Warner Music Group Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS Warner Music Group Corp. Condensed Consolidated Balance Sheets (In millions, except share amounts which are reflected in thousands) (Unaudited) March 31, 2024 September 30, 2023 Assets Current assets: Cash and equivalents $ 587 $ 641 Accounts receivable, net of allowances of $ 21 million and $ 19 million 1,197 1,120 Inventories 97 126 Royalty advances expected to be recouped within one year 456 413 Prepaid and other current assets 113 102 Total current assets 2,450 2,402 Royalty advances expected to be recouped after one year 759 688 Property, plant and equipment, net of accumulated depreciation of $ 573 million and $ 523 million 462 458 Operating lease right-of-use assets, net 233 245 Goodwill 2,007 1,993 Intangible assets subject to amortization, net 2,318 2,353 Intangible assets not subject to amortization 150 149 Deferred tax assets, net 30 32 Other assets 322 225 Total assets $ 8,731 $ 8,545 Liabilities and Equity Current liabilities: Accounts payable $ 306 $ 300 Accrued royalties 2,409 2,219 Accrued liabilities 465 533 Accrued interest 18 18 Operating lease liabilities, current 43 41 Deferred revenue 234 371 Other current liabilities 58 57 Total current liabilities 3,533 3,539 Long-term debt 3,984 3,964 Operating lease liabilities, noncurrent 239 255 Deferred tax liabilities, net 236 216 Other noncurrent liabilities 154 141 Total liabilities $ 8,146 $ 8,115 Equity: Class A common stock, $ 0.001 par value; 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, 376,315 and 377,650 issued and outstanding as of March 31, 2024 and September 30, 2023, respectively 1 1 Additional paid-in capital 2,043 2,015 Accumulated deficit ( 1,310 ) ( 1,387 ) Accumulated other comprehensive loss, net ( 301 ) ( 322 ) Total Warner Music Group Corp. equity 433 307 Noncontrolling interest 152 123 Total equity 585 430 Total liabilities and equity $ 8,731 $ 8,545 See accompanying notes 1 Warner Music Group Corp. Condensed Consolidated Statements of Operations (In millions, except share amounts which are reflected in thousands, and per share data) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Revenue $ 1,494 $ 1,399 $ 3,242 $ 2,887 Costs and expenses: Cost of revenue ( 791 ) ( 721 ) ( 1,671 ) ( 1,482 ) Selling, general and administrative expenses (a) ( 446 ) ( 452 ) ( 922 ) ( 892 ) Restructuring and impairments ( 95 ) ( 41 ) ( 95 ) ( 41 ) Amortization expense ( 57 ) ( 61 ) ( 112 ) ( 124 ) Total costs and expenses ( 1,389 ) ( 1,275 ) ( 2,800 ) ( 2,539 ) Net gain on divestitures 14 — 31 41 Operating income 119 124 473 389 Interest expense, net ( 42 ) ( 35 ) ( 81 ) ( 67 ) Other income (expense) 37 ( 31 ) ( 13 ) ( 92 ) Income before income taxes 114 58 379 230 Income tax expense ( 18 ) ( 21 ) ( 90 ) ( 69 ) Net income 96 37 289 161 Less: Income attributable to noncontrolling interest — ( 3 ) ( 34 ) ( 5 ) Net income attributable to Warner Music Group Corp. $ 96 $ 34 $ 255 $ 156 Net income per share attributable to common stockholders: Class A – Basic and Diluted $ 0.18 $ 0.06 $ 0.49 $ 0.30 Class B – Basic and Diluted $ 0.18 $ 0.06 $ 0.49 $ 0.30 Weighted average common shares: Class A – Basic and Diluted 141,044 138,257 140,013 137,841 Class B – Basic and Diluted 376,800 377,650 377,145 377,650 (a) Includes depreciation expense: $ ( 26 ) $ ( 22 ) $ ( 52 ) $ ( 43 ) See accompanying notes 2 Warner Music Group Corp. Condensed Consolidated Statements of Comprehensive Income (In millions) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Net income $ 96 $ 37 $ 289 $ 161 Other comprehensive (loss) income, net of tax: Foreign currency adjustment ( 41 ) 19 23 91 Deferred (loss) gain on derivative financial instruments — ( 4 ) ( 1 ) ( 5 ) Minimum pension liability — — ( 1 ) Other comprehensive (loss) income, net of tax ( 41 ) 15 21 86 Total comprehensive income 55 52 310 247 Less: Income attributable to noncontrolling interest — ( 3 ) ( 34 ) ( 5 ) Comprehensive income attributable to Warner Music Group Corp. $ 55 $ 49 $ 276 $ 242 See accompanying notes 3 Warner Music Group Corp. Condensed Consolidated Statements of Cash Flows (In millions) (Unaudited) Six Months Ended March 31, 2024 2023 Cash flows from operating activities Net income $ 289 $ 161 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 164 167 Unrealized (gains) losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts 18 93 Deferred income taxes 16 ( 3 ) Net loss (gain) on investments ( 5 ) 3 Net loss (gain) on divestitures ( 31 ) ( 41 ) Non-cash interest expense 2 3 Non-cash stock-based compensation expense 18 35 Non-cash impairments 50 — Changes in operating assets and liabilities: Accounts