What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-22 compared with 2021-11-23 · 247 added, 243 removed, 763 unchanged (39% of the section changed)

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A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp.

is provided in “—Results of Operations.”

is provided in our “Results of Operations.”

Use of Constant Currency

As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.

Constant-currency information compares revenue between periods as if exchange rates had remained constant period over period.

As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.

Constant-currency information compares revenue and OIBDA between periods as if exchange rates had remained constant period over period.

We use revenue on a constant-currency basis as one measure to evaluate our performance.

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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.

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, and in December 2021, we acquired 300 Entertainment and subsequently launched 300 Elektra Entertainment, or 3EE, a frontline label group that brings together the multi-genre power of 300 Entertainment and Elektra Music Group.

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.

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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 WEA Corp., which markets, distributes and sells music and video products to retailers and wholesale distributors;

ADA, which markets, distributes and sells the products of independent labels to retail and wholesale distributors;

Our Recorded Music business’ operations include WMX, a next generation services division that connects artists with fans and amplifies brands in creative, immersive, and engaging ways.

This division includes a rebranded WEA commercial services & marketing network (formerly Warner-Elektra-Atlantic Corporation, or WEA Corp.), which markets, distributes and sells music and video products to retailers and wholesale distributors, as well as acting as the Company’s media and creative content arm.

Our business’ distribution operations also includes 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.

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 and YouTube, radio services such as iHeart Radio and SiriusXM and other download services.

We have integrated the marketing of digital content into all aspects of our business, including 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.

centered destinations.

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

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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.

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.

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• Artist services and expanded-rights :

the rightsholder receives revenues with respect to our artist services businesses and our participation in expanded rights, including advertising, merchandising including direct-to-consumer sales, touring, concert promotion, ticketing, sponsorship, fan clubs, artist websites, social publishing, and artist and brand management;

the rightsholder receives revenues with respect to our artist services businesses and our participation in expanded rights, including advertising, merchandising such as direct-to-consumer sales, touring, concert promotion, ticketing, sponsorship, fan clubs, artist websites, social publishing, and artist and brand management;

• Licensing :

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• Performance:

the rightsholder receives revenues if 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 music in staged theatrical productions;

the rightsholder receives revenues if 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 music in staged theatrical productions;

• Mechanical:

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the costs associated with selling and marketing, general overhead and other administrative expenses.

Factors Affecting Results of Operations and Comparability

Recent Events and Factors Affecting Results of Operations and Comparability

Fiscal Year End

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

The fiscal year ended September 30, 2022 includes 53 weeks, and both fiscal years ended September 30, 2021 and 2020 included 52 weeks.

The additional week in fiscal year 2022 fell in the fiscal quarter ended December 31, 2021.

Accordingly, the results of operations for the fiscal year ended September 30, 2022 reflect 53 weeks compared to 52 weeks for both fiscal years ended September 30, 2021 and 2020.

Starting with the 2023 fiscal year, the Company will transition to a reporting calendar in which the reporting periods end on the last day of the calendar quarter.

The Company’s fiscal year will begin on October 1 and end on September 30 of each year.

Russia-Ukraine Conflict

On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia's invasion of Ukraine, and the sanctions and other measures imposed in response to this conflict have increased global economic and political uncertainty.

WMG operates both its Recorded Music and Music Publishing businesses within Russia and, on March 10, 2022, the Company announced a suspension of these operations in Russia.

While our operations in Russia do not constitute a material portion of our business, a significant escalation or expansion of the conflict's current scope, increased or sustained economic disruption, sanctions or countersanctions, further devaluation of the local currency or increased cyber-related disruptions could make it difficult to deliver our content, broaden inflationary costs, and have an adverse effect on our results of operations.

COVID-19 Pandemic

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Additionally, stay-at-home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected our business in other ways, such as, making it difficult to hold live concert tours, adversely impacting our concert promotion business and the sale of merchandise, delaying the release of new recordings and disrupting the production and release of motion pictures and television programs, which negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.

However, the disruption from the COVID-19 pandemic accelerated growth of other revenue streams such as fitness and interactive gaming (including augmented reality and virtual reality), which may continue to grow.

While global vaccination efforts are underway and businesses are beginning to reopen, it is unclear how long the global pandemic will last due to the possibility of new variants, increases in infection rates and renewed government action to slow the spread of the virus, and as such, it cannot be predicted to what extent the global pandemic will continue to impact the demand for our music and related services.

Our results of operations, cash flows and financial condition at and for both the fiscal years ended September 30, 2021 and 2020 were adversely affected by the global pandemic despite some recovery in fiscal year 2021 as businesses began to reopen and concerts and other live music resumed.

The Company recognized a one-time $3 million credit loss reserve reversal impacting OIBDA for the fiscal year ended September 30, 2021 compared to one-time charges of $17 million impacting OIBDA and a total of $22 million impacting net income for the fiscal year ended September 30, 2020.

However, the disruption from the COVID-19 pandemic, including the disruption caused by the Omicron variant, accelerated growth of other revenue streams such as fitness and interactive gaming (including augmented reality and virtual reality), which may continue to grow.

It is unclear how long the global pandemic will last due to the possibility of new variants and sub-variants, increases in infection rates and renewed government action to slow the spread of the virus, and as such, it cannot be predicted to what extent the global pandemic will continue to impact the demand for our music and related services.

Our results of operations, cash flows and financial condition at and for the fiscal years ended September 30, 2022, 2021 and 2020 were adversely affected by the global pandemic despite a partial recovery starting in fiscal year 2021 as businesses began to reopen and concerts and other live music resumed.

For the fiscal year ended September 30, 2022, costs recognized by the Company attributable to COVID were not significant.

For the fiscal year ended September 30, 2021, the Company recognized a one-time $3 million credit loss reserve reversal impacting OIBDA.

For the fiscal year ended September 30, 2020, the Company recognized one-time charges of $17 million impacting OIBDA and a total of $22 million impacting net income.

Initial Public Offering

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Our results of operations were adversely impacted by a non-cash stock-based compensation charge of $593 million for the fiscal year ended September 30, 2020, which reflects the mark-to-market adjustment through the modification date of the Plan for the change in value of our common stock upon consummation of the IPO.

We incurred a non-cash stock-based compensation charge associated with a mark-to-market adjustment of $42 million for the fiscal year ended September 30, 2019.

Subsequent to the amendment, the awards issued under the Plan were converted from liability-classified to equity-classified and therefore are no longer adjusted for changes in the value of our common stock.

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We incurred non-cash stock-based compensation expense and other related expenses of $42 million, $47 million and $608 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

The total expense of $608 million and $50 million for fiscal 2020 and 2019 include the charges of $593 million and $42 million, respectively, as described above.

The total expense of $608 million for fiscal 2020 includes the charge of $593 million as described above.

Management Agreement

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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, which was recorded 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 expenses in the accompanying consolidated statements of operations.

As the Management Agreement was terminated in June 2020, the Company incurred no costs associated with the Management Agreement for the fiscal years ended September 30, 2022 and 2021.

Prior to the termination of the Management Agreement, the Company incurred costs associated with the Management Agreement of approximately $7 million for the fiscal year ended September 30, 2020, which was recorded within selling, general and administrative expenses in the accompanying consolidated statements of operations.

RESULTS OF OPERATIONS

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Total revenues increased by $618 million, or 12%, to $5,919 million for the fiscal year ended September 30, 2022 from $5,301 million for the fiscal year ended September 30, 2021.

The current fiscal year included an additional week, primarily reflected in Recorded Music streaming revenue and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the settlement of certain copyright infringement cases (the “Copyright Settlement”).

Additionally, the current fiscal year included the impact of a new deal with one of the Company’s digital partners affecting Recorded Music streaming revenue.

The increase includes $198 million of unfavorable currency exchange fluctuations.

Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 84% and 16% of total revenues for the fiscal year ended September 30, 2022, respectively, and 86% and 14% of total revenues for the fiscal year ended September 30, 2021, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 46% and 54% for the fiscal year ended September 30, 2022, respectively, and 45% and 55% for the fiscal year ended September 30, 2021, respectively.

Total digital revenues after intersegment eliminations increased by $327 million, or 9%, to $3,866 million for the fiscal year ended September 30, 2022 from $3,539 million for the fiscal year ended September 30, 2021, which includes $38 million in downloads and other digital revenue from the Copyright Settlement.

Total streaming revenue increased 9% driven by growth across Recorded Music and Music Publishing.

Recorded Music streaming revenue included the impact of a new deal with one of the Company’s digital partners.

The growth in Music Publishing includes a benefit of $20 million resulting from the July 1, 2022 remand ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage revenue of U.S.

mechanical royalty rates for 2018 to 2022 and reflects amounts expected to be paid (the “CRB Rate Benefit”).

Total digital revenues represented 65% and 67% of consolidated revenues for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

The decrease in digital revenues as a percentage of total revenue is primarily due to the growth of artist services and expanded-rights revenue.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2022 were composed of U.S.

revenues of $1,983 million and international revenues of $1,885 million, or 51% and 49% of total digital revenues, respectively.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2021 were composed of U.S.

revenues of $1,769 million and international revenues of $1,772 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Recorded Music revenues increased by $422 million, or 9%, to $4,966 million for the fiscal year ended September 30, 2022 from $4,544 million for the fiscal year ended September 30, 2021.

The increase includes $172 million of unfavorable currency exchange fluctuations.

