What changed in this filing

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Item 1. Financial Statements

2023-08-08 compared with 2023-05-09 · 139 added, 118 removed, 548 unchanged (32% of the section changed)

36 unchanged sentences

Class A common stock, $ 0.001 par value;

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

1,000,000 shares authorized, 138,341 and 137,199 shares issued and outstanding as of June 30, 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 March 31, 2023 and September 30, 2022, respectively

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

Additional paid-in capital 2,007 1,975

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

8 unchanged sentences

Operating income 189 146 578 551

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

Interest expense, net ( 38 ) ( 32 ) ( 105 ) ( 94 )

Other (expense) income ( 31 ) ( 8 ) ( 92 ) 46

Other income (expense) 20 50 ( 72 ) 96

Income before income taxes 167 164 397 553

17 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net income $ 124 $ 125 $ 285 $ 405

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment ( 13 ) ( 52 ) 78 ( 102 )

Deferred (loss) gain on derivative financial instruments ( 3 ) 5 ( 8 ) 26

Other comprehensive income (loss), net of tax 15 ( 11 ) 86 ( 29 )

Other comprehensive (loss) income, net of tax ( 16 ) ( 47 ) 70 ( 76 )

Total comprehensive income 108 78 355 329

6 unchanged sentences

(In millions)

Six Months Ended

Nine Months Ended

Cash flows from operating activities

2 unchanged sentences

Depreciation and amortization 253 257

Unrealized (gains) losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 93 ( 57 )

Unrealized losses (gains) and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 71 ( 107 )

Deferred income taxes ( 18 ) 37

Net loss (gain) on divestitures and investments ( 38 ) 28

Loss on extinguishment of debt 4 —

Net (gain) loss on divestitures and investments ( 44 ) 33

Non-cash interest expense 2 4

20 unchanged sentences

Proceeds from issuance of 3.750 % Senior Secured Notes due 2029

Proceeds from incremental Senior Term Loan Facility 147 —

Proceeds from Senior Term Loan Facility - Tranche G 149 —

Proceeds from Senior Term Loan Facility - Tranche H 147 —

Repayment of Senior Term Loan Facility - Tranche H ( 150 ) —

Proceeds from Term Loan Mortgage 19 —

13 unchanged sentences

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

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

Common Stock Class B

15 unchanged sentences

Shares issued under Omnibus Incentive Plan 273 — — — — — — — — —

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

Three Months Ended March 31, 2023

Other — — — — — — — — 6 6

Balance at June 30, 2023 138,341 $ — 377,650 $ 1 $ 2,007 $ ( 1,450 ) $ ( 277 ) $ 281 $ 18 $ 299

Three Months Ended June 30, 2023

Common Stock Class B

6 unchanged sentences

Shares Value Shares Value

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

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

Net income — — — — — 122 — 122 2 124

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

Other comprehensive loss, net of tax — — — — — — ( 16 ) ( 16 ) — ( 16 )

Dividends ($ 0.16 per share)

3 unchanged sentences

Shares issued under Omnibus Incentive Plan 17 — — — — — — — — —

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

Six Months Ended March 31, 2022

Other — — — — — — — — 6 6

Balance at June 30, 2023 138,341 $ — 377,650 $ 1 $ 2,007 $ ( 1,450 ) $ ( 277 ) $ 281 $ 18 $ 299

Nine Months Ended June 30, 2022

Common Stock Class B

17 unchanged sentences

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

Balance at June 30, 2022 137,199 $ — 377,650 $ 1 $ 1,975 $ ( 1,542 ) $ ( 278 ) $ 156 $ 16 $ 172

Three Months Ended June 30, 2022

Common Stock Class B

6 unchanged sentences

Shares Value Shares Value

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

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

Net income — — — — — 124 — 124 1 125

3 unchanged sentences

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 ) — — — — — — —

Distribution to noncontrolling interest holders — — — — — — — — ( 4 ) ( 4 )

Shares issued under Omnibus Incentive Plan 1 — — — — — — — — —

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

Balance at June 30, 2022 137,199 $ — 377,650 $ 1 $ 1,975 $ ( 1,542 ) $ ( 278 ) $ 156 $ 16 $ 172

See accompanying notes

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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.

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.

