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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-32502

Warner Music Group Corp.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
13-4271875
(I.R.S. Employer
Identification No.)
1633 Broadway
New York, NY 10019
(Address of principal executive offices)
(212) 275-2000
(Registrant’s telephone number, including area code)
___________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareWMGThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes      No  ☒
As of February 5, 2024, there were 140,777,952 shares of Class A Common Stock and 377,103,200 shares of Class B Common Stock of the registrant outstanding.




WARNER MUSIC GROUP CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
Page
Number




PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Warner Music Group Corp.
Condensed Consolidated Balance Sheets
(In millions, except share amounts which are reflected in thousands)
(Unaudited)
December 31,
2023
September 30,
2023
Assets
Current assets:
Cash and equivalents$754 $641 
Accounts receivable, net of allowances of $19 million and $19 million
1,195 1,120 
Inventories106 126 
Royalty advances expected to be recouped within one year453 413 
Prepaid and other current assets108 102 
Total current assets2,616 2,402 
Royalty advances expected to be recouped after one year755 688 
Property, plant and equipment, net of accumulated depreciation of $551 million and $523 million
466 458 
Operating lease right-of-use assets, net242 245 
Goodwill2,015 1,993 
Intangible assets subject to amortization, net2,390 2,353 
Intangible assets not subject to amortization151 149 
Deferred tax assets, net31 32 
Other assets325 225 
Total assets$8,991 $8,545 
Liabilities and Equity
Current liabilities:
Accounts payable$246 $300 
Accrued royalties2,460 2,219 
Accrued liabilities538 533 
Accrued interest29 18 
Operating lease liabilities, current43 41 
Deferred revenue305 371 
Other current liabilities124 57 
Total current liabilities3,745 3,539 
Long-term debt4,004 3,964 
Operating lease liabilities, noncurrent249 255 
Deferred tax liabilities, net223 216 
Other noncurrent liabilities154 141 
Total liabilities$8,375 $8,115 
Equity:
Class A common stock, $0.001 par value; 1,000,000 shares authorized, 140,637 and 138,345 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively
$ $ 
Class B common stock, $0.001 par value; 1,000,000 shares authorized, 377,103 and 377,650 issued and outstanding as of December 31, 2023 and September 30, 2023, respectively
1 1 
Additional paid-in capital2,039 2,015 
Accumulated deficit(1,317)(1,387)
Accumulated other comprehensive loss, net(260)(322)
Total Warner Music Group Corp. equity463 307 
Noncontrolling interest153 123 
Total equity616 430 
Total liabilities and equity$8,991 $8,545 
See accompanying notes
1


Warner Music Group Corp.
Condensed Consolidated Statements of Operations
(In millions, except share amounts which are reflected in thousands, and per share data)
(Unaudited)
Three Months Ended
December 31,
20232022
Revenue$1,748 $1,488 
Costs and expenses:
Cost of revenue(880)(761)
Selling, general and administrative expenses (a)(476)(440)
Amortization expense(55)(63)
Total costs and expenses(1,411)(1,264)
Net gain on divestitures
17 41 
Operating income354 265 
Interest expense, net(39)(32)
Other expense(50)(61)
Income before income taxes265 172 
Income tax expense(72)(48)
Net income193 124 
Less: Income attributable to noncontrolling interest(34)(2)
Net income attributable to Warner Music Group Corp.$159 $122 
Net income per share attributable to common stockholders:
Class A – Basic and Diluted$0.30 $0.23 
Class B – Basic and Diluted$0.30 $0.23 
Weighted average common shares:
Class A – Basic and Diluted138,972137,424
Class B – Basic and Diluted377,490377,650
(a) Includes depreciation expense:$(26)$(21)
                                        
See accompanying notes
2


Warner Music Group Corp.
Condensed Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
Three Months Ended
December 31,
20232022
Net income$193 $124 
Other comprehensive income, net of tax:
Foreign currency adjustment64 72 
Deferred loss on derivative financial instruments(1)(1)
Minimum pension liability
(1) 
Other comprehensive income, net of tax62 71 
Total comprehensive income255 195 
Less: Income attributable to noncontrolling interest(34)(2)
Comprehensive income attributable to Warner Music Group Corp.
$221 $193 
See accompanying notes
3


