What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2023-02-09 · 210 added, 84 removed, 456 unchanged (39% of the section changed)

36 unchanged sentences

Class A common stock, $ 0.001 par value;

1,000,000 shares authorized, 138,073 and 137,199 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

1,000,000 shares authorized, 138,324 and 137,199 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively

Class B common stock, $ 0.001 par value;

1,000,000 shares authorized, 377,650 and 377,650 issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

1,000,000 shares authorized, 377,650 and 377,650 issued and outstanding as of March 31, 2023 and September 30, 2022, respectively

Additional paid-in capital 2,000 1,975

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

Revenue $ 1,399 $ 1,376 $ 2,887 $ 2,990

2 unchanged sentences

Selling, general and administrative expenses (a) ( 452 ) ( 444 ) ( 892 ) ( 941 )

Restructuring ( 41 ) — ( 41 ) —

Amortization expense ( 61 ) ( 69 ) ( 124 ) ( 129 )

9 unchanged sentences

Net income attributable to Warner Music Group Corp.

$ 34 $ 92 $ 156 $ 279

Net income per share attributable to common stockholders:

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

Net income $ 37 $ 92 $ 161 $ 280

6 unchanged sentences

Comprehensive income attributable to Warner Music Group Corp.

$ 49 $ 81 $ 242 $ 250

See accompanying notes

2 unchanged sentences

(In millions)

Three Months Ended

Six Months Ended

Cash flows from operating activities

28 unchanged sentences

Proceeds from incremental Senior Term Loan Facility 147 —

Proceeds from Term Loan Mortgage 19 —

Deferred financing costs paid ( 2 ) ( 5 )

2 unchanged sentences

Payment of deferred and contingent consideration ( 133 ) ( 4 )

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

Net cash (used in) provided by financing activities ( 143 ) 363

7 unchanged sentences

(In millions, except share amounts which are reflected in thousands, and per share data)

Three Months Ended December 31, 2022

Six Months Ended March 31, 2023

Common Stock Class B

4 unchanged sentences

Equity Non-controlling

Interest Total

Interest Total Equity

Shares Value Shares Value

2 unchanged sentences

Other comprehensive income, net of tax — — — — — — 86 86 — 86

Dividends ($ 0.16 per Class A and B share)

Dividends ($ 0.32 per share)

— — — — — ( 167 ) — ( 167 ) — ( 167 )

3 unchanged sentences

Shares issued under Omnibus Incentive Plan 256 — — — — — — — — —

Balance at March 31, 2023 138,324 $ — 377,650 $ 1 $ 2,000 $ ( 1,488 ) $ ( 261 ) $ 252 $ 14 $ 266

Three Months Ended March 31, 2023

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total Equity

Shares Value Shares Value

Balance at December 31, 2022 138,073 $ — 377,650 $ 1 $ 1,984 $ ( 1,439 ) $ ( 276 ) $ 270 $ 12 $ 282

Three Months Ended December 31, 2021

Net income — — — — — 34 — 34 3 37

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

Dividends ($ 0.16 per share)

— — — — — ( 83 ) — ( 83 ) — ( 83 )

Stock-based compensation expense — — — — 16 — — 16 — 16

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

Shares issued under Omnibus Incentive Plan 251 — — — — — — — — —

Balance at March 31, 2023 138,324 $ — 377,650 $ 1 $ 2,000 $ ( 1,488 ) $ ( 261 ) $ 252 $ 14 $ 266

Six Months Ended March 31, 2022

Common Stock Class B

4 unchanged sentences

Equity Non-controlling

Interest Total

Interest Total Equity

Shares Value Shares Value

2 unchanged sentences

Other comprehensive loss, net of tax — — — — — — ( 29 ) ( 29 ) — ( 29 )

Dividends ($ 0.15 per Class A and B share)

Dividends ($ 0.30 per share)

— — — — — ( 156 ) — ( 156 ) — ( 156 )

