| Transaction costs (e) | 3 | | | 8 | | | 3 | | | — | |
| Business optimization expenses (f) | 68 | | | 54 | | | 24 | | | 11 | |
| Non-cash stock-based compensation expense (g) | 49 | | | 39 | | | 8 | | | 5 | |
| Other non-cash charges (h) | — | | | 23 | | | (1) | | | 11 | |
| Pro forma impact of cost savings initiatives and specified transactions (i) | 46 | | | 32 | | | 7 | | | 5 | |
| Adjusted EBITDA | $ | 1,311 | | | $ | 1,196 | | | $ | 340 | | | $ | 276 | |
| Senior Secured Indebtedness (j) | $ | 3,726 | | | | | | | |
| Leverage Ratio (k) | 2.84x | | | | | | |
______________________________________
(a)Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.
(b)Reflects net losses (gains) on sale of securities and divestitures.
(c)Reflects severance costs and other restructuring related expenses.
(d)Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions.
(e)Reflects mainly transaction related costs.
(f)Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $14 million and $48 million related to our finance transformation and other related costs for the three and twelve months ended September 30, 2023, respectively, as well as $9 million and $40 million for the three and twelve months ended September 30, 2022, respectively.
(g)Reflects non-cash stock-based compensation expense related to the Omnibus Incentive Plan and the Warner Music Group Corp. Senior Management Free Cash Flow Plan.
(h)Reflects non-cash activity, including the unrealized losses (gains) on the mark-to-market adjustment of equity investments, investment losses (gains), mark-to-market adjustments of an earn-out liability in 2022 and other non-cash impairments.
(i)Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended September 30, 2023. Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period. The pro forma impact of these specified transactions and initiatives resulted in a $2 million increase in the twelve months ended September 30, 2023 Adjusted EBITDA.
(j)Reflects primarily the balance of senior secured debt at Acquisition Corp. of approximately $3.964 billion and less cash of $250 million.
(k)Reflects the ratio of Senior Secured Indebtedness, including Revolving Credit Agreement Indebtedness, to Adjusted EBITDA. This is calculated net of cash and equivalents of the Company as of September 30, 2023 not exceeding $250 million. If the outstanding aggregate principal amount of borrowings and drawings under letters of credit which have not been reimbursed under our Revolving Credit Facility is greater than $105 million at the end of a fiscal quarter, the maximum leverage ratio permitted under the Revolving Credit Facility is 5.00:1.00. The Company’s Revolving Credit Facility does not impose any “leverage ratio” maintenance requirement on the Company when the aggregate principal amount of borrowings and drawings under letters of credit, which have not been reimbursed under the Revolving Credit Facility, is less than or equal to $105 million at the end of a fiscal quarter. On May 4, 2021, certain covenants set forth in our Revolving Credit
Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.
Summary
Management believes that funds generated from our operations and borrowings under the Revolving Credit Facility and available cash and equivalents will be sufficient to fund our debt service requirements, working capital requirements and capital expenditure requirements for the foreseeable future. We also have additional borrowing capacity under our indentures and the Senior Term Loan Facility. However, our ability to continue to fund these items and to reduce debt may be affected by general economic, financial, competitive, legislative and regulatory factors, as well as other industry-specific factors such as the ability to control music piracy and the continued transition from physical to digital formats in the recorded music and music publishing industries. It could also be affected by the severity and duration of geopolitical conflicts or natural or man-made disasters, including pandemics such as COVID-19. We and our affiliates continue to evaluate opportunities to, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to pay dividends or prepay outstanding debt or repurchase or retire Acquisition Corp.’s outstanding debt or debt securities or repurchase our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise. The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings. In addition, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, we may seek to refinance the Senior Credit Facilities or our outstanding debt or debt securities with existing cash and/or with funds provided from additional borrowings.
Contractual and Other Obligations
Firm Commitments
The following table summarizes the Company’s aggregate contractual obligations at September 30, 2023, and the estimated timing and effect that such obligations are expected to have on the Company’s liquidity and cash flow in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Firm Commitments and Outstanding Debt | | Less than
1 year | | 1-3
years | | 3-5
years | | After 5
years | | Total |
| | (in millions) |
| Senior Secured Notes (1) | | $ | — | | | $ | — | | | $ | 343 | | | $ | 2,346 | | | $ | 2,689 | |
| Interest on Senior Secured Notes (1) | | 85 | | | 170 | | | 170 | | | 164 | | | 589 | |
| Senior Term Loan Facility (1) | | — | | | — | | | 1,295 | | | — | | | 1,295 | |
| Interest on Senior Term Loan Facility (1) | | 97 | | | 163 | | | 100 | | | — | | | 360 | |
Term Loan Mortgage (1) | | — | | | — | | | — | | | 18 | | | 18 | |
Interest on Term Loan Mortgage (1) | | 1 | | | 2 | | | 2 | | | 3 | | | 8 | |
| Operating leases (2) | | 56 | | | 104 | | | 98 | | | 104 | | | 362 | |
| Artist, songwriter and co-publisher commitments (3) | | 383 | | | * | | * | | * | | 383 | |
| Minimum funding commitments to investees and other obligations (4) | | 18 | | | 27 | | | 1 | | | — | | | 46 | |
| Total firm commitments and outstanding debt | | $ | 640 | | | $ | 466 | | | $ | 2,009 | | | $ | 2,635 | | | $ | 5,750 | |
______________________________________
The following is a description of our firmly committed contractual obligations at September 30, 2023:
(1)Outstanding debt obligations consist of the Senior Secured Notes, Senior Term Loan Facility and the Term Loan Mortgage. These obligations have been presented based on the principal amounts due as of September 30, 2023. Amounts do not include any fair value adjustments, bond premiums, discounts or unamortized deferred financing costs.
(2)Operating lease obligations primarily relate to the minimum lease rental obligations for our real estate and operating equipment in various locations around the world.
(3)The Company routinely enters into long-term commitments with recording artists, songwriters and publishers for the future delivery of music. Such commitments generally become due only upon delivery and Company acceptance of albums from the recording artists or future musical compositions from songwriters and publishers. Additionally, such commitments are typically cancellable at the Company’s discretion, generally without penalty. Based on contractual obligations and the Company’s expected release schedule, off-balance sheet aggregate firm commitments to such talent approximated $383 million at September 30, 2023. The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and the Company’s expected release schedule approximates $236 million at September 30, 2023.
(4)We have minimum funding commitments and other related obligations to support the operations of various investments, which are reflected in the table above. Other long-term liabilities, which are not included in the table above, include $13 million and $8 million of liabilities for uncertain tax positions as of September 30, 2023 and September 30, 2022, respectively. We are unable to accurately predict when these amounts will be realized or released.
*Because the timing of payment, and even whether payment occurs, is dependent upon the timing of delivery of albums and musical compositions, the timing and amount of payment of these commitments as presented in the above summary can vary significantly.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC’s Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to our financial condition and results, and requires significant judgment and estimates on the part of management in our application. We believe the following list represents critical accounting policies as contemplated by FRR 60. For a summary of all of our significant accounting policies, see Note 2 to our consolidated financial statements included elsewhere herein.
Business Combinations
We account for our business acquisitions under the FASB ASC Topic 805, Business Combinations (“ASC 805”) guidance for business combinations. The total cost of acquisitions is allocated to the underlying identifiable net assets based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. If our assumptions or estimates in the fair value calculation change based on information that becomes available during the one-year period from the acquisition date, the fair value of our acquired intangible assets could change; this would also change the value of our goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Accounting for Goodwill and Other Intangible Assets
We account for our goodwill and other indefinite-lived intangible assets as required by FASB ASC Topic 350, Intangibles - Goodwill and Other (“ASC 350”). We test goodwill for impairment at the reporting unit level and have concluded that our reporting units are generally the same as our reportable segments. We evaluate the determination of our reporting units periodically or whenever events or substantive changes in circumstances occur. ASC 350 requires that goodwill and certain intangible assets be assessed for impairment using fair value measurement techniques on an annual basis and when events occur that may suggest that the fair value of such assets cannot support the carrying value. ASC 350 gives an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible asset is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit or intangible asset is less than its carrying amount, then performing the quantitative impairment test is unnecessary. However, if an entity concludes otherwise, then the quantitative impairment test shall be used to identify the impairment and measure the amount of an impairment loss to be recognized (if applicable).
As of September 30, 2023, we had recorded goodwill in the amount of $1.993 billion, including $1.529 billion and $464 million for our Recorded Music and Music Publishing businesses, respectively, primarily related to the Merger and PLG Acquisition. As of September 30, 2023, we had recorded indefinite-lived intangible assets of $149 million. We test our goodwill and other indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter of each fiscal year as of July 1. We performed a qualitative assessment for our reporting units and other indefinite-lived intangible assets in fiscal 2023. This assessment considered changes in our projected future cash flows and discount rates, recent market transactions and overall macroeconomic conditions. Based on this assessment, we concluded that it was more likely than not that the estimated fair values of our reporting units and other indefinite-lived intangible assets were higher than their carrying values and that the performance of a quantitative impairment test was not required.
See Note 9 to the consolidated financial statements for a further discussion of our goodwill and intangible assets.
Revenue and Cost Recognition
Revenues
Recorded Music
As required by FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when, or as, control of the promised services or goods is transferred to our customers and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods. The Company’s revenue recognition process involves several applications that are responsible for the initiation and processing of transactions in order to recognize revenue in accordance with the Company’s policy and ASC 606.
Revenues from the sale or license of Recorded Music products through digital distribution channels are typically recognized when sale or usage occurs based on usage reports received from the customer. Certain contracts contain minimum guarantees, which are recoupable against royalties. Upon contract inception, the Company will assess whether a shortfall or breakage is expected (i.e., where the minimum guarantee will not be recouped through royalties) in order to determine timing of revenue recognition for the minimum guarantee.
For fixed fee contracts and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is typically recognized using an appropriate measure of progress over the contractual term. The Company updates its assessment of the transaction price each reporting period to see if anticipated royalty earnings exceed the minimum guarantee. For contracts where breakage is not expected, royalties are recognized as revenue as sales or usage occurs based upon the licensee’s usage reports and, when these reports are not available, revenue is based on historical data, industry information and other relevant trends.
