What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-11-21 compared with 2022-11-22 · 257 added, 329 removed, 1065 unchanged (35% of the section changed)

7 unchanged sentences

Consolidated Statements of Operations for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020

Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021

Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021

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

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

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

and subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the years in the three-year period ended September 30, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2023, in conformity with U.S.

generally accepted accounting principles.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the years in the three-year period ended September 30, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated November 21, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Consolidated Balance Sheets

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

September 30,

2023 September 30,

(in millions, except share data)

Current assets:

44 unchanged sentences

Consolidated Statements of Operations

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

Fiscal Year Ended September 30,

2023 2022 2021

(in millions, except share and per share data)

Revenue $ 6,037 $ 5,919 $ 5,301

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Selling, general and administrative expenses (a) ( 1,826 ) ( 1,862 ) ( 1,721 )

Restructuring

Amortization expense ( 245 ) ( 263 ) ( 229 )

Total costs and expenses ( 5,288 ) ( 5,205 ) ( 4,692 )

Operating income (loss) 714 609 ( 229 )

Net gain on divestiture

Operating income 790 714 609

Loss on extinguishment of debt ( 4 ) — ( 22 )

Interest expense, net ( 141 ) ( 125 ) ( 122 )

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

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

Other (expense) income, net ( 36 ) 151 ( 9 )

Income before income taxes 609 740 456

Income tax expense ( 170 ) ( 185 ) ( 149 )

Net income (loss) 555 307 ( 470 )

Net income 439 555 307

Income attributable to noncontrolling interest ( 9 ) ( 4 ) ( 3 )

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

Net income attributable to Warner Music Group Corp.

$ 430 $ 551 $ 304

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

Net income per share attributable to common stockholders:

Class A – Basic and Diluted $ 0.82 $ 1.06 $ 0.58

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Warner Music Group Corp.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(In millions)

Fiscal Year Ended September 30,

2023 2022 2021

(in millions)

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

Other comprehensive (loss) income, net of tax:

Net income $ 439 $ 555 $ 307

Other comprehensive income (loss), net of tax:

Foreign currency adjustment, net 36 ( 184 ) 7

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

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

Minimum pension liability 1 9 1

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

Total comprehensive income (loss) 410 327 ( 452 )

Other comprehensive income (loss), net of tax 25 ( 145 ) 20

Total comprehensive income 464 410 327

Income attributable to noncontrolling interest ( 9 ) ( 4 ) ( 3 )

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

Comprehensive income attributable to Warner Music Group Corp.

$ 455 $ 406 $ 324

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Consolidated Statements of Cash Flows

(In millions)

Fiscal Year Ended September 30,

2023 2022 2021

(in millions)

Cash flows from operating activities

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

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

Net income $ 439 $ 555 $ 307

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 332 339 306

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Proceeds from the sale of investments 22 11 —

Proceeds from divestitures, net

Net cash used in investing activities ( 300 ) ( 824 ) ( 638 )

Cash flows from financing activities

Proceeds from incremental Senior Term Loan Facility - Tranche G 149 — —

Proceeds from incremental Senior Term Loan Facility - Tranche H 147 — 325

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

Proceeds from Nashville Term Loan Mortgage 19 — —

Repayment of Term Loan Mortgage ( 1 ) — —

Proceeds from issuance of 3.750 % Senior Secured Notes due 2029

Proceeds from issuance of 3.000 % Senior Secured Notes due 2031

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

Proceeds from issuance of 2.250 % Senior Secured Notes due 2031

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Repayment of 3.625 % Senior Secured Notes due 2026

Proceeds from issuance of 3.875 % Senior Secured Notes due 2030

Proceeds from issuance of 2.750 % Senior Secured Notes due 2028

Repayment of 5.000 % Senior Secured Notes due 2023

Repayment of 4.875 % Senior Secured Notes due 2024

Repayment of 4.125 % Senior Secured Notes due 2024

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

Deferred financing costs paid ( 3 ) ( 5 ) ( 12 )

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Other ( 1 ) ( 5 ) —

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

Net cash (used in) provided by financing activities ( 325 ) 188 ( 61 )

Effect of exchange rate changes on cash and equivalents ( 5 ) ( 21 ) 7

5 unchanged sentences

Consolidated Statements of Equity

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

Common Stock Class B

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Shares Value Shares Value

(in millions, except share and per share data)

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

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

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

Other comprehensive loss, net of tax — — — — — — 18 18 — 18

Dividends ($ 0.12 per Class A share and $ 0.27 per Class B share)

— — — — — 304 — 304 3 307

Other comprehensive income, net of tax

— — — — — — 20 20 — 20

Dividends ($ 0.51 per share)