1 unchanged sentence

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

Conversion of Class B shares for Class A shares 4,671 — ( 4,671 ) — — — — — — —

Vesting of restricted stock units, net of shares withheld for employee taxes 277 — — — ( 6 ) — — ( 6 ) — ( 6 )

Conversion of Class B shares to Class A shares 14,320 — ( 14,321 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 186 — — — — — — — — —

Other — — — — — — — — 4 4

Balance at March 31, 2022 137,198 $ — 377,650 $ 1 $ 1,971 $ ( 1,587 ) $ ( 231 ) $ 154 $ 19 $ 173

Three Months Ended March 31, 2022

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total Equity

Shares Value Shares Value

Balance at December 31, 2021 127,237 $ — 387,300 $ 1 $ 1,973 $ ( 1,601 ) $ ( 220 ) $ 153 $ 19 $ 172

Net income — — — — — 92 — 92 — 92

Other comprehensive loss, net of tax — — — — — — ( 11 ) ( 11 ) — ( 11 )

Dividends ($ 0.15 per share)

— — — — — ( 78 ) — ( 78 ) — ( 78 )

Stock-based compensation expense — — — — 4 — — 4 — 4

Vesting of restricted stock units, net of shares withheld for employee taxes 277 — — — ( 6 ) — — ( 6 ) — ( 6 )

Conversion of Class B shares to Class A shares 9,649 — ( 9,650 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 35 — — — — — — — — —

Balance at March 31, 2022 137,198 $ — 377,650 $ 1 $ 1,971 $ ( 1,587 ) $ ( 231 ) $ 154 $ 19 $ 173

See accompanying notes

24 unchanged sentences

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

Operating results for the three months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

Operating results for the three and six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

The consolidated balance sheet at September 30, 2022 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S.

6 unchanged sentences

The fiscal year ended September 30, 2022 included 53 weeks, with the additional week falling in the fiscal quarter ended December 31, 2021.

Accordingly, the results of operations for the three months ended December 31, 2021 reflect 14 weeks, or 98 days, compared to 92 days for the three months ended December 31, 2022.

For the three months ended December 31, 2021, the revenue benefit of the additional week was approximately $ 73 million, primarily reflected in Recorded Music streaming revenue.

Accordingly, the results of operations for the six months ended March 31, 2022 reflect 27 weeks, or 189 days, compared to 182 days for the six months ended March 31, 2023.

For the six months ended March 31, 2022, the revenue benefit of the additional week was approximately $ 73 million, primarily reflected in Recorded Music streaming revenue.

Basis of Consolidation

8 unchanged sentences

In such cases, the actual tax expense or benefit is reported in the same period as the related item.

Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions.

Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions, and are recorded in the period in which the change occurs.

Global Intangible Low-Taxed Income (GILTI) imposes U.S.

taxes on the excess of a deemed return on tangible assets of certain foreign subsidiaries.

The Company made an election to recognize GILTI tax in the specific period in which it occurs.

New Accounting Pronouncements

9 unchanged sentences

These ASUs were effective upon issuance and may be applied prospectively to contract modifications and hedging relationships entered into or evaluated through December 31, 2024.

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

The Revolving Credit Facility was amended during the three months ended March 31, 2023 as further described in Note 8.

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.

Accounting Pronouncements Not Yet Adopted

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

Common Control Arrangements (“ASU 2023-01”).

The amendment clarifies the accounting for leasehold improvements for leases between entities under common control.

Specifically, the ASU requires that leasehold improvements associated with common control leases be both:

(1) amortized by the lessee over the useful life of the leasehold improvement to the common control group, regardless of the lease term, and (2) accounted for as an adjustment to equity when leasehold improvements are transferred between entities under common control when the lessee no longer controls the leasehold improvements.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023.

The Company is in the process of evaluating the effect that the adoption of these standards will have on its consolidated financial statements.

Earnings per Share

2 unchanged sentences

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

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three months ended December 31, 2022 and 2021, respectively.

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three months ended December 31, 2022 and 2021 (in millions, except share amounts, which are reflected in thousands, and per share data):

Three Months Ended December 31,

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and six months ended March 31, 2023 and 2022, respectively.