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

Accordingly, the results of operations for the nine months ended June 30, 2022 reflect 40 weeks, or 280 days, compared to 273 days for the nine months ended June 30, 2023.

For the nine months ended June 30, 2022, the revenue benefit of the additional week was approximately $ 73 million, primarily reflected in Recorded Music streaming revenue.

Basis of Consolidation

23 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 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 Revolving Credit Facility and Senior Term Loan Facility were amended during the nine months ended June 30, 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.

11 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 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,

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and nine months ended June 30, 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 nine months ended June 30, 2023 and 2022 (in millions, except share amounts, which are reflected in thousands, and per share data):

Three Months Ended June 30,

Class A Class B Class A Class B

6 unchanged sentences

Basic and Diluted EPS $ 0.23 $ 0.23 $ 0.24 $ 0.24

Six Months Ended March 31,

Nine Months Ended June 30,

Class A Class B Class A Class B

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

25 unchanged sentences

Sales Returns and Uncollectible Accounts

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.

Based on management’s analysis of sales returns, refund liabilities of $ 22 million and $ 19 million were established at June 30, 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 June 30, 2023 and September 30, 2022, respectively.

Deferred Revenue

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.

Deferred revenue increased by $ 323 million during the nine months ended June 30, 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 $ 350 million were recognized during the nine months ended June 30, 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 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:

For the nine months ended June 30, 2023 and June 30, 2022, the Company recognized revenue of $ 68 million and $ 55 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 June 30, 2023 are as follows:

Rest of FY23 FY24 FY25 Thereafter Total

17 unchanged sentences

Other comprehensive income (loss) 78 — ( 8 ) 70

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

Balances at June 30, 2023 $ ( 280 ) $ ( 2 ) $ 5 $ ( 277 )

______________________________________

7 unchanged sentences

Other adjustments (a) 34 — 34

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

Balances at June 30, 2023 $ 1,498 $ 464 $ 1,962

______________________________________

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

(a) Other adjustments during the nine months ended June 30, 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.

3 unchanged sentences

Intangible assets consist of the following:

Weighted-Average Useful Life March 31,

Weighted-Average Useful Life June 30,

2023 September 30,

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______________________________________

(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.

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

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

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

As of March 31, 2023 Acquisition Corp.

As of June 30, 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 March 31, 2023 .

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of June 30, 2023 .

Fiscal 2023 Transactions

11 unchanged sentences

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.

entered into an amendment (the “Fourth Revolving Credit Agreement Amendment”) to the Revolving Credit Agreement among Acquisition Corp.

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.

1 unchanged sentence

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

May 2023 Senior Term Loan Credit Agreement Amendment

On May 10, 2023, Acquisition Corp.

entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto and Credit Suisse AG, as administrative agent.

The Senior Term Loan Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate.

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.

June 2023 Senior Term Loan Credit Agreement Amendment

On June 30, 2023, Acquisition Corp.

entered into an increase supplement (the “Third Increase Supplement”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto, the lender party thereto and Credit Suisse AG, as administrative agent, pursuant to which Acquisition Corp.

has borrowed additional Tranche G term loans in an amount equal to $ 150 million, the proceeds of which have been used to prepay the Tranche H term loans in full (see “Senior Term Loan Facility Amendment”), for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $ 1,295 million.

The Company recorded a loss on extinguishment of debt of approximately $ 4 million for the three and nine months ended June 30, 2023, which represents the remaining unamortized discount and deferred financing costs of the Tranche H term loan.

Interest Rates

1 unchanged sentence

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

Based on the Senior Secured Indebtedness to EBITDA Ratio of 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.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.97 x at June 30, 2023, the applicable margin for SOFR loans and RFR loans would be 1.375 % instead of 1.875 % and the applicable margin for ABR loans would be 0.375 % instead of 0.875 % in the case of 2020 Revolving Loans.

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

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 Tranche G loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in U.S.

dollars in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Term Loan LIBOR”) subject to a zero floor, plus 2.125 % per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) one-month Term Loan LIBOR, plus 1.00 % per annum, subject to a 1.00 % floor, plus, in each case, 1.125 % per annum.

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

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 Tranche H loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) subject to a 0.50 % floor, plus 3.00 % per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00 % per annum, subject to a 1.50 % floor, plus, in each case, 2.00 % per annum.