Recorded Music revenues were $2,231 million and $1,985 million, or 45% and 44% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

International Recorded Music revenues were $2,735 million and $2,559 million, or 55% and 56% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

The overall increase in Recorded Music revenue was driven by increases in digital, artist services and expanded-rights, licensing and physical revenues.

Digital revenue increased by $200 million, or 6%, as a result of the continued growth in streaming services, which was affected by market-related slowdown in ad-supported revenue, $31 million in downloads and other digital revenue from the Copyright Settlement, strength of releases including current year releases from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Bruno Mars.

Revenue from streaming services grew by $187 million, or 6%, to $3,159 million for the fiscal year ended September 30, 2022 from $2,972 million for the fiscal year ended September 30, 2021.

Streaming revenue growth was partially offset by an unfavorable impact of foreign currency exchange rates of $88 million, or 3%.

Downloads and other digital revenue increased by $13 million, or 10%, to $146 million for the fiscal year ended September 30, 2022 from $133 million for the fiscal year ended September 30, 2021 due to the Copyright Settlement, partially offset by continued shift to streaming services.

Artist services and expanded-rights revenue increased by $168 million primarily due to higher touring activity, which was disrupted by COVID in the prior year, and merchandising revenue, partially offset by an unfavorable impact of foreign currency exchange rates of $37 million.

Licensing revenue increased by $40 million, mainly due to higher synchronization and other licensing revenue, partially offset by an unfavorable impact of foreign currency exchange rates of $15 million.

Physical revenue increased by $14 million, or 3%, primarily from higher sales due to the success of new releases and an increased demand for vinyl products, partially offset by an unfavorable impact of foreign currency exchange rates of $28 million.

Music Publishing revenues increased by $197 million, or 26%, to $958 million for the fiscal year ended September 30, 2022 from $761 million for the fiscal year ended September 30, 2021.

Music Publishing revenues were $513 million and $378 million, or 54% and 50% of consolidated Music Publishing revenues, for the fiscal year ended September 30, 2022 and September 30, 2021, respectively.

International Music Publishing revenues were $445 million and $383 million, or 46% and 50% of Music Publishing revenues, for the fiscal year ended September 30, 2022 and September 30, 2021, respectively.

The overall increase in Music Publishing revenue was driven by increases in digital revenue of $127 million, or 29%, performance revenue of $37 million, synchronization revenue of $28 million and mechanical revenue of $1 million.

The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the CRB Rate Benefit of $20 million, $7 million in downloads and other digital revenue from the Copyright Settlement and timing of new digital deals, partially offset by a shift in the collection of certain writer’s share income from certain digital service providers.

This change has no impact on Music Publishing OIBDA, but results in a slight improvement to OIBDA margin.

Revenue from streaming services grew by $121 million, or 29%, to $539 million for the fiscal year ended September 30, 2022 from $418 million for the fiscal year ended September 30, 2021.

Performance revenue increased as bars, restaurants, concerts and live events continued to recover from COVID disruption.

The increase in synchronization revenue is attributable to higher television and commercial income.

Mechanical revenue increase was partially offset by an unfavorable impact of foreign currency exchange rates of $3 million.

Total revenues increased by $838 million, or 19%, to $5,301 million for the fiscal year ended September 30, 2021 from $4,463 million for the fiscal year ended September 30, 2020.

Prior to intersegment eliminations, Recorded Music revenues represented 86% and 85% of total revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

Prior to intersegment eliminations, Music Publishing revenues represented 14% and 15% of total revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

intersegment eliminations, Music Publishing revenues represented 14% and 15% of total revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

Prior to intersegment eliminations, U.S.

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Total digital revenues represented 67% and 65% of consolidated revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2021 were comprised of U.S.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2021 were composed of U.S.

revenues of $1,769 million and international revenues of $1,772 million, or 50% of total digital revenues for each of U.S.

and international revenues.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2020 were comprised of U.S.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2020 were composed of U.S.

revenues of $1,479 million and international revenues of $1,426 million, or 51% and 49% of total digital revenues, respectively.

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Revenue from streaming services grew by $569 million or 24% to $2,972 million for the fiscal year ended September 30, 2021 from $2,403 million for the fiscal year ended September 30, 2020.

Streaming revenue growth was partially offset by a decline in download and other digital revenues of $32 million to $133 million for the fiscal year ended September 30, 2021 from $165 million for the fiscal year ended September 30, 2020 due to the continued shift to streaming services.

Streaming revenue growth was partially offset by a decline in downloads and other digital revenue of $32 million to $133 million for the fiscal year ended September 30, 2021 from $165 million for the fiscal year ended September 30, 2020 due to the continued shift to streaming services.

Physical revenue increased by $115 million primarily from higher sales due to an increased demand for vinyl products, continued recovery from COVID disruption, as well as the favorable impact of foreign currency exchange rates of $15 million.

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The decrease in performance revenue is primarily driven by the impact of COVID disruption on bars, restaurants, concerts and live events, which have only partially recovered.

Total revenues decreased by $12 million, or 0%, to $4,463 million for the fiscal year ended September 30, 2020 from $4,475 million for the fiscal year ended September 30, 2019.

Prior to intersegment eliminations, Recorded Music revenues represented 85% and 86% of total revenues for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

Prior to intersegment eliminations, Music Publishing revenues represented 15% and 14% of total revenues for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

Prior to intersegment eliminations, U.S.

and international revenues represented 43% and 57% of total revenues for the fiscal year ended September 30, 2020 and 44% and 56% of total revenues for the fiscal year ended September 30, 2019, respectively.

Total digital revenues after intersegment eliminations increased by $293 million, or 11%, to $2,903 million for the fiscal year ended September 30, 2020 from $2,610 million for the fiscal year ended September 30, 2019.

Total digital revenues represented 65% and 58% of consolidated revenues for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

The increase in digital revenue as a percentage of consolidated revenue is due to the continued growth in streaming revenue, which was largely uninterrupted by COVID-19, and the decrease in total consolidated revenue due to the business interruption impact of COVID-19.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2020 were comprised of U.S.

revenues of $1,479 million and international revenues of $1,426 million, or 51% and 49% of total digital revenues, respectively.

Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2019 were comprised of U.S.

revenues of $1,382 million and international revenues of $1,232 million, or 53% and 47% of total digital revenues, respectively.

Recorded Music revenues decreased by $30 million, or 1%, to $3,810 million for the fiscal year ended September 30, 2020 from $3,840 million for the fiscal year ended September 30, 2019.

Recorded Music revenues were $1,609 million and $1,656 million, or 42% and 43% of consolidated Recorded Music revenues for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

International Recorded Music revenues were $2,201 million and $2,184 million, or 58% and 57% of consolidated Recorded Music revenues for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

The overall decrease in Recorded Music revenue was driven by decreases in physical, artist services and expanded-rights, and licensing revenue partially offset by increases in digital revenue.

Physical revenue decreased by $125 million primarily due to the continued shift from physical revenue to digital revenue, timing of releases, prior-year success of Johnny Hallyday and impact of the COVID-19 business interruption resulting in lower physical sales, offset by current year release success in Japan.

Artist services and expanded-rights revenue decreased by $104 million primarily due to a decrease in touring activity and tour-related merchandising resulting from COVID-19 business interruption related tour postponements and cancellations, partially offset by higher e-commerce merchandising revenue.

Licensing revenue decreased by $26 million primarily due to the impact of COVID-19, which resulted in lower broadcast fees, synchronization revenue due to lower advertising, television and film deal activity, partially offset by $5 million of licensing settlements.

Digital revenue increased by $225 million as a result of the continued growth in streaming services and strength of releases, which included new releases from Roddy Ricch, YoungBoy Never Broke Again and Dua Lipa, as well as carryover success from Ed Sheeran, Tones and I, Hamilton, Lizzo, Cardi B, and Young Thug.

Revenue from streaming services grew by $274 million or 13% to $2,403 million for the fiscal year ended September 30, 2020 from $2,129 million for the fiscal year ended September 30, 2019.

Streaming revenue growth was partially offset by a decline in download and other digital revenues of $49 million to $165 million for the fiscal year ended September 30, 2020 from $214 million for the fiscal year ended September 30, 2019 due to the continued shift to streaming services.

Music Publishing revenues increased by $14 million, or 2%, to $657 million for the fiscal year ended September 30, 2020 from $643 million for the fiscal year ended September 30, 2019.

Music Publishing revenues were $325 million, or 49% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2020, and $300 million, or 47% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2019.

International Music Publishing revenues were $332 million, or 51% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2020, and $343 million, or 53% of consolidated Music Publishing revenues for the fiscal year ended September 30, 2019.

The overall increase in Music Publishing revenue was mainly driven by an increase in digital revenue of $66 million or 24%, partially offset by decreases in performance revenue of $41 million or 22%, mechanical revenue of $7 million, synchronization revenue of $1 million and other revenue of $3 million.

The increase in digital revenue mainly reflects the continued shift to streaming services.

The decreases in Music Publishing performance revenue and mechanical revenue are primarily due to COVID-19 related business interruption and the timing of distributions.

Revenue by Geographical Location

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Recorded Music revenue increased by $246 million, or 12%.

The primary driver was the increase of U.S.

Recorded Music digital revenue of $118 million driven by the continued growth in streaming services and the Copyright Settlement.

Recorded Music streaming revenue increased by $99 million, or 7%.

Download and other digital increased by $19 million due to the Copyright Settlement, partially offset by continued shift to streaming services.

Recorded Music artist services and expanded-rights revenue increased by $66 million, primarily driven by higher merchandising revenues.

Increases are also attributable to the increase in U.S.