Music Publishing
Music Publishing revenues are earned from the receipt of royalties relating to the licensing of rights in musical compositions and the sale of published sheet music and songbooks. The receipt of royalties principally relates to amounts earned from the public performance of musical compositions, the mechanical reproduction of musical compositions on recorded media, including digital formats and the use of musical compositions in synchronization with visual images. Music publishing royalties, except for synchronization royalties, generally are recognized when the sale or usage occurs. The most common form of consideration for publishing contracts is sales- and usage-based royalties. The collecting societies submit usage reports, typically with payment for royalties due, often on a quarterly or biannual reporting period, in arrears. Royalties are recognized as the sale or usage occurs based upon usage reports and, when these reports are not available, royalties are estimated based on historical data, such as recent royalties reported, company-specific information with respect to changes in repertoire, industry information and other relevant trends. Synchronization revenue is typically recognized as revenue when control of the license is transferred to the customer in accordance with ASC 606.
Accounting for Royalty Costs and Royalty Advances
The Company incurs royalty costs that are payable to our recording artists and songwriters generated from the sale or license of our Recorded Music catalog and Music Publishing copyrights. Royalties owed to artists are calculated using negotiated rates which is applied to revenue earned in accordance with recording artist and songwriter contracts. There are instances where such data is not available to be processed and royalty cost calculations may involve judgments about significant volumes of data to be processed and analyzed.
We had $2,219 million and $1,918 million of royalty payables in our balance sheet at September 30, 2023 and September 30, 2022, respectively.
In many instances, the Company commits to pay our recording artists and songwriters royalties in advance of future sales. The Company accounts for these advances under the related guidance in FASB ASC Topic 928, Entertainment—Music (“ASC 928”). Under ASC 928, the Company capitalizes as assets advances that it believes are recoverable from future royalties to be earned by the recording artist or songwriter. Recoverability is assessed upon initial commitment of the advance based upon the Company’s forecast of anticipated revenue from the sale of future and existing albums or musical compositions. In determining whether the advance is recoverable, the Company evaluates the current and past popularity of the recording artist or songwriter, the sales history of the recording artist or songwriter, the initial or expected commercial acceptability of the product, the current and past popularity of the genre of music that the product is designed to appeal to, and other relevant factors. Advances vary in both amount and expected life based on the underlying recording artist or songwriter. To the extent that a portion of an outstanding advance is no longer deemed recoverable, that amount will be expensed in the period the determination is made.
We had $1,101 million and $875 million of advances in our balance sheet at September 30, 2023 and September 30, 2022, respectively. We believe such advances are recoverable through future royalties to be earned by the applicable recording artists and songwriters.
Recent Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements included elsewhere herein for more information regarding recently issued accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in Note 17 to our consolidated financial statements included herein, the Company is exposed to market risk arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates. As of September 30, 2023, other than as described below, there have been no material changes to the Company’s exposure to market risk since September 30, 2022.
Foreign Currency Risk
Within our global business operations we have transactional exposures that may be adversely affected by changes in foreign currency exchange rates relative to the U.S. dollar. We may at times choose to use foreign exchange currency derivatives, primarily forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies, such as unremitted or future royalties and license fees owed to our U.S. companies for the sale or licensing of U.S.-based music and merchandise abroad that may be adversely affected by changes in foreign currency exchange rates. We focus on managing the level of exposure to the risk of foreign currency exchange rate fluctuations on major currencies, which can include the euro, British pound sterling, Japanese yen, Canadian dollar, Swedish krona, Australian dollar, Brazilian real, Korean won and Norwegian krone, and in many cases we have natural hedges where we have expenses associated with local operations that offset the revenue in local currency and our euro-denominated debt, which can offset declines in the euro. As of September 30, 2023, the Company had no outstanding hedge contracts.
Interest Rate Risk
We had $4.002 billion of principal debt outstanding at September 30, 2023, of which $1.313 billion was variable-rate debt and $2.689 billion was fixed-rate debt. As such, we are exposed to changes in interest rates. At September 30, 2023, 67% of the Company’s debt was at a fixed rate. In addition, as of September 30, 2023, we have the option under all of our floating rate debt under the Senior Term Loan Facility to select a one, two, three or six month SOFR rate. To manage interest rate risk on $1,313 million of U.S. dollar-denominated variable-rate debt, the Company has entered into an interest rate swap to effectively convert the floating interest rate to a fixed interest rate on a portion of its variable-rate debt. As a result, as of September 30, 2023, 80% of the Company’s debt was effectively at a fixed rate.
Based on the level of interest rates prevailing at September 30, 2023, the fair value of the Company’s fixed-rate and variable-rate debt was approximately $3.525 billion. Further, as of September 30, 2023, based on the amount of the Company’s fixed-rate debt, a 25 basis point increase or decrease in the level of interest rates would decrease the fair value of the fixed-rate debt by approximately $32 million or increase the fair value of the fixed-rate debt by approximately $33 million. This potential fluctuation is based on the simplified assumption that the level of fixed-rate debt remains constant with an immediate across the board increase or decrease in the level of interest rates with no subsequent changes in rates for the remainder of the period.
Inflation Risk
Inflationary factors such as increases in overhead costs may adversely affect our results of operations. We do not believe that inflation has had a material effect on our business, financial condition or results of operations to date. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases for services. Our inability or failure to do so could harm our business, financial condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WARNER MUSIC GROUP CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Warner Music Group Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Warner Music Group Corp. and subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the years in the three-year period ended September 30, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 21, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sufficiency of audit evidence over Recorded Music digital revenue
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company generated $3,322 million of digital revenues within the Recorded Music segment for the year ended September 30, 2023. The Company’s Recorded Music digital revenue recognition process involves a high volume of royalty transactions dependent on several information technology (IT) applications responsible for the initiation, processing, and recording of transactions in accordance with the Company’s accounting policy.
We identified the evaluation of the sufficiency of audit evidence related to digital revenue in the Recorded Music segment as a critical audit matter. Evaluating the sufficiency of audit evidence required especially subjective auditor judgment due to the multiple IT applications, data interfaces, and processing used for the initiation, processing, and recording of transactions, and therefore required involvement of IT professionals.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over Recorded Music digital revenue. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Recorded Music digital revenue process, including involving IT professionals with specialized skills and knowledge, who assisted in that evaluation and testing. This included controls over the capture and flow of royalty transaction information through the Company’s IT systems. For a selection of Recorded Music digital revenue agreements, we read the underlying agreements and evaluated the Company’s assessment of the contract terms in accordance with revenue recognition requirements. For a sample of revenue transactions, we compared the amounts recognized to (1) underlying sales and usage statements received from customers and cash receipts, where applicable, and (2) underlying documentation, including contracts. For a sample of manual journal entries to Recorded Music digital revenue, which included amounts for contracts that contain non-recoupable fixed fees or minimum guarantees, we agreed amounts to underlying documentation and, where applicable, recalculated the Company’s determination of revenue recognized. In addition, we evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed, including appropriateness of the nature and extent of such evidence.
/s/
We have served as the Company’s auditor since 2015.
November 21, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Warner Music Group Corp.:
Opinion on Internal Control Over Financial Reporting
We have audited Warner Music Group Corp. and subsidiaries' (the Company) internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the years in the three-year period ended September 30, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated November 21, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
November 21, 2023
Warner Music Group Corp.