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three and six months ended March 31, 2023 and 2022 (in millions, except share amounts, which are reflected in thousands, and per share data):

Three Months Ended March 31,

Class A Class B Class A Class B

6 unchanged sentences

Basic and Diluted EPS $ 0.06 $ 0.06 $ 0.18 $ 0.18

Six Months Ended March 31,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

$ 43 $ 113 $ 73 $ 206

Net income attributable to participating securities ( 2 ) — ( 4 ) —

Net income attributable to common stockholders $ 41 $ 113 $ 69 $ 206

Weighted average shares outstanding 137,841 377,650 130,159 384,442

Basic and Diluted EPS $ 0.30 $ 0.30 $ 0.53 $ 0.53

Revenue Recognition

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

(in millions)

10 unchanged sentences

Synchronization 46 50 85 92

Other 4 4 7 6

Total Music Publishing 257 230 507 459

4 unchanged sentences

Music Publishing 135 117 268 232

657 635 1,329 1,358

International Recorded Music 621 629 1,321 1,407

4 unchanged sentences

Sales Returns and Uncollectible Accounts

Based on management’s analysis of sales returns, refund liabilities of $ 26 million and $ 19 million were established at December 31, 2022 and September 30, 2022, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 21 million and $ 19 million were established at December 31, 2022 and September 30, 2022, respectively.

Based on management’s analysis of sales returns, refund liabilities of $ 21 million and $ 19 million were established at March 31, 2023 and September 30, 2022, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 19 million and $ 19 million were established at March 31, 2023 and September 30, 2022, respectively.

Deferred Revenue

Deferred revenue increased by $ 103 million during the three months ended December 31, 2022 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 144 million were recognized during the three months ended December 31, 2022 related to the balance of deferred revenue at September 30, 2022.

Deferred revenue increased by $ 225 million during the six months ended March 31, 2023 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 248 million were recognized during the six months ended March 31, 2023 related to the balance of deferred revenue at September 30, 2022.

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

Performance Obligations

For the three months ended December 31, 2022 and December 31, 2021, the Company recognized revenue of $ 27 million and $ 37 million, respectively, from performance obligations satisfied in previous periods.

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at December 31, 2022 are as follows:

For the six months ended March 31, 2023 and March 31, 2022, the Company recognized revenue of $ 41 million and $ 43 million, respectively, from performance obligations satisfied in previous periods.

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2023 are as follows:

Rest of FY23 FY24 FY25 Thereafter Total

6 unchanged sentences

The final consideration paid was determined to be $ 394 million, which reflects the base purchase price of $ 400 million, adjusted for, among other items, working capital.

At December 31, 2022, the Company updated and finalized the purchase price allocation recorded at September 30, 2022, which resulted in a decrease to intangible assets of approximately $ 1 million and a net decrease to other acquired assets and liabilities of approximately $ 2 million, with a corresponding net increase to goodwill of approximately $ 3 million.

During the three months ended December 31, 2022, the Company updated and finalized the purchase price allocation recorded at September 30, 2022, which resulted in a decrease to intangible assets of approximately $ 1 million and a net decrease to other acquired assets and liabilities of approximately $ 2 million, with a corresponding net increase to goodwill of approximately $ 3 million.

See Note 5, “Acquisition of 300 Entertainment,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 for the preliminary purchase price allocation, valuation methodology, and other information related to the 300 Entertainment acquisition.

3 unchanged sentences

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 benefit of less than $ 1 million:

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of $ 2 million:

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

2 unchanged sentences

Other comprehensive income (loss) 91 — ( 5 ) 86

Balances at December 31, 2022 $ ( 286 ) $ ( 2 ) $ 12 $ ( 276 )

Balances at March 31, 2023 $ ( 267 ) $ ( 2 ) $ 8 $ ( 261 )

______________________________________

7 unchanged sentences

Other adjustments (a) 37 — 37

Balances at December 31, 2022 $ 1,487 $ 464 $ 1,951

Balances at March 31, 2023 $ 1,496 $ 464 $ 1,960

______________________________________

(a) Other adjustments during the three months ended December 31, 2022 represent foreign currency movements.