Recorded Music physical revenue of $34 million from higher sales due to the success of new releases and an increased demand for vinyl products.

The increase in licensing revenue of $28 million is primarily due to higher synchronization activity.

Music Publishing revenue increased by $135 million, or 36%, to $513 million for the fiscal year ended September 30, 2022 from $378 million for the fiscal year ended September 30, 2021.

This was primarily driven by the increase in U.S.

Music Publishing of $96 million in digital revenue due to the continued growth in streaming services, the CRB Rate Benefit, the Copyright Settlement and timing of new digital deals, partially offset by a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Music Publishing streaming revenue increased by $90 million, or 39%.

The increase in synchronization revenue of $19 million is due to higher commercial and television income.

Performance revenue increased by $18 million driven by recovery from COVID disruption and mechanical revenue increased by $1 million.

International revenue increased by $238 million, or 8%, to $3,180 million for the fiscal year ended September 30, 2022 from $2,942 million for the fiscal year ended September 30, 2021.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $436 million, or 16%.

International Recorded Music revenue increased by $176 million primarily due to increases in artist services and expanded-rights revenue of $102 million, digital revenue of $82 million and licensing revenue of $12 million, partially offset by the decrease in physical revenue of $20 million.

International Recorded Music artist services and expanded-rights revenue increased by $102 million primarily due to an increase in concert promotion which was disrupted by COVID in the prior year, partially offset by the unfavorable impact of foreign currency exchange rates of $37 million.

International Recorded Music digital revenue increased due to an $88 million, or 6%, increase in streaming services, which was partially offset by an unfavorable impact of foreign currency exchange rates of $88 million.

International Recorded Music licensing revenue increased by $12 million due to synchronization and other licensing revenue, partially offset by the unfavorable impact of foreign currency exchange rates.

International Recorded Music physical revenue decreased by $20 million, primarily driven by an unfavorable impact of foreign currency exchange rates, which offset higher sales.

International Music Publishing revenue increased by $62 million, or 16%, to $445 million for the fiscal year ended September 30, 2022 from $383 million for the fiscal year ended September 30, 2021.

This was primarily driven by the increase in digital revenue of $31 million, performance revenue of $19 million and synchronization revenue of $9 million.

International Music Publishing streaming revenue increased by $31 million, or 17%.

Performance revenue increased as businesses continued to recover from COVID disruption.

Higher synchronization revenue is primarily driven by higher television and commercial income.

Mechanical revenue remained constant due an unfavorable impact of foreign currency exchange rates, which offset higher sales.

revenue increased by $429 million, or 22%, to $2,363 million for the fiscal year ended September 30, 2021 from $1,934 million for the fiscal year ended September 30, 2020.

Recorded Music revenue increased by $376 million or 23%.

The primary driver was the increase in U.S.

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Excluding the favorable impact of foreign currency exchange rates, international revenue increased by $280 million or 11%.

International Recorded Music revenue increased $358 million primarily due to an increase in digital revenue of $298 million, or 23%, physical revenue of $38 million, artist services and expanded-rights revenue of $15 million and licensing revenue of $7 million.

International Recorded Music revenue increased $358 million primarily due

to an increase in digital revenue of $298 million, or 23%, physical revenue of $38 million, artist services and expanded-rights revenue of $15 million and licensing revenue of $7 million.

International Recorded Music digital revenue increased due to a $314 million, or

26%, increase in streaming services revenue, partially offset by a $16 million decline in download and other digital revenue.

26%, increase in streaming services revenue, partially offset by a $16 million decline in downloads and other digital revenue.

The increase in international Recorded Music streaming revenue was due to the continued growth in streaming services internationally.

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The decline in performance revenue is due to the impact of COVID disruption.

revenue decreased by $22 million, or 1%, to $1,934 million for the fiscal year ended September 30, 2020 from $1,956 million for the fiscal year ended September 30, 2019.

Recorded Music revenue decreased by $47 million or 3%.

The primary drivers were the decreases in U.S.

Recorded Music physical revenue and U.S artist services and expanded rights revenue.

These decreases were partially offset by increases in U.S digital revenue, which increased by $64 million due to the continued growth in streaming services, and U.S licensing revenue, which increased by $10 million primarily due to licensing settlements despite the impact of COVID-19 interruptions.

streaming revenue increased by $91 million, partially offset by a $27 million decline in download revenue.

artist services and expanded-rights revenue decreased by $63 million, or 36%, driven by the impact of COVID-19 business interruptions, which resulted in tour postponements and cancellations and decreased physical retail and tour-related merchandising revenues.

physical revenue decreased by $58 million due to the shift from physical to digital formats, impact of COVID-19 and timing of releases.

Music Publishing revenue increased by $25 million or 8%.

This was primarily driven by the increase in U.S.

Music Publishing digital revenue of $33 million due to the continued growth in streaming services partially offset by a decrease in performance revenue of $6 million and synchronization revenue of $2 million due to COVID-19.

International revenue increased by $6 million, or 0%, to $2,533 million for the fiscal year ended September 30, 2020 from $2,527 million for the fiscal year ended September 30, 2019.

Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $35 million or 1%.

International Recorded Music revenue increased $17 million primarily due to an increase in digital revenue of $161 million partially offset by decreases in artist services and expanded-rights revenue of $41 million, physical revenue of $67 million and licensing revenue of $36 million.

International Recorded Music digital revenue increased due to a $183 million increase in streaming services revenue, partially offset by a $22 million decline in download and other digital revenue.

The increase in international Recorded Music streaming revenue was due to the continued growth in streaming services internationally.

International Recorded Music artist services and expanded-rights revenue decreased primarily due to the impact of COVID-19 business interruptions, which resulted in tour postponements and cancellations, in contrast to strong touring in the prior year.

This was offset by an increase in merchandise revenue, which reflects a decrease in physical retail and tour-related merchandising offset by growth in EMP e-commerce merchandise revenue.

International Recorded Music physical revenue decreased due to the continued shift from physical revenue to digital revenue, impact of COVID-19, timing of releases, and the prior-year physical success of Johnny Hallyday.

International Recorded Music licensing revenue decreased due to the impact of COVID-19.

International Music Publishing revenue decreased $11 million or 3%.

This was primarily driven by decreases in international Music Publishing performance revenue of $35 million and mechanical revenue of $7 million, both due to the impact of COVID-19 and timing of distributions, other revenue of $3 million partially offset by increases in digital revenue of $33 million, primarily due to growth in streaming, and synchronization revenue of $1 million.

Cost of revenues

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Expressed as a percentage of revenues, cost of revenues remained constant at 52% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Artist and repertoire costs increased by $180 million, to $1,960 million for the fiscal year ended September 30, 2022 from $1,780 million for the fiscal year ended September 30, 2021.

Artist and repertoire costs as a percentage of revenue decreased to 33% for the fiscal year ended September 30, 2022 from 34% for the fiscal year ended September 30, 2021, primarily due to revenue mix and timing of artist and repertoire investments.

Product costs increased by $158 million, to $1,120 million for the fiscal year ended September 30, 2022 from $962 million for the fiscal year ended September 30, 2021.

Product costs as a percentage of revenue increased to 19% for the fiscal year ended September 30, 2022 from 18% for the fiscal year ended September 30, 2021 due to revenue mix, primarily increases in artist services and expanded-rights revenue.

Our cost of revenues increased by $409 million, or 18%, to $2,742 million for the fiscal year ended September 30, 2021 from $2,333 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of revenues, cost of revenues remained constant at 52% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Artist and repertoire costs increased by $220 million, or 14%, to $1,780 million for the fiscal year ended September 30, 2021 from $1,560 million for the fiscal year ended September 30, 2020.

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The overall increase as a percentage of revenues is due to revenue mix, primarily increases in physical and third party distributed label revenue.

Our cost of revenues decreased by $68 million, or 3%, to $2,333 million for the fiscal year ended September 30, 2020 from $2,401 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of revenues, cost of revenues decreased to 52% for the fiscal year ended September 30, 2020 from 53% for the fiscal year ended September 30, 2019.

Artist and repertoire costs decreased by $14 million, or 1%, to $1,560 million for the fiscal year ended September 30, 2020 from $1,574 million for the fiscal year ended September 30, 2019.

Artist and repertoire costs as a percentage of revenues remained constant at 35% for each of the fiscal years ended September 30, 2020 and September 30, 2019.

Product costs decreased by $54 million, or 7%, to $773 million for the fiscal year ended September 30, 2020 from $827 million for the fiscal year ended September 30, 2019.

Product costs as a percentage of revenues decreased to 17% for the fiscal year ended September 30, 2020 from 18% for the fiscal year ended September 30, 2019.

The overall decrease in product costs primarily relates to revenue mix due to lower physical and artist-services and expanded rights revenues, partially offset by increases in our third party distributed label revenue.

Selling, general and administrative expenses

Our selling, general and administrative expenses are composed of the following amounts (in millions):

Our selling, general and administrative expenses were composed of the following amounts (in millions):

For the Fiscal Year Ended

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(1) Includes depreciation expense of $76 million, $77 million and $71 million for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, respectively.

Total selling, general and administrative expense increased by $141 million, or 8%, to $1,862 million for the fiscal year ended September 30, 2022 from $1,721 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 31% for the fiscal year ended September 30, 2022 from 32% for the fiscal year ended September 30, 2021.

General and administrative expense increased by $69 million to $939 million for the fiscal year ended September 30, 2022 from $870 million for the fiscal year ended September 30, 2021.

