

WARNER MUSIC GROUP CORP.

2020 QUARTERLY FINANCIAL INFORMATION

The following table sets forth the quarterly information for Warner Music Group Corp.

Three Months Ended

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

(in millions, except share data)

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

Costs and expenses:

Cost of revenue ( 606 ) ( 527 ) ( 535 ) ( 665 )

Selling, general and administrative expenses (a) ( 383 ) ( 869 ) ( 538 ) ( 379 )

Amortization expense ( 49 ) ( 47 ) ( 47 ) ( 47 )

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

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

Loss on extinguishment of debt ( 34 ) — — —

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

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

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

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

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

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

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

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

(a) Includes depreciation expense of:

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

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

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

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

Weighted average common shares:

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

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

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

Therefore, these quarterly operating results are not necessarily indicative of the results that may be expected for the full fiscal year.

WARNER MUSIC GROUP CORP.

2019 QUARTERLY FINANCIAL INFORMATION

The following table sets forth the quarterly information for Warner Music Group Corp.

Three Months Ended

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

(in millions, except share data)

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

Costs and expenses:

Cost of revenue ( 639 ) ( 577 ) ( 559 ) ( 626 )

Selling, general and administrative expenses (a) ( 408 ) ( 372 ) ( 354 ) ( 376 )

Amortization expense ( 48 ) ( 51 ) ( 55 ) ( 54 )

Total costs and expenses ( 1,095 ) ( 1,000 ) ( 968 ) ( 1,056 )

Operating income 29 58 122 147

Loss on extinguishment of debt — ( 4 ) — ( 3 )

Interest expense, net ( 34 ) ( 36 ) ( 36 ) ( 36 )

Other income (expense) 19 ( 16 ) 29 28

Income before income taxes 14 2 115 136

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

Net income 91 14 67 86

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

Net income attributable to Warner Music Group Corp.

$ 90 $ 13 $ 67 $ 86

(a) Includes depreciation expense of:

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

Net income per share attributable to common stockholders:

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

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

Weighted average common shares:

Class A – Basic and Diluted — — — —

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

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

Therefore, these quarterly operating results are not necessarily indicative of the results that may be expected for the full fiscal year.

priced $ 540 million in aggregate principal amount of its 3.750 % Senior Secured Notes due 2029 (the “ 3.750 % Senior Secured Notes”).

We expect the issuance to close on November 24, 2021.

Net proceeds of the offering are expected to be used to fund a portion of the aggregate cash consideration for potential acquisitions of certain music and music-related assets, or if any of such potential acquisitions are not completed, for general corporate purposes.

The Company may also use the net proceeds of the Offering to redeem all or a portion of the 3.750 % Senior Secured Notes (so long as, in the case of a partial redemption, at least $ 250 million of the 3.750 % Senior Secured Notes remain outstanding following such redemption) at any time on one or more occasions on or prior to the fifth business day following December 20, 2021 by giving notice at least five business days prior to such time at the special optional redemption price equal to the issue price of the 3.750 % Senior Secured Notes plus 1 % of the principal amount thereof together with accrued and unpaid interest on such 3.750 % Senior Secured Notes from the date of issuance to but excluding the redemption date.

Interest on the 3.750 % Senior Secured Notes will accrue at the rate of 3.750 % per annum and will be payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022.

The 3.750 % Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of Acquisition Corp.’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of Acquisition Corp.

under its existing credit facilities, subject to customary exceptions.

The indenture governing the 3.750 % Senior Secured Notes contains covenants limiting, among other things, Acquisition Corp.’s ability and the ability of most of its subsidiaries to create liens and consolidate, merge, sell or otherwise dispose of all or substantially all of its assets.

WARNER MUSIC GROUP CORP.

16 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data