(a) Other adjustments during the six months ended March 31, 2023 represent foreign currency movements.

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

The Company may conduct an earlier review if events or circumstances occur that would suggest the carrying value of the Company’s goodwill may not be recoverable.

No indicators of

impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.

No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.

Intangible Assets

Intangible assets consist of the following:

Weighted-Average Useful Life December 31,

Weighted-Average Useful Life March 31,

2023 September 30,

23 unchanged sentences

3.000 % Senior Secured Notes due 2031

Term Loan Mortgage 19 —

Total long-term debt, including the current portion $ 4,029 $ 3,773

2 unchanged sentences

______________________________________

(a) Reflects $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 4 million at both December 31, 2022 and September 30, 2022.

There were no loans outstanding under the Revolving Credit Facility at December 31, 2022 or September 30, 2022.

(a) Reflects $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 4 million at both March 31, 2023 and September 30, 2022.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2023 or September 30, 2022.

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

As of December 31, 2022 Acquisition Corp.

As of March 31, 2023 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.

9 unchanged sentences

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, which are currently suspended, 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.

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 2022 .

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of March 31, 2023 .

Fiscal 2023 Transactions

4 unchanged sentences

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.

Term Loan Mortgage Agreement

On January 27, 2023, Acquisition Corp., along with Warner Records Inc.

and Warner Music Inc., entered into an agreement with Truist Bank, which provides for a term loan of $ 19 million (“Term Loan Mortgage”) secured by the Company’s real estate properties in Nashville, Tennessee.

Interest on the Term Loan Mortgage will accrue at a rate of 30-day SOFR plus the applicable margin of 1.40 % subject to a zero floor.

Equal principal installments and interest are due monthly.

Revolving Credit Agreement Amendment

On March 23, 2023, Acquisition Corp.

entered into an amendment (the “Fourth Revolving Credit Agreement Amendment”) to the Revolving Credit Agreement among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Fourth Revolving Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate and other rates for alternate currencies, such as EURIBOR and SONIA.

We utilized the expedients set forth in ASC Topic 848, including those relating to derivative instruments used in hedging relationships.

This transition does not result in a financial impact to our consolidated financial statements.

Interest Rates

The loans under the Revolving Credit Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving LIBOR”) subject to a zero floor, plus 1.75 % per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or 1.875 % per annum in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement), or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) the one-month Revolving LIBOR plus 1.0 % per annum, plus, in each case, 0.75 % per annum in the case of Initial Revolving Loans, or 0.875 % per annum in the case of 2020 Revolving Loans;

The loans under the Revolving Credit Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Revolving Term SOFR”), and other rates for alternate currencies, such as EURIBOR and SONIA, as provided in the Revolving Credit Agreement, subject to a zero floor, plus 1.75 % per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or 1.875 % per annum in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement), or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) the one-month Revolving Term SOFR plus 1.0 % per annum, plus, in each case, 0.75 % per annum in the case of Initial Revolving Loans, or 0.875 % per annum in the case of 2020 Revolving Loans;

provided that, in respect of 2020 Revolving Loans, the applicable margin with respect to such loans is subject to adjustment as set forth in the pricing grid in the Revolving Credit Agreement.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.18 x at December 31, 2022, the applicable margin for Eurodollar loans would be 1.625 % instead of 1.875 % and the applicable margin for ABR loans would be 0.625 % instead of 0.875 % in the case of 2020 Revolving Loans.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.03 x at March 31, 2023, the

applicable margin for SOFR loans and RFR loans would be 1.625 % instead of 1.875 % and the applicable margin for ABR loans would be 0.625 % instead of 0.875 % in the case of 2020 Revolving Loans.

If there is a payment default at any time, then the interest rate applicable to overdue principal will be the rate otherwise applicable to such loan plus 2.0 % per annum.