The increase in general and administrative expense was mainly due to increased employee related costs, including the impact of an additional week, the impact of acquisitions, unfavorable movements in foreign currency exchange rates of $11 million and increased expenses related to transformation initiatives, partially offset by the impact of the mark-to-market adjustment of an earn-out liability related to an acquisition and lower restructuring.

Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Selling and marketing expense increased by $54 million, or 7%, to $792 million for the fiscal year ended September 30, 2022 from $738 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of revenue, selling and marketing expense decreased to 13% for the fiscal year ended September 30, 2022 from 14% for the fiscal year ended September 30, 2021.

Distribution expense was $131 million for the fiscal year ended September 30, 2022 and $113 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Total selling, general and administrative expense decreased by $448 million, or 21%, to $1,721 million for the fiscal year ended September 30, 2021 from $2,169 million for the fiscal year ended September 30, 2020.

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Expressed as a percentage of revenues, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Total selling, general and administrative expense increased by $659 million, or 44%, to $2,169 million for the fiscal year ended September 30, 2020 from $1,510 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of revenues, selling, general and administrative expenses increased to 49% for the fiscal year ended September 30, 2020 from 34% for the fiscal year ended September 30, 2019.

This is primarily due to the $559 million of increased expense associated with non-cash stock-based compensation, the one-time management agreement termination fee and IPO related expenses totaling $89 million and a one-time charge within depreciation expense of $10 million related to our Los Angeles, California headquarters relocation.

Excluding non-cash stock-based compensation expense, the one-time management agreement termination fee and IPO related expenses, and one-time charge within depreciation expense, selling, general and administrative expense as a percentage of revenue remained constant at 33% for each of the fiscal years ended September 30, 2020 and September 30, 2019.

General and administrative expenses increased by $670 million, or 88%, to $1,434 million for the fiscal year ended September 30, 2020 from $764 million for the fiscal year ended September 30, 2019.

The increase in general and administrative expense was primarily due to higher expense associated with non-cash stock-based compensation of $559 million, the one-time management agreement termination fee and IPO related expenses totaling $89 million, a one-time charge within depreciation expense of $10 million, costs associated with transformation initiatives of $19 million and costs associated with COVID-19 business interruption of $17 million, partially offset by lower overhead due to active cost management efforts.

Expressed as a percentage of revenue, general and administrative expense increased to 32% for the fiscal year ended September 30, 2020 from 17% for the fiscal year ended September 30, 2019.

Excluding non-cash stock-based compensation expense, the one-time management agreement termination fee and IPO related expenses, and the one-time charge within depreciation expense, general and administrative expense as a percentage of revenue remained constant at 16% for each of the fiscal years ended September 30, 2020 and September 30, 2019.

Selling and marketing expense increased by $8 million, or 1%, to $640 million for the fiscal year ended September 30, 2020 from $632 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of revenues, selling and marketing expense remained constant at 14% for each of the fiscal years ended September 30, 2020 and September 30, 2019.

Distribution expense decreased by $19 million, or 17%, to $95 million for the fiscal year ended September 30, 2020 from $114 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of revenues, distribution expense decreased to 2% for the fiscal year ended September 30, 2020 from 3% for the fiscal year ended September 30, 2019 mainly due to revenue mix, specifically declines in physical and artist services and expanded rights revenue.

Reconciliation of Net Income Attributable to Warner Music Group Corp.

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Income (loss) before income taxes 740 456 (447) 284 62 % 903 — %

Other expense (income) 9 57 (60) (48) -84 % 117 — %

Other (income) expense (151) 9 57 (160) — % (48) -84 %

Interest expense, net 125 122 127 3 2 % (5) -4 %

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OIBDA $ 1,053 $ 915 $ 32 $ 138 15 % $ 883 — %

OIBDA increased by $138 million to $1,053 million for the fiscal year ended September 30, 2022 as compared to $915 million for the fiscal year ended September 30, 2021 as a result of higher revenues, partially offset by higher cost of revenues and selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin increased to 18% for the fiscal year ended September 30, 2022 from 17% for the fiscal year ended September 30, 2021 due to strong operating performance, partially offset by unfavorable foreign currency exchange rates.

Our OIBDA increased by $883 million to $915 million for the fiscal year ended September 30, 2021 as compared to $32 million for the fiscal year ended September 30, 2020 primarily as a result of higher revenues and lower expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, partially offset by higher cost of revenues.

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Excluding the expense associated with non-cash stock-based compensation and other related expenses, the prior-year management agreement termination fee and IPO related expenses, OIBDA margin as a percentage of revenue increased to 18% for the fiscal year ended September 30, 2021 from 16% for the fiscal year ended September 30, 2020 due to strong operating performance.

Our OIBDA decreased by $593 million, or 95%, to $32 million for the fiscal year ended September 30, 2020 as compared to $625 million for the fiscal year ended September 30, 2019 primarily as a result of higher selling, general and administrative expenses.

Expressed as a percentage of total revenue, OIBDA margin decreased to 1% for the fiscal year ended September 30, 2020 from 14% for the fiscal year ended September 30, 2019.

Excluding non-cash stock-based compensation expense, the one-time management agreement termination fee and IPO related expenses, as a percentage of total revenue, OIBDA margin increased to 16% for the fiscal year ended September 30, 2020 from 15% for the fiscal year ended September 30, 2019.

Depreciation expense

Our depreciation expense decreased by $1 million to $76 million for the fiscal year ended September 30, 2022 from $77 million for the fiscal year ended September 30, 2021.

Our depreciation expense increased by $6 million, or 8%, to $77 million for the fiscal year ended September 30, 2021 from $71 million for the fiscal year ended September 30, 2020, primarily due to an increase in IT capital spend and assets being placed into service, partially offset by a one-time charge of $10 million related to the Los Angeles headquarters relocation in the prior year.

Our depreciation expense increased by $10 million, or 16%, to $71 million for the fiscal year ended September 30, 2020 from $61 million for the fiscal year ended September 30, 2019, primarily due to a one-time charge of $10 million representing the difference between the net book value of a building and its recoverable value.

The building was exited as part of our Los Angeles, California headquarters relocation.

Amortization expense

Our amortization expense increased by $34 million, or 15%, to $263 million for the fiscal year ended September 30, 2022 from $229 million for the fiscal year ended September 30, 2021.

The increase is primarily due to an increase in amortizable intangible assets primarily related to the acquisition of music-related assets.

Amortization expense increased by $39 million, or 21%, to $229 million for the fiscal year ended September 30, 2021 from $190 million for the fiscal year ended September 30, 2020, primarily due to an increase in amortizable intangible assets primarily related to the acquisition of music-related assets.

Amortization expense decreased by $18 million, or 9%, to $190 million for the fiscal year ended September 30, 2020 from $208 million for the fiscal year ended September 30, 2019, primarily due to certain intangible assets becoming fully amortized.

Operating income (loss)

Our operating income increased by $105 million to $714 million for the fiscal year ended September 30, 2022 from $609 million for the fiscal year ended September 30, 2021.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher amortization as noted above.

Our operating income increased by $838 million to $609 million for the fiscal year ended September 30, 2021 from operating loss of $229 million for the fiscal year ended September 30, 2020.

The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher depreciation and amortization as noted above.

Our operating income decreased by $585 million to a loss of $229 million for the fiscal year ended September 30, 2020 from income of $356 million for the fiscal year ended September 30, 2019.

The decrease in operating income was due to the factors that led to the decrease in OIBDA.

Loss on extinguishment of debt

There was no loss on extinguishment of debt for the fiscal year ended September 30, 2022.

We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021 which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual report).

We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021, which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual Report).

We recorded a loss on extinguishment of debt in the amount of $34 million for the fiscal year ended September 30, 2020, which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 4.125% Senior Secured Notes due 2024 (the “4.125% Senior Secured Notes”), the 4.875% Senior Secured Notes due 2024 (the “4.875% Senior Secured Notes”) and the 5.00% Senior Secured Notes due 2023 (the “5.00% Senior Secured Notes”) and the partial repayment of the Senior Term Loan Facility (as defined later in this Annual Report).

Please refer to Note 10 of our consolidated financial statements for further discussion.

We recorded a loss on extinguishment of debt in the amount of $7 million for the fiscal year ended September 30, 2019, which represents the unamortized deferred financing costs related to the redemption of a portion of the 4.125% Senior Secured Notes and all of the 5.625% Senior Secured Notes due 2022 (the “5.625% Senior Secured Notes”), in addition to the open market purchases of the 4.875% Senior Secured Notes.

Please refer to Note 9 of our consolidated financial statements for further discussion.

Interest expense, net

Our interest expense, net, increased to $125 million for the fiscal year ended September 30, 2022 from $122 million for the fiscal year ended September 30, 2021 due to higher principal balance due to the issuance of senior secured notes to partially fund the acquisition of a business and music-related assets.

Our interest expense, net decreased by $5 million, or 4% to $122 million for the fiscal year ended September 30, 2021 from $127 million for the fiscal year ended September 30, 2020.

This was primarily driven by lower interest rates resulting from debt refinancing, partially offset by a higher principal balance due to the issuance of senior secured notes.

Our interest expense, net decreased by $15 million, or 11% to $127 million for the fiscal year ended September 30, 2020 from $142 million for the fiscal year ended September 30, 2019.

This was primarily driven by a decline in LIBOR rates as well as lower interest rates as a result of refinancing transactions and redemption activity.

Other expense (income)

Other (income) expense

Other income for the fiscal year ended September 30, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $151 million, currency exchange gains on our intercompany loans of $34 million and unrealized gains on hedging activity of $10 million, partially offset by aggregate realized and unrealized losses of $49 million related to equity investments.