The Tranche G loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) plus an adjustment based on the applicable interest period subject to a zero floor, plus 2.125 % per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00 % per annum, subject to a 1.00 % floor, plus, in each case, 1.125 % per annum.

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

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 Tranche H loans under the Senior Term Loan Facility, which were repaid in full on June 30, 2023, bore interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) subject to a 0.50 % floor, plus 3.00 % per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00 % per annum, subject to a 1.50 % floor, plus, in each case, 2.00 % per annum.

If there was a payment default at any time, then the interest rate applicable to overdue principal and interest would have been the rate otherwise applicable to such loan plus 2.0 % per annum.

Default interest was also 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.

6 unchanged sentences

Maturities of Senior Secured Notes

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

As of June 30, 2023, there are no scheduled maturities of notes until 2028, when $ 354 million is scheduled to mature.

Thereafter, $ 2.360 billion is scheduled to mature.

2 unchanged sentences

Interest Expense, net

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.

Total interest expense, net was $ 38 million and $ 32 million for the three months ended June 30, 2023 and 2022, respectively, and $ 105 million and $ 94 million for the nine months ended June 30, 2023 and 2022, respectively.

Interest expense, net includes interest expense related to our outstanding indebtedness of $ 41 million and $ 32 million for the three months ended June 30, 2023 and 2022, respectively, and $ 115 million and $ 93 million for the nine months ended June 30, 2023 and 2022, respectively.

The weighted-average interest rate of the Company’s total debt was 4.1 % at June 30, 2023, 3.5 % at September 30, 2022 and 3.3 % at June 30, 2022.

Restructuring

2 unchanged sentences

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 Restructuring Plan is substantially complete as of June 30, 2023, with related cash expenditures expected by the end of fiscal 2024.

There were no restructuring costs incurred in the three months ended June 30, 2023.

Total restructuring costs were $ 41 million for the nine months ended June 30, 2023, consisting of severance costs.

All restructuring expenses were recorded in the Recorded Music segment.

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

4 unchanged sentences

Cash payments ( 13 )

Balance at March 31, 2023 $ 40

Balance at June 30, 2023 $ 28

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.

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.

For the three months ended June 30, 2023, the Company recognized a total of $ 7 million of non-cash stock-based compensation expense which was recorded to additional paid-in capital.

For the nine months ended June 30, 2023, the Company recognized a total of $ 42 million of non-cash stock-based compensation expense, of which $ 27 million was recorded to additional paid-in capital and $ 15 million was recorded as a share-based compensation liability.

For the nine months ended June 30, 2022, the Company recognized a total of $ 35 million of non-cash stock-based compensation expense, of which $ 30 million was recorded to additional paid-in capital and $ 5 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.

During the nine months ended June 30, 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 nine months ended June 30, 2023, the Company approved the issuance of RSUs under the Omnibus Incentive Plan to eligible employees and executives.

For the three and nine months ended June 30, 2023, non-cash stock-based compensation associated with these RSUs was $ 2 million and $ 12 million, respectively, which was recorded to additional paid-in capital.

During the nine months ended June 30, 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.

Such expense was recorded as a share-based compensation liability as of June 30, 2023.

During the nine months ended June 30, 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 nine months ended June 30, 2023 was approximately $ 1 million and $ 2 million, respectively, which was recorded to additional paid-in capital.

During the nine months ended June 30, 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.

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 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.

During the nine months ended June 30, 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 nine months ended June 30, 2023, the Company issued approximately 17,000 and 273,000 shares of Class A Common Stock, respectively, under the Omnibus Incentive Plan.

For the three and nine months ended June 30, 2023, the Company recorded an income tax expense of $ 43 million and $ 112 million, respectively.

The income tax expense for the three and nine months ended June 30, 2023 is higher than the expected tax expense at the statutory rate of 21% primarily due to foreign income taxed at rates higher than the United States, including withholding taxes, U.S.

state and local taxes, unrecognized tax benefit related to uncertain tax positions, and non-deductible executive compensation under IRC Section 162(m).

These charges were partially offset by tax benefits associated with Research and Development (“R&D”) credits, release of U.S.

state valuation allowance, and the net impact of GILTI and foreign derived intangible income (“FDII”).