receivable, net ( 68 ) — Inventories 30 2 Royalty advances ( 105 ) ( 25 ) Other noncurrent assets ( 85 ) ( 7 ) Accounts payable and accrued liabilities ( 51 ) ( 65 ) Royalty payables 171 67 Operating lease liabilities ( 3 ) ( 1 ) Deferred revenue ( 139 ) ( 123 ) Other balance sheet changes ( 9 ) ( 63 ) Net cash provided by operating activities 262 203 Cash flows from investing activities Acquisition of music publishing rights and music catalogs, net ( 82 ) ( 42 ) Capital expenditures ( 55 ) ( 56 ) Investments and acquisitions of businesses, net of cash received ( 17 ) ( 17 ) Proceeds from the sale of investments 12 22 Proceeds from divestitures 17 42 Net cash used in investing activities ( 125 ) ( 51 ) Cash flows from financing activities Partial proceeds from Senior Term Loan Facility refinancing 42 147 Partial repayment of Senior Term Loan Facility refinancing ( 42 ) — Deferred financing costs paid ( 2 ) ( 2 ) Distribution to noncontrolling interest holders ( 5 ) ( 7 ) Dividends paid ( 178 ) ( 167 ) Taxes paid related to net share settlement of restricted stock units and common stock ( 5 ) — Proceeds from Term Loan Mortgage — 19 Payment of deferred and contingent consideration — ( 133 ) Net cash used in financing activities ( 190 ) ( 143 ) Effect of exchange rate changes on cash and equivalents ( 1 ) 8 Net (decrease) increase in cash and equivalents ( 54 ) 17 Cash and equivalents at beginning of period 641 584 Cash and equivalents at end of period $ 587 $ 601 See accompanying notes 4 Warner Music Group Corp. Condensed Consolidated Statements of Equity (In millions, except share amounts which are reflected in thousands, and per share data) (Unaudited) Six Months Ended March 31, 2024 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Warner Music Group Corp. Equity Non-controlling Interest Total Equity Shares Value Shares Value Balance at September 30, 2023 138,345 $ — 377,650 $ 1 $ 2,015 $ ( 1,387 ) $ ( 322 ) $ 307 $ 123 $ 430 Net income — — — — — 255 — 255 34 289 Other comprehensive income, net of tax — — — — — — 21 21 — 21 Dividends ($ 0.34 per share) — — — — — ( 178 ) — ( 178 ) — ( 178 ) Stock-based compensation — — — — 33 — — 33 — 33 Distribution to noncontrolling interest holders — — — — — — — — ( 5 ) ( 5 ) Shares issued under the Plan 1,738 — — — — — — — — — Exchange of Class B shares for Class A shares 1,335 — ( 1,335 ) — — — — — — — 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 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Warner Music Group Corp. Equity Non-controlling Interest Total Equity Shares Value Shares Value Balance at December 31, 2023 140,637 $ — 377,103 $ 1 $ 2,039 $ ( 1,317 ) $ ( 260 ) $ 463 $ 153 $ 616 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 5 Six Months Ended March 31, 2023 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Warner Music Group Corp. Equity Non-controlling Interest Total Equity Shares Value Shares Value Balance at September 30, 2022 137,199 $ — 377,650 $ 1 $ 1,975 $ ( 1,477 ) $ ( 347 ) $ 152 $ 16 $ 168 Net income — — — — — 156 — 156 5 161 Other comprehensive income, net of tax — — — — — — 86 86 — 86 Dividends ($ 0.32 per share) — — — — — ( 167 ) — ( 167 ) — ( 167 ) Stock-based compensation — — — — 25 — — 25 — 25 Distribution to noncontrolling interest holders — — — — — — — — ( 7 ) ( 7 ) Shares issued under the Plan 869 — — — — — — — — — 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 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Warner Music Group Corp. Equity Non-controlling Interest Total Equity Shares Value Shares Value Balance at December 31, 2022 138,073 $ — 377,650 $ 1 $ 1,984 $ ( 1,439 ) $ ( 276 ) $ 270 $ 12 $ 282 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 6 Warner Music Group Corp. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business Warner Music Group Corp. (the “Company”) was formed on November 21, 2003. The Company is the direct parent of WMG Holdings Corp. (“Holdings”), which is the direct parent of WMG Acquisition Corp. (“Acquisition Corp.”). Acquisition Corp. is one of the world’s major music entertainment companies. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing. Recorded Music Operations Our Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of music created by such recording artists. We play an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music to marketing and promoting recording artists and their music. Music Publishing Operations While Recorded Music is focused on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself. In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business shares the revenues generated from use of the musical compositions with the songwriter or other rightsholders. 