Other expense for the fiscal year ended September 30, 2021 primarily includes foreign currency losses on our Euro-denominated debt of $5 million and unrealized loss of $4 million on the mark-to-market of equity investments.

Other expense decreased by $48 million to $9 million for the fiscal year ended September 30, 2021 from $57 million for the fiscal year ended September 30, 2020.

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Other expense for the fiscal year ended September 30, 2020 primarily includes the non-cash unrealized loss on the remeasurement of our Euro-denominated debt of $56 million, $4 million loss on hedging activity and losses on investments of $7 million, partially offset by an unrealized gain of $9 million on the mark-to-market of an equity method investment.

Other expense (income) decreased by $117 million to other expense of $57 million for the fiscal year ended September 30, 2020 from other income of $60 million for the fiscal year ended September 30, 2019.

Other expense (income) for the fiscal year ended September 30, 2019 includes non-cash unrealized foreign exchange currency gains on the remeasurement of our Euro-denominated debt of $43 million, unrealized gain of $19 million on the mark-to-market of an equity method investment, partially offset by the impact of other movements in foreign exchange rates.

Income tax expense

Our income tax expense increased by $36 million to $185 million for the fiscal year ended September 30, 2022 from $149 million for the fiscal year ended September 30, 2021.

The net increase of $126 million in income tax expense primarily relates to the higher pre-tax income in the current fiscal year as compared to pre-tax income before non-deductible executive compensation and transaction costs and release of a valuation allowances of foreign tax credits for the fiscal year ended September 30, 2020.

The increase of $36 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, partially offset by the impact of a higher proportion of the pre-tax income being earned in the United States in the current year and the change in the UK statutory tax rate recognized in the prior year.

Our income tax expense increased by $126 million to $149 million for the fiscal year ended September 30, 2021 from $23 million for the fiscal year ended September 30, 2020.

The net increase of $14 million in income tax expense primarily relates to a greater release of a U.S.

deferred tax valuation allowance in the fiscal year ended September 30, 2019.

The net increase of $126 million in income tax expense primarily relates to the higher pre-tax income in the current fiscal year as compared to pre-tax income before non-deductible executive compensation and transaction costs and release of valuation allowances of foreign tax credits for the fiscal year ended September 30, 2020.

Net income (loss)

Net income increased by $248 million to $555 million for the fiscal year ended September 30, 2022 from $307 million for the fiscal year ended September 30, 2021 as a result of the factors described above.

Our net income increased by $777 million to income of $307 million for the fiscal year ended September 30, 2021 from a loss of $470 million for the fiscal year ended September 30, 2020 as a result of the factors described above.

Our net income decreased by $728 million to a loss of $470 million for the fiscal year ended September 30, 2020 from income of $258 million for the fiscal year ended September 30, 2019 as a result of the factors described above.

Noncontrolling interest

There was $3 million of income attributable to noncontrolling interests for the fiscal year ended September 30, 2021.

There was $5 million of income attributable to noncontrolling interests for the fiscal year ended September 30, 2020.

There was $4 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2022 and $3 million of income attributable to noncontrolling interest for the fiscal year ended September 30, 2021.

There was $3 million of income attributable to noncontrolling interests for the fiscal year ended September 30, 2021.

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Recorded Music

Recorded Music revenue increased by $422 million, or 9%, to $4,966 million for the fiscal year ended September 30, 2022 from $4,544 million for the fiscal year ended September 30, 2021.

International Recorded Music revenues were $2,735 million and $2,559 million, or 55% and 56% of consolidated Recorded Music revenues, for the fiscal year ended September 30, 2022 and September 30, 2021, respectively.

The overall increase in Recorded Music revenue was driven by growth across all revenue types, including digital, artist services and expanded-rights, licensing and physical revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Recorded Music revenues increased by $734 million, or 19%, to $4,544 million for the fiscal year ended September 30, 2021 from $3,810 million for the fiscal year ended September 30, 2020.

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The overall increase in Recorded Music revenue was driven by increases in digital, physical, artist services and expanded-rights and licensing revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Recorded Music revenues decreased by $30 million, or 1%, to $3,810 million for the fiscal year ended September 30, 2020 from $3,840 million for the fiscal year ended September 30, 2019.

Recorded Music revenues were $1,609 million and $1,656 million, or 42% and 43% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

International Recorded Music revenues were $2,201 million and $2,184 million, or 58% and 57% of consolidated Recorded Music revenues, for the fiscal years ended September 30, 2020 and September 30, 2019, respectively.

The overall decrease in Recorded Music revenue was driven by decreases in physical, artist services and expanded-rights and licensing revenue, partially offset by an increase in digital revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

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Artist and repertoire costs as a percentage of revenue decreased to 27% for the fiscal year ended September 30, 2022 from 28% for the fiscal year ended September 30, 2021.

The decrease is primarily attributable to revenue mix and timing of artist and repertoire investments.

Product costs as a percentage of revenue increased to 23% for the fiscal year ended September 30, 2022 from 21% for the fiscal year ended September 30, 2021.

The overall increase as a percentage of revenue primarily relates to revenue mix due to an increase in lower-margin artist services and expanded-rights revenue.

Recorded Music cost of revenues increased by $334 million, or 17%, to $2,253 million for the fiscal year ended September 30, 2021 from $1,919 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of Recorded Music revenue, cost of revenues remained constant at 50% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Artist and repertoire costs as a percentage of revenue decreased to 28% for the fiscal year ended September 30, 2021 from 30% for the fiscal year ended September 30, 2020.

The decrease is primarily attributable to revenue mix.

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The increase in product costs primarily relates to revenue mix due to higher physical and third party distributed label revenue.

Recorded Music cost of revenues decreased by $86 million, or 4%, to $1,919 million for the fiscal year ended September 30, 2020 from $2,005 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of Recorded Music revenue, cost of revenues decreased from 50% for the fiscal year ended September 30, 2020 from 52% for the fiscal year ended September 30, 2019.

Artist and repertoire costs as a percentage of revenue decreased to 30% for the fiscal year ended September 30, 2020 from 31% for the fiscal year ended September 30, 2019.

The decrease is primarily attributable to revenue mix and lower artist related costs, including a decrease in spending.

Product costs as a percentage of revenue decreased to 20% for the fiscal year ended September 30, 2020 from 22% for the fiscal year ended September 30, 2019.

The decrease in product costs primarily relates to revenue mix due to lower physical and artist-services and expanded rights revenues, partially offset by increases in our third party distributed label revenue.

Selling, general and administrative expense

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(1) Includes depreciation expense of $51 million, $53 million, and $55 million for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, respectively.

Recorded Music selling, general and administrative expense increased by $121 million, or 9%, to $1,529 million for the fiscal year ended September 30, 2022 from $1,408 million for the fiscal year ended September 30, 2021.

The increase in general and administrative expense was primarily due to the impact of acquisitions, increased employee related costs, the unfavorable movements in foreign currency exchange rates of $14 million and legal expenses for the Copyright Settlement, partially offset by the impact of the mark-to-market adjustment of an earn-out liability related to an acquisition, lower non-cash stock-based compensation and other related expenses of $9 million, as a result of equity awards becoming fully vested, and lower restructuring.

The increase in selling and marketing expense was primarily due to increased variable marketing spend on higher revenues and new releases, increased employee related costs and higher travel expenses as limited travel resumed.

The increase in distribution expense was primarily due to higher artist services and expanded-rights revenue.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense remained constant at 31% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Recorded Music selling, general and administrative expense decreased by $189 million, or 12%, to $1,408 million for the fiscal year ended September 30, 2021 from $1,597 million for the fiscal year ended September 30, 2020.

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Excluding non-cash stock-based compensation and other related expenses, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 30% for the fiscal year ended September 30, 2021 from 32% for the fiscal year ended September 30, 2020.

Recorded Music selling, general and administrative expense increased by $340 million, or 27%, to $1,597 million for the fiscal year ended September 30, 2020 from $1,257 million for the fiscal year ended September 30, 2019.

The increase in general and administrative expense was primarily due to higher non-cash stock-based compensation expense of $359 million and a one-time charge within depreciation expense of $10 million related to our Los Angeles, California headquarters relocation, partially offset by lower overhead from active cost management efforts.

The decrease in distribution expense was primarily due to lower physical and artist services and expanded rights revenues.

Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense increased to 42% for the fiscal year ended September 30, 2020 from 33% for the fiscal year ended September 30, 2019.

Excluding non-cash stock-based compensation expense and the one-time charge within depreciation expense, selling, general and administrative expense as a percentage of Recorded Music revenue decreased to 31% for the fiscal year ended September 30, 2020 from 32% for the fiscal year ended September 30, 2019.

Operating income and OIBDA

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OIBDA $ 1,023 $ 936 $ 349 $ 87 9 % $ 587 — %

Recorded Music OIBDA increased by $87 million, to $1,023 million for the fiscal year ended September 30, 2022 from $936 million for the fiscal year ended September 30, 2021 as a result of higher revenues, partially offset by higher costs of revenue and selling, general and administrative expenses.

Expressed as a percentage of Recorded Music revenue, Recorded Music OIBDA margin remained constant at 21% for each of the fiscal years ended September 30, 2022 and September 30, 2021 due to strong operating performance, which was offset by revenue mix resulting from the growth of lower-margin revenue streams and an unfavorable impact of foreign currency exchange rates.