7 unchanged sentences

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

The Term Loan Mortgage bears interest at a rate of 30-day SOFR plus the applicable margin of 1.40 %, subject to a zero floor.

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

Please refer to Note 12 of our condensed consolidated financial statements for further discussion.

Please refer to Note 13 to our condensed consolidated financial statements for further discussion.

Maturity of Senior Term Loan Facility

3 unchanged sentences

Maturities of Senior Secured Notes

As of December 31, 2022, there are no scheduled maturities of notes until 2028, when $ 346 million is scheduled to mature.

As of March 31, 2023, there are no scheduled maturities of notes until 2028, when $ 354 million is scheduled to mature.

Thereafter, $ 2.380 billion is scheduled to mature.

Maturity of Term Loan Mortgage

The maturity date of the Term Loan Mortgage is January 27, 2033, subject to a call option exercisable by Truist Bank at any time after January 27, 2028 if certain criteria relating to the Company’s creditworthiness are met.

Interest Expense, net

Total interest expense, net was $ 32 million and $ 30 million for the three months ended December 31, 2022 and 2021, respectively.

The weighted-average interest rate of the Company’s total debt was 3.7 % at December 31, 2022, 3.5 % at September 30, 2022 and 3.2 % at December 31, 2021.

Total interest expense, net was $ 35 million and $ 32 million for the three months ended March 31, 2023 and 2022, respectively, and $ 67 million and $ 62 million for the six months ended March 31, 2023 and 2022, respectively.

Interest expense, net includes interest expense related to our outstanding indebtedness of $ 38 million and $ 32 million for the three months ended March 31, 2023 and 2022, respectively, and $ 75 million and $ 61 million for the six months ended March 31, 2023 and 2022, respectively.

The weighted-average interest rate of the Company’s total debt was 4.0 % at March 31, 2023, 3.5 % at September 30, 2022 and 3.3 % at March 31, 2022.

Restructuring

In March 2023, the Company announced a restructuring plan (the “Restructuring Plan”) intended to drive the evolution of the Company and position the Company for long-term growth, primarily through headcount reductions.

Under the Restructuring Plan, the Company expects to reduce headcount by approximately 270 people, or approximately 4 % of the Company’s overall headcount.

The Company expects to incur total non-recurring restructuring charges of approximately $ 41 million for severance costs, all of which is expected to be paid in cash.

The Restructuring Plan is expected to be substantially completed by the end of the fiscal quarter ended June 30, 2023.

For the three and six months ended March 31, 2023, total restructuring costs were $ 41 million consisting of severance costs.

All restructuring expenses were recorded in the Recorded Music segment during the three months ended March 31, 2023.

The following table sets forth the activity in the restructuring accrual included within accrued liabilities in the accompanying condensed consolidated balance sheets:

Severance Costs

(in millions)

Balance at September 30, 2022 $ —

Restructuring charges 41

Cash payments ( 1 )

Balance at March 31, 2023 $ 40

Commitments and Contingencies

7 unchanged sentences

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

During the three months ended December 31, 2022, the Company approved the issuance of RSUs under the Omnibus Incentive Plan to eligible employees and executives.

For accounting purposes, vesting of such RSUs commenced during the period.

Non-cash stock-based compensation associated with these RSUs was $ 8 million which has been classified as a share-based compensation liability as of December 31, 2022 as further described below.

The Company recognized a total of $ 14 million of non-cash stock-based compensation expense for the three months ended December 31, 2022, of which $ 4 million was recorded to additional paid-in capital, and a remaining $ 10 million has been classified as a share-based compensation liability as of December 31, 2022.

The share-based compensation liability represents awards under the Omnibus Incentive Plan where a total value is known and settlement will occur in a variable number of shares of Class A Common Stock and RSUs.

During the three months ended December 31, 2022, $ 5 million was reclassified from share-based compensation liability to additional paid-in capital, representing the grant date fair value of RSUs granted which were previously classified as a share-based compensation liability as of September 30, 2022.

The Company recognized approximately $ 24 million of non-cash stock-based compensation expense for the three months ended December 31, 2021.