2. Summary of Significant Accounting Policies Interim Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended March 31, 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. GAAP for complete financial statements. 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. 001-32502). Basis of Consolidation The accompanying financial statements present the consolidated accounts of all entities in which the Company has a controlling voting interest and/or variable interest required to be consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”) requires the Company first evaluate its investments to determine if any investments qualify as a variable interest entity (“VIE”). A VIE is consolidated if the Company is deemed to be the primary beneficiary of the VIE, which is the party involved with the VIE that has both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. 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 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. 7 Income Taxes The Company uses the estimated annual effective tax rate method in computing its interim tax provision. Certain items, including those deemed to be unusual and infrequent are excluded from the estimated annual effective tax rate. In such cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions, and are recorded in the period in which the change occurs. Global Intangible Low-Taxed Income (“GILTI”) imposes U.S. taxes on the excess of a deemed return on tangible assets of certain foreign subsidiaries. The Company made an election to recognize GILTI tax in the specific period in which it occurs. New Accounting Pronouncements Accounting Pronouncements Not Yet Adopted 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. The Company is in the process of evaluating the effect that the adoption of these standards will have on its consolidated financial statements. 3. Earnings per Share The Company utilizes the two-class method to report earnings per share. Basic earnings per share is computed by dividing net income available to each class of stock by the weighted average number of outstanding common shares for each class of stock. Diluted earnings per share is computed by dividing net income available to each class of stock by the weighted average number of outstanding common shares, plus dilutive potential common shares, which is calculated using the treasury-stock method. The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and six months ended March 31, 2024 and 2023, respectively. 8 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, 2024 2023 Class A Class B Class A Class B Basic and Diluted EPS: Numerator Net income attributable to Warner Music Group Corp. $ 27 $ 69 $ 10 $ 24 Less: Net income attributable to participating securities ( 1 ) — ( 1 ) — Net income attributable to common stockholders $ 26 $ 69 $ 9 $ 24 Denominator Weighted average shares outstanding 141,044 376,800 138,257 377,650 Basic and Diluted EPS $ 0.18 $ 0.18 $ 0.06 $ 0.06 Six Months Ended March 31, 2024 2023 Class A Class B Class A Class B Basic and Diluted EPS: Numerator Net income attributable to Warner Music Group Corp. $ 71 $ 184 $ 43 $ 113 Less: Net income attributable to participating securities ( 3 ) — ( 2 ) — Net income attributable to common stockholders $ 68 $ 184 $ 41 $ 113 Denominator Weighted average shares outstanding 140,013 377,145 137,841 377,650 Basic and Diluted EPS $ 0.49 $ 0.49 $ 0.30 $ 0.30 9 4. Revenue Recognition Disaggregation of Revenue The Company’s revenue consists of the following categories, which aggregate into the segments – Recorded Music and Music Publishing: Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 (in millions) Revenue by Type Digital $ 848 $ 796 $ 1,756 $ 1,599 Physical 111 118 265 251 Total digital and physical 959 914 2,021 1,850 Artist services and expanded-rights 126 131 330 337 Licensing 104 98 283 195 Total Recorded Music 1,189 1,143 2,634 2,382 Performance 52 45 103 90 Digital 187 146 383 295 Mechanical 15 16 30 30 Synchronization 48 46 87 85 Other 4 4 7 7 Total Music Publishing 306 257 610 507 Intersegment eliminations ( 1 ) ( 1 ) ( 2 ) ( 2 ) Total revenues $ 1,494 $ 1,399 $ 3,242 $ 2,887 Revenue by geographical location U.S. Recorded Music $ 508 $ 522 $ 1,135 $ 1,061 U.S. Music Publishing 170 135 342 268 Total U.S. 678 657 1,477 1,329 International Recorded Music 681 621 1,499 1,321 International Music Publishing 136 122 268 239 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 $ 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 $ 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 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. 