Consolidated Balance Sheets
(In millions, except share amounts which are reflected in thousands)
| | | | | | | | | | | |
| September 30,
2023 | | September 30,
2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and equivalents | $ | | | | $ | | |
Accounts receivable, net of allowances of $ million and $ million | | | | | |
| Inventories | | | | | |
| Royalty advances expected to be recouped within one year | | | | | |
| Prepaid and other current assets | | | | | |
| Total current assets | | | | | |
| Royalty advances expected to be recouped after one year | | | | | |
| Property, plant and equipment, net | | | | | |
| Operating lease right-of-use assets, net | | | | | |
| Goodwill | | | | | |
| Intangible assets subject to amortization, net | | | | | |
| Intangible assets not subject to amortization | | | | | |
| Deferred tax assets, net | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | | | | $ | | |
| Accrued royalties | | | | | |
| Accrued liabilities | | | | | |
| Accrued interest | | | | | |
| Operating lease liabilities, current | | | | | |
| Deferred revenue | | | | | |
| Other current liabilities | | | | | |
| Total current liabilities | | | | | |
| Long-term debt | | | | | |
| Operating lease liabilities, noncurrent | | | | | |
| Deferred tax liabilities, net | | | | | |
| Other noncurrent liabilities | | | | | |
| Total liabilities | $ | | | | $ | | |
| Equity: | | | |
Class A common stock, $ par value; shares authorized, and shares issued and outstanding as of September 30, 2023 and September 30, 2022, respectively | $ | | | | $ | | |
Class B common stock, $ par value; shares authorized, and issued and outstanding as of September 30, 2023 and September 30, 2022, respectively | | | | | |
| Additional paid-in capital | | | | | |
| Accumulated deficit | () | | | () | |
| Accumulated other comprehensive loss, net | () | | | () | |
| Total Warner Music Group Corp. equity | | | | | |
| Noncontrolling interest | | | | | |
| Total equity | | | | | |
| Total liabilities and equity | $ | | | | $ | | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Operations
(In millions, except share amounts which are reflected in thousands, and per share data)
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended September 30, |
| 2023 | | 2022 | | 2021 |
| Revenue | $ | | | | $ | | | | $ | | |
| Costs and expenses: | | | | | |
| Cost of revenue | () | | | () | | | () | |
| Selling, general and administrative expenses (a) | () | | | () | | | () | |
Restructuring | () | | | | | | | |
| Amortization expense | () | | | () | | | () | |
| Total costs and expenses | () | | | () | | | () | |
Net gain on divestiture | | | | | | | | |
| Operating income | | | | | | | | |
| Loss on extinguishment of debt | () | | | | | | () | |
| Interest expense, net | () | | | () | | | () | |
| Other (expense) income, net | () | | | | | | () | |
| Income before income taxes | | | | | | | | |
| Income tax expense | () | | | () | | | () | |
| Net income | | | | | | | | |
| Less: Income attributable to noncontrolling interest | () | | | () | | | () | |
| Net income attributable to Warner Music Group Corp. | $ | | | | $ | | | | $ | | |
| | | | | |
| Net income per share attributable to common stockholders: | | | | | |
| Class A – Basic and Diluted | $ | | | | $ | | | | $ | | |
| Class B – Basic and Diluted | $ | | | | $ | | | | $ | | |
| Weighted average common shares: | | | | | |
| Class A – Basic and Diluted | | | | | |
| Class B – Basic and Diluted | | | | | |
| | | | | |
| (a) Includes depreciation expense: | $ | () | | | $ | () | | | $ | () | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Comprehensive Income
(In millions)
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended September 30, |
| 2023 | | 2022 | | 2021 |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency adjustment, net | | | | () | | | | |
| Deferred (loss) gain on derivative financial instruments | () | | | | | | | |
| Minimum pension liability | | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | () | | | | |
| Total comprehensive income | | | | | | | | |
| Less: Income attributable to noncontrolling interest | () | | | () | | | () | |
| Comprehensive income attributable to Warner Music Group Corp. | $ | | | | $ | | | | $ | | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Cash Flows
(In millions)
| | | | | | | | | | | | | | | | | |
| Fiscal Year Ended September 30, |
| 2023 | | 2022 | | 2021 |
| Cash flows from operating activities | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | | | | | | | | |
| Unrealized losses (gains) and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts | | | | () | | | | |
| Deferred income taxes | () | | | | | | | |
| Loss on extinguishment of debt | | | | | | | | |
| Net loss (gain) on divestitures and investments | () | | | | | | | |
| Non-cash interest expense | | | | | | | | |
| Non-cash stock-based compensation expense | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | () | | | () | | | () | |
| Inventories | () | | | () | | | () | |
| Royalty advances | () | | | () | | | () | |
| Accounts payable and accrued liabilities | | | | () | | | | |
| Royalty payables | | | | | | | | |
| Accrued interest | | | | | | | () | |
| Operating lease liabilities | () | | | () | | | () | |
| Deferred revenue | () | | | | | | | |
| Other balance sheet changes | () | | | | | | () | |
| Net cash provided by operating activities | | | | | | | | |
| Cash flows from investing activities | | | | | |
| Acquisition of music publishing rights and music catalogs, net | () | | | () | | | () | |
| Capital expenditures | () | | | () | | | () | |
| Investments and acquisitions of businesses, net of cash received | () | | | () | | | () | |
| Proceeds from the sale of investments | | | | | | | | |
Proceeds from divestitures, net | | | | | | | | |
| Net cash used in investing activities | () | | | () | | | () | |
| Cash flows from financing activities | | | | | |
| Proceeds from incremental Senior Term Loan Facility - Tranche G | | | | | | | | |
| Proceeds from incremental Senior Term Loan Facility - Tranche H | | | | | | | | |
| Repayment of Senior Term Loan Facility - Tranche H | () | | | | | | | |
| Proceeds from Nashville Term Loan Mortgage | | | | | | | | |
| Repayment of Term Loan Mortgage | () | | | | | | | |
Proceeds from issuance of % Senior Secured Notes due 2029 | | | | | | | | |
Proceeds from issuance of % Senior Secured Notes due 2031 | | | | | | | | |
Proceeds from issuance of % Senior Secured Notes due 2031 | | | | | | | | |
Repayment of % Senior Notes due 2026 | | | | | | | () | |
Repayment of % Senior Secured Notes due 2026 | | | | | | | () | |
| Deferred financing costs paid | () | | | () | | | () | |
| Call premiums paid on early redemption of debt | | | | | | | () | |
| Distribution to noncontrolling interest holders | () | | | () | | | () | |
| Dividends paid | () | | | () | | | () | |
| Payment of deferred and contingent consideration | () | | | () | | | | |
| Taxes paid related to net share settlement of restricted stock units | | | | () | | | | |
| Other | () | | | () | | | | |
| Net cash (used in) provided by financing activities | () | | | | | | () | |
| Effect of exchange rate changes on cash and equivalents | () | | | () | | | | |
| Net increase (decrease) in cash and equivalents | | | | | | | () | |
| Cash and equivalents at beginning of period | | | | | | | | |
| Cash and equivalents at end of period | $ | | | | $ | | | | $ | | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Equity
(In millions, except share amounts which are reflected in thousands, and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A
Common Stock | | Class B
Common Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total
Warner Music
Group Corp.
Equity (Deficit) | | Non-controlling Interest | | Total
Equity
(Deficit) |
| Shares | | Value | | Shares | | Value | | | | | | |
| Balances at September 30, 2020 | | | | $ | | | | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | () | |
|
Net income | — | | | — | | | — | | | — | | | — | | | | | | — | | | | | | | | | | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | — | | | | |
Dividends ($ per share) | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | | | — | | | () | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | | | | |
| Distribution to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
Exchange of Class B shares for Class A shares | | | | — | | | () | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares issued under the Plan | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Class B shares to Class A shares | | | | — | | | () | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued under Omnibus Incentive Plan | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
| Balances at September 30, 2021 | | | | $ | | | | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | | |
| Net income | — | | | — | | | — | | | — | | | — | | | | | | — | | | | | | | | | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | | | — | | | () | |
Dividends ($ per share) | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | | | — | | | () | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | | | | |
| Distribution to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
Vesting of restricted stock units, net of shares withheld for employee taxes | | | | — | | | — | | | — | | | () | | | — | | | — | | | () | | | — | | | () | |
Conversion of Class B shares to Class A shares | | | | — | | | () | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
| Shares issued under Omnibus Incentive Plan | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | — | | | — | | | () | | | — | | | — | | | () | | | | | | () | |
| Balances at September 30, 2022 | | | | $ | | | | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | | |
| Net income | — | | | — | | | — | | | — | | | — | | | | | | — | | | | | | | | | | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | — | | | | |
Dividends ($ per share) | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | | | — | | | () | |
| Stock-based compensation expense | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | — | | | | |
| Distribution to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
|
|
Acquisition of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Shares issued under the Plan | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued under Omnibus Incentive Plan | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | — | | | — | | | | | | — | | | — | | | | | | () | | | () | |
| Balances at September 30, 2023 | | | | $ | | | | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | | |
See accompanying notes
Warner Music Group Corp.
Notes to Consolidated Financial Statements
1.
per share (“Class A Common Stock”). The Company listed its shares on the NASDAQ stock market under the ticker symbol “WMG.” The offering consisted entirely of secondary shares sold by Access Industries, LLC (collectively with its affiliates, “Access”) and certain related selling stockholders.Access continues to hold all of the Class B common stock of the Company, par value $ per share (“Class B Common Stock”), representing approximately % of the total combined voting power of the Company’s outstanding common stock and approximately % of the economic interest as of September 30, 2023. As a result, the Company is a “controlled company” within the meaning of the corporate governance standards of NASDAQ. See Item 1A. Risk Factors — Risks Related to Our Controlling Stockholder.
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.
% and %, respectively, of the Company’s accounts receivable balance. No other single customer accounted for more than 10% of accounts receivable in either period. The Company, by policy, routinely assesses the financial strength of its customers. As such, the Company does not believe there is any significant collection risk.In the Music Publishing business, the Company collects a significant portion of its royalties from copyright collecting societies around the world. Collecting societies and associations generally are not-for-profit organizations that represent composers, songwriters and music publishers. These organizations seek to protect the rights of their members by licensing, collecting license fees and distributing royalties for the use of the members’ works. Accordingly, the Company does not believe there is any significant collection risk from such societies.
for furniture and fixtures, periods of up to for computer equipment and software and periods of up to for machinery and equipment. Buildings are depreciated over periods of up to . Leasehold improvements are depreciated over the life of the lease or estimated useful lives of the improvements, whichever period is shorter. Construction in progress assets are not depreciated until placed in service and available for their intended use, at which time they are assigned a useful life consistent with the nature of the asset.The Company accounts for costs incurred to develop or purchase computer software for internal use in accordance with FASB ASC Subtopic 350-40, Internal-Use Software (“ASC 350-40”). As required by ASC 350-40, the Company capitalizes the costs incurred during the application development stage, which include costs to design the software configuration and interfaces, coding, installation, and testing.
The Company recorded foreign currency transaction gains of $ million, losses of $ million and losses of $ within operating income on the consolidated statement of operations during the years ended September 30, 2023, 2022 and 2021, respectively. The Company recorded foreign currency transaction losses of $ million, gains of $ million and losses of $ million within other (expense) income, net on the consolidated statement of operations during the years ended September 30, 2023, 2022 and 2021, respectively.
million, $ million and $ million for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively. Deferred advertising costs, which principally relate to advertisements that have been paid for but not been exhibited or services that have not been received, were not material for all periods presented..The Company also grants restricted stock to the Company’s directors. The Company recognizes stock-based compensation expense equal to the grant date fair value of the restricted stock, based on the closing stock price on grant date, on a straight-line basis over the requisite service period of the awards, which is generally one year.
The Company also grants market-based performance share units (“PSUs”) to our Chief Executive Officer whereby the PSU award payout is determined based on the Company’s total shareholder return compared to a designated peer group. The Company recognizes stock-based compensation expense based on the grant date fair value of the PSUs using a Monte Carlo simulation model analysis, on a straight-line basis over the requisite service period of the awards, which is approximately .
3.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Less: Net income attributable to participating securities | () | | | | | | () | | | | | | () | | | | |
Net income attributable to common stockholders | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Denominator | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | | | | | | | | |
| Basic and Diluted EPS | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
4.
| | $ | | | | $ | | | | Physical | | | | | | | | |
| Total Digital and Physical | | | | | | | | |
| Artist services and expanded-rights | | | | | | | | |
| Licensing | | | | | | | | |
| Total Recorded Music | | | | | | | | |
| Performance | | | | | | | | |
| Digital | | | | | | | | |
| Mechanical | | | | | | | | |
| Synchronization | | | | | | | | |
| Other | | | | | | | | |
| Total Music Publishing | | | | | | | | |
| Intersegment eliminations | () | | | () | | | () | |
| Total Revenues | $ | | | | $ | | | | $ | | |
| Revenue by Geographical Location | | | | | |
| U.S. Recorded Music | $ | | | | $ | | | | $ | | |
| U.S. Music Publishing | | | | | | | | |
| Total U.S. | | | | | | | | |
| International Recorded Music | | | | | | | | |
| International Music Publishing | | | | | | | | |
| Total International | | | | | | | | |
| Intersegment eliminations | () | | | () | | | () | |
| Total Revenues | $ | | | | $ | | | | $ | | |
Recorded Music
Recorded Music mainly involves selling, marketing, distribution and licensing of recorded music produced by the Company’s recording artists. Recorded Music revenues are derived from main sources, which include digital, physical, artist services and expanded-rights, and licensing.