Recorded Music operating income increased by $63 million to $796 million for the fiscal year ended September 30, 2022 from $733 million for the fiscal year ended September 30, 2021 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Recorded Music OIBDA increased by $587 million to $936 million for the fiscal year ended September 30, 2021 from $349 million for the fiscal year ended September 30, 2020 primarily as a result of higher revenues and lower non-cash stock-based compensation and other related expenses of $367 million, partially offset by higher cost of revenues.

2 unchanged sentences

Recorded Music operating income increased by $558 million to $733 million for the fiscal year ended September 30, 2021 from $175 million for the fiscal year ended September 30, 2020 due to the factors that led to the increase in Recorded Music OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Recorded Music OIBDA decreased by $274 million, or 44%, to $349 million for the fiscal year ended September 30, 2020 from $623 million for the fiscal year ended September 30, 2019 primarily as a result of higher general and administrative expenses.

Expressed as a percentage of Recorded Music revenues, Recorded Music OIBDA margin decreased to 9% for the fiscal year ended September 30, 2020 from 16% for the fiscal year ended September 30, 2019.

Excluding non-cash stock-based compensation expense, OIBDA as a percentage of Recorded Music revenue increased to 19% for the fiscal year ended September 30, 2020 from 17% for the fiscal year ended September 30, 2019.

Recorded Music operating income decreased by $264 million to $175 million for the fiscal year ended September 30, 2020 from $439 million for the fiscal year ended September 30, 2019 due to the factors that led to the decrease in Recorded Music OIBDA noted above.

Excluding non-cash stock-based compensation expense and the one-time charge within depreciation expense, Recorded Music operating income increased by $105 million due to lower total cost of revenues, amortization expense, distribution expense, and general and administrative expense.

Music Publishing

Music Publishing revenues increased by $197 million, or 26%, to $958 million for the fiscal year ended September 30, 2022 from $761 million for the fiscal year ended September 30, 2021.

Music Publishing revenues were $378 million and $325 million, or 50% and 49%, of Music Publishing revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

International Music Publishing revenues were $383 million and $332 million, or 50% and 51%, of Music Publishing revenues for the fiscal years ended September 30, 2021 and September 30, 2020, respectively.

The overall increase in Music Publishing revenue was mainly driven by digital, synchronization and mechanical revenue growth, partially offset by lower performance and other revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Music Publishing revenues were $513 million and $378 million, or 54% and 50% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

International Music Publishing revenues were $445 million and $383 million, or 46% and 50% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.

The overall increase in Music Publishing revenue was driven by growth across all revenue types, including digital, performance, synchronization and mechanical revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Music Publishing revenues increased by $104 million, or 16%, to $761 million for the fiscal year ended September 30, 2021 from $657 million for the fiscal year ended September 30, 2020.

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The overall increase in Music Publishing revenue was mainly driven by digital revenue growth, partially offset by lower performance revenue, mechanical revenue, synchronization revenue and other revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.

Cost of revenues

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Music Publishing cost of revenues increased by $127 million, or 26%, to $620 million for the fiscal year ended September 30, 2022 from $493 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues remained constant at 65% for each of the fiscal years ended September 30, 2022 and September 30, 2021.

Music Publishing cost of revenues increased by $75 million, or 18%, to $493 million for the fiscal year ended September 30, 2021 from $418 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 65% for the fiscal year ended September 30, 2021 from 64% for the fiscal year ended September 30, 2020, primarily attributable to revenue mix, partially offset by lower royalty expense due to a shift in the collection of writer’s share of U.S.

digital performance income from certain digital service providers.

Music Publishing cost of revenues increased by $14 million, or 3%, to $418 million for the fiscal year ended September 30, 2020 from $404 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 64% for the fiscal year ended September 30, 2020 from 63% for the fiscal year ended September 30, 2019.

Selling, general and administrative expense

Music Publishing selling, general and administrative expenses comprised the following amounts (in millions):

Music Publishing selling, general and administrative expenses were composed of the following amounts (in millions):

For the Fiscal Year Ended

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(1) Includes depreciation expense of $5 million, $6 million and $5 million for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, respectively.

Music Publishing selling, general and administrative expense increased to $112 million for the fiscal year ended September 30, 2022 from $100 million for the fiscal year ended September 30, 2021.

The increase in general and administrative expense was primarily due to higher variable compensation expense related to strong operating performance, employee-related costs and legal expenses for the Copyright Settlement, partially offset by lower restructuring.

Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 12% for the fiscal year ended September 30, 2022 from 13% for the fiscal year ended September 30, 2021.

Music Publishing selling, general and administrative expense increased by $13 million, or 15%, to $100 million for the fiscal year ended September 30, 2021 as compared to $87 million for the fiscal year ended September 30, 2020.

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Expressed as a percentage of Music Publishing revenues, Music Publishing selling, general and administrative expense remained constant at 13% for each of the fiscal years ended September 30, 2021 and September 30, 2020.

Music Publishing selling, general and administrative expense increased by $9 million, or 12%, to $87 million for the fiscal year ended September 30, 2020 as compared to $78 million for the fiscal year ended September 30, 2019.

The increase in general and administrative expense was primarily due to higher employee-related costs and restructuring costs, partially offset by active cost management efforts.

Expressed as a percentage of Music Publishing revenues, Music Publishing selling, general and administrative expense increased to 13% for the fiscal year ended September 30, 2020 from 12% for the fiscal year ended September 30, 2019.

Operating income and OIBDA

Music Publishing OIBDA includes the following amounts (in millions):

Music Publishing OIBDA included the following amounts (in millions):

For the Fiscal Year Ended

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Music Publishing OIBDA increased by $57 million, or 33%, to $231 million for the fiscal year ended September 30, 2022 from $174 million for the fiscal year ended September 30, 2021.

Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 24% for the fiscal year ended September 30, 2022 from 23% for the fiscal year ended September 30, 2021.

The increase was due to strong operating performance, partially offset by the unfavorable impact of foreign currency exchange rates.

Music Publishing operating income increased by $50 million to $139 million for the fiscal year ended September 30, 2022 from $89 million operating income for the fiscal year ended September 30, 2021 largely due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing OIBDA increased by $17 million, or 11%, to $174 million for the fiscal year ended September 30, 2021 from $157 million for the fiscal year ended September 30, 2020.

Expressed as a percentage of Music Publishing revenues, Music Publishing OIBDA margin decreased to 23% for the fiscal year ended September 30, 2021 from 24% for the fiscal year ended September 30, 2020.

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Music Publishing operating income increased by $8 million to $89 million for the fiscal year ended September 30, 2021 from $81 million for the fiscal year ended September 30, 2020 due to the factors that led to the increase in Music Publishing OIBDA noted above, partially offset by an increase in amortizable intangible assets related to the acquisition of music-related assets.

Music Publishing OIBDA decreased by $9 million, or 5%, to $157 million for the fiscal year ended September 30, 2020 from $166 million for the fiscal year ended September 30, 2019.

Expressed as a percentage of Music Publishing revenues, Music Publishing OIBDA margin decreased to 24% for the fiscal year ended September 30, 2020 from 26% for the fiscal year ended September 30, 2019.

The decrease was primarily due to higher artist and repertoire costs and general and administrative expenses.

Music Publishing operating income decreased by $11 million to $81 million for the fiscal year ended September 30, 2020 from $92 million for the fiscal year ended September 30, 2019 due to the factors that led to the decrease in Music Publishing OIBDA noted above.

Corporate Expenses and Eliminations

Our operating loss from corporate expenses and eliminations increased by $8 million to $221 million for the fiscal year ended September 30, 2022 from $213 million for the fiscal year ended September 30, 2021, which primarily includes increased expenses related to transformation initiatives and employee related costs, including the impact of an additional week, partially offset by recovery of previously incurred legal expenses for the Copyright Settlement.

Our OIBDA loss from corporate expenses and eliminations increased by $6 million to $201 million for the fiscal year ended September 30, 2022 from $195 million for the fiscal year ended September 30, 2021 primarily due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations decreased by $272 million to $213 million for the fiscal year ended September 30, 2021 from $485 million for the fiscal year ended September 30, 2020 which primarily includes the decrease in non-cash stock-based compensation and other related expenses of $195 million, the prior-year management agreement termination fee and IPO related expenses totaling $89 million and decline in management fees of $7 million, partially offset by higher employee related costs, technology spend and public company related expenses.

Our OIBDA loss from corporate expenses and eliminations decreased by $279 million to $195 million for the fiscal year ended September 30, 2021 from $474 million for the fiscal year ended September 30, 2020, due to the operating loss factors noted above.

Our operating loss from corporate expenses and eliminations increased by $310 million to $485 million for the fiscal year ended September 30, 2020 from $175 million for the fiscal year ended September 30, 2019 which includes an increase in non-cash stock-based compensation expense of $200 million, the one-time management agreement termination fee and IPO related expenses totaling $89 million and higher costs related to transformation initiatives of $19 million.

Our OIBDA loss from corporate expenses and eliminations increased by $310 million to $474 million for the fiscal year ended September 30, 2020 from $164 million for the fiscal year ended September 30, 2019, due to the operating loss factors noted above.

FINANCIAL CONDITION AND LIQUIDITY

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This compares to $3.346 billion of debt (which is net of $37 million of premiums, discounts and deferred financing costs), $499 million of cash and equivalents (net debt of $2.847 billion) and $31 million of Warner Music Group Corp.

deficit at September 30, 2020.

equity at September 30, 2021.

The following table summarizes our historical cash flows (in millions).

The financial data for fiscal years ended September 30, 2021, September 30, 2020 and September 30, 2019 have been derived from our consolidated financial statements included elsewhere herein.