— — — — — ( 265 ) — ( 265 ) — ( 265 )

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

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

Cumulative effect of ASC 718 accounting policy change — — — — — 33 — 33 — 33

Modification of stock-based compensation plan — — — — 769 — — 769 — 769

Shares listed through IPO 88,550,000 — ( 88,550,000 ) — — — — — — —

Exchange of Class B shares for Class A shares

19,234 — ( 19,234 ) — — — — — — —

Shares issued under the Plan

4,321 — — — — — — — — —

Conversion of Class B shares to Class A shares

10,245 — ( 10,245 ) — — — — — — —

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

2 unchanged sentences

Net income — — — — — 551 — 551 4 555

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

Other comprehensive loss, net of tax

— — — — — — ( 145 ) ( 145 ) — ( 145 )

Dividends ($ 0.61 per share)

2 unchanged sentences

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

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

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

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

14,321 — ( 14,321 ) — — — — — — —

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

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Distribution to noncontrolling interest holders — — — — — — — — ( 12 ) ( 12 )

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

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

Acquisition of noncontrolling interests

— — — — — — — — 112 112

Shares issued under the Plan

869 — — — — — — — — —

Shares issued under Omnibus Incentive Plan 277 — — — — — — — — —

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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.

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

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

Prior to the start of the 2023 fiscal year, the Company maintained a 52-53 week fiscal year ending on the last Friday in each reporting period.

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

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

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

The 2022 fiscal year included 53 weeks, and the 2021 fiscal year included 52 weeks.

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

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

Change in Fiscal Year End

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

The Company’s fiscal year will begin on October 1

and end on September 30 of each year.

Accordingly, the results of operations for the 2022 fiscal year reflect 53 weeks compared to 52 weeks for the 2021 fiscal year.

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

The Company’s fiscal year begins on October 1 and ends on September 30 of each year.

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

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

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

In addition, the February 28, 2020 amendment to the Company’s certificate of incorporation also gave effect to the reclassification and 477,242.614671815 -for-1 stock split of the Company’s existing common stock outstanding into 510,000,000 shares of Class B Common Stock.

This stock split has been retrospectively presented throughout the financial statements.

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

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

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

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

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

Earnings per Share

12 unchanged sentences

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

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves

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

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

Cash and Equivalents

1 unchanged sentence

The Company includes checks outstanding at year end as a component of accounts payable, instead of a reduction in its cash balance where there is not a right of offset in the related bank accounts.

The Company maintains certain cash deposits in excess of FDIC insurance limits.

Accounts Receivable

Credit is extended to customers based upon an evaluation of the customer’s financial condition.

Accounts receivable are recorded at net realizable value.

Refund Liabilities and Allowance for Doubtful Accounts

Accounts receivable are recorded net of an allowance for current expected credit losses.

Refund Liabilities and Allowance for Credit Losses

Management’s estimate of Recorded Music physical products that will be returned, and the amount of receivables that will ultimately be collected is an area of judgment affecting reported revenues and operating income.

2 unchanged sentences

The provision for such sales returns is reflected as a reduction in the revenues from the related sale.

Similarly, the Company monitors customer credit risk related to accounts receivable.

Significant judgments and estimates are involved in evaluating if such amounts will ultimately be fully collected.

Similarly, the Company monitors customer credit losses related to accounts receivable.

Judgments and estimates are involved in evaluating if accounts receivable will ultimately be fully collected.

On an ongoing basis, the Company tracks customer exposure based on news reports, ratings agency information, reviews of customer financial data and direct dialogue with customers.

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

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

The Company also monitors payment levels from customers, and an allowance for estimated credit losses is maintained based on such payment levels, historical experience, management’s views on trends in the overall receivable aging, for

larger accounts, analyses of specific risks per customer, and reasonable and supportable forecasts of the economic and geopolitical conditions that may exist through the contractual life of the receivable.

The Company will write off receivables only when they are deemed no longer collectible.

Concentration of Credit Risk

Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet its agreed upon contractual payment obligations.

As of September 30, 2022 and September 30, 2021, Spotify represented 17 % and 18 %, respectively, of the Company’s accounts receivable balance.

As of September 30, 2023 and September 30, 2022, Spotify AB represented 18 % and 17 %, respectively, of the Company’s accounts receivable balance.

No other single customer accounted for more than 10% of accounts receivable in either period.

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In accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other (“ASC 350”), the Company accounts for business combinations using the acquisition method of accounting and accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.

Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.

Goodwill represents synergies and economies of scale expected from the combination of services and is determined based on the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.

Pursuant to this guidance, the Company does not amortize the goodwill balance and instead, performs an annual impairment test to assess the fair value of goodwill over its carrying value.