Digital revenues are generated from the expanded universe of digital partners, including digital streaming services and download services. These licenses typically contain a single performance obligation, which is ongoing access to all intellectual property in an evolving content library, predicated on: (1) the business practice and contractual ability to remove specific content without a requirement to replace the content and without impact to minimum royalty guarantees and (2) the contracts not containing a specific listing of content subject to the license. Digital licensing contracts are generally long-term with consideration in the form of sales- and usage-based royalties that are typically received monthly. Certain contracts contain minimum guarantees, which are recoupable against royalties. Upon contract inception, the Company will assess whether a shortfall or breakage is expected (i.e., where the minimum guarantee will not be recouped through royalties) in order to determine timing of revenue recognition for the minimum guarantee.
For fixed fee contracts and minimum guarantee contracts where breakage is expected, the total transaction price (fixed fee or minimum guarantee) is recognized proportionately over the contract term using an appropriate measure of progress which is based on the Company’s digital partner’s subscribers or streaming activity as these are measures of access to an evolving catalog, or on a straight-line basis. The Company updates its assessment of the transaction price each reporting period to see if anticipated royalty
main sources: mechanical, performance, synchronization, digital and other.Digital revenues are generated with respect to the musical compositions being embodied in recordings licensed to digital streaming services and digital download services and for digital performance. Performance revenues are received when the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs) and performance of musical compositions in staged theatrical productions. Mechanical revenues are generated with respect to the musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs. Synchronization revenues represent the right to use the composition in combination with visual images such as in films or television programs, television commercials and video games as well as from other uses such as in toys or novelty items and merchandise. Other revenues represent earnings for use in printed sheet music and other uses. Digital and synchronization revenue recognition is similar for both Recorded Music and Music Publishing, therefore refer to the discussion within Recorded Music.
Included in these revenue streams, excluding synchronization and other, are licenses with performing rights organizations or collecting societies (e.g., ASCAP, BMI, SESAC and GEMA), which are long-term contracts containing a single performance obligation, which is ongoing access to all intellectual property in an evolving content library. The most common form of consideration for these contracts is sales- and usage-based royalties. The collecting societies submit usage reports, typically with payment for royalties due, often on a quarterly or biannual reporting period, in arrears. Royalties are recognized as the sale or usage occurs based upon usage reports and, when these reports are not available, royalties are estimated based on historical data, such as recent royalties reported, company-specific information with respect to changes in repertoire, industry information and other relevant trends. Also included in these revenue streams are smaller, short-term contracts for specified content, which generally involve a fixed fee. For fixed-fee contracts, revenue is recognized at the point in time when control of the license is transferred to the customer.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers.
million and $ million were established at September 30, 2023 and September 30, 2022, respectively.Based on management’s analysis of estimated credit losses, reserves of $ million and $ million were established at September 30, 2023 and September 30, 2022, respectively.
Principal versus Agent Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service before transfer to the customer. When the Company concludes that it controls the good or service before transfer to the customer, the Company is considered a principal in the transaction and records revenue on a gross basis. When the Company concludes that it does not control the good or service before transfer to the customer but arranges for another entity to provide the good or service, the Company acts as an agent and records revenue on a net basis in the amount it earns for its agency service.
In the normal course of business, the Company distributes music content on behalf of third-party record labels. Based on the above guidance, the Company records the distribution of content of third-party record labels on a gross basis, subject to the terms of the contract, as the Company controls the content before transfer to the customer. Conversely, recorded music distributed by other record companies where the Company has a right to participate in the profits are recorded on a net basis.
Deferred Revenue
Deferred revenue principally relates to fixed fees and minimum guarantees received in advance of the Company’s performance or usage by the licensee. Reductions in deferred revenue are a result of the Company’s performance under the contract or usage by the licensee.
Deferred revenue increased by $ million during the fiscal year ended September 30, 2023 and $ million during the fiscal year ended September 30, 2022 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period. Revenue recognized during the fiscal years ended September 30, 2023 and 2022 which was included in the deferred revenue balance at the beginning of each respective period was $ million and $ million. There were no other significant changes to deferred revenue during the reporting period.
Performance Obligations
For the fiscal years ended September 30, 2023, 2022 and 2021, the Company recognized revenue of $ million, $ million and $ million, respectively, from performance obligations satisfied in previous periods.
| | $ | | | | $ | | | | $ | | | | $ | | | | Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
5.
% 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 $ million which was comprised of the base purchase price of $ million and the preliminary working capital adjustments, primarily comprised of cash acquired, net of a deferred purchase price of $ million which is payable on or prior to one year from the acquisition date. The acquisition of TenThousand Projects was accounted for as a business combination in accordance with ASC 805, Business Combinations, using the acquisition method of accounting, as the Company had acquired a controlling financial interest in TenThousand Projects. The results of operations of TenThousand Projects have been included in the Company’s results of operations from the date of the acquisition.
The preliminary estimate of the fair value of the net assets acquired was approximately $ million and primarily consisted of royalty advances. The preliminary estimate of the fair value of identifiable intangible assets subject to amortization was approximately $ million and consists of a recorded music catalog, artist and songwriting contracts, and trademarks which have a preliminary fair value of $ million, $ million, and $ million, respectively. The weighted-average useful lives of these intangible assets identified are consistent with the average remaining useful lives of such intangible assets previously acquired by the Company as disclosed in Note 9. The preliminary estimate of the fair value of the noncontrolling interest in the acquiree was approximately $ million and was determined using the implied enterprise value of the business based on the purchase price. The excess of the purchase price over the preliminary estimate of the fair value of net assets acquired, including the amount assigned to identifiable intangibles assets, was approximately $ million and has been recorded as goodwill. The resulting goodwill has been included in our Recorded Music reportable segment and the Company’s % share will be deductible for income tax purposes.
The acquisition accounting is subject to revision based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired, in addition to the determination of the final consideration, including the determination of the final working capital adjustment pursuant to the mechanism set forth in the Unit Purchase Agreement.
For the fiscal year ended September 30, 2023, the Company incurred costs related to this acquisition of approximately $ million, which were expensed as incurred and recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations. The unaudited pro forma revenue and operating income as if the acquisition occurred on October 1, 2021 was not material to the Company’s reported results for the fiscal years ended September 30, 2023 and September 30, 2022.
300 Entertainment
On December 16, 2021, the Company purchased all outstanding shares of Theory Entertainment LLC d/b/a 300 Entertainment (“300 Entertainment”), an independent U.S. record label, pursuant to the terms and conditions of the merger agreement of the same date among Warner Music Inc. and MM Investment LLC, both wholly-owned subsidiaries of the Company, the Buyer Representative, Trifecta Merger Subsidiary LLC, Theory Entertainment LLC d/b/a 300 Entertainment and the Seller Representative (the “Merger Agreement”). Cash consideration paid was $ million, which reflects the base purchase price of $ million, adjusted for, among other items, working capital.
The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, using the acquisition method of accounting. The excess of the purchase price over the fair value of the net assets acquired, including the amount assigned to identifiable intangible assets, has been recorded as goodwill. The resulting goodwill has been included in our Recorded Music reportable segment. The recognized goodwill will be deductible for income tax purposes. Any impairment charges made in future periods associated with goodwill, if any, will not be tax-deductible.
| | Accounts receivable | | |
| Royalty advances | | |
| Property, plant and equipment, net | | |
| Operating lease right-of-use assets, net | | |
| Goodwill | | |
| Intangible assets subject to amortization, net (a) | | |
| Other assets | | |
| Accounts payable | () | |
| Accrued royalties | () | |
| Accrued liabilities | () | |
| Operating lease liabilities, noncurrent | () | |
| Total purchase price allocated | $ | | |
______________________________________
(a)Identifiable intangible assets are composed of the following (in millions):
| | | | | |
| Total |
| Recorded music catalog | $ | | |
| Artist and songwriter contracts | | |
| Trademarks | | |
| Music publishing copyrights | | |
| Total intangible assets acquired | $ | | |
At December 31, 2022, the Company updated and finalized the purchase price allocation recorded at September 30, 2022, which resulted in a decrease to intangible assets of approximately $ million and a net decrease to other acquired assets and liabilities of approximately $ million, with a corresponding net increase to goodwill of approximately $ million.
For the fiscal year ended September 30, 2022, the Company incurred costs related to this acquisition of approximately $ million, which were expensed as incurred and recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations. Prior to the acquisition, the Company had a distribution arrangement with 300 Entertainment. The unaudited pro forma revenue and operating income as if the acquisition occurred on October 1, 2020 was not material to the Company’s reported results for the fiscal years ended September 30, 2022 and September 30, 2021.
6.
million:) | | $ | () | | | $ | () | | | $ | () | | | Other comprehensive income | | | | | | | | | | | |
| Balances at September 30, 2021 | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Other comprehensive loss | () | | | | | | | | | () | |
| Balances at September 30, 2022 | $ | () | | | $ | () | | | $ | | | | $ | () | |
| Other comprehensive income | | | | | | | () | | | | |
| Balances at September 30, 2023 | $ | () | | | $ | () | | | $ | | | | $ | () | |
______________________________________
(a)Includes historical foreign currency translation related to certain intra-entity transactions.
7.
| | $ | | | | Buildings and improvements | | | | | |
| Furniture and fixtures | | | | | |
| Computer hardware and software | | | | | |
| Construction in progress | | | | | |
| Machinery and equipment | | | | | |
| Gross Property, Plant and Equipment | $ | | | | $ | | |
| Less: Accumulated depreciation | () | | | () | |
| Net Property, Plant and Equipment | $ | | | | $ | | |
8.