The financial data for fiscal years ended September 30, 2022, 2021 and 2020 have been derived from our consolidated financial statements included elsewhere herein.

Fiscal Year Ended September 30,

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Cash provided by operating activities was $742 million for the fiscal year ended September 30, 2022 compared to $638 million for the fiscal year ended September 30, 2021 and $463 million for the fiscal year ended September 30, 2020.

The primary driver of the $175 million, or 38%, increase in cash provided by operating activities during the current year was primarily due to an increase in OIBDA offset by a decrease in non-cash equity compensation expense and continued A&R investment driving a use of cash from working capital.

The increase in results from operating activities for the fiscal year ended September 30, 2020 compared to the fiscal year ended September 30, 2019 reflected timing of working capital partially offset by higher taxes paid and increased cash A&R investments.

The $104 million, or 16%, increase in cash provided by operating activities during the current year was primarily due to strong operating performance and timing of working capital.

The increase in results from operating activities for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 reflected an increase in OIBDA offset by a decrease in non-cash equity compensation expense and continued A&R investment driving a use from working capital.

Investing Activities

Cash used in investing activities was $824 million for the fiscal year ended September 30, 2022 compared to $638 million for the fiscal year ended September 30, 2021 and $219 million for the fiscal year ended September 30, 2020.

Cash used in investing activities of $824 million for the fiscal year ended September 30, 2022 consisted of $509 million relating to investments and acquisitions of businesses, a portion of which was debt-financed, $191 million to acquire music-related assets, a portion of which was debt-financed, and $135 million relating to capital expenditures, partially offset by $11 million of proceeds from the sale of investments.

Cash used in investing activities of $638 million for the fiscal year ended September 30, 2021 consisted of $64 million relating to investments and acquisitions of businesses, $93 million relating to capital expenditures and $481 million to acquire music-related assets, a portion of which was debt-financed.

Cash used in investing activities of $219 million for the fiscal year ended September 30, 2020 consisted of $81 million related to an acquisition, net of cash and equivalents acquired, $13 million relating to other investments, $85 million relating to capital expenditures, including investment in transformation initiatives, and $40 million to acquire music publishing rights and music catalogs.

Cash used in investing activities of $376 million for the fiscal year ended September 30, 2019 consisted of $183 million related to the acquisition of EMP, net of cash and equivalents acquired, $48 million relating to other investments, $104 million relating to capital expenditures, including investment in transformation initiatives, and $41 million to acquire music publishing rights and music catalogs.

Financing Activities

Cash used in financing activities was $61 million for the fiscal year ended September 30, 2021 compared to cash used in financing activities of $316 million for the fiscal year ended September 30, 2020 and cash provided by financing activities of $88 million for the fiscal year ended September 30, 2019.

Cash provided by financing activities was $188 million for the fiscal year ended September 30, 2022 compared to cash used in financing activities of $61 million for the fiscal year ended September 30, 2021 and cash used in financing activities of $316 million for the fiscal year ended September 30, 2020.

The $188 million of cash provided by financing activities for the fiscal year ended September 30, 2022 consisted of proceeds from debt issuance of $535 million, which was used to fund the acquisition of a business and music-related assets, partially offset by dividends paid of $318 million, taxes paid related to net share settlement of restricted stock units of $6 million, deferred financing costs of $5 million, cash paid to settle deferred and contingent consideration of $7 million, distributions to noncontrolling interest holders of $6 million and other for $5 million.

The $61 million of cash used in financing activities for the fiscal year ended September 30, 2021 consisted of the redemption of the outstanding aggregate principal amount of $325 million of the 5.500% Senior Notes due 2026, the redemption of the 3.625% Senior Secured Notes due 2026 of $524 million, dividends paid of $265 million, call premiums paid on early redemption of debt of $21 million, deferred financing costs of $12 million and distributions to noncontrolling interest holders of $7 million, partially offset by the proceeds from the issuance of the 3.000% Senior Secured Notes due 2031 of $244 million which was used to fund the acquisition of music-related assets, proceeds from the issuance of the 2.250% Senior Secured Notes due 2031 of $524 million, and proceeds from the increase supplement to the Senior Term Loan Facility of $325 million.

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Proceeds from issuance of Senior Secured Notes were offset by deferred financing costs paid of $17 million.

The $88 million of cash provided by financing activities for the fiscal year ended September 30, 2019 consisted of proceeds of $514 million from the issuance of Acquisition Corp.’s 3.625% Secured Notes due 2026, partially offset by deferred financing costs paid of $7 million, the repayment of Acquisition Corp.’s 5.625% Secured Notes due 2022 of $247 million including call premiums paid of $5 million, partial repayment of Acquisition Corp.’s 4.125% Secured Notes due 2024 of $40 million and 4.875% Secured Notes due 2024 of $30 million, for an aggregate $185 million, dividends paid of $94 million and distributions to noncontrolling interest holders of $3 million.

There were no drawdowns on the Revolving Credit Facility during the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020.

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We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $185 million, which includes capital expenditures of approximately $80 million.

There has been a slight delay in the timing of the transformation initiative as a result of the ongoing effects of COVID-19, but it is still expected to be delivered in fiscal year 2022.

Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million once fully implemented starting in fiscal 2023.

There has been a delay in the timing of the transformation initiative as a result of the disruption from COVID-19.

In addition, the size and scale of this global system implementation requires us to invest more time performing the rigorous system testing and data validation to ensure go-live readiness.

Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million.

We expect that our primary sources of liquidity will be sufficient to fund these expenditures.

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From time to time, we may incur additional indebtedness for, among other things, working capital, repurchasing, redeeming or tendering for existing indebtedness and acquisitions or other strategic transactions.

2.250% Senior Secured Notes Offering and Redemption of 3.625% Senior Secured Notes

On August 16, 2021, Acquisition Corp.

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

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.

3.750% Senior Secured Notes Offering

On November 24, 2021, Acquisition Corp.

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.

We 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.

issued and sold $540 million of 3.750% Senior Secured Notes due 2029 (the “Notes”).

Interest on the 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 proceeds of the issuance and sale of the aforementioned Notes were used to fund the acquisition of a business and music-related assets for aggregate cash consideration of $525 million.

Revolving Credit Facility

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

On November 1, 2022, Acquisition Corp.

entered into a Seventh Incremental Commitment Amendment (the “Seventh Incremental Commitment Amendment”) to the Senior Term Loan Credit Agreement, pursuant to which Acquisition Corp.

borrowed additional term loans in the amount of $150 million for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $1,295 million.

Acquisition Corp.

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Term loan borrowings under the Senior Term Loan Credit Agreement bear interest at a floating rate measured by reference to, at Acquisition Corp.’s option, either (i) an adjusted London inter-bank offered rate, LIBOR, not less than 0.00% per annum plus a borrowing margin of 2.125% per annum or (ii) an alternative base rate plus a borrowing margin of 1.125% per annum.

of property by the Term Loan Borrower and its restricted subsidiaries (including certain insurance and condemnation proceeds) in excess of $75 million and subject to the right of the Term Loan Borrower and its restricted subsidiaries to reinvest such proceeds within a specified period of time, and other exceptions.

The Senior Term Loan Facility is subject to mandatory prepayment and reduction in an amount equal to (a) 50% of excess cash flow (as defined in the Senior Term Loan Credit Agreement), with reductions to 25% and zero based upon achievement of a net senior secured leverage ratio of less than or equal to 4.50:1.00 or 4.00:1.00, respectively, (b) 100% of the net cash proceeds received from the incurrence of indebtedness by the Term Loan Borrower or any of its restricted subsidiaries (other than indebtedness permitted under the Senior Term Loan Facility) and (c) 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property by the Term Loan Borrower and its restricted subsidiaries (including certain insurance and condemnation proceeds) in excess of $75 million and subject to the right of the Term Loan Borrower and its restricted subsidiaries to reinvest such proceeds within a specified period of time, and other exceptions.

Voluntary prepayments of borrowings under the Senior Term Loan Facility are permitted at any time, in minimum principal amounts of $1 million or a whole multiple of $500,000 in excess thereof, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of adjusted LIBOR borrowings other than on the last day of the relevant interest period.

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On or after February 15, 2026, Acquisition Corp.

may redeem all or a portion of the 3.000% Senior Secured Notes, at its option, at the redemption prices starting at 101.500% (expressed as percentages of principal amount) plus accrued and unpaid interest thereon, if any, on the 3.000% Senior Secured Notes to be redeemed to the applicable

redemption date, if redeemed during the twelve-month period beginning on February 15, 2026.

Additionally, during any twelve month period prior to February 15, 2026, the 3.000% Senior Secured Notes may be redeemed pursuant to a Secured Notes Redemption.

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3.750% Senior Secured Notes due 2029

3.875% Senior Secured Notes due 2030

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

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Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.

On May 4, 2021, certain covenants set forth in our Revolving Credit Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.

EBITDA as defined in the Revolving Credit Facility is based on Consolidated Net Income (as defined in the

Revolving Credit Facility), both of which terms differ from the terms “EBITDA” and “net income” as they are commonly used.

specified therein.

EBITDA as defined in the Revolving Credit Facility is based on Consolidated Net Income (as defined in the Revolving Credit Facility), both of which terms differ from the terms “EBITDA” and “net income” as they are commonly used.