13 unchanged sentences

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

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

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

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

Foreign Currency

3 unchanged sentences

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

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

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

The Company recorded foreign currency transaction gains of $ 4 million, losses of $ 11 million and losses of $ 0 million within operating income on the consolidated statement of operations during the years ended September 30, 2023, 2022 and 2021, respectively.

The Company recorded foreign currency transaction losses of $ 37 million, gains of $ 185 million and losses of $ 8 million within other (expense) income, net on the consolidated statement of operations during the years ended September 30, 2023, 2022 and 2021, respectively.

Recorded Music

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The Company accounts for forfeitures as they occur.

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

Stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally four years .

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

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

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

The awards outstanding under the Plan are equity-classified.

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

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

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

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

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

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

The Company will continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan.

The Company also grants market-based performance share units (“PSUs”) to our Chief Executive Officer whereby the PSU award payout is determined based on the Company’s total shareholder return compared to a designated peer group.

The Company recognizes stock-based compensation expense based on the grant date fair value of the PSUs using a Monte Carlo simulation model analysis, on a straight-line basis over the requisite service period of the awards, which is approximately three years .

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

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The financial effect of changes in tax laws or rates is accounted for in the period of enactment.

On December 22, 2017, the U.S.

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

In accordance with ASC 740, the Company recorded the impacts in the period of enactment.

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.

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

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Recently Adopted Accounting Pronouncements

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

This ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes.

Specifically, it eliminates the exception to (1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations, and income or a gain from other items;

(2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

(3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

ASU 2019-12 also simplifies U.S.

GAAP by making other changes.

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

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

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

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

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

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

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

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

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

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

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

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

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

Scope, which clarified that certain optional expedients and exceptions in ASC Topic 848, Reference Rate Reform (“ASC 848”) apply to derivative instruments that are affected by the discounting transition due to reference rate reform.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date, which extended the period in which ASC 848 may be applied until December 31, 2024.

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 Revolving Credit Facility and Senior Term Loan Facility were amended during the fiscal year ended September 30, 2023 as further described in Note 10.

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 2023-01 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

3 unchanged sentences

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

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

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

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021.

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

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

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

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

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

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

The following table sets forth the calculation of basic and diluted net income (loss) per common share under the two-class method (in millions, except share and per share data):

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

Fiscal Year Ended September 30,

2 unchanged sentences

Basic and Diluted EPS:

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

Net income attributable to Warner Music Group Corp.

$ 119 $ 311 $ 149 $ 402 $ 68 $ 236

Net income attributable to participating securities ( 6 ) — ( 7 ) — ( 4 ) —

Net income (loss) attributable to common stockholders $ 142 $ 402 $ 64 $ 236 $ ( 22 ) $ ( 454 )

Net income attributable to common stockholders

$ 113 $ 311 $ 142 $ 402 $ 64 $ 236

Weighted average shares outstanding 138,070 377,650 133,662 381,046 110,561 402,912

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Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2023 are as follows:

FY23 FY24 FY25 Thereafter Total

Thereafter Total

(in millions)

1 unchanged sentence

Total $ 637 $ 128 $ 7 $ 6 $ 778

Acquisition of 300 Entertainment

TenThousand Projects

On August 25, 2023, the Company purchased 51 % of the issued and outstanding equity securities of TenThousand Projects Holdings LLC (“TenThousand Projects”), an independent U.S.

record label, pursuant to the terms of the unit purchase agreement of the same date among Warner Music Inc., a wholly-owned subsidiary of the Company, TenThousand Projects LLC, and Ten Thousand Projects Holdings LLC (the “Unit Purchase Agreement”).

The consideration transferred on the acquisition date was approximately $ 98 million which was comprised of the base purchase price of $ 102 million and the preliminary working capital adjustments, primarily comprised of cash acquired, net of a deferred purchase price of $ 12 million which is payable on or prior to one year from the acquisition date.

The acquisition of TenThousand Projects was accounted for as a business combination in accordance with ASC 805, Business Combinations, using the acquisition method of accounting, as the Company had acquired a controlling financial interest in TenThousand Projects.

The results of operations of TenThousand Projects have been included in the Company’s results of operations from the date of the acquisition.

The preliminary estimate of the fair value of the net assets acquired was approximately $ 21 million and primarily consisted of royalty advances.

The preliminary estimate of the fair value of identifiable intangible assets subject to amortization was approximately $ 153 million and consists of a recorded music catalog, artist and songwriting contracts, and trademarks which have a preliminary fair value of $ 99 million, $ 49 million, and $ 5 million, respectively.

The weighted-average useful lives of these intangible assets identified are consistent with the average remaining useful lives of such intangible assets previously acquired by the Company as disclosed in Note 9.