The Company enters into operating leases for buildings, office equipment, production equipment, warehouses, and other types of equipment. Our leases have remaining lease terms of year to years, some of which include options to extend the leases for up to years, and some of which include options to terminate the leases within year.
Among the Company’s operating leases are its leases for the Ford Factory Building, located at 777 S. Santa Fe Avenue in Los Angeles, California, and for 27 Wrights Lane, Kensington, London, United Kingdom. The landlord for both leases is an affiliate of Access. As of September 30, 2023, the aggregate lease liability related to these leases was $ million. See also Note 15, Related Party Transactions.
There are no restrictions or covenants, such as those relating to dividends or incurring additional financial obligations, relating to our lease portfolio, and residual value guarantees are not significant.
| | $ | | | | Short-term lease cost | | | | | |
| Variable lease cost | | | | | |
|
| Total lease cost | $ | | | | $ | | |
The Company incurred and recorded other occupancy expenses of $ million and $ million for the fiscal years ended September 30, 2023 and 2022, respectively.
| | $ | | | | Right-of-use assets obtained in exchange for operating lease obligations | | | | | |
| | $ | | | | | | |
| Operating lease liabilities, current | $ | | | | $ | | |
| Operating lease liabilities, noncurrent | | | | | |
| Total operating lease liabilities | $ | | | | $ | | |
| | | |
| Weighted Average Remaining Lease Term | | | |
| Operating leases | years | | years |
| Weighted Average Discount Rate | | | |
| Operating leases | | % | | | % |
| | 2025 | | | |
| 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| Thereafter | | | |
| Total lease payments | | | |
| Less: Imputed interest | | () | |
| Total | | $ | | |
million and a lease term of years.
9.
| | $ | | | | $ | | | | Acquisitions | | | | | | | | |
| Other adjustments | () | | | | | | () | |
| Balances at September 30, 2022 | $ | | | | $ | | | | $ | | |
| Acquisitions | | | | | | | | |
| Other adjustments | | | | | | | | |
| Balances at September 30, 2023 | $ | | | | $ | | | | $ | | |
The increase in goodwill during the fiscal year ended September 30, 2023 primarily relates to the acquisition of TenThousand Projects as described in Note 5. The increase in goodwill during the fiscal year ended September 30, 2022 primarily relates to the acquisition of 300 Entertainment as described in Note 5. The other adjustments during both the fiscal years ended September 30, 2023 and September 30, 2022 primarily represent foreign currency movements.
years | $ | | | | $ | | | | Music publishing copyrights | years | | | | | | |
| Artist and songwriter contracts | years | | | | | | |
| Trademarks | years | | | | | | |
| Other intangible assets | years | | | | | | |
| Total gross intangible assets subject to amortization | | | | | | | |
| Accumulated amortization | | | () | | | () | |
| Total net intangible assets subject to amortization | | | | | | | |
| Intangible assets not subject to amortization: | | | | | |
| Trademarks and tradenames | Indefinite | | | | | | |
| Total net intangible assets | | | $ | | | | $ | | |
The increase in intangible assets during the fiscal year ended September 30, 2023 primarily relates to the acquisition of TenThousand Projects, which resulted in an increase in intangible assets as described in Note 5, as well as foreign currency movements.
The Company performs its annual indefinite-lived intangible assets impairment test in accordance with ASC 350 during the fourth quarter of each fiscal year as of July 1. The Company may conduct an earlier review if events or circumstances occur that would suggest the carrying value of the Company’s indefinite-lived intangible assets may not be recoverable. The performance of the annual fiscal 2023 impairment analysis did not result in an impairment of the Company’s indefinite-lived intangible assets.
Amortization
| | 2025 | | | |
| 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| Thereafter | | | |
| Total | | $ | | |
10.
| | $ | | | | Senior Term Loan Facility due 2028 | | | | | |
% Senior Secured Notes due 2028 (€ face amount) | | | | | |
% Senior Secured Notes due 2029 | | | | | |
% Senior Secured Notes due 2030 | | | | | |
% Senior Secured Notes due 2031 (€ face amount) | | | | | |
% Senior Secured Notes due 2031 | | | | | |
Term Loan Mortgage | $ | | | | $ | | |
| Total long-term debt, including the current portion | $ | | | | $ | | |
| Issuance premium less unamortized discount and unamortized deferred financing costs | $ | () | | | $ | () | |
| Total long-term debt, including the current portion, net | $ | | | | $ | | |
______________________________________
(a)Reflects $ million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $ million and $ million at September 30, 2023 and September 30, 2022, respectively. There were loans outstanding under the Revolving Credit Facility at September 30, 2023 or September 30, 2022.
The Company is the direct parent of Holdings, which is the direct parent of Acquisition Corp. As of September 30, 2023 Acquisition Corp. had issued and outstanding the % Senior Secured Notes due 2028, the % Senior Secured Notes due
2029, the % Senior Secured Notes due 2030, the % Senior Secured Notes due 2031 and the % 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 and the Senior Term Loan Facility, should Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increase above :1.00 and the term loans not achieve an investment grade rating, certain covenants under the Revolving Credit Facility, which are currently suspended, will be reinstated and the ability of the Company and Holdings to obtain funds from their subsidiaries will be restricted by the Revolving Credit Facility. The Company was in compliance with its all of its covenants that are not currently suspended under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of September 30, 2023.
Fiscal 2023 Transactions
Senior Term Loan Facility Amendment
On November 1, 2022, Acquisition Corp. entered into a Seventh Incremental Commitment Amendment (the “Seventh Incremental Commitment Amendment”), with Credit Suisse AG, New York Branch, as Tranche H term lender, and Credit Suisse AG, as administrative agent, and acknowledged by the guarantors party thereto and WMG Holdings Corp., to the Senior Term Loan Credit Agreement, pursuant to which Acquisition Corp. borrowed additional term loans in the amount of $ million for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $ million. The Seventh Incremental Commitment Amendment was entered into to fund certain deferred payment obligations owing in respect of certain prior acquisitions, to pay fees and expenses relating thereto and for general corporate purposes.
million (“Term Loan Mortgage”) secured by the Company’s real estate properties in Nashville, Tennessee. Interest on the Term Loan Mortgage will accrue at a rate of 30-day SOFR plus the applicable margin of % subject to a zero floor. Equal principal installments and interest are due monthly.Revolving Credit Agreement Amendment
On March 23, 2023, Acquisition Corp. entered into an amendment (the “Fourth Revolving Credit Agreement Amendment”) to the Revolving Credit Agreement among Acquisition Corp. and Credit Suisse AG, as administrative agent, governing Acquisition Corp.’s revolving credit facility with Credit Suisse AG, as administrative agent, and the other financial institutions and lenders from time to time party thereto. The Fourth Revolving Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate and other rates for alternate currencies, such as EURIBOR and SONIA. We utilized the expedients set forth in ASC Topic 848, including those relating to derivative instruments used in hedging relationships. This transition does not result in a financial impact to our consolidated financial statements.
May 2023 Senior Term Loan Credit Agreement Amendment
On May 10, 2023, Acquisition Corp. entered into an amendment (the “Senior Term Loan Credit Agreement Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto and Credit Suisse AG, as administrative agent. The Senior Term Loan Credit Agreement Amendment provides for the replacement of LIBOR-based rates with a SOFR-based rate. We utilized the expedients set forth in ASC 848, including those relating to derivative instruments used in hedging relationships. This transition does not result in a financial impact to our consolidated financial statements.
June 2023 Senior Term Loan Credit Agreement Amendment
On June 30, 2023, Acquisition Corp. entered into an increase supplement (the “Third Increase Supplement”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the guarantors party thereto, the lender party thereto and Credit Suisse AG, as administrative agent, pursuant to which Acquisition Corp. has borrowed additional Tranche G term loans in an amount equal to $ million, the proceeds of which have been used to prepay the Tranche H term loans in full (see “Senior Term Loan Facility Amendment”), for an aggregate principal amount outstanding under the Senior Term Loan Credit Agreement of $ million. The Company recorded a loss on extinguishment of debt of approximately $ million for the fiscal year ended September 30, 2023, which represents the remaining unamortized discount and deferred financing costs of the Tranche H term loan.
Historical Transactions
% Senior Secured Notes Offering
On November 24, 2021, Acquisition Corp. issued and sold $ million of its % Senior Secured Notes due 2029 (the “% Senior Secured Notes”). Interest on the Notes will accrue at the rate of % per annum and will be payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022.
The % Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis by each of Acquisition Corp.’s existing direct or indirect wholly-owned domestic restricted subsidiaries and by any such subsidiaries that guarantee obligations of Acquisition Corp. under its existing credit facilities, subject to customary exceptions. The indenture governing the % Senior Secured Notes contains covenants limiting, among other things, Acquisition Corp.’s ability and the ability of most of its subsidiaries to create liens and consolidate, merge, sell or otherwise dispose of all or substantially all of its assets.
% per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or % 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) % in excess of the overnight federal funds rate and (z) the one-month Revolving Term SOFR plus % per annum, plus, in each case, % per annum in the case of Initial Revolving Loans, or % 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 x at September 30, 2023, the applicable margin for SOFR loans and RFR loans would be % instead of % and the applicable margin for ABR loans would be % instead of % 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 % per annum. Default interest will also be payable on other overdue amounts at a rate of % per annum above the amount that would apply to an alternative base rate loan.The Tranche G loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) plus an adjustment based on the applicable interest period subject to a zero floor, plus % 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) % in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus % per annum, subject to a % floor, plus, in each case, % 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 % per annum. Default interest will also be payable on other overdue amounts at a rate of % per annum above the amount that would apply to an alternative base rate loan.
The Tranche H loans under the Senior Term Loan Facility, which were repaid in full on June 30, 2023, bore interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) subject to a % floor, plus % 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) % in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus % per annum, subject to a % floor, plus, in each case, % per annum. If there was a payment default at any time, then the interest rate applicable to overdue principal and interest would have been the rate otherwise applicable to such loan plus % per annum. Default interest was also payable on other overdue amounts at a rate of % per annum above the amount that would apply to an alternative base rate loan.
The Term Loan Mortgage bears interest at a rate of 30-day SOFR plus the applicable margin of %, 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 17 of our consolidated financial statements for further discussion.
