What changed in this filing

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Item 1. Financial Statements

2024-02-08 compared with 2023-08-08 · 214 added, 276 removed, 411 unchanged (54% of the section changed)

36 unchanged sentences

Class A common stock, $ 0.001 par value;

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

1,000,000 shares authorized, 140,637 and 138,345 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

Class B common stock, $ 0.001 par value;

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

1,000,000 shares authorized, 377,103 and 377,650 issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital 2,039 2,015

11 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Revenue $ 1,748 $ 1,488

2 unchanged sentences

Selling, general and administrative expenses (a) ( 476 ) ( 440 )

Restructuring — — ( 41 ) —

Amortization expense ( 55 ) ( 63 )

Total costs and expenses ( 1,411 ) ( 1,264 )

Net gain on divestiture — — 41 —

Net gain on divestitures

Operating income 354 265

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

Interest expense, net ( 39 ) ( 32 )

Other income (expense) 20 50 ( 72 ) 96

Other expense ( 50 ) ( 61 )

Income before income taxes 265 172

3 unchanged sentences

Net income attributable to Warner Music Group Corp.

$ 122 $ 124 $ 278 $ 403

Net income per share attributable to common stockholders:

11 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net income $ 193 $ 124

Other comprehensive (loss) income, net of tax:

Other comprehensive income, net of tax:

Foreign currency adjustment 64 72

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

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

Deferred loss on derivative financial instruments ( 1 ) ( 1 )

Minimum pension liability

Other comprehensive income, net of tax 62 71

Total comprehensive income 255 195

1 unchanged sentence

Comprehensive income attributable to Warner Music Group Corp.

$ 106 $ 77 $ 348 $ 327

See accompanying notes

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(In millions)

Nine Months Ended

Three Months Ended

Cash flows from operating activities

2 unchanged sentences

Depreciation and amortization 81 84

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

Unrealized (gains) losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 61 79

Deferred income taxes 5 ( 5 )

Loss on extinguishment of debt 4 —

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

Net loss (gain) on investments

Net loss (gain) on divestitures

( 17 ) ( 41 )

Non-cash interest expense — 2

4 unchanged sentences

Royalty advances ( 89 ) ( 55 )

Other non current assets

Accounts payable and accrued liabilities ( 31 ) ( 61 )

13 unchanged sentences

Cash flows from financing activities

Proceeds from issuance of 3.750 % Senior Secured Notes due 2029

Proceeds from Senior Term Loan Facility - Tranche G 149 —

Proceeds from Senior Term Loan Facility - Tranche H 147 —

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

Proceeds from Term Loan Mortgage 19 —

Proceeds from incremental Senior Term Loan Facility — 147

Deferred financing costs paid — ( 2 )

2 unchanged sentences

Payment of deferred and contingent consideration — ( 125 )

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

Net cash (used in) provided by financing activities ( 233 ) 280

Net cash used in financing activities ( 93 ) ( 70 )

Effect of exchange rate changes on cash and equivalents 5 7

Net increase (decrease) in cash and equivalents 16 ( 154 )

Net increase in cash and equivalents 113 136

Cash and equivalents at beginning of period 641 584

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

Nine Months Ended June 30, 2023

Three Months Ended December 31, 2023

Common Stock Class B

4 unchanged sentences

Equity Non-controlling

Interest Total Equity

Interest Total

Shares Value Shares Value

2 unchanged sentences

Other comprehensive income, net of tax

Dividends ($ 0.48 per share)

— — — — — — 62 62 — 62

Stock-based compensation expense — — — — 32 — — 32 — 32

Distribution to noncontrolling interest holders — — — — — — — — ( 11 ) ( 11 )

Shares issued under the Plan 869 — — — — — — — — —

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

Other — — — — — — — — 6 6

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

Three Months Ended June 30, 2023

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total Equity

Shares Value Shares Value

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

Net income — — — — — 122 — 122 2 124

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

Dividends ($ 0.17 per share)

— — — — — ( 89 ) — ( 89 ) — ( 89 )

Stock-based compensation expense — — — — 7 — — 7 — 7

Stock-based compensation

— — — — 24 — — 24 — 24

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

Shares issued under the Plan 1,738 — — — — — — — — —

Exchange of Class B shares for Class A shares 547 — ( 547 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 7 — — — — — — — — —

Other — — — — — — — — 6 6

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

Nine Months Ended June 30, 2022

Balance at December 31, 2023 140,637 $ — 377,103 $ 1 $ 2,039 $ ( 1,317 ) $ ( 260 ) $ 463 $ 153 $ 616

Three Months Ended December 31, 2022

Common Stock Class B

4 unchanged sentences

Equity Non-controlling

Interest Total Equity

Interest Total

Shares Value Shares Value

1 unchanged sentence

Net income — — — — — 122 — 122 2 124

Other comprehensive loss, net of tax — — — — — — ( 76 ) ( 76 ) — ( 76 )

Other comprehensive income, net of tax — — — — — — 71 71 — 71

Dividends ($ 0.16 per share)

— — — — — ( 84 ) — ( 84 ) — ( 84 )

Stock-based compensation expense — — — — 39 — — 39 — 39

Distribution to noncontrolling interest holders — — — — — — — — ( 5 ) ( 5 )

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

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

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

Other — — — — — — — — 4 4

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

Three Months Ended June 30, 2022

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total Equity

Shares Value Shares Value

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

Net income — — — — — 124 — 124 1 125

Other comprehensive loss, net of tax — — — — — — ( 47 ) ( 47 ) — ( 47 )

Dividends ($ 0.15 per share)

Stock-based compensation

— — — — 9 — — 9 — 9

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

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

Shares issued under the Plan 869 — — — — — — — — —

Shares issued under Omnibus Incentive Plan 5 — — — — — — — — —

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

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

See accompanying notes

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

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

Operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024.

The consolidated balance sheet at September 30, 2023 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S.

1 unchanged sentence

For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (File No.

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.

Effective for the 2023 fiscal year, the Company’s fiscal year will begin on October 1 and end on September 30 of each year.

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

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

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

Basis of Consolidation

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If an entity is not deemed to be a VIE, the Company consolidates the entity if the Company has a controlling voting interest.

As of December 31, 2023 and September 30, 2023, there were approximately $ 74 million and $ 5 million of assets and $ 2 million and $ 2 million of liabilities, respectively, related to VIEs included in our condensed consolidated balance sheets.

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.

7 unchanged sentences

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

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

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

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

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 Topic 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 nine months ended June 30, 2023 as further described in Note 8.

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

Accounting Pronouncements Not Yet Adopted

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

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

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

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

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

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendment enhances reportable segment disclosure requirements, primarily by requiring enhanced disclosures about significant segment expenses, reporting for interim periods, and Chief Operating Decision Maker (“CODM”) related information.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The amendment enhances income tax disclosure requirements, by requiring enhanced disclosures on the income tax rate reconciliation and income taxes paid.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2024.

4 unchanged sentences

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

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and nine months ended June 30, 2023 and 2022, respectively.

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three and nine months ended June 30, 2023 and 2022 (in millions, except share amounts, which are reflected in thousands, and per share data):

Three Months Ended June 30,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

$ 34 $ 88 $ 34 $ 90

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

Net income attributable to common stockholders $ 32 $ 88 $ 32 $ 90

Weighted average shares outstanding 138,290 377,650 137,165 377,650

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

Nine Months Ended June 30,

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

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

Three Months Ended December 31,

Class A Class B Class A Class B

10 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

(in millions)

10 unchanged sentences

Synchronization 39 39

Other 4 5 11 11

Total Music Publishing 304 250

4 unchanged sentences

Music Publishing 172 133

704 652 2,033 2,010

International Recorded Music 818 700

4 unchanged sentences

Sales Returns and Uncollectible Accounts

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

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

Based on management’s analysis of sales returns, refund liabilities of $ 25 million and $ 19 million were established at December 31, 2023 and September 30, 2023, respectively.

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

Deferred Revenue

Deferred revenue increased by $ 323 million during the nine months ended June 30, 2023 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 350 million were recognized during the nine months ended June 30, 2023 related to the balance of deferred revenue at September 30, 2022.

Deferred revenue increased by $ 160 million during the three months ended December 31, 2023 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 151 million were recognized during the three months ended December 31, 2023 related to the balance of deferred revenue at September 30, 2023.

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

Performance Obligations

For the nine months ended June 30, 2023 and June 30, 2022, the Company recognized revenue of $ 68 million and $ 55 million, respectively, from performance obligations satisfied in previous periods.

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

Rest of FY23 FY24 FY25 Thereafter Total

For the three months ended December 31, 2023 and December 31, 2022, the Company recognized revenue of $ 30 million and $ 27 million, respectively, from performance obligations satisfied in previous periods.

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

Thereafter Total

(in millions)

1 unchanged sentence

Total $ 468 $ 226 $ 22 $ 6 $ 722

Acquisition of 300 Entertainment

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

record label.

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

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

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

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.

At December 31, 2023, the Company updated the purchase price allocation recorded at September 30, 2023, which resulted in a decrease to intangible assets of approximately $ 1 million and a net increase to other acquired assets and liabilities of approximately $ 3 million, with a corresponding net decrease to goodwill of approximately $ 2 million.

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.

See Note 5, “Acquisitions,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for the preliminary purchase price allocation, valuation methodology, and other information related to the TenThousand Projects acquisition.

Comprehensive Income

2 unchanged sentences

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

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of $ 3 million:

The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of less than $ 1 million:

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

2 unchanged sentences

Other comprehensive income (loss) 64 ( 1 ) ( 1 ) 62

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

Balances at December 31, 2023 $ ( 258 ) $ ( 2 ) $ — $ ( 260 )

______________________________________

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Other adjustments (a) 19 — 19

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

Balances at December 31, 2023 $ 1,551 $ 464 $ 2,015

______________________________________

(a) Other adjustments during the nine months ended June 30, 2023 represent foreign currency movements.

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

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

3 unchanged sentences

Intangible assets consist of the following:

Weighted-Average Useful Life June 30,

Weighted-Average Useful Life December 31,

2023 September 30,

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3.000 % Senior Secured Notes due 2031

Term Loan Mortgage 19 —

Mortgage Term Loan due 2033 18 $ 18

Total long-term debt, including the current portion $ 4,041 $ 4,002

2 unchanged sentences

______________________________________

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

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

(a) Reflects $ 350 million and $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 4 million and $ 2 million as of December 31, 2023 and September 30, 2023, respectively.

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

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

As of June 30, 2023, Acquisition Corp.

Acquisition Corp.

is party to a $ 1,295 million senior secured term loan credit facility, pursuant to a credit agreement dated November 1, 2012, as amended or supplemented (the “Senior Term Loan Credit Agreement”) with JPMorgan Chase Bank NA, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “Senior Term Loan Facility”).

Additionally, as of December 31, 2023 Acquisition Corp.

had issued and outstanding the 2.750 % Senior Secured Notes due 2028, the 3.750 % Senior Secured Notes due 2029, the 3.875 % Senior Secured Notes due 2030, the 2.250 % Senior Secured Notes due 2031 and the 3.000 % Senior Secured Notes due 2031 (together, the “Acquisition Corp.

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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, which are currently suspended, will be reinstated and the ability of the Company and Holdings to obtain funds from their subsidiaries will be restricted by the Revolving Credit Facility.

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

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

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

Fiscal 2024 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 Topic 848, including those relating to derivative instruments used in hedging relationships.

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

June 2023 Senior Term Loan Credit Agreement Amendment

On June 30, 2023, Acquisition Corp.

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

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

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

On November 30, 2023, Acquisition Corp.

entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018, as amended, among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, Cayman Islands Branch, as predecessor administrative agent, governing Acquisition Corp.’s revolving credit facility (the “Revolving Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Revolving Credit Agreement Amendment (among other changes):

(i) increased the commitments under the Revolving Credit Facility from an aggregate principal amount of $ 300 million to an aggregate principal amount of $ 350 million, (ii) extended the final maturity date of the Revolving Credit Facility from April 3, 2025 to November 30, 2028, (iii) appointed JPMorgan Chase Bank, N.A.

as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch, (iv) modified the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant by increasing the springing threshold from $ 105,000,000 to $ 140,000,000 , and (v) included provisions that allow Acquisition Corp.

to terminate the security interests securing the obligations under the Revolving Credit Facility upon the satisfaction of the Collateral Suspension Conditions (as defined below) and, in the event that the security interests are so terminated, the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant (which is calculated net of up to $ 250 million of cash and cash equivalents held by Acquisition Corp.

and its restricted subsidiaries) shall automatically be replaced with a new financial maintenance covenant prohibiting Acquisition Corp.

from permitting the Total Indebtedness to EBITDA Ratio to be greater than 3.60 :1.00 (calculated net of all cash and cash equivalents held by Acquisition Corp.

and its restricted subsidiaries) as of the end of any fiscal quarter.

In the event that the security interests securing the obligations under the Facility are reinstated as a result of the occurrence of a Collateral Suspension Reversion Date (as defined below), the Total Indebtedness to EBITDA Ratio financial maintenance covenant shall revert back to a springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant set at 5.00 :1.00.

For purposes the Revolving Credit Agreement Amendment, (i) “Collateral Suspension Conditions” means conditions that are satisfied if (x) the investment grade condition has been satisfied and (y) the aggregate outstanding principal amount of senior secured indebtedness incurred by Acquisition Corp.

and its restricted subsidiaries is not in excess of $ 500,000,000 and (ii) “Collateral Suspension Reversion Date” means, the earlier of (x) the date on which the Collateral Suspension Conditions cease to be satisfied or (y) the date on which Acquisition Corp.

delivers a collateral suspension reversion notice to the Administrative Agent.

December 2023 Senior Term Loan Credit Agreement Amendment

On December 29, 2023, Acquisition Corp.

entered into an amendment (the “Thirteenth Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the other loan parties, Holdings, each lender party hereto, Credit Suisse AG, Cayman Islands Branch as the resigning administrative agent, and JPMorgan Chase Bank, N.A, as the successor administrative agent.

The Thirteenth Amendment appointed JPMorgan Chase Bank, N.A.

as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch.

Interest Rates

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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 2.97 x at June 30, 2023, the applicable margin for SOFR loans and RFR loans would be 1.375 % instead of 1.875 % and the applicable margin for ABR loans would be 0.375 % instead of 0.875 % in the case of 2020 Revolving Loans.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.66 x at December 31, 2023, the applicable margin for SOFR loans and RFR loans would be 1.375 % instead of 1.875 % and the applicable margin for ABR loans would be 0.375 % instead of 0.875 % in the case of 2020 Revolving Loans.

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

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

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

The 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 term loan entered into on January 27, 2023 (the “Term Loan Mortgage”) bears interest at a rate of 30-day SOFR plus the applicable margin of 1.40 %, subject to a zero floor.

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

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

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

Maturity of Senior Term Loan Facility

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Maturity of Revolving Credit Facility

The maturity date of the Revolving Credit Facility is April 3, 2025.

The maturity date of the Revolving Credit Facility is November 30, 2028.

Maturities of Senior Secured Notes

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

As of December 31, 2023, there are no scheduled maturities of notes until 2028, when $ 360 million is scheduled to mature.

Thereafter, $ 2.368 billion is scheduled to mature.

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Interest Expense, net

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

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

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

Total interest expense, net was $ 39 million and $ 32 million for the three months ended December 31, 2023 and 2022, respectively.

Interest expense, net includes interest expense related to our outstanding indebtedness of $ 45 million and $ 36 million for the three months ended December 31, 2023 and 2022, respectively.

The weighted-average interest rate of the Company’s total debt was 4.6 % at December 31, 2023, 4.1 % at September 30, 2023, and 3.7 % at December 31, 2022.

Restructuring

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

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

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

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

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

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

All restructuring expenses were recorded in the Recorded Music segment.

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

The Restructuring Plan was substantially complete as of December 31, 2023, with related cash expenditures expected by the end of fiscal 2024.

There were no restructuring costs recorded for the three months ended December 31, 2023.

The following table sets forth the activity for the three months ended December 31, 2023 in the restructuring accrual included within accrued liabilities in the accompanying condensed consolidated balance sheets:

Severance Costs

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Cash payments $ ( 8 )

Balance at June 30, 2023 $ 28

Balance at December 31, 2023 $ 11

Commitments and Contingencies

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Stock-Based Compensation

The Company’s stock-based compensation plans are described in Note 13, “Stock-Based Compensation Plans,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

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

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

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

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

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

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

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

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

During the nine months ended June 30, 2023, a separation agreement between the Company and our previous Chief Executive Officer was executed.

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

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

During the nine months ended June 30, 2023, the Company issued market-based performance share units (“PSUs”) to our newly appointed Chief Executive Officer whereby the PSU award payout is determined based on the Company’s total shareholder return compared to a designated peer group.

Non-cash stock-based compensation associated with these PSUs recognized for the three and nine months ended June 30, 2023 was approximately $ 1 million and $ 2 million, respectively, which was recorded to additional paid-in capital.

During the nine months ended June 30, 2023, in connection with the Restructuring Plan, the Company recognized $ 2 million of non-cash stock-based compensation related to the accelerated vesting of certain RSUs.

Refer to Note 9 for further discussion.

During the nine months ended June 30, 2023, in connection with the Senior Management Free Cash Flow Plan (the “Plan”), the Company issued a total of approximately 869,000 shares of Class A Common Stock to settle a portion of a participant’s deferred equity units previously issued under the Plan.

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

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

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

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

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

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

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

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

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

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

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

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

global minimum tax by January 1, 2025.

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

The Company’s stock-based compensation plans are described in Note 14, “Equity,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Stock-based compensation consists primarily of common stock, restricted stock units and market-based performance share units granted to eligible employees and executives under the Omnibus Incentive Plan.

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

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

During the three months ended December 31, 2023, $ 15 million of share-based compensation liabilities were reclassified to additional paid-in capital.

During the three months ended December 31, 2023, in connection with the Senior Management Free Cash Flow Plan (the “Plan”), the Company issued a total of 1,738,016 shares of Class A Common Stock to settle a portion of participants’ deferred equity units previously issued under the Plan.

Additionally, a Plan participant redeemed a portion of their vested Class B equity units of WMG Management Holdings LLC in exchange for a total of 547,249 shares of Class B Common Stock which were converted to shares of Class A Common Stock upon the exchange.

During the three months ended December 31, 2023, the Company issued approximately 7,000 shares of Class A Common Stock, under the Omnibus Incentive Plan.

For the three months ended December 31, 2023, the Company recorded an income tax expense of $ 72 million.

The income tax expense for the three months ended December 31, 2023 is higher than the expected tax expense at the statutory rate of 21% primarily due to withholding taxes, foreign income taxed at rates higher than the United States, U.S.

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

These charges were partially offset by non-controlling interest, the net impact of GILTI and foreign derived intangible income (“FDII”), and tax benefits associated with Research and Development (“R&D”) credits.

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

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

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

The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of December 31, 2023 could decrease by up to approximately $ 4 million related to various ongoing audits and settlement discussions in various jurisdictions during the next twelve months.

The Organization for 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 rate by January 1, 2025.

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

The Inflation Reduction Act of 2022 (H.R.

5376) includes a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period.

Although the U.S.

Treasury and Internal Revenue Service (IRS) issued interim CAMT guidance during 2023, many details and specifics of application of the CAMT remain subject to future guidance.

The Company is not expecting to be subject to CAMT for our fiscal year 2024.

Derivative Financial Instruments

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

The Company’s hedged interest rate transactions as of June 30, 2023 are expected to be recognized within one year .

The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 20, “Fair Value Measurements,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

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

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

As of June 30, 2023, the Company had outstanding $ 500 million in a pay-fixed receive-variable interest rate swap with $ 5 million of unrealized deferred gains in comprehensive income related to the interest rate swap.

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

The Company recorded realized pre-tax losses of $ 6 million and unrealized pre-tax losses of $ 1 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the nine months ended June 30, 2023.

The Company recorded realized pre-tax gains of $ 6 million and unrealized pre-tax gains of $ 3 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the nine months ended June 30, 2022.

The pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the nine months ended June 30, 2023 were $ 11 million.

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

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

As of December 31, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $ 366 million and the purchase of $ 219 million of foreign currencies at fixed rates that will be settled by September 2024.

As of December 31, 2023, the Company had no outstanding interest rate swaps and no unrealized deferred gains or losses in comprehensive income related to the interest rate swaps.

As of September 30, 2023, the Company had outstanding $ 500 million in a pay-fixed receive-variable interest rate swap with $ 1 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.

The Company recorded no realized pre-tax gains or losses and unrealized pre-tax losses of $ 6 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the three months ended December 31, 2023.

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

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the three months ended December 31, 2023 and December 31, 2022 were $ 1 million and $ 2 million, respectively.

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

2023 September 30,

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Other Current Assets:

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

Interest Rate Swap

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Foreign Currency Forward Exchange Contracts (a)

Other Noncurrent Assets:

Interest Rate Swap — 16

______________________________________

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

(a) Includes $ 9 million and $ 15 million of foreign exchange derivative contracts in asset and liability positions, respectively, which net to $ 6 million of current liabilities.

Segment Information

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Information as to each of these operations is set forth below.

The Company has supplemented its analysis of OIBDA results by segment with an analysis of operating income (loss) by segment.

The Company evaluates performance based on several factors, of which the primary financial measure is operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets adjusted to exclude the impact of non-cash stock-based compensation and other related expenses and certain items that affect comparability including but not limited to gains or losses on divestitures and expenses related to restructuring and transformation initiatives, which includes costs associated with the Company’s financial transformation initiative to upgrade our information technology and finance infrastructure (“Adjusted OIBDA”).

Items excluded are not viewed to contribute directly to management’s evaluation of operating results.

During the three months ended December 31, 2023, the Company changed the measure used to evaluate segment profitability from OIBDA to Adjusted OIBDA which is consistent with how the Company's CODM evaluates the results of operations and makes strategic decisions about the business.

For these reasons, the Company believes that Adjusted OIBDA represents the most relevant measure of segment profit and loss.

All disclosures relating to segment profitability, including those for the three months ended December 31, 2022, have been revised as a result of this change.

Hereafter, the Company will revise other prior quarterly and year-to-date periods for fiscal year 2023 when they are subsequently reported in later filings for comparative purposes.

The accounting policies of the Company’s business segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

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Three Months Ended (in millions)

June 30, 2023

December 31, 2023

Revenues $ 1,445 $ 304 $ ( 1 ) $ 1,748

Operating income (loss) 207 50 ( 68 ) 189

Amortization of intangible assets 41 23 — 64

Depreciation of property, plant and equipment 13 — 9 22

OIBDA 261 73 ( 59 ) 275

June 30, 2022

Adjusted OIBDA

412 86 ( 47 ) 451

December 31, 2022

Revenues $ 1,239 $ 250 ( 1 ) 1,488

Operating income (loss) 166 33 ( 53 ) 146

Amortization of intangible assets 46 23 — 69

Depreciation of property, plant and equipment 12 1 5 18

OIBDA 224 57 ( 48 ) 233

Adjusted OIBDA

299 72 ( 36 ) 335

Adjusted OIBDA is not a measure defined by U.S.

GAAP but is computed using amounts that are determined in accordance with U.S.

A reconciliation of the Company’s Adjusted OIBDA to operating income is presented below.

For the Three Months Ended

Operating income 354 265

Amortization expense 55 63

Depreciation expense 26 21

Transformation initiatives and other related costs

Net gain on divestitures

( 17 ) ( 41 )

Non-cash stock-based compensation and other related costs

Adjusted OIBDA $ 451 $ 335

In connection with the aforementioned change in segment profitability measure, the Company has also revised disclosures relating to segment profitability for the fiscal years ended September 30, 2023, 2022 and 2021, as presented below, to be comparable to the current period presentation.

Publishing Corporate

eliminations Total

Nine Months Ended (in millions)

June 30, 2023

Twelve Months Ended

(in millions)

September 30, 2023

Revenues $ 4,955 $ 1,088 $ ( 6 ) $ 6,037

Operating income (loss) 641 151 ( 214 ) 578

Amortization of intangible assets 121 67 — 188

Depreciation of property, plant and equipment 39 2 24 65

OIBDA 801 220 ( 190 ) 831

June 30, 2022

Adjusted OIBDA

1,093 296 ( 154 ) 1,235

September 30, 2022

Revenues $ 4,966 $ 958 $ ( 5 ) $ 5,919

Operating income (loss) 631 103 ( 183 ) 551

Amortization of intangible assets 133 65 — 198

Depreciation of property, plant and equipment 40 4 15 59

OIBDA 804 172 ( 168 ) 808

Adjusted OIBDA

1,046 233 ( 130 ) 1,149

September 30, 2021

Revenues $ 4,544 $ 761 ( 4 ) $ 5,301

Adjusted OIBDA

975 179 ( 136 ) 1,018

For the Twelve Months Ended September 30,

2023 2022 2021

Operating income 790 714 609

Amortization expense 245 263 229

Depreciation expense 87 76 77

Restructuring

Transformation initiatives and other related costs

Executive transition costs

Net gain on divestitures

COVID-19 related costs

Non-cash stock-based compensation and other related costs

Adjusted OIBDA $ 1,235 $ 1,149 $ 1,018

Additional Financial Information

Cash Interest and Taxes

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

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

Gain on Divestiture

During the nine months ended June 30, 2023, the Company sold its interest in certain sound recording rights and recorded a pre-tax gain of $ 41 million which was recorded as a net gain on divestiture in the accompanying condensed consolidated statement of operations.

Supplemental Cash Flow Disclosures

The Company made interest payments of approximately $ 33 million and $ 25 million during the three months ended December 31, 2023 and 2022, respectively.

The Company paid approximately $ 39 million and $ 45 million of income and withholding taxes, net of refunds, for the three months ended December 31, 2023 and 2022, respectively.

Noncash investing activities was approximately $ 18 million related to the acquisition of music publishing rights and music catalogs, net during the three months ended December 31, 2023.

Net Gain on Divestitures

The Company recognized a pre-tax gain of $ 17 million and $ 41 million, during the three months ended December 31, 2023 and December 31, 2022, respectively, in connection with the divestiture of certain sound recordings rights in the quarter and has been reflected as a net gain on divestiture in the accompanying condensed consolidated statement of operations.

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

The Company intends to pay quarterly cash dividends to holders of its Class A Common Stock and Class B Common Stock.

The declaration of each dividend will continue to be at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, earnings, liquidity and capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that the Company’s board of directors deems relevant in making such a determination.

board of directors deems relevant in making such a determination.

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 May 10, 2023, the Company’s board of directors declared a cash dividend of $ 0.16 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on June 1, 2023.

The Company paid an aggregate of approximately $ 84 million and $ 251 million, or $ 0.16 and $ 0.48 per share, in cash dividends to stockholders and participating security holders for the three and nine months ended June 30, 2023, respectively.

Noncash Investment Activity

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

On November 9, 2023, the Company’s board of directors declared a cash dividend of $ 0.17 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on December 1, 2023.

The Company paid an aggregate of approximately $ 89 million, or $ 0.17 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2023.

Fair Value Measurements

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

Fair Value Measurements as of June 30, 2023

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

Fair Value Measurements as of December 31, 2023

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

(in millions)

Other Current Assets:

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

Interest Rate Swap (d) — 7 — 7

Other Current Liabilities:

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Other Noncurrent Assets:

Interest Rate Swap (d) — 16 — 16

Equity Investment with Readily Determinable Fair Value (c) 15 — — 15

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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 June 30, 2023 for contracts involving the same attributes and maturity dates.

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

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

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Balance at September 30, 2023 $ ( 1 )

Balance at June 30, 2023 $ ( 1 )

Balance at December 31, 2023 $ ( 1 )

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

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

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

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

The Company recorded approximately $ 1 million of impairment charges on these investments during the three months ended December 31, 2023.

The Company did no t record any impairment charges on these investments during the three months ended December 31, 2022.

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

Fair Value of Debt

Based on the level of interest rates prevailing at June 30, 2023, the fair value of the Company’s debt was $ 3.596 billion.

Based on the level of interest rates prevailing at December 31, 2023, the fair value of the Company’s debt was $ 3.763 billion.

Based on the level of interest rates prevailing at September 30, 2023, the fair value of the Company’s debt was $ 3.525 billion.

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both approaches are considered a Level 2 measurement.

Subsequent Events

January 2024 Senior Term Loan Credit Agreement Amendment

On January 24, 2024, Acquisition Corp.

entered into an amendment (the “Fourteenth Amendment”) to the credit agreement, dated November 1, 2012, as amended or supplemented, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with JPMorgan Chase Bank N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto.

The Fourteenth Amendment (among other changes) extended the maturity date of its outstanding term loans from January 20, 2028 to January 24, 2031 through the issuance of tranche I term loans and refinancing of the existing tranche G term loans.

The tranche I term loans shall bear interest at a rate equal to, at Acquisition Corp.’s election (i) the forward-looking term rate based on Term SOFR as administered by the Federal Reserve Bank of New York for the applicable interest period subject to a zero floor, plus 2.000 % 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, in each case, subject to a 1.00 % floor, plus 1.000 % per annum.

Strategic Restructuring Plan

On February 6, 2024, the Company’s board of directors approved and the Company subsequently announced a strategic restructuring plan (the “Strategic Restructuring Plan”) designed to free up more funds to invest in music and accelerate the Company's growth for the next decade.

The Company expects the Strategic Restructuring Plan to generate pre-tax cost savings by the end of fiscal year 2025 and anticipates allocating a majority of the cost savings to increase investment in the Company’s core Recorded Music and Music Publishing businesses, new skill sets and tech capabilities.

The cost savings under the Strategic Restructuring Plan will be achieved through a combination of the disposal or winding down of certain of the Company’s non-core owned and operated media properties including the Company’s in-house ad sales function (the “O&O Media Properties”), continuing to manage overhead, sharpening focus, expanding shared services, and implementing previously disclosed expected operational efficiencies made possible by the Company’s financial transformation initiative.

The Strategic Restructuring Plan anticipates a reduction in headcount, a majority of which will be related to the O&O Media Properties, Corporate and various support functions.

The Strategic Restructuring Plan is expected to result in approximately $ 140 million of total non-recurring pre-tax charges and approximately $ 105 million in total after tax charges.

The pre-tax charges include approximately $ 85 million representing severance payments and other related termination costs, and approximately $ 55 million represents non-cash impairment charges primarily in connection with the disposal or winding down of the O&O Media Properties.

The majority of the charges associated with the Strategic Restructuring Plan are expected to be incurred by the end of fiscal year 2024 and the actions related to those charges will commence immediately.

The severance payments and other termination costs are expected to be paid by the end of fiscal year 2026 with approximately $ 35 million of those payments and costs expected to be paid by the end of fiscal year 2024.

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

What changed 10-Q

Item 1. Financial Statements