Warner Music Group Corp.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
December 31,
20232022
Cash flows from operating activities
Net income$193 $124 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization81 84 
Unrealized (gains) losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts61 79 
Deferred income taxes5 (5)
Net loss (gain) on investments
(3) 
Net loss (gain) on divestitures
(17)(41)
Non-cash interest expense 2 
Non-cash stock-based compensation expense9 14 
Changes in operating assets and liabilities:
Accounts receivable, net(53)7 
Inventories24 13 
Royalty advances(89)(55)
Other non current assets
(81)(3)
Accounts payable and accrued liabilities(31)(61)
Royalty payables202 117 
Accrued interest11 12 
Operating lease liabilities(1)(2)
Deferred revenue(70)(104)
Other balance sheet changes52 28 
Net cash provided by operating activities293 209 
Cash flows from investing activities
Acquisition of music publishing rights and music catalogs, net(59)(33)
Capital expenditures(29)(21)
Investments and acquisitions of businesses, net of cash received(17)(8)
Proceeds from the sale of investments9 10 
Proceeds from divestitures4 42 
Net cash used in investing activities(92)(10)
Cash flows from financing activities
Proceeds from incremental Senior Term Loan Facility 147 
Deferred financing costs paid (2)
Distribution to noncontrolling interest holders(4)(6)
Dividends paid(89)(84)
Payment of deferred and contingent consideration (125)
Net cash used in financing activities(93)(70)
Effect of exchange rate changes on cash and equivalents5 7 
Net increase in cash and equivalents113 136 
Cash and equivalents at beginning of period641 584 
Cash and equivalents at end of period$754 $720 
See accompanying notes
4


Warner Music Group Corp.
Condensed Consolidated Statements of Equity
(In millions, except share amounts which are reflected in thousands, and per share data)
(Unaudited)
Three Months Ended December 31, 2023
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp.
Equity
Non-controlling
Interest
Total
Equity
SharesValueSharesValue
Balance at September 30, 2023138,345 $ 377,650 $1 $2,015 $(1,387)$(322)$307 $123 $430 
Net income— — — — — 159 — 159 34 193 
Other comprehensive income, net of tax
— — — — — — 62 62 — 62 
Dividends ($0.17 per share)
— — — — — (89)— (89)— (89)
Stock-based compensation
— — — — 24 — — 24 — 24 
Distribution to noncontrolling interest holders— — — — — — — — (4)(4)
Shares issued under the Plan1,738 — — — — — — — — — 
Exchange of Class B shares for Class A shares547 — (547)— — — — — — — 
Shares issued under Omnibus Incentive Plan7 — — — — — — — — — 
Balance at December 31, 2023140,637 $ 377,103 $1 $2,039 $(1,317)$(260)$463 $153 $616 
Three Months Ended December 31, 2022
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp.
Equity
Non-controlling
Interest
Total
Equity
SharesValueSharesValue
Balance at September 30, 2022137,199 $ 377,650 $1 $1,975 $(1,477)$(347)$152 $16 $168 
Net income— — — — — 122 — 122 2 124 
Other comprehensive income, net of tax— — — — — — 71 71 — 71 
Dividends ($0.16 per share)
— — — — — (84)— (84)— (84)
Stock-based compensation
— — — — 9 — — 9 — 9 
Distribution to noncontrolling interest holders— — — — — — — — (6)(6)
Shares issued under the Plan869 — — — — — — — — — 
Shares issued under Omnibus Incentive Plan5 — — — — — — — — — 
Balance at December 31, 2022138,073 $ 377,650 $1 $1,984 $(1,439)$(276)$270 $12 $282 
See accompanying notes
5