During the three months ended December 31, 2022, in connection with the Senior Management Free Cash Flow Plan (the “Plan”), the Company issued a total of approximately 869,000 shares of Class A Common Stock to settle a portion of a participant’s deferred equity units previously issued under the Plan.

During the three months ended December 31, 2022, the Company satisfied the vesting of RSUs issued to employees by issuing approximately 5,000 shares of Class A Common Stock under the Omnibus Incentive Plan, which is net of shares used to settle employee income tax obligations.

For the three months ended December 31, 2022, the Company recorded an income tax expense of $ 48 million.

The income tax expense for the three months ended December 31, 2022 is higher than the expected tax expense at the statutory rate of 21% primarily due to U.S.

state and local taxes, withholding taxes, foreign income taxed at rates higher than the U.S., and non-deductible executive compensation under IRC Section 162(m), offset by a deduction against foreign derived intangible income (“FDII”).

For the three months ended December 31, 2021, the Company recorded an income tax expense of $ 75 million.

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

For the three months ended March 31, 2023, the Company recognized a total of $ 21 million of non-cash stock-based compensation expense, of which $ 9 million was recorded to additional paid-in capital and $ 12 million was recorded as a share-based compensation liability.

For the six months ended March 31, 2023, the Company recognized a total of $ 35 million of non-cash stock-based compensation expense, of which $ 20 million was recorded to additional paid-in capital and $ 15 million was recorded as a share-based compensation liability.

For the six months ended March 31, 2022, the Company recognized a total of $ 30 million of non-cash stock-based compensation expense, of which $ 26 million was recorded to additional paid-in capital and $ 4 million was recorded as a share-based compensation liability.

Share-based compensation liabilities, which are a component of accrued liabilities on the condensed consolidated balance sheets, are recorded for awards under the Omnibus Incentive Plan where a total value is known and settlement will occur in a variable number of shares of Class A Common Stock and RSUs.

During the three months ended March 31, 2023, $ 7 million of stock-based compensation liability was reclassified to additional paid-in capital, representing the grant date fair value of RSUs granted which were previously classified as a share-based compensation liability as of December 31, 2022.

During the six months ended March 31, 2023, $ 5 million of stock-based compensation liability was reclassified to additional paid-in capital, representing the grant date fair value of RSUs granted which were previously classified as a share-based compensation liability as of September 30, 2022.

During the three and six months ended March 31, 2023, the Company approved the issuance of RSUs under the Omnibus Incentive Plan to eligible employees and executives.

For the three and six months ended March 31, 2023, non-cash stock-based

compensation associated with these RSUs was $ 2 million and $ 10 million, respectively, which was recorded to additional paid-in capital.

During the three months ended March 31, 2023, a separation agreement between the Company and our previous Chief Executive Officer was executed.

In connection with the separation agreement, the Company recognized $ 12 million of non-cash stock-based compensation expense associated with RSUs and common stock as there is no remaining service required for vesting.

Such expense was recorded as a share-based compensation liability as of March 31, 2023.

During the three months ended March 31, 2023, the Company issued market-based performance share units (“PSUs”) to our newly appointed Chief Executive Officer whereby the PSU award payout is determined based on the Company’s total shareholder return compared to a designated peer group.

Non-cash stock-based compensation associated with these PSUs recognized for the three and six months ended March 31, 2023 was approximately $ 1 million, which was recorded to additional paid-in capital.

During the three and six months ended March 31, 2023, in connection with the Restructuring Plan, the Company recognized $ 2 million of non-cash stock-based compensation related to the accelerated vesting of certain RSUs.

Refer to Note 9 for further discussion.

During the six months ended March 31, 2023, in connection with the Senior Management Free Cash Flow Plan (the “Plan”), the Company issued a total of approximately 869,000 shares of Class A Common Stock to settle a portion of a participant’s deferred equity units previously issued under the Plan.

During the three and six months ended March 31, 2023, the Company issued approximately 251,000 and 256,000 shares of Class A Common Stock, respectively, under the Omnibus Incentive Plan.