Maturity of Senior Term Loan Facility
The loans outstanding under the Senior Term Loan Facility mature on January 20, 2028.
Maturity of Revolving Credit Facility
The maturity date of the Revolving Credit Facility is April 3, 2025.
Maturities of Senior Secured Notes
As of September 30, 2023, there are scheduled maturities of notes until 2028, when $ million is scheduled to mature. Thereafter, $ 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.
million, $ million and $ million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. Interest expense, net includes interest expense related to our outstanding indebtedness of $ million, $ million, $ million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. The weighted-average interest rate of the Company’s total debt was % at September 30, 2023, % at September 30, 2022 and % at September 30, 2021.
11.
| | $ | | | | $ | | | | Foreign | | | | | | | | |
| Income before income taxes | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Deferred | () | | | | | | | |
| Foreign: | | | | | |
| Current (a) | | | | | | | | |
| Deferred | () | | | () | | | () | |
| U.S. State: | | | | | |
| Current | | | | | | | | |
| Deferred | () | | | () | | | | |
| Income tax expense | $ | | | | $ | | | | $ | | |
______________________________________
(a)Includes withholding taxes of $ million, $ million and $ million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.
% for each of the fiscal years ended September 30, 2023, 2022 and 2021 and income taxes provided are as follows: | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended September 30, |
| 2023 | | 2022 | | 2021 |
| (in millions) |
| Taxes on income at the U.S. federal statutory rate | $ | | | | $ | | | | $ | | |
| U.S. state and local taxes | | | | | | | | |
Foreign income taxed at different rates, including withholding taxes | | | | | | | | |
Valuation allowance | () | | | () | | | () | |
| Change in tax rates | | | | | | | | |
GILTI and FDII | () | | | () | | | () | |
| Federal research and development credits | () | | | | | | | |
| Uncertain tax positions | | | | () | | | | |
Non-deductible compensation | | | | | | | | |
| Other | () | | | () | | | | |
Total income tax expense | $ | | | | $ | | | | $ | | |
During the fiscal year ended September 30, 2023, the Company recognized a tax benefit of $ million related to Federal research and development credits, which was partially offset by $ million of income tax expense arising from an increase in uncertain
million for the release of valuation allowances in various foreign jurisdictions. During the fiscal year ended September 30, 2021, the Company recognized $ million of income tax expense arising from an increase in our net UK deferred tax liability due to the change in the UK future statutory tax rate, which was offset by $ million of excess tax benefits from long term incentive plan, and $ million for the release of valuation allowances in Mexico and various foreign jurisdictions.For the fiscal years ended September 30, 2023 and September 30, 2022, the Company incurred losses in certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized.
| | $ | | | | Employee benefits and compensation | | | | | |
| Other accruals | | | | | |
| Property, plant and equipment | | | | | |
| Operating lease liabilities | | | | | |
| Tax attribute carryforwards | | | | | |
| Deferred revenue and debt | | | | | |
| Total deferred tax assets | | | | | |
| Less: Valuation allowance | () | | | () | |
| Deferred tax assets, net of valuation allowance | | | | | |
| | | |
| Deferred tax liabilities: | | | |
| Royalty advances | () | | | () | |
| Operating lease right-of-use assets | () | | | () | |
| Accrued royalties | () | | | () | |
| Intangible assets | () | | | () | |
| Debt and other | () | | | () | |
| Total deferred tax liabilities | () | | | () | |
| Net deferred tax liabilities | $ | () | | | $ | () | |
During the fiscal year ended September 30, 2023, the Company utilized the remaining foreign tax credit carryforwards in the U.S.
At September 30, 2023, the Company has remaining U.S. federal tax net operating loss carryforwards and $ million tax net operating loss carryforwards in U.S. state and local jurisdictions that expire in various periods. The Company also has tax net operating loss carryforwards, with no expiration date, in France and Spain of $ million and $ million, respectively, and other tax net operating loss carryforwards in foreign jurisdictions that expire in various periods.
Deferred income taxes have not been recorded on indefinitely reinvested earnings of certain foreign subsidiaries of approximately $ million at September 30, 2023. Distribution of these earnings may result in foreign withholding taxes and U.S. state taxes. However, variables existing if and when remittance occurs make it impracticable to estimate the amount of the ultimate tax liability, if any, on these accumulated foreign earnings.
The Company classifies interest and penalties related to uncertain tax position as a component of income tax expense. As of September 30, 2023 and September 30, 2022, the Company had accrued $ million and $ million of interest and penalties, respectively.
| | $ | | | | $ | | | | Additions for current year tax positions | | | | | | | | |
| Additions for prior year tax positions | | | | | | | | |
| Subtractions for prior year tax positions | () | | | () | | | () | |
| Gross unrecognized tax benefits - end of period | $ | | | | $ | | | | $ | | |
Included in the total unrecognized tax benefits at September 30, 2023 and September 30, 2022 are $ million and $ million, respectively, that if recognized, would reduce the effective income tax rate. The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of September 30, 2023 could decrease by up to approximately $ million related to various ongoing audits and settlement discussions in various foreign jurisdictions during the next twelve months.
The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company has completed tax audits in the U.S. for tax years ended through September 30, 2013, in the UK for the tax years ended through September 30, 2016, in Germany for the tax years ended through September 30, 2014 and in France for the tax years ended through September 30, 2018. The Company is at various stages in the tax audit process in certain foreign and local jurisdictions.
The Organization Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025. We are currently evaluating the potential impact on our consolidated financial statements and related disclosures.
12.
million and $ million as of September 30, 2023 and September 30, 2022, respectively. Pension benefits under the plans are based on formulas that reflect the employees’ years of service and compensation levels during their employment period. The Company had unfunded pension liabilities relating to these plans of approximately $ million and $ million recorded within other noncurrent liabilities in the accompanying consolidated balance sheets as of September 30, 2023 and September 30, 2022, respectively. The Company uses a September 30 measurement date for its plans. For the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, pension expense amounted to $ million, $ million and $ million, respectively.Certain employees also participate in defined contribution plans. The Company’s contributions to the defined contribution plans are based upon a percentage of the employees’ elected contributions. The Company’s defined contribution plan expense amounted to approximately $ million for the fiscal year ended September 30, 2023, $ million for the fiscal year ended September 30, 2022 and $ million for the fiscal year ended September 30, 2021.
13.
people, or approximately % of the Company’s overall headcount. During the fiscal year ended September 30, 2023, the Company recognized restructuring charges of approximately $ million for severance costs, all of which will be paid in cash. All restructuring expenses were recorded in the Recorded Music segment. The Restructuring Plan is substantially complete as of September 30, 2023, with related cash expenditures expected to be made by the end of fiscal 2024.
| | Restructuring charges | | |
| Cash payments | () | |
Balance at September 30, 2023 | $ | | |
14.
shares of Class A Common Stock over the period from the date of adoption, including up to shares of our Class A Common Stock in connection with the IPO.To date, the Company has issued common stock, RSUs restricted stock, and performance awards under the Omnibus Incentive Plan. The RSUs were granted to eligible employees and executives, common stock and restricted stock was granted to members of the Company’s Board of Directors, and a performance share award was granted to our CEO. Except in the case of certain awards issued in connection with the IPO, holders of RSUs and restricted stock are entitled to dividends during the vesting period.
During the fiscal years ended September 30, 2023, 2022 and 2021, shares of Class A Common Stock issued under the Omnibus Incentive Plan were , , and , respectively. During the fiscal year ended September 30, 2022, the Company satisfied the vesting of RSUs issued to employees for the fiscal year ended September 30, 2021 in connection with the IPO by issuing shares of Class A Common Stock under the Omnibus Incentive Plan, which is net of shares used to settle employee income tax obligations.
As of September 30, 2023, a total of shares of Class A Common Stock were issued under the Omnibus Incentive Plan. As of September 30, 2023, there were shares of Class A Common Stock available to be issued.
Restricted Stock Units
| | $ | | | | Granted | | | | | |
| Vested | () | | | | |
| Forfeited/canceled | () | | | | |
| Unvested and outstanding balance as of September 30, 2023 | | | | $ | | |
The weighted-average grant date fair value of RSUs granted during the fiscal years ended September 30, 2023, 2022 and 2021 was $, $ and $, respectively. The total intrinsic value of RSUs vested during the fiscal years ended September 30, 2023, 2022 and 2021 was $ million, $ million and $, respectively, computed as of the date of vesting.
As of September 30, 2023, total unrecognized compensation cost related to RSUs was approximately $ million, which is expected to be recognized over a weighted-average period of approximately years. The Company satisfies the vesting of RSUs by issuing new shares of its Class A Common Stock.
shares of Class A Common Stock to settle a portion of a participant’s deferred equity units previously issued under the Plan.During the fiscal year ended September 30, 2022, an aggregate of shares of Class B Common Stock were converted to Class A Common Stock. In connection with the Plan, a remaining Plan participant redeemed a portion of vested Class B equity units of the LLC holding company, WMG Management Holdings, LLC (“Management LLC”). These Class B equity units were redeemed in exchange for a total of shares of Class B Common Stock, which shares of Class B Common Stock converted to shares of Class A Common Stock upon the exchange.
During the fiscal year ended September 30, 2022, Access converted shares of Class B Common Stock to the same number of shares of Class A Common Stock, which is reflected as a conversion of Class B Common Stock in the consolidated statements of equity.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the consolidated statements of operations as selling, general and administrative expenses. The Company recognized non-cash stock-based compensation expense of $ million, $ million and $ million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.
In connection with the departure of our Chief Executive Officer and Chief Financial Officer, the Company recognized approximately $ million of non-cash stock-based compensation expense associated with RSUs and common stock as there is no remaining service required for vesting. This amount is reflected as a share-based compensation liability as of September 30, 2023.
During the fiscal year ended September 30, 2023, the Company issued market-based performance share units to our newly appointed Chief Executive Officer whereby the award payout is determined based on the Company’s total shareholder return compared to a designated peer group. Non-cash stock-based compensation associated with this award was approximately $ million for the fiscal year ended September 30, 2023.
During the fiscal year ended September 30, 2023, in connection with the Restructuring Plan, the Company recognized $ million of non-cash stock-based compensation related to the accelerated vesting of certain RSUs. Refer to Note 13 for further discussion.