10 Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2024 are as follows: Rest of FY24 FY25 FY26 Thereafter Total (in millions) Remaining performance obligations $ 352 $ 285 $ 23 $ 6 $ 666 Total $ 352 $ 285 $ 23 $ 6 $ 666 5. Acquisitions 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 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. 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. 6. Comprehensive Income Comprehensive income, which is reported in the accompanying condensed consolidated statements of equity, consists of net income and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income. For the Company, the components of other comprehensive income primarily consist of foreign currency translation gains and losses, minimum pension liabilities, and deferred gains and losses on financial instruments designated as hedges under ASC 815, Derivatives and Hedging . The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of less than $ 1 million: Foreign Currency Translation Loss (a) Minimum Pension Liability Adjustment Deferred Gains (Losses) On Derivative Financial Instruments Accumulated Other Comprehensive Loss, net (in millions) Balances at September 30, 2023 $ ( 322 ) $ ( 1 ) $ 1 $ ( 322 ) Other comprehensive income (loss) 23 ( 1 ) ( 1 ) 21 Balances at March 31, 2024 $ ( 299 ) $ ( 2 ) $ — $ ( 301 ) ______________________________________ (a) Includes historical foreign currency translation related to certain intra-entity transactions. 11 7. Goodwill and Intangible Assets Goodwill The following analysis details the changes in goodwill for each reportable segment: Recorded Music Music Publishing Total (in millions) Balances at September 30, 2023 $ 1,529 $ 464 $ 1,993 Acquisitions 5 — 5 Other adjustments (a) 9 — 9 Balances at March 31, 2024 $ 1,543 $ 464 $ 2,007 ______________________________________ (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. The Company may conduct an earlier review if events or circumstances occur that would suggest the carrying value of the Company’s goodwill may not be recoverable. No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test. Intangible Assets Intangible assets consist of the following: Weighted-Average Useful Life March 31, 2024 September 30, 2023 (in millions) Intangible assets subject to amortization: Recorded music catalog 12 years $ 1,537 $ 1,507 Music publishing copyrights 24 years 2,120 2,026 Artist and songwriter contracts 13 years 1,105 1,091 Trademarks 17 years 73 111 Other intangible assets 6 years 72 104 Total gross intangible assets subject to amortization 4,907 4,839 Accumulated amortization ( 2,589 ) ( 2,486 ) Total net intangible assets subject to amortization 2,318 2,353 Intangible assets not subject to amortization: Trademarks and tradenames Indefinite 150 149 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. 12 8. Debt Debt Capitalization Long-term debt, all of which was issued by Acquisition Corp., consists of the following: March 31, 2024 September 30, 2023 (in millions) Revolving Credit Facility (a) $ — $ — Senior Term Loan Facility due 2031 1,295 1,295 2.750 % Senior Secured Notes due 2028 (€ 325 face amount) 351 343 3.750 % Senior Secured Notes due 2029 540 540 3.875 % Senior Secured Notes due 2030 535 535 2.250 % Senior Secured Notes due 2031 (€ 445 face amount) 481 471 3.000 % Senior Secured Notes due 2031 800 800 Mortgage Term Loan due 2033 18 $ 18 Total long-term debt, including the current portion $ 4,020 $ 4,002 Issuance premium less unamortized discount and unamortized deferred financing costs ( 36 ) ( 38 ) Total long-term debt, including the current portion, net $ 3,984 $ 3,964 ______________________________________ (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. 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 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. Notes”). All of the Acquisition Corp. Notes are guaranteed by all of Acquisition Corp.’s domestic wholly-owned subsidiaries. The guarantee of the Acquisition Corp. Notes by Acquisition Corp.’s domestic wholly-owned subsidiaries is full, unconditional and joint and several. The secured notes are guaranteed on a senior secured basis. The Company and Holdings are holding companies that conduct substantially all of their business operations through Acquisition Corp. Accordingly, while Acquisition Corp. and its subsidiaries are not currently restricted from distributing funds to the Company and Holdings under the indentures for the Acquisition Corp. Notes or the credit agreements for the Acquisition Corp. 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 March 31, 2024 . 13 Fiscal 2024 Transactions Revolving Credit Agreement Amendment 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. 