For the three and six months ended March 31, 2023, the Company recorded an income tax expense of $ 21 million and $ 69 million, respectively.

The income tax expense for the six months ended March 31, 2023 is higher than the expected tax expense at the statutory rate of 21% primarily due to U.S.

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of December 31, 2022 could decrease by up to approximately $ 1 million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.

For the three and six months ended March 31, 2022, the Company recorded an income tax expense of $ 34 million and $ 109 million, respectively.

The income tax expense for the three months ended March 31, 2022 is higher than the expected tax benefit at the statutory tax rate of 21% primarily due to U.S.

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

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of March 31, 2023 could decrease by up to approximately $ 1 million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts and interest rate swaps, for the purposes of managing foreign currency exchange rate risk and interest rate risk on expected future cash flows.

The Company’s hedged interest rate transactions as of December 31, 2022 are expected to be recognized within one year .

The Company’s hedged interest rate transactions as of March 31, 2023 are expected to be recognized within one year .

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, “Fair Value Measurements,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

1 unchanged sentence

The ineffective portions of interest rate swaps are recognized in other income (expense) in the period measured.

As of December 31, 2022, the Company had outstanding foreign currency forward exchange contracts for the sale of $ 337 million and the purchase of $ 197 million of foreign currencies at fixed rates that will be settled by September 2023.

As of December 31, 2022, the Company had outstanding $ 820 million in pay-fixed receive-variable interest rate swaps with $ 12 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.

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 losses of $ 1 million and unrealized pre-tax losses of $ 7 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the three months ended December 31, 2022.

The Company recorded realized pre-tax gains of $ 1 million and unrealized pre-tax gains of $ 2 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the three months ended December 31, 2021.

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 three months ended December 31, 2022 were $ 2 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 three months ended December 31, 2021 were $ 9 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at December 31, 2022 and September 30, 2022:

As of March 31, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $ 304 million and the purchase of $ 167 million of foreign currencies at fixed rates that will be settled by September 2023.

As of March 31, 2023, the Company had outstanding $ 500 million in a pay-fixed receive-variable interest rate swap with $ 8 million of unrealized deferred gains in comprehensive income related to the interest rate swap.

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 losses of $ 2 million and unrealized pre-tax losses of $ 4 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the six months ended March 31, 2023.

The Company recorded realized pre-tax gains of $ 3 million and unrealized pre-tax gains of $ 2 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the six months ended March 31, 2022.

The pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the six months ended March 31, 2023 were $ 7 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 six months ended March 31, 2022 were $ 28 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at March 31, 2023 and September 30, 2022:

2023 (a) September 30,

3 unchanged sentences

Other noncurrent assets — 16

Other noncurrent liabilities — —

______________________________________

(a) Includes $ 13 million and $ 20 million of foreign exchange derivative contracts which net to $ 1 million of current assets and $ 8 million of current liabilities, respectively, and $ 16 million of interest rate swaps in current asset positions.

(a) Includes $ 10 million and $ 14 million of foreign exchange derivative contracts which net to $ 2 million of current assets and $ 6 million of current liabilities, respectively, and $ 11 million of an interest rate swap in a current asset position.

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

11 unchanged sentences

Three Months Ended (in millions)

December 31, 2022

March 31, 2023

Revenues $ 1,143 $ 257 $ ( 1 ) $ 1,399

3 unchanged sentences

OIBDA 203 75 ( 71 ) 207

December 31, 2021

March 31, 2022

Revenues $ 1,147 $ 230 $ ( 1 ) $ 1,376

3 unchanged sentences

OIBDA 250 61 ( 56 ) 255

Publishing Corporate

eliminations Total

Six Months Ended (in millions)

March 31, 2023

Revenues $ 2,382 $ 507 $ ( 2 ) $ 2,887

Operating income (loss) 434 101 ( 146 ) 389

Amortization of intangible assets 80 44 — 124

Depreciation of property, plant and equipment 26 2 15 43

OIBDA 540 147 ( 131 ) 556

March 31, 2022

Revenues $ 2,533 $ 459 $ ( 2 ) $ 2,990

Operating income (loss) 465 70 ( 130 ) 405

Amortization of intangible assets 87 42 — 129

Depreciation of property, plant and equipment 28 3 10 41

OIBDA 580 115 ( 120 ) 575

Additional Financial Information

Cash Interest and Taxes

The Company made interest payments of approximately $ 25 million and $ 13 million during the three months ended December 31, 2022 and 2021, respectively.

