What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-11-22 compared with 2021-11-23 · 258 added, 245 removed, 1136 unchanged (31% of the section changed)

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WARNER MUSIC GROUP CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report s of Independent Registered Public Accounting Firm

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2022

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

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Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020

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

Consolidated Statements of Equity for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020

Notes to Consolidated Financial Statements

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

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

and subsidiaries (the Company) as of September 30, 2022 and September 30, 2021, the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity for each of the years in the three-year period ended September 30, 2022, and the related notes and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and September 30, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2022, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

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

Basis for Opinion

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As discussed in Notes 2 and 4 to the consolidated financial statements, the Company generated $3,305 million of digital revenues within the Recorded Music segment for the year ended September 30, 2022.

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

The Company’s Recorded Music digital revenue recognition process involves a high volume of royalty transactions dependent on several information technology (IT) applications responsible for the initiation, processing, and recording of transactions in accordance with the Company’s accounting policy.

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

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

Evaluating the sufficiency of audit evidence required especially subjective auditor judgment due to the multiple IT applications, data interfaces, and processing used for the initiation, processing, and recording of transactions, and therefore required involvement of IT professionals.

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

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

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

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

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Recorded Music digital revenue process, including involving IT professionals with specialized skills and knowledge, who assisted in that evaluation and testing.

This included controls over the capture and flow of royalty transaction information through the Company’s IT systems.

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

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

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

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

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity for each of the years in the three-year period ended September 30, 2022, and the related notes and financial statement schedule II as listed in the accompanying index to Item 8 (collectively, the consolidated financial statements), and our report dated November 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Total assets $ 7,828 $ 7,211

Liabilities and Equity (Deficit)

Liabilities and Equity

Current liabilities:

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Total liabilities $ 7,660 $ 7,165

Equity (deficit):

Class A common stock, $ 0.001 par value;

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Total Warner Music Group Corp.

equity (deficit) 31 ( 63 )

equity 152 31

Noncontrolling interest 16 15

Total equity (deficit) 46 ( 45 )

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

Total equity 168 46

Total liabilities and equity $ 7,828 $ 7,211

See accompanying notes

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Interest expense, net ( 125 ) ( 122 ) ( 127 )

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

Other income (expense), net 151 ( 9 ) ( 57 )

Income (loss) before income taxes 740 456 ( 447 )

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Net income (loss) $ 555 $ 307 $ ( 470 )

Other comprehensive income (loss), net of tax:

Foreign currency adjustment 7 37 ( 34 )

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment, net ( 184 ) 7 37

Deferred gain (loss) on derivative financial instruments 30 12 ( 21 )

Minimum pension liability 9 1 2

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

Other comprehensive (loss) income, net of tax ( 145 ) 20 18

Total comprehensive income (loss) 410 327 ( 452 )

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Loss on extinguishment of debt — 22 34

Net (gain) loss on divestitures and investments 4 ( 2 ) ( 20 )

Net loss (gain) on divestitures and investments 46 4 ( 2 )

Non-cash interest expense 6 5 5

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Investments and acquisitions of businesses, net of cash received ( 509 ) ( 64 ) ( 94 )

Proceeds from the sale of investments 11 — —

Net cash used in investing activities ( 824 ) ( 638 ) ( 219 )

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Proceeds from issuance of 3.750 % Senior Secured Notes due 2029

Proceeds from issuance of 3.000 % Senior Secured Notes due 2031

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

Proceeds from issuance of 2.250 % Senior Secured Notes due 2031

Redemption of 5.500 % Senior Notes due 2026

Redemption of 3.625 % Senior Secured Notes due 2026

Repayment of 5.500 % Senior Notes due 2026

Repayment of 3.625 % Senior Secured Notes due 2026

Proceeds from issuance of 3.875 % Senior Secured Notes due 2030

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

Proceeds from issuance of Acquisition Corp.

3.625 % Senior Secured Notes

Repayment of Acquisition Corp.

4.125 % Senior Secured Notes

Repayment of Acquisition Corp.

4.875 % Senior Secured Notes

Repayment of Acquisition Corp.

5.625 % Senior Secured Notes

Deferred financing costs paid ( 5 ) ( 12 ) ( 17 )

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Dividends paid ( 318 ) ( 265 ) ( 344 )

Net cash (used in) provided by financing activities ( 61 ) ( 316 ) 88

Payment of deferred and contingent consideration ( 7 ) — —

Taxes paid related to net share settlement of restricted stock units ( 6 ) — —

Other ( 5 ) — —

Net cash provided by (used in) financing activities 188 ( 61 ) ( 316 )

Effect of exchange rate changes on cash and equivalents ( 21 ) 7 6

Net (decrease) increase in cash and equivalents ( 54 ) ( 66 ) 105

Net increase (decrease) in cash and equivalents 85 ( 54 ) ( 66 )

Cash and equivalents at beginning of period 499 553 619

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Warner Music Group Corp.