The preliminary estimate of the fair value of the noncontrolling interest in the acquiree was approximately $ 106 million and was determined using the implied enterprise value of the business based on the purchase price.

The excess of the purchase price over the preliminary estimate of the fair value of net assets acquired, including the amount assigned to identifiable intangibles assets, was approximately $ 43 million and has been recorded as goodwill.

The resulting goodwill has been included in our Recorded Music reportable segment and the Company’s 51 % share will be deductible for income tax purposes.

The acquisition accounting is subject to revision based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired, in addition to the determination of the final consideration, including the determination of the final working capital adjustment pursuant to the mechanism set forth in the Unit Purchase Agreement.

For the fiscal year ended September 30, 2023, the Company incurred costs related to this acquisition of approximately $ 3 million, which were expensed as incurred and recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations.

The unaudited pro forma revenue and operating income as if the acquisition occurred on October 1, 2021 was not material to the Company’s reported results for the fiscal years ended September 30, 2023 and September 30, 2022.

300 Entertainment

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

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

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

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

Cash consideration paid was $ 394 million, which reflects the base purchase price of $ 400 million, adjusted for, among other items, working capital.

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

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

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

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

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

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

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

Preliminary Purchase Price Allocation

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

Purchase Price Allocation

Cash and equivalents $ 2

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Total intangible assets acquired $ 259

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

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

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.

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

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

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

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

Comprehensive Income (Loss)

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

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

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

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of $ 5 million:

Foreign Currency Translation Gains (Losses) (a)

Minimum Pension Liability Adjustment Deferred Gains (Losses) On Derivative Financial Instruments

Accumulated Other Comprehensive Loss, net

(in millions)

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

Other comprehensive income 7 1 12 20

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

Other comprehensive loss ( 184 ) 9 30 ( 145 )

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

Other comprehensive income 36 1 ( 12 ) 25

Balances at September 30, 2023 $ ( 322 ) $ ( 1 ) $ 1 $ ( 322 )

______________________________________

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Imputed interest ( 66 )

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

As of September 30, 2023, we have an additional operating lease for facilities that has not yet commenced with a lease obligation of $ 1 million and a lease term of 7 years .

Goodwill and Intangible Assets

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Balances at September 30, 2023 $ 1,529 $ 464 $ 1,993

The increase in goodwill during the fiscal year ended September 30, 2023 primarily relates to the acquisition of TenThousand Projects as described in Note 5.

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

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

The other adjustments during both the fiscal years ended September 30, 2023 and September 30, 2022 primarily represent foreign currency movements.

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Total net intangible assets $ 2,502 $ 2,384

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

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

The increase in intangible assets during the fiscal year ended September 30, 2023 primarily relates to the acquisition of TenThousand Projects, which resulted in an increase in intangible assets as described in Note 5, as well as foreign currency movements.

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

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3.000 % Senior Secured Notes due 2031

Term Loan Mortgage

Total long-term debt, including the current portion $ 4,002 $ 3,773

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Notes or the credit agreements for the Acquisition Corp.

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

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, certain 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 all of its covenants that are not currently suspended under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of September 30, 2023.

Fiscal 2023 Transactions

Senior Term Loan Facility Amendment

On November 1, 2022, Acquisition Corp.

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

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

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

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.

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.

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 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 fiscal year ended September 30, 2023, which represents the remaining unamortized discount and deferred financing costs of the Tranche H term loan.

Historical Transactions

3.750 % Senior Secured Notes Offering

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

Historical Transactions

Additional 3.000 % Senior Secured Notes

On November 2, 2020, Acquisition Corp.

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

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

The Additional Notes have identical terms as (other than the issue date and the issue price) and are fungible with, and treated as a single series of senior secured debt securities with, the 3.000 % Senior Secured Notes issued on August 12, 2020 (the “Original Notes”).

Senior Term Loan Facility Amendment

On January 20, 2021, Acquisition Corp.

entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the credit agreement, dated November 1, 2012 (as amended by the amendments dated as of May 9, 2013, July 13, 2016, November 21, 2016, May 22, 2017, December 6, 2017 and June 7, 2018), among Acquisition Corp., the guarantors party thereto, the lenders party thereto and Credit Suisse AG, as administrative agent, governing the Senior Term Loan Facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto (the “Senior Term Loan Credit Agreement”).

The Senior Term Loan Credit Agreement Amendment (among other changes) (i) extends the maturity date of its outstanding term loans from November 1, 2023 to January 20, 2028 and (ii) removes a number of negative covenants limiting the ability of Acquisition Corp.

to take various actions.

The remaining negative covenants are limited to restrictions on liens, restrictions on fundamental changes and change of control, and are in a form substantially similar to the negative covenants in the 2.750 % Senior Secured Notes due 2028, 3.875 % Senior Secured Notes due 2030, 3.000 % Senior Secured Notes due 2031 and 2.250 % Senior Secured Notes due 2031.

The Company recorded approximately $ 3 million of expenses associated with fees paid to third parties in connection with this debt modification and capitalized approximately $ 1 million in fees paid to lenders.

Revolving Credit Agreement Amendment

On March 1, 2021, Acquisition Corp.

entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018 (as amended by the amendments dated as of October 9, 2019 and April 3, 2020), among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Revolving Credit Agreement Amendment (among other changes) adds certain exceptions and increases the leverage ratio below which Acquisition Corp.

can access certain baskets in connection with Acquisition Corp.’s negative covenants, including those related to incurrence of indebtedness, restricted payments and covenant suspension.

Senior Term Loan Facility Increase Supplement and Redemption of 5.500 % Senior Notes due 2026

On March 8, 2021, Acquisition Corp.

entered into an Increase Supplement (the “Increase Supplement”), dated as of March 8, 2021, among Acquisition Corp., the guarantors party thereto, WMG Holdings Corp., Credit Suisse AG, Cayman Islands Branch, as increasing lender, and Credit Suisse AG, as administrative agent, to the Senior Term Loan Credit Agreement, whereby prior to April 22, 2021 and subject to the satisfaction of certain conditions, Acquisition Corp.

may borrow additional term loans in an amount up to $ 325 million for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of up to $ 1,145 million.

The Increase Supplement was entered into to provide for the redemption of Acquisition Corp.’s 5.500 % Senior Notes due 2026 (the “ 5.500 % Senior Notes”).

On April 14, 2021, Acquisition Corp.

borrowed additional term loans in an amount of $ 325 million under the Increase Supplement.

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

On April 15, 2021, Acquisition Corp.

redeemed all of the outstanding 5.500 % Senior Notes.

The redemption price for the 5.500 % Senior Notes was approximately $ 343 million, equivalent to 102.750 % of the principal amount of the 5.500 % Senior Notes, plus accrued but unpaid interest thereon to, but excluding, the redemption date, which was April 15, 2021.

The Company recorded a loss on extinguishment of debt of approximately $ 12 million, which represents the premium paid on early redemption and unamortized deferred financing costs.

2.250 % Senior Secured Notes Offering

On August 16, 2021, Acquisition Corp.

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

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

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

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

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

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

Redemption of 3.625 % Senior Secured Notes

On August 16, 2021, Acquisition Corp.

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

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

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

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 3.02 x at September 30, 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 2.84 x at September 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 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, plus, in each case, 1.125 % 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.

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

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Thereafter, $ 2.346 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 $ 141 million, $ 125 million and $ 122 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

Interest expense, net includes interest expense related to our outstanding indebtedness of $ 157 million, $ 125 million, $ 119 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

The weighted-average interest rate of the Company’s total debt was 4.1 % at September 30, 2023, 3.5 % at September 30, 2022 and 3.2 % at September 30, 2021.

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

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

Fiscal Year Ended September 30,

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Foreign 391 355 274

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

Income before income taxes $ 609 $ 740 $ 456

Current and deferred income tax expense provided are as follows:

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Foreign income taxed at different rates, including withholding taxes

Increase in valuation allowance 2 2 1

Release of valuation allowance ( 8 ) ( 6 ) ( 38 )

Valuation allowance

( 5 ) ( 6 ) ( 4 )

Change in tax rates — 1 10

Impact of GILTI and FDII ( 6 ) ( 4 ) 2

IPO Costs — — 22

Executive Compensation 2 2 2

Non-deductible long term incentive plan 4 3 112

GILTI and FDII

( 4 ) ( 6 ) ( 4 )

Federal research and development credits ( 8 ) — —

Uncertain tax positions 7 ( 3 ) —

Non-deductible compensation

Other ( 1 ) ( 5 ) 2

Income tax expense $ 185 $ 149 $ 23

Total income tax expense

$ 170 $ 185 $ 149

During the fiscal year ended September 30, 2023, the Company recognized a tax benefit of $ 8 million related to Federal research and development credits, which was partially offset by $ 7 million of income tax expense arising from an increase in uncertain

tax positions in various jurisdictions.

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

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

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

tax benefit of $ 25 million primarily related to the release of a U.S.

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

For the fiscal years ended September 30, 2023 and September 30, 2022, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized.

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Net deferred tax liabilities $ ( 184 ) $ ( 191 )

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

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

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

deferred tax assets realization.

During the fiscal year ended September 30, 2023, the Company utilized the remaining foreign tax credit carryforwards in the U.S.

At September 30, 2023, the Company has no remaining U.S.

federal tax net operating loss carryforwards.

The Company also has tax net operating loss carryforwards, with no expiration date, in France and Spain of $ 40 million and $ 17 million, respectively, and other tax net operating loss carryforwards in state, local and foreign jurisdictions that expire in various periods.

In addition, the Company has foreign tax credit carryforwards for U.S.

tax purposes of $ 12 million.

foreign tax credits will begin to expire in fiscal year 2027.

federal tax net operating loss carryforwards and $ 23 million tax net operating loss carryforwards in U.S.

state and local jurisdictions that expire in various periods.

The Company also has tax net operating loss carryforwards, with no expiration date, in France and Spain of $ 30 million and $ 18 million, respectively, and other tax net operating loss carryforwards in foreign jurisdictions that expire in various periods.

Deferred income taxes have not been recorded on indefinitely reinvested earnings of certain foreign subsidiaries of approximately $ 386 million at September 30, 2023.

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As of September 30, 2023 and September 30, 2022, the Company had accrued $ 2 million and $ 4 million of interest and penalties, respectively.

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

The following table reflects changes in the gross unrecognized tax benefits:

Fiscal Year Ended September 30,

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Gross unrecognized tax benefits - beginning of period $ 8 $ 12 $ 12

Additions for current year tax positions 3 — —

Additions for prior year tax positions 9 1 3

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

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.

Employee Benefit Plans

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Pension benefits under the plans are based on formulas that reflect the employees’ years of service and compensation levels during their employment period.

The Company had unfunded pension liabilities relating to these plans of approximately $ 35 million and $ 58 million recorded in its balance sheets as of September 30, 2022 and September 30, 2021, respectively.

The Company had unfunded pension liabilities relating to these plans of approximately $ 35 million and $ 35 million recorded within other noncurrent liabilities in the accompanying consolidated balance sheets as of September 30, 2023 and September 30, 2022, respectively.

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

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The Company’s defined contribution plan expense amounted to approximately $ 14 million for the fiscal year ended September 30, 2023, $ 12 million for the fiscal year ended September 30, 2022 and $ 9 million for the fiscal year ended September 30, 2021.

Stock-Based Compensation Plans

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.

During the fiscal year ended September 30, 2023, the Company recognized restructuring charges of approximately $ 40 million for severance costs, all of which will be paid in cash.

All restructuring expenses were recorded in the Recorded Music segment.

The Restructuring Plan is substantially complete as of September 30, 2023, with related cash expenditures expected to be made by the end of fiscal 2024.

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

Severance Costs

(in millions)

Balance at September 30, 2022

Restructuring charges 40

Cash payments ( 21 )

Balance at September 30, 2023

Warner Music Group Corp.

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

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

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

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

The RSUs were granted to eligible employees and executives, common stock and restricted stock was granted to members of the Company’s Board of Directors, and a performance share award was granted to our CEO.

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

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As of September 30, 2023, there were 30,364,190 shares of Class A Common Stock available to be issued.

Warner Music Group Corp.

Senior Management Free Cash Flow Plan

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

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

In 2017, the Company’s Compensation Committee invited two additional employees to participate in the Plan.

Under the Plan, participants are allocated a specific portion of the Company’s free cash flow to use to purchase the equivalent of Company stock through the acquisition of deferred equity units.

Participants also receive a grant of profit interests in a purposely established LLC holding company (the “LLC”) that represent an economic entitlement to future appreciation over an equivalent number of shares of Company stock (“matching units”).

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

The LLC currently owns 3,896,654 shares of Class B Common Stock.

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

The Company credits units to active participants each Plan year at the time that annual free cash flow bonuses for such Plan year are determined (although certain participants have already received their complete allocations) and may grant unallocated units under the Plan to certain members of current or future management.

At the time that annual free cash flow bonuses for such Plan year are determined, a participant is credited a number of deferred equity units based on their respective allocation divided by the grant date intrinsic value and an equal number of the related matching units is vested.

The redemption price of the deferred equity units equals the fair market value of a share of the Company’s stock on the date of the settlement and the redemption price for the matching units equals the excess, if any, of the then fair market value of one Company fractional share over the grant date intrinsic value of one share.

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

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

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

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

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

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

For accounting purposes, the grant date was established at the point the Company and the participant reached a mutual understanding of the key terms and conditions, in this case the date at which the participant accepted the invitation to participate in the Plan.

For accounting purposes, deferred equity units are deemed to generally vest between one and seven years and matching equity units granted under the Plan are deemed to vest two years after the allocation to the participant’s account.

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

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

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

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

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

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

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

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

The Company will continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan.

In December 2020, all of the outstanding equity interests held by certain participants in the Plan were settled or redeemed in accordance with the terms of the Plan.

The Class A and Class B equity units held by certain participants in Management LLC were redeemed in exchange for 18,265,183 shares of Class B Common Stock.

These shares of Class B Common Stock converted to shares of Class A Common Stock upon exchange.

The Company also issued a total of 4,321,259 additional shares of Class A Common Stock to settle the participants’ remaining deferred equity units previously issued under the Plan.

In March 2021, the Compensation Committee of the Board of Directors of the Company approved an amendment to the Plan that allowed certain remaining Plan participants to redeem a portion of their vested Class B equity units of Management LLC.

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

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

equity units of Management LLC.

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

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

Unvested units at September 30, 2020 549,454 4,311,861 $ 27.01 $ 23.82 $ 23.82 $ —

Granted — — — — — —

Vested ( 549,454 ) ( 2,303,578 ) 44.21 41.02 41.02 —

Forfeited — — — — — —

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

Granted — — — — — —

Vested — ( 1,458,829 ) — 20.02 — —

Forfeited — — — — — —

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

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

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

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

As September 30, 2022, 2021 and 2020, the Company had approximately $ 1 million, $ 4 million and $ 14 million, respectively, of unrecognized compensation costs related to its unvested share awards.

As of September 30, 2022, the remaining weighted-average period over which total compensation related to unvested awards is expected to be recognized is less than 1 year.

Restricted Stock Units

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The weighted-average grant date fair value of RSUs granted during the fiscal years ended September 30, 2023, 2022 and 2021 was $ 39.81 , $ 44.38 and $ 32.23 , respectively.

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

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

The total intrinsic value of RSUs vested during the fiscal years ended September 30, 2023, 2022 and 2021 was $ 1 million, $ 18 million and $ 0 million , respectively, computed as of the date of vesting.

As of September 30, 2023, total unrecognized compensation cost related to RSUs was approximately $ 50 million, which is expected to be recognized over a weighted-average period of approximately 2.4 years.

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

Prior to the IPO, certain eligible employees elected to participate in our Senior Management Free Cash Flow Plan (the “Plan”) which offered them the opportunity to share in the appreciation of the value of our common stock.

During the fiscal year ended September 30, 2023, in connection with the Plan, the Company issued a total of 869,008 shares of Class A Common Stock to settle a portion of a participant’s deferred equity units previously issued under the Plan.

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

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

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

Stock-Based Compensation Expense

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The Company recognized non-cash stock-based compensation expense of $ 49 million, $ 39 million and $ 45 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

In connection with the departure of our Chief Executive Officer and Chief Financial Officer, the Company recognized approximately $ 13 million of non-cash stock-based compensation expense associated with RSUs and common stock as there is no remaining service required for vesting.

This amount is reflected as a share-based compensation liability as of September 30, 2023.

During the fiscal year ended September 30, 2023, the Company issued market-based performance share units to our newly appointed Chief Executive Officer whereby the 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 this award was approximately $ 4 million for the fiscal year ended September 30, 2023.

During the fiscal year ended September 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 13 for further discussion.

Related Party Transactions

Management Agreement

Upon completion of the Merger, the Company and Holdings entered into the Management Agreement, dated as of the Merger Closing Date, pursuant to which Access provided the Company and its subsidiaries with financial, investment banking, management, advisory and other services.

Pursuant to the Management Agreement, the Company paid to Access an annual fee on quarterly basis and reimbursed Access for certain expenses incurred performing services under the agreement.

The Company and Holdings agreed to indemnify Access and certain of its affiliates against all liabilities arising out of performance of the Management Agreement.

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

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

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

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

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

Lease Arrangements with Related Parties

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Santa Fe Avenue in Los Angeles, California from an unaffiliated third party.

The building is the Company’s new Los Angeles, California headquarters and as such, the Company is the sole tenant of the building acquired by Access.

The building is the Company’s Los Angeles, California headquarters and the Company is the sole tenant of the building acquired by Access.

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

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

On June 26, 2023, the parties entered into an extension on substantially the same terms as the current lease for an additional five years with the lease now expiring on December 24, 2030.

License Agreements with Deezer

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

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

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

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

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

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These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s long-term debt.

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

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

The interest rate swap instruments were designated and qualify as cash flow hedges under the criteria prescribed in ASC 815 until the discontinuation of LIBOR.

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

Subsequent to the discontinuation of LIBOR, the Company dedesignated the remaining interest rate swap as a cash flow hedge given the SOFR benchmark rates for the interest rate swap and the Senior Term Loan Facility no longer perfectly match and the expiration of the swap in the first quarter of 2024.

Upon dedesignation, the unrealized gains recognized in equity were fixed and reclassified into the consolidated statement of operations over the remaining term and changes in fair value of the swap from the dedesignation date being recognized within the consolidated statement of operations.

The fair value of foreign currency forward exchange contracts is determined by using observable market transactions of spot and forward rates (i.e., Level 2 inputs) which is discussed further in Note 20.

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

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

The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 20.

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As of September 30, 2023 and September 30, 2022, the Company had no outstanding hedge contracts and no deferred gains or losses in comprehensive income related to foreign exchange hedging.

As of September 30, 2023, the Company had outstanding $ 500 million in a pay-fixed receive-variable interest rate swap with $ 1 million 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.

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

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

The Company recorded realized pre-tax losses of $ 6 million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the fiscal year ended September 30, 2023.

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

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the fiscal year ended September 30, 2023 were $ 16 million.

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

September 30, 2022 (a) September 30, 2021 (b)

September 30, 2023 September 30, 2022

(in millions)

Other Current Assets:

Interest Rate Swap $ 2 $ 2

Other Noncurrent Assets:

Other noncurrent liabilities — ( 22 )

______________________________________

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

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

Interest Rate Swap — 16

Segment Information

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Customer Concentration

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

In the fiscal year ended September 30, 2023, the Company had three customers, Spotify, YouTube and Apple, that individually represented 10% or more of total revenues, whereby Spotify AB represented 18 %, YouTube represented 12 % and Apple represented 11 % of total revenues.

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

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

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

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

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The Company paid approximately $ 219 million, $ 141 million and $ 124 million of income and withholding taxes, net of refunds, for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively.

Gain on Divestiture

During the fiscal year ended September 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 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 August 12, 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 on September 1, 2022.

The Company paid cash dividends to stockholders and participating security holders of $ 340 million, $ 318 million and $ 265 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

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

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

COVID-19 Pandemic

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

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

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

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

The Company’s estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the consolidated financial statements.

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

Fair Value Measurements

14 unchanged sentences

Other Current Assets:

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

Interest Rate Swap (c)

$ — $ 2 $ — $ 2

Other Noncurrent Assets:

Interest Rate Swaps (d) — 16 — 16

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

Equity Investment with Readily Determinable Fair Value (b)

Other Noncurrent Liabilities:

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

Total $ 36 $ 18 $ ( 1 ) $ 53

Fair Value Measurements as of September 30, 2022

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(in millions)

Other Current Liabilities:

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

Other Current Assets:

Interest Rate Swap (c)

$ — $ 2 $ — $ 2

Other Noncurrent Assets:

Equity Method Investment (b) 26 — — 26

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

Interest Rate Swap (c)

Equity Investment with Readily Determinable Fair Value (b)

Other Noncurrent Liabilities:

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

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

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

______________________________________

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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 consolidated statements of operations.

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

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

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

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

(b) These represent equity investments with a readily determinable fair value.

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

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

(c) The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of September 30, 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 )

Additions ( 1 )

Reductions 15

Balance at September 30, 2023 $ ( 1 )

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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 fiscal year ended September 30, 2022.

In addition, there were no observable price changes events that were completed during the fiscal year ended September 30, 2022.

The Company recorded approximately $ 1 million of impairment charges on these investments during the fiscal year ended September 30, 2023.

addition, observable price changes events that were completed during the fiscal year ended September 30, 2023 resulted in a unrealized gain of $ 2 million.

Fair Value of Debt

3 unchanged sentences

both approaches are considered a Level 2 measurement.

Subsequent Events

On November 1, 2022, Acquisition Corp.

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

WARNER MUSIC GROUP CORP.

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Fiscal Year Ended September 30, 2023

Allowance for doubtful accounts $ 20 $ 5 $ ( 6 ) $ 19

Allowance for credit losses

$ 19 $ 5 $ ( 5 ) $ 19

Reserves for sales returns 19 39 ( 39 ) 19

1 unchanged sentence

Fiscal Year Ended September 30, 2022

Allowance for doubtful accounts $ 23 $ 1 $ ( 4 ) $ 20

Allowance for credit losses

$ 20 $ 5 $ ( 6 ) $ 19

Reserves for sales returns 23 52 ( 56 ) 19

1 unchanged sentence

Fiscal Year Ended September 30, 2021

Allowance for doubtful accounts $ 17 $ 11 $ ( 5 ) $ 23

Allowance for credit losses

$ 23 $ 1 $ ( 4 ) $ 20

Reserves for sales returns 24 53 ( 54 ) 23

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-K

Item 8. Financial Statements and Supplementary Data