For the three and nine months ended June 30, 2022, the Company recorded an income tax expense of $ 39 million and $ 148 million, respectively.

The income tax expense for the three and nine months ended June 30, 2022 is higher than the expected tax benefit at the statutory tax rate of 21% primarily due to foreign income taxed at rates higher than the United States, including withholding taxes, U.S.

state and local taxes, and non-deductible executive compensation under IRC Section 162(m).

These charges were partially offset by tax benefits associated with the net impact of GILTI and FDII.

The Organization Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%.

Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a

global minimum tax by January 1, 2025.

We are currently evaluating the potential impact on our consolidated financial statements and related disclosures.

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 March 31, 2023 are expected to be recognized within one year .

The Company’s hedged interest rate transactions as of June 30, 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.

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

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,

As of June 30, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $ 172 million and the purchase of $ 98 million of foreign currencies at fixed rates that will be settled by September 2023.

As of June 30, 2023, the Company had outstanding $ 500 million in a pay-fixed receive-variable interest rate swap with $ 5 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 $ 6 million and unrealized pre-tax losses of $ 1 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the nine months ended June 30, 2023.

The Company recorded realized pre-tax gains of $ 6 million and unrealized pre-tax gains of $ 3 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the nine months ended June 30, 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 nine months ended June 30, 2023 were $ 11 million.

The pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the nine months ended June 30, 2022 were $ 34 million.

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

2023 September 30,

(in millions)

Other Current Assets:

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

Interest Rate Swap 7 2

Other Current Liabilities:

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

Other Noncurrent Assets:

Interest Rate Swap — 16

______________________________________

(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.

(a) Includes $ 6 million and $ 7 million of foreign currency forward exchange contracts in asset and liability positions, respectively, which net to $ 1 million of current assets and $ 2 million of current liabilities .

Segment Information

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Three Months Ended (in millions)

March 31, 2023

June 30, 2023

Revenues $ 1,282 $ 283 $ ( 1 ) $ 1,564

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OIBDA 261 73 ( 59 ) 275

March 31, 2022

June 30, 2022

Revenues $ 1,189 $ 245 $ ( 2 ) $ 1,432

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eliminations Total

Six Months Ended (in millions)

March 31, 2023

Nine Months Ended (in millions)

June 30, 2023

Revenues $ 3,664 $ 790 $ ( 3 ) $ 4,451

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OIBDA 801 220 ( 190 ) 831

March 31, 2022

June 30, 2022

Revenues $ 3,722 $ 704 $ ( 4 ) $ 4,422

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Cash Interest and Taxes

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.

The Company made interest payments of approximately $ 29 million and $ 21 million during the three months ended June 30, 2023 and 2022, respectively, and approximately $ 104 million and $ 78 million during the nine months ended June 30, 2023 and 2022, respectively.

The Company paid approximately $ 49 million and $ 38 million of income and withholding taxes, net of refunds, for the three months ended June 30, 2023 and 2022, respectively, and approximately $ 166 million and $ 104 million of income and withholding taxes, net of refunds, for the nine months ended June 30, 2023 and 2022, respectively.

Gain on Divestiture

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.

During the nine months ended June 30, 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.

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

On February 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.

On May 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 June 1, 2023.

The Company paid an aggregate of approximately $ 84 million and $ 251 million, or $ 0.16 and $ 0.48 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 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 six months ended March 31, 2022.

Noncash investing activities was approximately $ 125 million related to the acquisition of music publishing rights and music catalogs, net during the nine months ended June 30, 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 March 31, 2023 and September 30, 2022.

Fair Value Measurements as of March 31, 2023

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

Fair Value Measurements as of June 30, 2023

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

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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 condensed 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.

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

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 March 31, 2023 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 June 30, 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:

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Balance at September 30, 2022 $ ( 1 )

Balance at March 31, 2023 $ ( 1 )

Balance at June 30, 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.

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

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

The Company did not record any impairment charges on these investments during the three and nine months ended June 30, 2023 and 2022.

In addition, there were no observable price changes events that were completed during the three and nine months ended June 30, 2023 and 2022.

Fair Value of Debt

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 June 30, 2023, the fair value of the Company’s debt was $ 3.596 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.

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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-Q

Item 1. Financial Statements