Consolidated Statements of Equity (Deficit)

Consolidated Statements of Equity

Common Stock Class B

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

Net income — — — — — 256 — 256 2 258

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

Dividends ($ 0.59 per Class B share)

— — — — — ( 300 ) — ( 300 ) — ( 300 )

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

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

Balances at September 30, 2019 — $ — 505,830,022 $ 1 $ 1,127 $ ( 1,177 ) $ ( 240 ) $ ( 289 ) $ 20 $ ( 269 )

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

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

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

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

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

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

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

Net income — — — — — 551 — 551 4 555

Other comprehensive income, net of tax — — — — — — ( 145 ) ( 145 ) — ( 145 )

Dividends ($ 0.61 per share)

— — — — — ( 318 ) — ( 318 ) — ( 318 )

Stock-based compensation expense — — — — 43 — — 43 — 43

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

Vesting of restricted stock units, net of shares withheld for employee taxes 276,565 — — — ( 6 ) — — ( 6 ) — ( 6 )

Conversion of Class B shares to Class A shares 14,320,547 — ( 14,320,547 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 187,261 — — — — — — — — —

Other — — — — ( 4 ) — — ( 4 ) 3 ( 1 )

Balances at September 30, 2022 137,199,200 $ — 377,650,449 $ 1 $ 1,975 $ ( 1,477 ) $ ( 347 ) $ 152 $ 16 $ 168

See accompanying notes

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

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

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

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

Access continues to hold all of the Class B common stock of the Company, par value $ 0.001 per share (“Class B Common Stock”), representing approximately 98 % of the total combined voting power of the Company’s outstanding common stock and approximately 73 % of the economic interest as of September 30, 2022.

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

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

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

For the periods presented in this Annual Report, the Company maintained a 52-53 week fiscal year ending on the last Friday in each reporting period.

The fiscal year ended September 30, 2022 ended on September 30, 2022, the fiscal year ended September 30, 2021 ended on September 24, 2021 and the fiscal year ended September 30, 2020 ended on September 25, 2020.

For convenience purposes, the Company continues to date its financial statements as of September 30.

For convenience purposes, the Company dates its financial statements as of September 30 for these periods.

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.

Change in Fiscal Year End

On September 29, 2022, the Board of Directors approved a change, effective for the 2023 fiscal year, to the Company’s fiscal year from a modified 52-53-week calendar, in which reporting periods ended on the last Friday of the calendar quarter, 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.

The Company is not required to file a transition report because this change is not deemed to be a change in fiscal year for purposes of reporting under the Exchange Act pursuant to relevant Securities and Exchange Commission guidance.

Basis of Consolidation

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

During the fiscal year ended September 30, 2021, Access converted 10,244,898 shares of Class B Common Stock to the same number of shares of Class A Common Stock, which it subsequently sold through open market sales, which is reflected as a conversion of Class B Common Stock for Class A Common Stock in the consolidated statements of equity.

During the fiscal year ended September 30, 2022, an aggregate of 14,320,547 shares of Class B Common Stock were converted to Class A Common Stock.

In connection with the Senior Management Free Cash Flow Plan (the “Plan”), a remaining Plan participant redeemed a portion of vested Class B equity units of the LLC holding company, WMG Management Holdings, LLC (“Management LLC”).

These Class B equity units were redeemed in exchange for a total of 510,165 shares of Class B Common Stock, which shares of Class B Common Stock converted to shares of Class A Common Stock upon the exchange.

Additionally, during the fiscal year ended September 30, 2022, Access converted 13,810,382 shares of Class B Common Stock to the same number of shares of Class A Common Stock, which is reflected as a conversion of Class B Common Stock in the consolidated statements of equity.

Earnings per Share

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

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

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

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

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

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

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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 significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.

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.

Cash and Equivalents

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Counterparties that are determined to be of a higher risk are evaluated to assess whether the payment terms previously granted to them should be modified.

The Company also monitors payment levels from customers, and a provision for estimated uncollectible amounts is maintained based on such payment levels, historical experience, management’s views on trends in the overall receivable agings and, for larger accounts, analyses of specific risks on a customer-specific basis.

The Company also monitors payment levels from customers, and a provision for estimated uncollectible amounts is maintained based on such payment levels, historical experience, management’s views on trends in the overall receivable aging and, for larger accounts, analyses of specific risks per customer.

Concentration of Credit Risk

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Leasehold improvements are depreciated over the life of the lease or estimated useful lives of the improvements, whichever period is shorter.

Construction in progress assets are not depreciated until placed in service and available for their intended use, at which time they are assigned a useful life consistent with the nature of the asset.

The Company accounts for costs incurred to develop or purchase computer software for internal use in accordance with FASB ASC Subtopic 350-40, Internal-Use Software (“ASC 350-40”).

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The Company must proceed to conduct a quantitative analysis if the Company (i) determines that such an impairment is more likely than not to exist or (ii) forgoes the qualitative assessment entirely.

The impairment tests require management to make assumptions about future conditions impacting the value of the indefinite-lived intangible assets, including projected growth rates, cost of capital, effective tax rates, tax amortization periods, royalty rates, market share and others.

The impairment tests may require management to make assumptions about future conditions impacting the value of the indefinite-lived intangible assets, including projected growth rates, cost of capital, effective tax rates, tax amortization periods, royalty rates, market share and others.