The Company paid approximately $ 45 million and $ 29 million of income and withholding taxes, net of refunds, for the three months ended December 31, 2022 and 2021, respectively.

The Company made interest payments of approximately $ 50 million and $ 44 million during the three months ended March 31, 2023 and 2022, respectively, and approximately $ 75 million and $ 57 million during the six months ended March 31, 2023 and 2022, respectively.

The Company paid approximately $ 72 million and $ 37 million of income and withholding taxes, net of refunds, for the three months ended March 31, 2023 and 2022, respectively, and approximately $ 117 million and $ 66 million of income and withholding taxes, net of refunds, for the six months ended March 31, 2023 and 2022, respectively.

Gain on Divestiture

During the three months ended December 31, 2022, the Company sold its interest in certain sound recording rights and recorded a pre-tax gain of $ 41 million which was recorded as a net gain on divestiture in the accompanying condensed consolidated statement of operations.

During the six months ended March 31, 2023, the Company sold its interest in certain sound recording rights and recorded a pre-tax gain of $ 41 million which was recorded as a net gain on divestiture in the accompanying condensed consolidated statement of operations.

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

2 unchanged sentences

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

On November 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, which was paid to stockholders on December 1, 2022.

The Company paid an aggregate of approximately $ 84 million, or $ 0.16 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2022.

On February 10, 2023, 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, which was paid to stockholders on March 1, 2023.

The Company paid an aggregate of approximately $ 83 million and $ 167 million, or $ 0.16 and $ 0.32 per share, in cash dividends to stockholders and participating security holders for the three and six months ended March 31, 2023, respectively.

Noncash Investment Activity

Noncash investing activities was approximately $ 125 million related to the acquisition of music publishing rights and music catalogs, net during the three months ended December 31, 2021.

Noncash investing activities was approximately $ 125 million related to the acquisition of music publishing rights and music catalogs, net during the six months ended March 31, 2022.

Fair Value Measurements

The following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of December 31, 2022 and September 30, 2022.

Fair Value Measurements as of December 31, 2022

The following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of March 31, 2023 and September 30, 2022.

Fair Value Measurements as of March 31, 2023

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

2 unchanged sentences

Foreign Currency Forward Exchange Contracts (a) $ — $ 2 $ — $ 2

Interest Rate Swaps (d) — 16 — 16

Interest Rate Swap (d) — 11 — 11

Other Current Liabilities:

21 unchanged sentences

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 December 31, 2022 for contracts involving the same attributes and maturity dates.

(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 March 31, 2023 for contracts involving the same attributes and maturity dates.

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

1 unchanged sentence

Balance at September 30, 2022 $ ( 1 )

Balance at December 31, 2022 $ ( 1 )

Balance at March 31, 2023 $ ( 1 )

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.

5 unchanged sentences

The Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.

The Company did not record any impairment charges on these investments during the three months ended December 31, 2022 and 2021.

In addition, there were no observable price changes events that were completed during the three months ended December 31, 2022 and 2021.

The Company did not record any impairment charges on these investments during the three and six months ended March 31, 2023 and 2022.

In addition, there were no observable price changes events that were completed during the three and six months ended March 31, 2023 and 2022.

Fair Value of Debt

Based on the level of interest rates prevailing at December 31, 2022, the fair value of the Company’s debt was $ 3.542 billion.

Based on the level of interest rates prevailing at March 31, 2023, the fair value of the Company’s debt was $ 3.628 billion.

Based on the level of interest rates prevailing at September 30, 2022, the fair value of the Company’s debt was $ 3.181 billion.

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements