What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2024-02-08 · 202 added, 123 removed, 502 unchanged (39% of the section changed)

36 unchanged sentences

Class A common stock, $ 0.001 par value;

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

1,000,000 shares authorized, 141,596 and 138,345 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively

Class B common stock, $ 0.001 par value;

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

1,000,000 shares authorized, 376,315 and 377,650 issued and outstanding as of March 31, 2024 and September 30, 2023, respectively

Additional paid-in capital 2,043 2,015

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

Revenue $ 1,494 $ 1,399 $ 3,242 $ 2,887

2 unchanged sentences

Selling, general and administrative expenses (a) ( 446 ) ( 452 ) ( 922 ) ( 892 )

Restructuring and impairments

( 95 ) ( 41 ) ( 95 ) ( 41 )

Amortization expense ( 57 ) ( 61 ) ( 112 ) ( 124 )

3 unchanged sentences

Interest expense, net ( 42 ) ( 35 ) ( 81 ) ( 67 )

Other expense ( 50 ) ( 61 )

Other income (expense) 37 ( 31 ) ( 13 ) ( 92 )

Income before income taxes 114 58 379 230

3 unchanged sentences

Net income attributable to Warner Music Group Corp.

$ 96 $ 34 $ 255 $ 156

Net income per share attributable to common stockholders:

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

Net income $ 96 $ 37 $ 289 $ 161

Other comprehensive income, net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency adjustment ( 41 ) 19 23 91

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

Deferred (loss) gain on derivative financial instruments — ( 4 ) ( 1 ) ( 5 )

Minimum pension liability

Other comprehensive income, net of tax 62 71

Other comprehensive (loss) income, net of tax ( 41 ) 15 21 86

Total comprehensive income 55 52 310 247

1 unchanged sentence

Comprehensive income attributable to Warner Music Group Corp.

$ 55 $ 49 $ 276 $ 242

See accompanying notes

2 unchanged sentences

(In millions)

Three Months Ended

Six Months Ended

Cash flows from operating activities

9 unchanged sentences

Non-cash stock-based compensation expense 18 35

Non-cash impairments

Changes in operating assets and liabilities:

2 unchanged sentences

Royalty advances ( 105 ) ( 25 )

Other non current assets

Other noncurrent assets

Accounts payable and accrued liabilities ( 51 ) ( 65 )

Royalty payables 171 67

Accrued interest 11 12

Operating lease liabilities ( 3 ) ( 1 )

10 unchanged sentences

Cash flows from financing activities

Proceeds from incremental Senior Term Loan Facility — 147

Partial proceeds from Senior Term Loan Facility refinancing

Partial repayment of Senior Term Loan Facility refinancing

Deferred financing costs paid ( 2 ) ( 2 )

1 unchanged sentence

Dividends paid ( 178 ) ( 167 )

Taxes paid related to net share settlement of restricted stock units and common stock

Proceeds from Term Loan Mortgage

Payment of deferred and contingent consideration — ( 133 )

1 unchanged sentence

Effect of exchange rate changes on cash and equivalents ( 1 ) 8

Net increase in cash and equivalents 113 136

Net (decrease) increase in cash and equivalents ( 54 ) 17

Cash and equivalents at beginning of period 641 584

4 unchanged sentences

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

Three Months Ended December 31, 2023

Six Months Ended March 31, 2024

Common Stock Class B

18 unchanged sentences

Shares issued under Omnibus Incentive Plan 178 — — — ( 5 ) — — ( 5 ) — ( 5 )

Balance at March 31, 2024 141,596 $ — 376,315 $ 1 $ 2,043 $ ( 1,310 ) $ ( 301 ) $ 433 $ 152 $ 585

Three Months Ended March 31, 2024

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total

Shares Value Shares Value

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

Three Months Ended December 31, 2022

Net income — — — — — 96 — 96 — 96

Other comprehensive income, net of tax

— — — — — — ( 41 ) ( 41 ) — ( 41 )

Dividends ($ 0.17 per share)

— — — — — ( 89 ) — ( 89 ) — ( 89 )

Stock-based compensation

— — — — 9 — — 9 — 9

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

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

Exchange of Class B shares for Class A shares 788 — ( 788 ) — — — — — — —

Shares issued under Omnibus Incentive Plan 171 — — — ( 5 ) — — ( 5 ) — ( 5 )

Balance at March 31, 2024 141,596 $ — 376,315 $ 1 $ 2,043 $ ( 1,310 ) $ ( 301 ) $ 433 $ 152 $ 585

Six Months Ended March 31, 2023

Common Stock Class B

16 unchanged sentences

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

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

Three Months Ended March 31, 2023

Common Stock Class B

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Equity Non-controlling

Interest Total

Shares Value Shares Value

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

Net income — — — — — 34 — 34 3 37

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

Dividends ($ 0.16 per share)

— — — — — ( 83 ) — ( 83 ) — ( 83 )

Stock-based compensation

— — — — 16 — — 16 — 16

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

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

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

See accompanying notes

24 unchanged sentences

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

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

Operating results for the three and six months ended March 31, 2024 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.

7 unchanged sentences

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.

As of March 31, 2024 and September 30, 2023, there were approximately $ 73 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.

22 unchanged sentences

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

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

The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and six months ended March 31, 2024 and 2023, respectively.

The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three and six months ended March 31, 2024 and 2023 (in millions, except share amounts, which are reflected in thousands, and per share data):

Three Months Ended March 31,

Class A Class B Class A Class B

6 unchanged sentences

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

Six Months Ended March 31,

Class A Class B Class A Class B

Basic and Diluted EPS:

Net income attributable to Warner Music Group Corp.

$ 71 $ 184 $ 43 $ 113

Net income attributable to participating securities ( 3 ) — ( 2 ) —

Net income attributable to common stockholders $ 68 $ 184 $ 41 $ 113

Weighted average shares outstanding 140,013 377,145 137,841 377,650

Basic and Diluted EPS $ 0.49 $ 0.49 $ 0.30 $ 0.30

Revenue Recognition

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(in millions)

3 unchanged sentences

Total digital and physical

959 914 2,021 1,850

Artist services and expanded-rights 126 131 330 337

5 unchanged sentences

Synchronization 48 46 87 85

Other 4 4 7 7

Total Music Publishing 306 257 610 507

1 unchanged sentence

Total revenues

$ 1,494 $ 1,399 $ 3,242 $ 2,887

Revenue by geographical location

1 unchanged sentence

Music Publishing 170 135 342 268

678 657 1,477 1,329

International Recorded Music 681 621 1,499 1,321

1 unchanged sentence

Total international

817 743 1,767 1,560

Intersegment eliminations ( 1 ) ( 1 ) ( 2 ) ( 2 )

Total revenues

$ 1,494 $ 1,399 $ 3,242 $ 2,887

Sales Returns and Uncollectible Accounts

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.

Based on management’s analysis of sales returns, refund liabilities of $ 18 million and $ 19 million were established at March 31, 2024 and September 30, 2023, respectively.

Based on management’s analysis of estimated credit losses, reserves of $ 21 million and $ 19 million were established at March 31, 2024 and September 30, 2023, respectively.

Deferred Revenue

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.

Deferred revenue increased by $ 306 million during the six months ended March 31, 2024 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period.

Revenues of $ 261 million were recognized during the six months ended March 31, 2024 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 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:

For the six months ended March 31, 2024 and March 31, 2023, the Company recognized revenue of $ 74 million and $ 41 million, respectively, from performance obligations satisfied in previous periods.

Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2024 are as follows:

Thereafter Total

5 unchanged sentences

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.

At March 31, 2024, 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 goodwill of approximately $ 1 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.

9 unchanged sentences

Other comprehensive income (loss) 23 ( 1 ) ( 1 ) 21

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

Balances at March 31, 2024 $ ( 299 ) $ ( 2 ) $ — $ ( 301 )

______________________________________

7 unchanged sentences

Other adjustments (a) 9 — 9

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

Balances at March 31, 2024 $ 1,543 $ 464 $ 2,007

______________________________________

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

(a) Other adjustments during the six months ended March 31, 2024 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 December 31,

Weighted-Average Useful Life March 31,

2024 September 30,

12 unchanged sentences

Total net intangible assets $ 2,468 $ 2,502

The decrease in net intangible assets during the six months ended March 31, 2024 is partially related to the write off of approximately $ 35 million of unamortized intangible assets within trademarks and other intangible assets in connection with the winding down of the Company’s O&O Media Properties.

Please refer to Note 9 of our condensed consolidated financial statements for further discussion.

Debt Capitalization

14 unchanged sentences

______________________________________

(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.

(a) Reflects $ 350 million and $ 300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ 2 million and $ 2 million as of March 31, 2024 and September 30, 2023, respectively.

There were no loans outstanding under the Revolving Credit Facility at March 31, 2024 or September 30, 2023.

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

1 unchanged sentence

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.

Additionally, as of March 31, 2024 Acquisition Corp.

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

9 unchanged sentences

Senior Credit Facilities, including the Revolving Credit Facility (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 .

The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of March 31, 2024 .

Fiscal 2024 Transactions

18 unchanged sentences

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

Senior Term Loan Credit Agreement Amendment

On January 24, 2024, 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 15, 2016, November 21, 2016, May 22, 2017, December 6, 2017, March 14, 2018, June 7, 2018, January 20, 2021, March 8, 2021, November 1, 2022, May 10, 2023, June 30, 2023 and December 29, 2023), 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 Senior Term Loan Credit Agreement Amendment (among other changes) extends 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 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 zero floor, plus 2.00 % 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, in each case, subject to a 1.00 % floor, plus 1.00 % per annum.

In connection with the Senior Term Loan Credit Agreement Amendment, the Company recognized approximately $ 3 million of expenses associated with fees paid to third parties and capitalized approximately $ 2 million in fees paid to creditors.

Certain participating lenders were repaid and replaced by new lenders.

The proceeds and repayments of $ 42 million have been presented in the accompanying condensed consolidated statement of cash flows.

Interest Rates

1 unchanged sentence

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

Based on the Senior Secured Indebtedness to EBITDA Ratio of 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.

Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.44 x at March 31, 2024, 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 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 Term SOFR subject to a zero floor, plus 2.00 % 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 1.00 % floor, plus, in each case, 1.00 % 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 2.00 % per annum.

8 unchanged sentences

Maturities of Senior Secured Notes

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

As of March 31, 2024, there are no scheduled maturities of notes until 2028, when $ 351 million is scheduled to mature.

Thereafter, $ 2.356 billion is scheduled to mature.

2 unchanged sentences

Interest Expense, net

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

Total interest expense, net was $ 42 million and $ 35 million for the three months ended March 31, 2024 and 2023, respectively, and $ 81 million and $ 67 million for the six months ended March 31, 2024 and 2023, respectively.

Interest expense, net includes interest expense related to our outstanding indebtedness of $ 46 million and $ 38 million for the three months ended March 31, 2024 and 2023, respectively, and $ 91 million and $ 75 million for the six months ended March 31, 2024 and 2023, respectively.

The weighted-average interest rate of the Company’s total debt was 4.5 % at March 31, 2024, 4.1 % at September 30, 2023, and 4.0 % at March 31, 2023.

Restructuring and Impairments

Strategic Restructuring Plan

In February 2024, the Company announced a strategic restructuring plan (the “Strategic Restructuring Plan”) designed to free up additional funds to invest in music and accelerate the Company’s growth for the next decade.

Under the Strategic Restructuring Plan, the Company expects a reduction in headcount of approximately 10 % of the Company’s overall headcount.

The Company expects to incur total non-recurring restructuring charges of approximately $ 135 million or approximately $ 80 million of total non-recurring after tax charges.

The expected pre-tax charges include approximately $ 85 million of severance costs and approximately $ 50 million of non-cash impairment charges primarily in connection with the disposal or winding down of the Company’s non-core owned and operated media properties including the Company’s in-house advertising sales function (the “O&O Media Properties”).

The majority of the Strategic Restructuring Plan is expected to be completed by the end of fiscal year 2025.

For the three and six months ended March 31, 2024, total severance costs recorded in connection with the Strategic Restructuring Plan were $ 46 million, of which, $ 42 million was recognized in our Recorded Music segment and $ 4 million was recognized in Corporate.

The below table sets forth the activity for the six months ended March 31, 2024 in the restructuring accrual associated with the Strategic Restructuring Plan included within accrued liabilities in the accompanying condensed consolidated balance sheets.

Additionally, for the three and six months ended March 31, 2024, the Company recognized $ 50 million of impairment losses on unamortized intangible assets and other assets of which $ 47 million was recognized in our Recorded Music segment and $ 3 million was recognized in Corporate.

Impairment charges recognized primarily relate to the winding down of the Company’s O&O Media Properties.

Severance Costs

(in millions)

Balance at September 30, 2023 $ —

Restructuring charges 46

Cash payments ( 1 )

Balance at March 31, 2024 $ 45

2023 Restructuring Plan

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

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:

The 2023 Restructuring Plan is substantially complete as of March 31, 2024 and the remaining associated cash payments are expected to be made by the end of fiscal year 2024.

There was a $ 1 million benefit associated with the 2023 Restructuring Plan recorded for the three and six months ended March 31, 2024 primarily associated with a change in estimate for costs previously recorded.

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

The following table sets forth the activity for the six months ended March 31, 2024 in the restructuring accrual associated with the 2023 Restructuring Plan included within accrued liabilities in the accompanying condensed consolidated balance sheets:

Severance Costs

3 unchanged sentences

Cash payments ( 12 )

Balance at December 31, 2023 $ 11

Balance at March 31, 2024 $ 6

Commitments and Contingencies

7 unchanged sentences

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.

For the three and six months ended March 31, 2024, the Company recognized a total of $ 9 million and $ 18 million of non-cash stock-based compensation expense, respectively, which was recorded to additional paid-in capital.

For the three and six months ended March 31, 2023, the Company recognized a total of $ 21 million and $ 35 million of non-cash stock-based compensation expense, respectively, of which $ 9 million and $ 20 million was recorded to additional paid-in capital, respectively, and $ 12 million and $ 15 million was recorded as a share-based compensation liability, respectively.

During the six months ended March 31, 2024, $ 15 million of share-based compensation liabilities were reclassified to additional paid-in capital.

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

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

During the three months ended March 31, 2023, the Company issued 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.

For the three and six months ended March 31, 2024, n on-cash stock-based compensation associated with these PSUs was approximately $ 1 million and $ 3 million, respectively.

For the six months ended March 31, 2023, n on-cash stock-based compensation associated with these PSUs was approximately $ 1 million.

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

During the six months ended March 31, 2024, 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 1,335,169 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.

During the three and six months ended March 31, 2024, the Company issued approximately 170,669 and 177,687 shares of Class A Common Stock, respectively, under the Omnibus Incentive Plan which were net of shares used to settle employee income tax obligations of approximately $ 5 million.

For the three and six months ended March 31, 2024, the Company recorded an income tax expense of $ 18 million and $ 90 million, respectively.

The income tax expense for the three and six months ended March 31, 2024 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.

These charges were partially offset by the tax benefit from the winding down of the Company’s O&O Media Properties, 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 and six months ended March 31, 2023, the Company recorded an income tax expense of $ 21 million and $ 69 million, respectively.

The income tax expense for the three and six months ended March 31, 2023 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 Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of March 31, 2024 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.

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.

The Company is currently evaluating the potential impact of the rules.

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.

5376) includes a 15% 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.

Treasury and Internal Revenue Service 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.

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

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 March 31, 2024, the Company had outstanding foreign currency forward exchange contracts for the sale of $ 326 million and the purchase of $ 192 million of foreign currencies at fixed rates that will be settled by September 2024.

As of March 31, 2024, 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:

The Company recorded realized pre-tax losses of $ 1 million and no unrealized pre-tax gains or losses related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the six months ended March 31, 2024.

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

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the six months ended March 31, 2024 and March 31, 2023 were $ 1 million and $ 7 million, respectively.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at March 31, 2024 and September 30, 2023:

2024 September 30,

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

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”).

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 design and implement new information technology and upgrade our finance infrastructure (“Adjusted OIBDA”).

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

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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.

All disclosures relating to segment profitability, including those for the three and six months ended March 31, 2023, 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.

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Three Months Ended (in millions)

December 31, 2023

March 31, 2024

Revenues $ 1,189 $ 306 $ ( 1 ) $ 1,494

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272 82 ( 42 ) 312

December 31, 2022

March 31, 2023

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

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249 76 ( 39 ) 286

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

Twelve Months Ended

(in millions)

September 30, 2023

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

Adjusted OIBDA

1,093 296 ( 154 ) 1,235

September 30, 2022

Six Months Ended (in millions)

March 31, 2024

Revenues $ 2,634 $ 610 $ ( 2 ) $ 3,242

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684 168 ( 89 ) 763

September 30, 2021

March 31, 2023

Revenues 2,382 507 ( 2 ) 2,887

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548 148 ( 75 ) 621

For the Twelve Months Ended September 30,

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

March 31, For the Six Months Ended

2024 2023 2024 2023

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Depreciation expense 26 22 52 43

Restructuring

Restructuring and impairments 95 41 95 41

Transformation initiatives and other related costs 19 14 38 26

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Net gain on divestitures ( 14 ) — ( 31 ) ( 41 )

COVID-19 related costs

Non-cash stock-based compensation and other related costs 10 21 24 36

2 unchanged sentences

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.

The Company made interest payments of approximately $ 57 million and $ 50 million during the three months ended March 31, 2024 and 2023, respectively, and approximately $ 90 million and $ 75 million during the six months ended March 31, 2024 and 2023, respectively.

The Company paid approximately $ 33 million and $ 72 million of income and withholding taxes, net of refunds, for the three months ended March 31, 2024 and 2023, respectively, and approximately $ 72 million and $ 117 million of income and withholding taxes, net of refunds, for the six months ended March 31, 2024 and 2023, respectively.

Non-cash investing activities was approximately $ 18 million related to the acquisition of music publishing rights and music catalogs, net during the six months ended March 31, 2024.

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.

During the three months ended March 31, 2024 and 2023, the Company recognized a pre-tax gain of $ 14 million and no pre-tax gains or losses, respectively, in connection with the divestiture of certain publishing rights.

During the six months ended March 31, 2024 and 2023, the Company recognized a pre-tax gain of $ 31 million and $ 41 million, respectively, in connection with the divestiture of certain sound recording and publishing rights.

For each period, the divestiture 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.

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

On November 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.

On February 12, 2024, 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 March 1, 2024.

The Company paid an aggregate of approximately $ 89 million and $ 178 million, or $ 0.17 and $ 0.34 per share, in cash dividends to stockholders and participating security holders for the three and six months ended March 31, 2024, respectively.

Fair Value Measurements

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

Fair Value Measurements as of December 31, 2023

The following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of March 31, 2024 and September 30, 2023.

Fair Value Measurements as of March 31, 2024

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

2 unchanged sentences

Foreign currency forward exchange contracts (a)

$ — $ ( 1 ) $ — $ ( 1 )

Other noncurrent assets:

2 unchanged sentences

Contractual obligations (b)

— — ( 1 ) ( 1 )

Fair Value Measurements as of September 30, 2023

3 unchanged sentences

Interest rate swap (d)

$ — $ 2 $ — $ 2

Other noncurrent assets:

3 unchanged sentences

— — ( 1 ) ( 1 )

______________________________________

(a) The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.

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Balance at September 30, 2023 $ ( 1 )

Balance at December 31, 2023 $ ( 1 )

Balance at March 31, 2024 $ ( 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 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.

The Company did not

record any impairment charges on these investments during the three months ended March 31, 2024 and recorded approximately $ 1 million of impairment charges on these investments during the six months ended March 31, 2024.

The Company did no t record any impairment charges on these investments during the three and six months ended March 31, 2023.

In addition, there were no observable price changes events that were completed during the three and six months ended March 31, 2024 and 2023.

Fair Value of Debt

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 March 31, 2024, the fair value of the Company’s debt was $ 3.696 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.

1 unchanged sentence

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