Valuation of Long-Lived Assets

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Assets to be disposed of and for which there is a committed plan to dispose of the assets, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell.

If it is determined that events and circumstances warrant a revision to the remaining period of amortization, an asset’s remaining useful life would be changed, and the remaining carrying amount of the asset would be amortized prospectively over that revised remaining useful life.

Foreign Currency Translation

If it is determined that events and circumstances warrant a revision to the remaining period of amortization, an

asset’s remaining useful life would be changed, and the remaining carrying amount of the asset would be amortized prospectively over that revised remaining useful life.

Foreign Currency

The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency.

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

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

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

Foreign currency transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a foreign currency other than the functional currency.

The Company recorded foreign currency transaction losses of $ 11 million, losses of $ 0 million and gains of $ 2 million within operating income (loss) on the consolidated statement of operations during the years ended September 30, 2022, 2021 and 2020, respectively.

The Company recorded foreign currency transaction gains of $ 185 million, losses of $ 8 million and losses of $ 57 million within other income (expense), net on the consolidated statement of operations during the years ended September 30, 2022, 2021 and 2020, respectively.

Recorded Music

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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 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.

Royalties are calculated using negotiated rates in accordance with recording artist and songwriter contracts and are based on revenue earned.

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.

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

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The Company accounts for forfeitures as they occur.

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

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

Stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally four years except for certain one-year awards issued in connection with the IPO, which vested in January 2022.

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

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

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

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

The Company also recognizes stock-based compensation under the Plan.

The awards outstanding under the Plan are equity-classified.

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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.

Judgment may be 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.

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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.

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

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses.

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

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

Accounting Pronouncements Not Yet Adopted

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

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GAAP by making other changes.

ASU 2019-12 will be effective for the annual periods beginning after December 15, 2020, and for interim periods beginning after December 15, 2021.

Earlier adoption is permitted.

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

The Company adopted ASU 2019-12 in the first quarter of fiscal 2022 and this adoption did not have a material impact on the Company’s consolidated financial statements.

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

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

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

ASU 2020-06 simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.

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

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

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

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

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

The Company adopted ASU 2020-06 in the first quarter of fiscal year 2022 and this adoption did not have any impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

The amendment provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope, which clarified that certain optional expedients and exceptions in Topic 848 apply to derivative instruments that are affected by the discounting transition due to reference rate reform.

These ASUs were effective upon issuance and may be applied prospectively to contract modifications and hedging relationships entered into or evaluated through December 31, 2022.

The discontinuation of LIBOR will impact the Senior Term Loan Facility and Revolving Credit Facility as well as a pay-fixed receive-variable interest rate swap which will be outstanding as of the effective date of the discontinuation.

The Company is in the process of evaluating the effect that the adoption of these standards will have on its consolidated financial statements, but does not expect it will have a material effect.

Earnings per Share

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

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

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

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

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the fiscal years ended September 30, 2022 and September 30, 2021.

The Company allocates dividends declared to Class A Common Stock and Class B Common Stock based on timing and amounts actually declared for each class of stock and the undistributed earnings are allocated to Class A Common Stock and Class B Common Stock pro rata on a basic weighted average shares outstanding basis since the two classes of stock participate equally on a per share basis upon liquidation.

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

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Subsequent to the completion of the IPO, and modification of our stock-based compensation awards as described in Note 13, the Class B Common Stock issued to Management LLC for the exercise of the vested deferred equity units is included in the basic weighted average number of outstanding shares of Class B Common Stock.

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

shares of Class A Common Stock.

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

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

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Certain of the Company’s arrangements include licenses of intellectual property with consideration in the form of sales- and usage-based royalties.

Royalty revenue is recognized when the subsequent sale or usage occurs using the best estimates available of the amounts that will be received by the Company.

Royalty revenue is recognized when the subsequent sale or usage

occurs using the best estimates available of the amounts that will be received by the Company.

Within revenues, there may be settlements related to past infringements of our intellectual property.

Disaggregation of Revenue

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Physical 563 549 434

Total Physical and Digital 3,654 3,002 2,902

Total Digital and Physical 3,868 3,654 3,002

Artist services and expanded-rights 767 599 525

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

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

The Company updates its assessment of the transaction price each reporting period to see if anticipated royalty

earnings exceed the minimum guarantee.

For contracts where breakage is not expected, royalties are recognized as revenue as sales or usage occurs based upon the licensee’s usage reports and, when these reports are not available, revenue is based on historical data, industry information and other relevant trends.

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

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

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

Performance revenues are received when the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs) and performance of musical compositions in staged theatrical productions.

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

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Performance Obligations

For the fiscal years ended September 30, 2021, 2020 and 2019, the Company recognized revenue of $ 64 million, $ 42 million and $ 51 million from performance obligations satisfied in previous periods.

For the fiscal years ended September 30, 2022, 2021 and 2020, the Company recognized revenue of $ 59 million, $ 64 million and $ 42 million, respectively, from performance obligations satisfied in previous periods.

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

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Total $ 625 $ 275 $ 2 $ 1 $ 903

Acquisition of 300 Entertainment

On December 16, 2021, the Company purchased all outstanding shares of Theory Entertainment LLC d/b/a 300 Entertainment (“300 Entertainment”), an independent U.S.

record label, pursuant to the terms and conditions of the merger agreement of the same date among Warner Music Inc.

and MM Investment LLC, both wholly-owned subsidiaries of the Company, the Buyer Representative, Trifecta Merger Subsidiary LLC, Theory Entertainment LLC d/b/a 300 Entertainment and the Seller Representative (the “Merger Agreement”).

The cash consideration paid at closing of the acquisition was approximately $ 397 million, which reflects the base purchase price of $ 400 million, adjusted for, among other items, preliminary working capital of 300 Entertainment.

The final consideration paid was determined to be $ 394 million after the finalization of purchase price adjustments, including working capital and other items.

The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations , using the acquisition method of accounting.

The assets and liabilities of 300 Entertainment, including identifiable intangible assets, have been measured at their fair value primarily using Level 3 inputs (see Note 19 for additional information on fair value inputs).

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

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

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

The resulting goodwill has been included in our Recorded Music reportable segment.

The recognized goodwill will be deductible for income tax purposes.

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

The table below presents (i) the preliminary estimate of the acquisition consideration as it relates to the acquisition of 300 Entertainment and (ii) the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of December 16, 2021 (in millions):

Preliminary Purchase Price Allocation

Cash and equivalents $ 2

Accounts receivable 3

Royalty advances 14

Property, plant and equipment, net 1

Operating lease right-of-use assets, net 3

Intangible assets subject to amortization, net (a) 260

Other assets 1

Accounts payable ( 5 )

Accrued royalties ( 16 )

Accrued liabilities ( 1 )

Operating lease liabilities, noncurrent ( 3 )

Total purchase price allocated $ 394

______________________________________

(a) Identifiable intangible assets are composed of the following (in millions):

Recorded music catalog $ 154

Artist and songwriter contracts 91

Trademarks 12

Music publishing copyrights 3

Total intangible assets acquired $ 260

At September 30, 2022, the Company updated the preliminary allocation recorded at December 31, 2021 based on final consideration paid and revised estimates of fair value of assets acquired which resulted in an increase to intangible assets of approximately $ 27 million and a net decrease to other acquired assets and liabilities of approximately $ 38 million, with a corresponding net decrease to goodwill of approximately $ 8 million.

The acquisition accounting is preliminary and is subject to revision based on the final determination of the purchase price allocation to the identifiable assets and liabilities acquired.

For the fiscal year ended September 30, 2022, the Company incurred costs related to this acquisition of approximately $ 3 million, which were expensed as incurred and recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations.

Prior to the acquisition, the Company had a distribution arrangement with 300 Entertainment.

The unaudited pro forma revenue and operating income as if the acquisition occurred on October 1, 2020 is not material to the Company’s reported results for the fiscal years ended September 30, 2022 and September 30, 2021.

Comprehensive Income (Loss)

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

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

GAAP, are excluded from net income.

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

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

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax expense of approximately $ 14 million:

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

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

(in millions)

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

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

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

Other comprehensive income 37 2 ( 21 ) 18

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Balances at September 30, 2021 $ ( 174 ) $ ( 11 ) $ ( 17 ) $ ( 202 )

Other comprehensive loss ( 184 ) 9 30 ( 145 )

Balances at September 30, 2022 $ ( 358 ) $ ( 2 ) $ 13 $ ( 347 )

______________________________________

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Net Property, Plant and Equipment $ 415 $ 364

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

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

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

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The Company determines if an arrangement is or contains a lease at inception of the contract.

For all leases (finance and operating), other than those that qualify for the short-term recognition exemption, the Company will recognize on the balance sheet a lease liability for its obligation to make lease payments arising from the lease and a corresponding ROU asset representing its right to use the underlying asset over the period of use based on the present value of lease payments over the lease term as of the lease commencement date.

For all leases (finance and operating), other than those that qualify for the short-term recognition exemption, the Company will recognize on the balance sheet a lease liability for its obligation to make lease payments arising from the lease and a corresponding right-of-use (“ROU”) asset representing its right to use the underlying asset over the period of use based on the present value of lease payments over the lease term as of the lease commencement date.

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

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Fixed payments are recognized as lease expense on a straight-line basis over the lease term.

For leases with a term of one year or less (“short-term leases”), the lease payments are recognized in the consolidated statements of operations on a straight-line basis over the lease term.

For leases with a term of one year or less, the lease payments are recognized in the consolidated statements of operations on a straight-line basis over the lease term.

ASC 842 requires that only limited types of variable payments be included in the determination of lease payments, which affects lease classification and measurement.

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Among the Company’s operating leases are its leases for the Ford Factory Building, located at 777 S.

Santa Fe Avenue in Los Angeles, California, and for 27 Wrights Lane, Kensington, London.

Santa Fe Avenue in Los Angeles, California, and for 27 Wrights Lane, Kensington, London, United Kingdom.

The landlord for both leases is an affiliate of Access.

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Imputed interest ( 49 )

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

As of September 30, 2022, we have additional operating leases for facilities that have not yet commenced with lease obligations of $ 28 million with lease terms of 7 to 16 years.

Goodwill and Intangible Assets

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Balances at September 30, 2022 $ 1,456 $ 464 $ 1,920

The increase in goodwill during the fiscal year ended September 30, 2022 primarily relates to the acquisition of 300 Entertainment as described in Note 5.

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

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

The other adjustments during both the fiscal years ended September 30, 2022 and September 30, 2021 primarily represent foreign currency movements.

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Total net intangible assets $ 2,384 $ 2,171

The increase in intangible assets during the fiscal year ended September 30, 2021 primarily relates to certain acquisition transactions of music-related assets within recorded music catalogs, music publishing copyrights, and artist and songwriter contracts for approximately $ 471 million.

The increase in intangible assets during the fiscal year ended September 30, 2022 primarily relates to the acquisition of 300 Entertainment, which resulted in an increase in intangible assets as described in Note 5, and an acquisition of music-related assets within music publishing copyrights for approximately $ 250 million.

The increase in intangible assets is partially offset by foreign currency movements.

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

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Total $ 2,239

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

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

Debt Capitalization

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Senior Term Loan Facility due 2028 1,145 1,145

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

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

3.750 % Senior Secured Notes due 2029

3.875 % Senior Secured Notes due 2030

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

3.000 % Senior Secured Notes due 2031

5.500 % Senior Notes due 2026 (b)

Total long-term debt, including the current portion $ 3,773 $ 3,383

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There were no loans outstanding under the Revolving Credit Facility at September 30, 2022 or September 30, 2021.

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

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

As of September 30, 2022 Acquisition Corp.

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

had issued and outstanding the 2.750 % Senior Secured Notes due 2028, the 3.750 % Senior Secured Notes due

2029, the 3.875 % Senior Secured Notes due 2030, the 2.250 % Senior Secured Notes due 2031 and the 3.000 % Senior Secured

Notes due 2031 (together, the “Acquisition Corp.

All of the Acquisition Corp.

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

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

The secured notes are guaranteed on a senior secured basis.

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

Accordingly, the ability of the Company and Holdings to obtain funds from their subsidiaries is restricted by the indentures for the Acquisition Corp.

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

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

Accordingly, while Acquisition Corp.

and its subsidiaries are not currently restricted from distributing funds to the Company and Holdings under the indentures for the Acquisition Corp.

Notes or the credit agreements for the Acquisition Corp.

Senior Credit Facilities, including the Revolving Credit Facility and the Senior Term Loan Facility, should Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increase above 3.50 :1.00 and the term loans not achieve an investment grade rating, the covenants under the Revolving Credit Facility will be reinstated and the ability of the Company and Holdings to obtain funds from their subsidiaries will be restricted by the Revolving Credit Facility.

Fiscal 2022 Transactions

3.750 % Senior Secured Notes Offering

On November 24, 2021, Acquisition Corp.

issued and sold $ 540 million of its 3.750 % Senior Secured Notes due 2029 (the “ 3.750 % Senior Secured 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 3.750 % Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of Acquisition Corp.’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of Acquisition Corp.

under its existing credit facilities, subject to customary exceptions.

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

Historical Transactions

Additional 3.000 % Senior Secured Notes

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

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

Net proceeds of the offering, together with available cash, were used to

redeem in full all of the outstanding 3.625 % Senior Secured Notes due 2026 (the “ 3.625 % Senior Secured Notes”), as described below.

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

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

Historical Transactions

Revolving Credit Agreement Amendment

On April 3, 2020, Acquisition Corp.

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

The Second Amendment (among other changes) (i) increases the commitments under the Revolving Credit Facility from an aggregate principal amount of $ 180 million to an aggregate principal amount of $ 300 million, (ii) extends the final maturity date of the Revolving Credit Facility from January 31, 2023 to April 3, 2025, (iii) reduces the interest margin applicable to the loans upon achievement of certain leverage ratios based on a leverage-based pricing grid, (iv) reduces the commitment fee based on a leverage-based pricing grid and limits commitment fees to be paid only on unused amounts of commitments, (v) increases the maximum letter of credit exposure permitted under the Revolving Credit Facility from $ 50 million to $ 90 million, (vi) increases the springing financial maintenance covenant from a Senior Secured Indebtedness to EBITDA Ratio of 4.75 :1.00 to a Senior Secured Indebtedness to EBITDA Ratio of 5.00 :1.00 and provides that the covenant shall not be tested, unless at the end of a fiscal quarter the outstanding amount of loans and drawings under letters of credit which have not been reimbursed exceeds $ 105 million, (vii) adds covenant suspension upon achievement of an investment grade rating or a Total Indebtedness to EBITDA Ratio of 3.25 :1.00, and (viii) adds certain exceptions and increases certain baskets in connection with Acquisition Corp.’s negative covenants, including those related to the incurrence of indebtedness, liens and restricted payments.

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

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

On June 30, 2020, Acquisition Corp.

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

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

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

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

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

Tender Offer and Redemption of 5.000 % Senior Secured Notes

On June 16, 2020, Acquisition Corp.

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

On June 30, 2020, Acquisition Corp.

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

Also on June 30, 2020, Acquisition Corp.

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

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

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

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

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

On June 29, 2020, Acquisition Corp.

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

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

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

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

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

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

under its existing credit facilities, subject to customary exceptions.

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

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

3.000 % Senior Secured Notes Offering

On August 12, 2020, Acquisition Corp.

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

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

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

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

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

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

under its existing credit facilities, subject to customary exceptions.

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

Interest Rates

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Interest Expense, net

Total interest expense, net was $ 122 million, $ 127 million and $ 142 million for the fiscal years ended September 30, 2021, September 30, 2020 and September 30, 2019, respectively.

Total interest expense, net was $ 125 million, $ 122 million and $ 127 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

The weighted-average interest rate of the Company’s total debt was 3.5 % at September 30, 2022, 3.2 % at September 30, 2021 and 3.7 % at September 30, 2020.

On December 22, 2017, the U.S.

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

The Tax Act significantly revised the U.S.

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

federal corporate statutory tax rate from 35% to 21%, a one-time transition tax on accumulated foreign earnings, an income inclusion of global intangible low-taxed income (“GILTI”), a deduction against foreign-derived intangible income (“FDII”) and a new minimum tax, the base erosion anti-abuse tax (“BEAT”).

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

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

GILTI, FDII and BEAT are effective for the Company’s fiscal year ending September 30, 2019.

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

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

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Non-deductible long term incentive plan 4 3 112

Other ( 5 ) 2 —

Income tax expense $ 185 $ 149 $ 23

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

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

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

During the fiscal year ended September 30, 2022, the Company recognized a tax benefit of $ 8 million for the release of valuation allowances in various foreign jurisdictions.

During the fiscal year ended September 30, 2021, the Company recognized $ 10 million of income tax expense arising from an increase in our net UK deferred tax liability due to the change in the UK future statutory tax rate, which was offset by $ 4 million of excess tax benefits from long term incentive plan, and $ 6 million for the release of valuation allowances in Mexico and various foreign jurisdictions.

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

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

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

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

foreign tax credits.

For the fiscal years ended September 30, 2022 and September 30, 2021, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized.

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

valuation allowance related to foreign tax credit carryforwards.

Significant components of the Company’s net deferred tax liabilities are summarized below:

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Deferred tax assets:

Allowances and reserves $ 25 $ 30

Allowance and reserves $ 27 $ 25

Employee benefits and compensation 75 78

Other accruals 27 28

Property, plant and equipment 30 19

Operating lease liabilities 66 77

Tax attribute carryforwards 65 135

Deferred revenue and debt 17 14

Total deferred tax assets 307 376

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Deferred tax liabilities:

Royalty advances ( 24 ) ( 19 )

Operating lease right-of-use assets ( 52 ) ( 63 )

Accrued royalties ( 37 ) ( 38 )

Intangible assets ( 333 ) ( 393 )

Debt and other ( 23 ) ( 1 )

Total deferred tax liabilities ( 469 ) ( 514 )

Net deferred tax liabilities $ ( 191 ) $ ( 176 )

______________________________________

(a) Prior year amounts were updated to reflect an immaterial correction of previous netting of certain deferred taxes.

During the fiscal year ended September 30, 2022, the Company utilized a substantial portion of its foreign tax credit carryforwards in the U.S.

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deferred tax assets realization.

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

will be realized.

At September 30, 2022, the Company has no remaining U.S.

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The Company has completed tax audits in the U.S.

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

for the tax years ended through September 30, 2016, in Germany for the tax years ended through September 30, 2014 and in France for the tax years ended through September 30, 2018.

for tax years ended through September 30, 2013, in the UK for the tax years ended through September 30, 2016, in Germany for the tax years ended through September 30, 2014 and in France for the tax years ended through September 30, 2018.

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

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The Company uses a September 30 measurement date for its plans.

For each of the fiscal years ended September 30, 2021, September 30, 2020 and September 30, 2019, pension expense amounted to $ 4 million.

For the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, pension expense amounted to $ 3 million, $ 4 million and $ 4 million, respectively.

Certain employees also participate in defined contribution plans.

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

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

The aggregate number of shares of common stock authorized for issuance under the Omnibus Incentive Plan is 31,169,099 shares of Class A Common Stock over the 10-year period from the date of adoption, including up to 1,000,000 shares of our Class A Common Stock in connection with the IPO.

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

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

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

The aggregate number of shares of common stock available for issuance under the Omnibus Incentive Plan is 31,169,099 shares of Class A Common Stock over the 10-year period from the date of adoption, including up to 1,000,000 shares of our Class A Common Stock in connection with the IPO.

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

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

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

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

During the fiscal years ended September 30, 2022, 2021 and 2020, shares of Class A Common Stock issued under the Omnibus Incentive Plan were 463,826 , 36,206 and 28,361 , respectively.

During the fiscal year ended September 30, 2022, the Company satisfied the vesting of RSUs issued to employees for the fiscal year ended September 30, 2021 in connection with the IPO by issuing 276,565 shares of Class A Common Stock under the Omnibus Incentive Plan, which is net of shares used to settle employee income tax obligations.

As of September 30, 2022, a total of 528,393 shares of Class A Common Stock were issued under the Omnibus Incentive Plan.

As of September 30, 2022, there were 30,640,706 shares of Class A Common Stock available to be issued.

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

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

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

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

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

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

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

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

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

In October 2021, a remaining Plan participant redeemed a portion of vested Class B

equity units of Management LLC.

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

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Unvested units at September 30, 2022 — 549,454 $ — $ 20.02 $ — $ —

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

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

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

As of September 30, 2022 and September 30, 2021, there were no remaining unvested deferred equity unit awards outstanding.

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

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Share Units Weighted-Average Grant

Date Fair Value Aggregate

Intrinsic Value

(in thousands)

Date Fair Value

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

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Unvested and outstanding balance as of September 30, 2022 1,891,275 $ 38.50

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

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

The weighted-average grant date fair value of RSUs granted during the fiscal years ended September 30, 2022 and 2021 was $ 44.38 and $ 32.23 , respectively.

The total fair value of RSUs vested during the fiscal years ended September 30, 2022 and 2021 was $ 18 million and $ 0 million , respectively, computed as of the date of vesting.

During the fiscal year ended September 30, 2020 there were no RSUs granted or vested.

As of September 30, 2022, total unrecognized compensation cost related to RSUs was approximately $ 31 million, which is expected to be recognized over a weighted-average period of approximately 2.7 years.

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

Stock-Based Compensation Expense

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

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

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

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

The Company recognized non-cash stock-based compensation expense of $ 39 million, $ 45 million and $ 608 million for the fiscal years ended September 30, 2022, 2021 and 2020 , respectively.

Related Party Transactions

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

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

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

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.

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

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The remaining lease term is approximately 8 years, after which the Company may exercise a single option to extend the term of the lease for 10 years thereafter.

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

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

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Deezer paid to the Company an aggregate amount of approximately $ 36 million, $ 42 million and $ 42 million in connection with the foregoing arrangements during the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

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

and (ii) the Company purchased a small number of shares of Deezer S.A., which collectively represent a small minority interest in Deezer S.A.

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

and (ii) the Company purchased a small number of shares of Deezer S.A.

The Company also has various publishing agreements with Deezer.

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

On April 13, 2022, the Company entered into an agreement to purchase 900,000 ordinary shares for € 9 million of I2PO, a French société anonyme and special purpose acquisition company listed on the Paris Euronext Exchange.

I2PO merged with Deezer S.A., which was consummated on July 5, 2022.

In connection with the merger, preferred shares in Deezer S.A.

previously held by the Company were converted into ordinary shares of the combined publicly traded entity.

Following the consummation of the merger, I2PO was renamed Deezer.

The Company’s equity interests in Deezer S.A.

are recorded at fair value in accordance with ASC 321, Investments—Equity Securities based on quoted prices in active markets.

As of September 30, 2022, the fair value of these equity interests was approximately $ 17 million.

Investment in Tencent Music Entertainment Group

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

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

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

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

On November 4, 2021, WMG China distributed to the Company, the Company’s pro-rata share of the Tencent Music Entertainment Group equity held by WMG China.

WMG China was dissolved on May 9, 2022.

Commitments and Contingencies

Talent Advances

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

The Company routinely enters into long-term commitments with recording artists, songwriters, publishers and third-party labels for the future delivery of music.

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 and the Company’s expected release schedule, aggregate firm commitments to such talent approximated $ 537 million and $ 442 million as of September 30, 2021 and September 30, 2020, respectively.

Based on contractual obligations and the Company’s expected release schedule, off-balance sheet aggregate firm commitments to such talent approximated $ 469 million and $ 537 million as of September 30, 2022 and September 30, 2021, respectively.

Other off-balance sheet firm commitments, which primarily include minimum funding commitments to investees, amounted to approximately $ 48 million and $ 23 million at September 30, 2022 and September 30, 2021, respectively.

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companies for the sale or licensing of U.S.-based music and merchandise abroad may be adversely affected by changes in foreign currency exchange rates.

The Company focuses on managing the level of exposure to the risk of foreign currency exchange rate fluctuations on its major currencies, which include the Euro, British pound sterling, Japanese yen, Canadian dollar, Swedish krona, Australian dollar, Brazilian real, Korean won and Norwegian krone.

The Company focuses on managing the level of exposure to the risk of foreign currency exchange rate fluctuations on its major currencies, which include the Euro, British pound sterling, Japanese yen,

Canadian dollar, Swedish krona, Australian dollar, Brazilian real, Korean won and Norwegian krone.

The Company also may at times choose to hedge foreign currency risk associated with financing transactions such as third-party debt and other balance sheet items.

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The interest rate swap instruments are designated and qualify as cash flow hedges under the criteria prescribed in ASC 815.

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

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

The fair value of foreign currency forward exchange contracts is determined by using observable market transactions of spot and forward rates (i.e., Level 2 inputs) which is discussed further in Note 19.

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As a result, net assets or liabilities resulting from foreign exchange derivatives subject to these netting agreements are classified within other current assets or other current liabilities in the Company’s consolidated balance sheets.

The Company’s hedged interest rate transactions as of September 30, 2021 are expected to be recognized within three years .

The Company’s hedged interest rate transactions as of September 30, 2022 are expected to be recognized within approximately two years .

The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 19.

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

As of September 30, 2021, the Company had no outstanding hedge contracts and no deferred gains or losses in comprehensive loss related to foreign exchange hedging.

As of September 30, 2020, the Company had no outstanding hedge contracts and no deferred gains or losses in comprehensive loss related to foreign exchange hedging.

As of September 30, 2021, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 17 million of unrealized deferred losses in comprehensive loss related to the interest rate swaps.

As of September 30, 2022 and September 30, 2021, the Company had no outstanding hedge contracts and no deferred gains or losses in comprehensive income related to foreign exchange hedging.

As of September 30, 2022, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 13 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.

The Company recorded realized pre-tax gains of $ 10 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other income for the fiscal year ended September 30, 2022.

The Company recorded realized pre-tax losses of $ 3 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the fiscal year ended September 30, 2021.

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

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

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive loss during the fiscal year ended September 30, 2020 were $ 27 million.

The unrealized pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the fiscal year ended September 30, 2022 were $ 40 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at September 30, 2022 and September 30, 2021:

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(in millions)

Other current assets $ 2 $ —

Other noncurrent assets 16 —

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______________________________________

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

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

(a) $ 2 million and $ 16 million of interest rate swaps in current and noncurrent asset positions, respectively.

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

Segment Information

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United States $ 2,744 $ 468 $ 2,363 $ 439 $ 1,934

Germany 662 52 511 43 504

United Kingdom 734 30 620 43 551

Germany 613 68 662 52 511

All other territories 1,828 75 1,656 98 1,467

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Customer Concentration

In the fiscal year ended September 30, 2022, the Company had three customers, Spotify, YouTube and Apple, that individually represented 10% or more of total revenues, whereby Spotify represented 17 %, YouTube represented 12 % and Apple represented 11 % of total revenues.

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

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

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

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

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On November 10, 2022, the Company’s board of directors declared a cash dividend of $ 0.16 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, payable on December 1, 2022 to stockholders of record as of the close of business on November 22, 2022.

Noncash Investment Activity

Noncash investing activities was approximately $ 125 million related to the acquisition of music publishing rights and music catalogs, net during the fiscal year ended September 30, 2022.

The corresponding notes payable balance is reflected as other current liabilities within the Company’s consolidated balance sheet at September 30, 2022.

COVID-19 Pandemic

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Government-imposed mandates limiting public assembly and restrictions on non-essential businesses have adversely impacted the Company’s operations for the fiscal year ended September 30, 2022, including touring and live events.

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

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

For the fiscal year ended September 30, 2022, revenues improved due to the recovery of certain COVID-19 impacted revenue streams.

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

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(in millions)

Other Current Liabilities:

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

Other Current Assets:

Interest Rate Swap (d) $ — $ 2 $ — $ 2

Other Noncurrent Assets:

Equity Method Investment (b) 26 — — 26

Interest Rate Swaps (d) — 16 — 16

Equity Investment with Readily Determinable Fair Value (c) 36 — — 36

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Contractual Obligations (a) — — ( 1 ) ( 1 )

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

Total $ 36 $ 18 $ ( 1 ) $ 53

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Equity Method Investment (b) 26 — — 26

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

Other Noncurrent Liabilities:

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______________________________________

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

(a) This represents contingent consideration related to acquisitions.

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

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

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

The valuation is based upon quoted prices in active markets.

(c) This represents an equity investment with a readily determinable fair value that was acquired and subsequently became publicly traded during the fiscal year ended September 30, 2021.

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

The Company recognized an unrealized gain on this equity investment of $ 17 million for the fiscal year ended September 30, 2021, which was recorded as other income in the consolidated statements of operations.

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

(b) This represents an equity method investment which was acquired in fiscal 2019 whereby the Company elected the fair value option under ASC 825, Financial Instruments (“ASC 825”).

During the fiscal year ended September 30, 2022, this investment was sold.

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

(d) The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of September 30, 2022 for contracts involving the same attributes and maturity dates.

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Additions ( 1 )

Reductions 15

Balance at September 30, 2022 $ ( 1 )

Additions to net liabilities during the fiscal year ended September 30, 2021 include a measurement period adjustment of $ 7 million to contingent consideration for a fiscal 2020 acquisition.

The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, inventories and property, plant and equipment, are not required to be re-measured to fair value on a recurring basis.

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Subsequent Events

3.750 % Senior Secured Notes Offering

On November 1, 2022, 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.

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

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

under its existing credit facilities, subject to customary exceptions.

entered into a Seventh Incremental Commitment Amendment (the “Seventh Incremental Commitment Amendment”), with Credit Suisse AG, New York Branch, as Tranche H term lender, and Credit Suisse AG, as administrative agent, and acknowledged by the guarantors party thereto and WMG Holdings Corp., 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.

The Seventh Incremental Commitment Amendment was entered into to fund certain deferred payment obligations owing in respect of certain prior acquisitions, to pay fees and expenses relating thereto and for general corporate purposes.

WARNER MUSIC GROUP CORP.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data