15.
million and are subject to annual fixed increases throughout the remainder of the lease term. The remaining lease term is approximately years, after which the Company may exercise a single option to extend the term of the lease for years thereafter.On July 29, 2014, AI Wrights Holdings Limited, an affiliate of Access, entered into a lease and related agreements with Warner Chappell Music Limited and WMG Acquisition (UK) Limited, subsidiaries of the Company, for the lease of 27 Wrights Lane, Kensington, London, United Kingdom. The Company had been the tenant of the building which Access acquired. Subsequent to the change in ownership, the parties entered into the lease and related agreements pursuant to which, on January 1, 2015, the rent was increased to £ per year and the term was extended for an additional from December 24, 2020 to December 24, 2025, with a market rate rent review which began on December 25, 2020. On June 26, 2023, the parties entered into an extension on substantially the same terms as the current lease for an additional five years with the lease now expiring on December 24, 2030.
million, $ million and $ million in connection with the foregoing arrangements during the fiscal years ended September 30, 2023, 2022 and 2021, respectively. In addition, in connection with these arrangements, (i) the Company was issued warrants to purchase shares of Deezer S.A. and (ii) the Company purchased a small number of shares of Deezer S.A. The Company also has various publishing agreements with Deezer. Warner Chappell has licenses with Deezer for use of repertoire on the service in Europe, which the Company refers to as a PEDL license (referencing the Company’s Pan European Digital Licensing initiative), and for territories in Latin America. For the PEDL and Latin American licenses for the fiscal years ended September 30, 2023, 2022 and 2021, Deezer paid the Company an additional approximately $ million, $ million and $ million, respectively. Deezer also licenses other publishing rights controlled by Warner Chappell through statutory licenses or through various collecting societies.
On April 13, 2022, the Company entered into an agreement to purchase ordinary shares for € million of I2PO, a French Société Anonyme and special purpose acquisition company listed on the Paris Euronext Exchange. I2PO merged with Deezer S.A., which was consummated on July 5, 2022. In connection with the merger, preferred shares in Deezer S.A. previously held by the Company were converted into ordinary shares of the combined publicly traded entity. Following the consummation of the merger, I2PO was renamed Deezer. The Company’s equity interests in Deezer S.A. are recorded at fair value in accordance with ASC 321, Investments—Equity Securities based on quoted prices in active markets. As of September 30, 2023, the fair value of these equity interests was approximately $ million.
Investment in Tencent Music Entertainment Group
On October 1, 2018, WMG China LLC (“WMG China”), an affiliate of the Company, entered into a share subscription agreement with Tencent Music Entertainment Group pursuant to which WMG China purchased ordinary shares of Tencent Music Entertainment Group for $ million. WMG China was % owned by AI New Holdings 5 LLC, an affiliate of Access, and % owned by the Company.
On November 4, 2021, WMG China distributed to the Company, the Company’s pro-rata share of the Tencent Music Entertainment Group equity held by WMG China. WMG China was dissolved on May 9, 2022.
16.
million and $ million as of September 30, 2023 and September 30, 2022, respectively.Other
Other off-balance sheet firm commitments, which primarily include minimum funding commitments to investees, amounted to approximately $ million and $ million at September 30, 2023 and September 30, 2022, respectively.
17.
outstanding hedge contracts and deferred gains or losses in comprehensive income related to foreign exchange hedging.
million in a pay-fixed receive-variable interest rate swap with $ million unrealized deferred gains in comprehensive income related to the interest rate swaps. As of September 30, 2022, the Company had outstanding $ million in pay-fixed receive-variable interest rate swaps with $ million of unrealized deferred gains in comprehensive income related to the interest rate swaps.The Company recorded realized pre-tax losses of $ million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other expense for the fiscal year ended September 30, 2023. The Company recorded realized pre-tax gains of $ million related to its foreign currency forward exchange contracts in the consolidated statement of operations as other income for the fiscal year ended September 30, 2022.
The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the fiscal year ended September 30, 2023 were $ million. The unrealized pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the fiscal year ended September 30, 2022 were $ million.
| | $ | | | |
|
| Other Noncurrent Assets: | | | |
| Interest Rate Swap | | | | | |
18.
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 (“OIBDA”). The Company has supplemented its analysis of OIBDA results by segment with an analysis of operating income (loss) by segment.The accounting policies of the Company’s business segments are the same as those described in the summary of significant accounting policies included elsewhere herein. 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.
| | $ | | | | $ | () | | | $ | | | | Operating income (loss) | | | | | | | () | | | | |
| Amortization of intangible assets | | | | | | | | | | | |
| Depreciation of property, plant and equipment | | | | | | | | | | | |
| OIBDA | | | | | | | () | | | | |
| Total assets | | | | | | | | | | | |
| Capital expenditures | | | | | | | | | | | |
| 2022 | | | | | | | |
| Revenues | $ | | | | $ | | | | $ | () | | | $ | | |
| Operating income (loss) | | | | | | | () | | | | |
| Amortization of intangible assets | | | | | | | | | | | |
| Depreciation of property, plant and equipment | | | | | | | | | | | |
| OIBDA | | | | | | | () | | | | |
| Total assets | | | | | | | | | | | |
| Capital expenditures | | | | | | | | | | | |
| 2021 | | | | | | | |
| Revenues | $ | | | | $ | | | | $ | () | | | $ | | |
| Operating income (loss) | | | | | | | () | | | | |
| Amortization of intangible assets | | | | | | | | | | | |
| Depreciation of property, plant and equipment | | | | | | | | | | | |
| OIBDA | | | | | | | () | | | | |
| Capital expenditures | | | | | | | | | | | |
Revenues relating to operations in different geographical areas are set forth below for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021.
| | $ | | | | $ | | | | $ | | | | $ | | | | United Kingdom | | | | | | | | | | | | | | |
| Germany | | | | | | | | | | | | | | |
| All other territories | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Customer Concentration
In the fiscal year ended September 30, 2023, the Company had customers, Spotify, YouTube and Apple, that individually represented 10% or more of total revenues, whereby Spotify AB represented %, YouTube represented % and Apple represented % of total revenues. In the fiscal year ended September 30, 2022, the Company had customers, Spotify, Apple and YouTube, that individually represented 10% or more of total revenues, whereby Spotify represented %, YouTube represented % and Apple represented % of total revenues. In the fiscal year ended September 30, 2021, the Company had customers, Spotify, Apple and YouTube that individually represented 10% or more of total revenues, whereby Spotify represented %, Apple represented % and YouTube represented % of total revenues. These customers’ revenues are included in both the Company’s Recorded Music and Music Publishing segments and the Company expects that the Company’s license agreements with these customers will be renewed in the normal course of business.
19.
million, $ million and $ million during the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively. The Company paid approximately $ million, $ million and $ million of income and withholding taxes, net of refunds, for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively.Gain on Divestiture
During the fiscal year ended September 30, 2023, the Company sold its interest in certain sound recording rights and recorded a pre-tax gain of $ million which was recorded as a net gain on divestiture in the accompanying 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 :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.
The Company paid cash dividends to stockholders and participating security holders of $ million, $ million and $ million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.
On November 9, 2023, the Company’s board of directors declared a cash dividend of $ 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, payable on December 1, 2023 to stockholders of record as of the close of business on November 21, 2023.
Noncash Investment Activity
Noncash investing activities was approximately $ million related to the acquisition of music publishing rights and music catalogs, net during the fiscal year ended September 30, 2022.
20.
| | $ | | | | $ | | | | $ | | | | Other Noncurrent Assets: | | | | | | | |
|
Equity Investment with Readily Determinable Fair Value (b) | | | | | | | | | | | |
| Other Noncurrent Liabilities: | | | | | | | |
| Contractual Obligations (a) | | | | | | | () | | | () | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2022 |
| (Level 1) | | (Level 2) | | (Level 3) | | Total |
| (in millions) |
| Other Current Assets: | | | | | | | |
Interest Rate Swap (c) | $ | | | | $ | | | | $ | | | | $ | | |
| Other Noncurrent Assets: | | | | | | | |
Interest Rate Swap (c) | | | | | | | | | | | |
Equity Investment with Readily Determinable Fair Value (b) | | | | | | | | | | | |
| Other Noncurrent Liabilities: | | | | | | | |
| Contractual Obligations (a) | | | | | | | () | | | () | |
|
______________________________________
(a)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 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.
(b)These represent equity investments with a readily determinable fair value. The Company has measured its investments to fair value in accordance with ASC 321, Investments—Equity Securities, based on quoted prices in active markets.
(c)The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of September 30, 2023 for contracts involving the same attributes and maturity dates.
) | | Additions | | |
| Reductions | | |
| Payments | | |
| Balance at September 30, 2023 | $ | () | |
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 recorded approximately $ million of impairment charges on these investments during the fiscal year ended September 30, 2023. In
million. Fair Value of Debt
Based on the level of interest rates prevailing at September 30, 2023, the fair value of the Company’s debt was $ billion. Based on the level of interest rates prevailing at September 30, 2022, the fair value of the Company’s debt was $ 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.
WARNER MUSIC GROUP CORP.
| | $ | | | | $ | () | | | $ | | | | Reserves for sales returns | | | | | | | | () | | | | |
| Allowance for deferred tax asset | | | | | | | | () | | | | |
| Fiscal Year Ended September 30, 2022 | | | | | | | | |
Allowance for credit losses | | $ | | | | $ | | | | $ | () | | | $ | | |
| Reserves for sales returns | | | | | | | | () | | | | |
| Allowance for deferred tax asset | | | | | | | | () | | | | |
| Fiscal Year Ended September 30, 2021 | | | | | | | | |
Allowance for credit losses | | $ | | | | $ | | | | $ | () | | | $ | | |
| Reserves for sales returns | | | | | | | | () | | | | |
| Allowance for deferred tax asset | | | | | | | | () | | | | |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Certification
The certifications of the principal executive officer and the principal financial officer (or persons performing similar functions) required by Rules 13a-14(a) and 15d-14(a) of the Exchange Act (the “Certifications”) are filed as exhibits to this report. This section of the report contains the information concerning the evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) (“Disclosure Controls”) and changes to internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) (“Internal Controls”) referred to in the Certifications and this information should be read in conjunction with the Certifications for a more complete understanding of the topics presented.