For example, the calculation of EBITDA under the Revolving Credit Facility, in addition to adjusting net income to exclude interest expense, income taxes and depreciation and amortization, also adjusts net income by excluding items or expenses such as, among other items, (1) the amount of any restructuring charges or reserves;

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2022 2021 2022 2021

Net Income (Loss) $ 307 $ (470) $ 30 $ 1

Income tax expense (benefit) 149 23 22 (21)

Net Income $ 555 $ 307 $ 150 $ 30

Income tax expense 185 149 37 22

Interest expense, net 125 122 31 29

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Loss on extinguishment of debt (a) — 22 — 10

Net gain on divestitures and sale of securities (b) (3) (1) — —

Net losses (gains) on divestitures and sale of securities (b) 9 (3) — —

Restructuring costs (c) 22 29 11 18

Net hedging and foreign exchange losses (gains) (d) 11 61 (20) 51

Management fees (e) — 20 — (3)

Transaction costs (f) 10 76 5 (1)

Business optimization expenses (g) 42 39 12 6

Non-cash stock-based compensation expense (h) 45 608 12 8

Other non-cash charges (i) 5 10 30 (6)

Pro forma impact of cost savings initiatives and specified transactions (j) 45 27 10 3

Net hedging and foreign exchange (gains) losses (d) (195) 11 (67) (20)

Transaction costs (e) 8 10 — 5

Business optimization expenses (f) 54 42 11 12

Non-cash stock-based compensation expense (g) 39 45 5 12

Other non-cash charges (h) 23 5 11 30

Pro forma impact of cost savings initiatives and specified transactions (i) 32 45 5 10

Adjusted EBITDA $ 1,196 $ 1,090 $ 276 $ 237

Senior Secured Indebtedness (k) $ 3,096

Leverage Ratio (l) 2.84x

Senior Secured Indebtedness (j) $ 3,607

Leverage Ratio (k) 3.02x

______________________________________

(a) Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.

(b) Reflects net gain on sale of securities and divestitures.

(b) Reflects net losses (gains) on sale of securities and divestitures.

(d) Reflects (gains) losses from hedging activities and unrealized (gains) losses due to foreign exchange on our Euro-denominated debt and intercompany transactions.

(e) Reflects management fees and related expenses paid to Access pursuant to the management agreement, which was terminated upon completion of the IPO in June 2020.

(f) Reflects mainly integration, transaction and qualifying IPO costs.

(g) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $10 million and $33 million related to our finance transformation for the three and twelve months ended September 30, 2021, respectively, as well as $5 million and $30 million for the three and twelve months ended September 30, 2020, respectively.

(h) Reflects non-cash stock-based compensation expense related to the Second Amended and Restated Warner Music Group Corp.

Senior Management Free Cash Flow Plan and the Omnibus Incentive Plan.

(i) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market of an equity method investment, investment losses (gains) and other non-cash impairments.

(j) Reflects expected savings resulting from transformation initiatives and the pro forma impact of specified transactions for the three and twelve months ended September 30, 2021.

(d) Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions.

(e) Reflects mainly transaction related costs and mark-to-market adjustments of an earn-out liability related to a transaction in 2021.

(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $9 million and $40 million related to our finance transformation and other related costs for the three and twelve months ended September 30, 2022, respectively, as well as $10 million and $33 million for the three and twelve months ended September 30, 2021, respectively.

(g) Reflects non-cash stock-based compensation expense related to the Omnibus Incentive Plan and the Warner Music Group Corp.

Senior Management Free Cash Flow Plan.

(h) Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market adjustment of equity investments, investment losses (gains), mark-to-market adjustments of an earn-out liability in 2022 and other non-cash impairments.

(i) Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended September 30, 2022.

Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period.

The pro forma impact of these specified transactions and initiatives resulted in a $6 million increase in the twelve months ended September 30, 2021 Adjusted EBITDA.

(k) Reflects the balance of senior secured debt at Acquisition Corp.

of approximately $3.346 billion less cash of $250 million.

(l) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA.

The pro forma impact of these specified transactions and initiatives resulted in a $14 million decrease in the twelve months ended September 30, 2022 Adjusted EBITDA, primarily driven by the shift in the timing of the financial transformation initiative.

(j) Reflects the balance of senior secured debt at Acquisition Corp.

of approximately $3.732 billion and the balance of current notes payable of approximately $125 million less cash of $250 million.

(k) Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA.

This is calculated net of cash and equivalents of the Company as of September 30, 2022 not exceeding $250 million.

If the outstanding aggregate principal amount of borrowings and drawings under letters of credit which have not been reimbursed under our Revolving Credit Facility is greater than $105 million at the end of a fiscal quarter, the maximum leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00.

The Company’s Revolving Credit Facility does not impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or

equal to $105 million at the end of a fiscal quarter.

On May 4, 2021, certain covenants set forth in our Revolving Credit

Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.

Management believes that funds generated from our operations and borrowings under the Revolving Credit Facility and available cash and equivalents will be sufficient to fund our debt service requirements, working capital requirements and capital expenditure requirements for the foreseeable future.

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However, our ability to continue to fund these items and to reduce debt may be affected by general economic, financial, competitive, legislative and regulatory factors, as well as other industry-specific factors such as the ability to control music piracy and the continued transition from physical to digital formats in the recorded music and music publishing industries.

It could also be affected by the severity and duration of natural or man-made disasters, including pandemics such as COVID-19.

It could also be affected by the severity and duration of geopolitical conflicts or natural or man-made disasters, including pandemics such as COVID-19.

We and our affiliates continue to evaluate opportunities to, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to pay dividends or prepay outstanding debt or repurchase or retire Acquisition Corp.’s outstanding debt or debt securities or repurchase our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise.

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(3) The Company routinely enters into long-term commitments with recording artists, songwriters and publishers for the future delivery of music.

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

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

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

Based on contractual obligations, aggregate firm commitments to such talent approximate $537 million at September 30, 2021.

Based on contractual obligations and the Company’s expected release schedule, off-balance sheet aggregate firm commitments to such talent approximated $469 million at September 30, 2022.

The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and the Company’s expected release schedule approximates $306 million at September 30, 2022.

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For a summary of all of our significant accounting policies, see Note 2 to our consolidated financial statements included elsewhere herein.

Business Combinations

We account for our business acquisitions under the FASB ASC Topic 805, Business Combinations (“ASC 805”) guidance for business combinations.

The total cost of acquisitions is allocated to the underlying identifiable net assets based on their respective estimated fair values.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

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

If our assumptions or estimates in the fair value calculation change based on information that becomes available during the one-year period from the acquisition date, the fair value of our acquired intangible assets could change;

this would also change the value of our goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Accounting for Goodwill and Other Intangible Assets

We account for our goodwill and other indefinite-lived intangible assets as required by ASC 350.

We account for our goodwill and other indefinite-lived intangible assets as required by FASB ASC Topic 350, Intangibles - Goodwill and Other (“ASC 350”).

We test goodwill for impairment at the reporting unit level and have concluded that our reporting units are generally the same as our reportable segments.

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As of September 30, 2022, we had recorded goodwill in the amount of $1.920 billion, including $1.456 billion and $464 million for our Recorded Music and Music Publishing businesses, respectively, primarily related to the Merger and PLG Acquisition.

As of September 30, 2021, we had recorded definite-lived intangible assets of $2.017 billion and indefinite-lived intangible assets of $154 million.

As of September 30, 2022, we had recorded indefinite-lived intangible assets of $145 million.

We test our goodwill and other indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter of each fiscal year as of July 1.

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

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

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

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

Royalties owed to artists are calculated using negotiated rates which is applied to revenue earned in accordance with recording artist and songwriter contracts.

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

We had $1,918 million and $1,880 million of royalty payables in our balance sheet at September 30, 2022 and September 30, 2021, respectively.

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

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

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

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

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We believe such advances are recoverable through future royalties to be earned by the applicable recording artists and songwriters.

Accounting for Income Taxes

As part of the process of preparing the consolidated financial statements, we are required to estimate income taxes payable in each of the jurisdictions in which we operate.

This process involves estimating the actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.

FASB ASC Topic 740, Income Taxes (“ASC 740”), requires a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

In circumstances where there is sufficient negative evidence, establishment of a valuation allowance must be considered.

We believe that cumulative losses in the most recent three-year period generally represent sufficient negative evidence to consider a valuation allowance under the provisions of ASC 740.

As a result, we determined that certain of our deferred tax assets required the establishment of a valuation allowance.

The realization of the remaining deferred tax assets is primarily dependent on forecasted future taxable income.

Any reduction in estimated forecasted future taxable income may require that we record additional valuation allowances against our deferred tax assets on which a valuation allowance has not previously been established.

The valuation allowance that has been established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that such assets will be realized.

An ongoing pattern of profitability will generally be considered as sufficient positive evidence.

Our income tax expense recorded in the future may be reduced to the extent of offsetting decreases in our valuation allowance.

The establishment and reversal of valuation allowances could have a significant negative or positive impact on our future earnings.

From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty.

Significant judgment is required in assessing and estimating the tax consequences of these transactions.

The Company prepares and files tax returns based on its interpretation of tax laws and regulations.

In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities.

Such examinations may result in future tax and interest assessments by these taxing authorities.

In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions, unless such positions are determined to be more likely than not of being sustained upon examination based on their technical merits.

There is considerable judgment involved in determining whether positions taken on the Company’s tax returns are more likely than not of being sustained.

Accounting for Stock-Based Compensation

1 unchanged sentence

Prior to the Company’s IPO, the Company’s Second Amended and Restated Senior Management Free Cash Flow Plan (the “Plan”) was classified as a liability rather than equity under FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”) .

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 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.

9 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 7. Management’s Discussion and Analysis