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. 14 Interest Rates The loans under the Revolving Credit Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Revolving Term SOFR”), and other rates for alternate currencies, such as EURIBOR and SONIA, as provided in the Revolving Credit Agreement, subject to a zero floor, plus 1.75 % per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or 1.875 % per annum in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement), or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50 % in excess of the overnight federal funds rate and (z) the one-month Revolving Term SOFR plus 1.0 % per annum, plus, in each case, 0.75 % per annum in the case of Initial Revolving Loans, or 0.875 % per annum in the case of 2020 Revolving Loans; provided that, in respect of 2020 Revolving Loans, the applicable margin with respect to such loans is subject to adjustment as set forth in the pricing grid in the Revolving Credit Agreement. Based on the Senior Secured Indebtedness to EBITDA Ratio of 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 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. Default interest will also be payable on other overdue amounts at a rate of 2.00 % per annum above the amount that would apply to an alternative base rate loan. 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 of our condensed consolidated financial statements for further discussion. Maturity of Senior Term Loan Facility The loans outstanding under the Senior Term Loan Facility mature on January 24, 2031. Maturity of Revolving Credit Facility The maturity date of the Revolving Credit Facility is November 30, 2028. Maturities of Senior Secured Notes 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. Maturity of Term Loan Mortgage The maturity date of the Term Loan Mortgage is January 27, 2033, subject to a call option exercisable by Truist Bank at any time after January 27, 2028 if certain criteria relating to the Company’s creditworthiness are met. Interest Expense, net Total interest expense, net was $ 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. 15 9. 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 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 (in millions) Balance at September 30, 2023 $ 19 Restructuring charges ( 1 ) Cash payments ( 12 ) Balance at March 31, 2024 $ 6 10. Commitments and Contingencies From time to time the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company is currently subject to several such claims and legal proceedings. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. 16 11. Equity Stock-Based Compensation 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 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. Common Stock 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 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. 12. Income Taxes 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 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 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 17 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% 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 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. 13. 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 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. Interest income or expense related to interest rate swaps is recognized in interest income (expense), net in the same period as the related expense is recognized. The ineffective portions of interest rate swaps are recognized in other income (expense) in the period measured. 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 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: March 31, 2024 September 30, 2023 (in millions) Other Current Assets: Interest rate swap $ — $ 2 Other Current Liabilities: Foreign currency forward exchange contracts (a) ( 1 ) — ______________________________________ (a) Includes $ 3 million and $ 4 million of foreign exchange derivative contracts in asset and liability positions, respectively, which net to $ 1 million of current liabilities. 18 14. Segment Information Based on the nature of its products and services, the Company classifies its business interests into two fundamental operations: Recorded Music and Music Publishing, which also represent the reportable segments of the Company. 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 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. 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 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. 