Introduction
The SEC’s rules define “disclosure controls and procedures” as controls and procedures that are designed to ensure that information required to be disclosed by public companies in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by public companies in the reports that they file or submit under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The SEC’s rules define “internal control over financial reporting” as a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or U.S. GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
The Company’s management, including its principal executive officer and principal financial officer, does not expect that our Disclosure Controls or Internal Controls will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in any and all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Further, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected even when effective Disclosure Controls and Internal Controls are in place.
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s principal executive officer and principal financial officer), as of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act will be recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting or other factors that occurred during the fourth fiscal quarter of the fiscal year ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Management designed our internal control systems in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our internal control systems include the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified and are augmented by written policies, an organizational structure providing for division of responsibilities, careful selection and training of qualified financial personnel and a program of internal audits.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2023.
The effectiveness of our internal control over financial reporting as of September 30, 2023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8, "Financial Statements and Supplementary Data", of this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to, and will be contained in, our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended September 30, 2023.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to, and will be contained in, our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended September 30, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to, and will be contained in, our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended September 30, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to, and will be contained in, our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended September 30, 2023.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to, and will be contained in, our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended September 30, 2023.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report:
(1) Financial Statements:
The Financial Statements are listed in the Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report.
(2) Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts.
Schedules other than that listed above have been omitted, since they are either not applicable, not required or the information is included elsewhere herein.
(3) Exhibits
The required exhibits are filed as part of this Annual Report or are incorporated herein by reference.
(b) Exhibits
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, the representations, warranties, covenants and agreements contained in such exhibits were made only for the purposes of such agreement and as of specified dates, were solely for the benefit of the parties to such agreement and may be subject to limitations agreed upon by the contracting parties. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to such agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Unless otherwise explicitly stated therein, investors and security holders are not third-party beneficiaries under any of the agreements attached as exhibits hereto and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its affiliates or businesses. Moreover, the assertions embodied in the representations and warranties contained in each such agreement are qualified by information in confidential disclosure letters or schedules that the parties have exchanged. Moreover, information concerning the subject matter of the representations and warranties may change after the respective dates of such agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
| | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | |
| 3.1(1) | | | | |
3.2(17) | | | | |
| 4.1(2) | | | | |
| 4.2(3) | | Indenture, dated as of June 29, 2020, among WMG Acquisition Corp., the guarantors listed on the signature pages thereto, Credit Suisse AG, as Notes Authorized Representative and as Collateral Agent, and Wells Fargo Bank, National Association, as Trustee, providing for the issuance of secured notes in series. | | |
| 4.3(3) | | | | |
| 4.4(3) | | | | |
| 4.5(4) | | | | |
| 4.6(6) | | | | |
| | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | |
| 4.7(8) | | | | |
| 4.8 | | | | |
| 4.9 | | | | |
| 4.10 | | | | |
| 4.11 | | | | |
| 4.12 | | | | |
| 4.13(2) | | | | |
| 4.14(2) | | | | |
| 4.15(2) | | | | |
| 4.16(2) | | | | |
| 4.17(7) | | | | |
| 10.1(1) | | | | |
| 10.2(1) | | | | |
| 10.3†(1) | | | | |
| 10.4†(7) | | | | |
| 10.5(2) | | Credit Agreement, dated as of November 1, 2012, among WMG Acquisition Corp., each lender from time to time party thereto, Credit Suisse AG, as administrative agent, Credit Suisse Securities (USA) LLC, Barclays Bank PLC, UBS Securities LLC, Macquarie Capital (USA) Inc. and Nomura Securities International, Inc., as joint bookrunners and joint lead arrangers, and Barclays Bank PLC and UBS Securities LLC, as syndication agents, relating to a term loan credit facility. | | |
| 10.6(2) | | | | |
| 10.7(2) | | | | |
| 10.8(2) | | | | |
| 10.9(2) | | | | |
| 10.10(2) | | | | |
| 10.11(2) | | Increase Supplement to the Credit Agreement, dated as of March 14, 2018, among WMG Acquisition Corp., the Loan Parties (as defined therein) party thereto, WMG Holdings Corp., Credit Suisse AG, Cayman Islands Branch, as increasing lender, and Credit Suisse AG, as administrative agent, relating to the term loan facility. | | |
| 10.12(2) | | | | |
| 10.13(2) | | | | |
| 10.14(2) | | | | |
| 10.15(2) | | | | |
| | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | |
| 10.16(2) | | | | |
| 10.17(2) | | | | |
| 10.18†(2) | | | | |
| 10.19†(2) | | | | |
| 10.20†(2) | | | | |
| 10.21†(2) | | | | |
| 10.22†(2) | | | | |
| 10.23†(2) | | | | |
| 10.24†(2) | | | | |
| 10.25†(2) | | | | |
| 10.26†(2) | | | | |
| 10.27†(2) | | | | |
| 10.28†(2) | | | | |
| 10.29†(5) | | | | |
10.30†(18) | | | | |
10.31†(18) | | | | |
10.32†(18) | | | | |
| 10.33†(10) | | | | |
| 10.34†(10) | | | | |
| 10.35†(2) | | | | |
| 10.36†(2) | | | | |
| 10.37†(2) | | | | |
| 10.38†(2) | | | | |
| 10.39†(9) | | | | |
| 10.40†(2) | | | | |
| 10.41†(2) | | | | |
| 10.42†(2) | | | | |
| 10.43†(2) | | | | |
| 10.44(2) | | | | |
| 10.45(2) | | | | |
| 10.46(2) | | | | |
| 10.47(2) | | | | |
| 10.48(12) | | | | |
| 10.49(14) | | | | |
| 10.50(15) | | Third Increase Supplement, dated as of June 30, 2023, among WMG Acquisition Corp., the guarantors party thereto, WMG Holdings Corp., JPMorgan Chase Bank, N.A., as increasing lender, and Credit Suisse AG, as administrative agent | | |
| 10.51(11) | | | | |
| 10.52† (16) | | | | |
| | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | |
| 10.53† (11) | | | | |
| 10.54† (11) | | | | |
| 10.55† (11) | | | | |
| 10.56† (13) | | | | |
| 10.57*† | | | | |
| 10.58*† | | | | |
| 10.59*† | | | | |
| 21.1* | | | | |
| 23.1* | | | | |
| 24.1* | | | | |
| 31.1* | | | | |
| 31.2* | | | | |
| 32.1*+ | | | | |
| 32.2*+ | | | | |
| 101.INS | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | |
______________________________________
*Filed herewith.
+ Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Annual Report on Form 10-K and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.
†Identifies each management contract or compensatory plan or arrangement in which directors and/or executive officers are eligible to participate.
(1)Incorporated by reference to Warner Music Group Corp.’s Quarterly Report on Form 10-Q for the period ended June 30, 2020 (File No. 001-32502).
(2)Incorporated by reference to Warner Music Group Corp.’s Registration Statement on Form S-1 (File No. 333-236298)
(3)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed June 30, 2020.
(4)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed August 12, 2020.
(5)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed October 23, 2020.
(6)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed November 2, 2020.
(7)Incorporated by reference to Warner Music Group Corp.’s Annual Report on Form 10-K for the period ended September 30, 2020 (File No. 001-32502).
(8)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed August 16, 2021.
(9)Incorporated by reference to Warner Music Group Corp.’s Annual Report on Form 10-K for the period ended September 30, 2021 (File No. 001-32502).
(10)Incorporated by reference to Warner Music Group Corp.’s Quarterly Report on Form 10-Q for the period ended December 31, 2020 (File No. 001-32502).
(11)Incorporated by reference to Warner Music Group Corp.’s Quarterly Report on Form 10-Q for the period ended December 31, 2022 (File No. 001-32502).
(12)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed March 23, 2023.
(13)Incorporated by reference to Warner Music Group Corp.’s Quarterly Report on Form 10-Q for the period ended March 31, 2023 (File No. 001-32502).
(14)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed May 10, 2023.
(15)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed June 30, 2023.
(16)Incorporated by reference to Warner Music Group Corp.’s Quarterly Report on Form 10-Q for the period ended June 30, 2023 (File No. 001-32502).
(17)Incorporated by reference to Warner Music Group Corp.’s Current Report on Form 8-K filed July 28, 2023.
(18)Incorporated by reference to Warner Music Group Corp.’s Annual Report on Form 10-K for the period ended September 30, 2022 (File No. 001-32502).
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 21, 2023.
| | | | | | | | | | | |
| WARNER MUSIC GROUP CORP. |
| | | |
| By: | | /s/ ROBERT KYNCL |
| Name:
Title:
| | Robert Kyncl Chief Executive Officer (Principal Executive Officer) |
| | | |
| By: | | /s/ BRYAN CASTELLANI |
| Name:
Title:
| | Bryan Castellani Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Paul M. Robinson and Trent N. Tappe, and each of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on November 21, 2023.
| | | | | | | | |
| Signature | | Title |
| | |
/s/ ROBERT KYNCL | | CEO and President and Director (Principal Executive Officer) |
Robert Kyncl | | |
| | |
/s/ BRYAN CASTELLANI | | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Bryan Castellani | | |
| | |
/s/ MICHAEL LYNTON | | Chairman of the Board of Directors |
| Michael Lynton | | |
| | |
/s/ LEN BLAVATNIK | | Vice Chairman of the Board of Directors |
| Len Blavatnik | | |
| | |
/s/ LINCOLN BENET | | Director |
| Lincoln Benet | | |
| | |
/s/ VAL BLAVATNIK | | Director |
Val Blavatnik | | |
| | |
/s/ MATHIAS DÖPFNER | | Director |
| Mathias Döpfner | | |
| | |
/s/ NANCY DUBUC | | Director |
| Nancy Dubuc | | |
| | |
/s/ NOREENA HERTZ | | Director |
| Noreena Hertz | | |
| | |
/s/ YNON KREIZ | | Director |
| Ynon Kreiz | | |
| | |
/s/ CECI KURZMAN | | Director |
| Ceci Kurzman | | |
| | |
/s/ DONALD A. WAGNER | | Director |
| Donald A. Wagner | | |
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