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. The Company accounts for intersegment sales at fair value as if the sales were to third parties. While intercompany transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses recognized by the segment that is counterparty to the transaction) are eliminated in consolidation, and therefore, do not themselves impact consolidated results. Recorded Music Music Publishing Corporate expenses and eliminations Total Three Months Ended (in millions) March 31, 2024 Revenues $ 1,189 $ 306 $ ( 1 ) $ 1,494 Adjusted OIBDA 272 82 ( 42 ) 312 March 31, 2023 Revenues $ 1,143 $ 257 $ ( 1 ) $ 1,399 Adjusted OIBDA 249 76 ( 39 ) 286 Recorded Music Music Publishing Corporate expenses and eliminations Total Six Months Ended (in millions) March 31, 2024 Revenues $ 2,634 $ 610 $ ( 2 ) $ 3,242 Adjusted OIBDA 684 168 ( 89 ) 763 March 31, 2023 Revenues 2,382 507 ( 2 ) 2,887 Adjusted OIBDA 548 148 ( 75 ) 621 Adjusted OIBDA is not a measure defined by U.S. GAAP but is computed using amounts that are determined in accordance with U.S. GAAP. A reconciliation of the Company’s Adjusted OIBDA to operating income is presented below. 19 For the Three Months Ended March 31, For the Six Months Ended March 31, 2024 2023 2024 2023 Operating income $ 119 $ 124 $ 473 $ 389 Amortization expense 57 61 112 124 Depreciation expense 26 22 52 43 Restructuring and impairments 95 41 95 41 Transformation initiatives and other related costs 19 14 38 26 Executive transition costs — 3 — 3 Net gain on divestitures ( 14 ) — ( 31 ) ( 41 ) Non-cash stock-based compensation and other related costs 10 21 24 36 Adjusted OIBDA $ 312 $ 286 $ 763 $ 621 15. Additional Financial Information Supplemental Cash Flow Disclosures 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 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. Dividends 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 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. 20 16. Fair Value Measurements The following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of March 31, 2024 and September 30, 2023. Fair Value Measurements as of March 31, 2024 (Level 1) (Level 2) (Level 3) Total (in millions) Other current liabilities: Foreign currency forward exchange contracts (a) $ — $ ( 1 ) $ — $ ( 1 ) Other noncurrent assets: Equity investments with readily determinable fair value (c) 12 — — 12 Other noncurrent liabilities: Contractual obligations (b) — — ( 1 ) ( 1 ) Fair Value Measurements as of September 30, 2023 (Level 1) (Level 2) (Level 3) Total (in millions) Other current assets: Interest rate swap (d) $ — $ 2 $ — $ 2 Other noncurrent assets: Equity investment with readily determinable fair value (c) 15 — — 15 Other noncurrent liabilities: Contractual obligations (b) — — ( 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. (b) This represents contingent consideration related to acquisitions. This is based on a probability weighted performance approach and it is adjusted to fair value on a recurring basis and any adjustments are typically included as a component of operating income in the condensed consolidated statements of operations. This amount was primarily calculated using unobservable inputs such as future earnings performance of the acquiree and the expected timing of payments. (c) These represent equity investments with a readily determinable fair value. The Company has measured its investments to fair value in accordance with ASC 321, Investments—Equity Securities, based on quoted prices in active markets. (d) The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of 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: Total (in millions) Balance at September 30, 2023 $ ( 1 ) Additions — Reductions — Payments — 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. These assets are evaluated for impairment if certain triggering events occur. If such evaluation indicates that impairment exists, the asset is written down to its fair value. In addition, an impairment analysis is performed at least annually for goodwill and indefinite-lived intangible assets. Equity Investments Without Readily Determinable Fair Value The Company evaluates its equity investments without readily determinable fair values for impairment if factors indicate that a significant decrease in value has occurred. 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 21 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 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. The fair value of the Company’s debt instruments is determined using quoted market prices from less active markets or by using quoted market prices for instruments with identical terms and maturities; both approaches are considered a Level 2 measurement. 22