Warner Music Group Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business
Warner Music Group Corp. (the “Company”) was formed on November 21, 2003. The Company is the direct parent of WMG Holdings Corp. (“Holdings”), which is the direct parent of WMG Acquisition Corp. (“Acquisition Corp.”). Acquisition Corp. is one of the world’s major music entertainment companies. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing.
Recorded Music Operations
Our Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of music created by such recording artists. We play an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music to marketing and promoting recording artists and their music.
Music Publishing Operations
While Recorded Music is focused on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself. In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business shares the revenues generated from use of the musical compositions with the songwriter or other rightsholders.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024.
The consolidated balance sheet at September 30, 2023 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (File No. 001-32502).
Basis of Consolidation
The accompanying financial statements present the consolidated accounts of all entities in which the Company has a controlling voting interest and/or variable interest required to be consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”) requires the Company first evaluate its investments to determine if any investments qualify as a variable interest entity (“VIE”). A VIE is consolidated if the Company is deemed to be the primary beneficiary of the VIE, which is the party involved with the VIE that has both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If an entity is not deemed to be a VIE, the Company consolidates the entity if the Company has a controlling voting interest. As of December 31, 2023 and September 30, 2023, there were approximately $74 million and $5 million of assets and $2 million and $2 million of liabilities, respectively, related to VIEs included in our condensed consolidated balance sheets.
The Company has performed a review of all subsequent events through the date the financial statements were issued and has determined that no additional disclosures are necessary.
6


Income Taxes
The Company uses the estimated annual effective tax rate method in computing its interim tax provision. Certain items, including those deemed to be unusual and infrequent are excluded from the estimated annual effective tax rate. In such cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions, and are recorded in the period in which the change occurs.

Global Intangible Low-Taxed Income (“GILTI”) imposes U.S. taxes on the excess of a deemed return on tangible assets of certain foreign subsidiaries. The Company made an election to recognize GILTI tax in the specific period in which it occurs.
New Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment enhances reportable segment disclosure requirements, primarily by requiring enhanced disclosures about significant segment expenses, reporting for interim periods, and Chief Operating Decision Maker (“CODM”) related information. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is in the process of evaluating the effect that the adoption of these standards will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendment enhances income tax disclosure requirements, by requiring enhanced disclosures on the income tax rate reconciliation and income taxes paid. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. The Company is in the process of evaluating the effect that the adoption of these standards will have on its consolidated financial statements.
3. Earnings per Share
The Company utilizes the two-class method to report earnings per share. Basic earnings per share is computed by dividing net income available to each class of stock by the weighted average number of outstanding common shares for each class of stock. Diluted earnings per share is computed by dividing net income available to each class of stock by the weighted average number of outstanding common shares, plus dilutive potential common shares, which is calculated using the treasury-stock method. The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three months ended December 31, 2023 and 2022, respectively.
The following table sets forth the calculation of basic and diluted net income per common share under the two-class method for the three months ended December 31, 2023 and 2022 (in millions, except share amounts, which are reflected in thousands, and per share data):
Three Months Ended December 31,
20232022
Class AClass BClass AClass B
Basic and Diluted EPS:
Numerator
Net income attributable to Warner Music Group Corp.$44 $115 $34 $88 
Less: Net income attributable to participating securities(2) (2) 
Net income attributable to common stockholders$42 $115 $32 $88 
Denominator
Weighted average shares outstanding138,972 377,490 137,424 377,650 
Basic and Diluted EPS$0.30 $0.30 $0.23 $0.23 
7


4. Revenue Recognition
Disaggregation of Revenue
The Company’s revenue consists of the following categories, which aggregate into the segments – Recorded Music and Music Publishing:
Three Months Ended
December 31,
20232022
(in millions)
Revenue by Type
Digital$908 $803 
Physical154 133 
Total Digital and Physical1,062 936 
Artist services and expanded-rights204 206 
Licensing179 97 
Total Recorded Music1,445 1,239 
Performance51 45 
Digital196 149 
Mechanical15 14 
Synchronization39 39 
Other3 3 
Total Music Publishing304 250 
Intersegment eliminations(1)(1)
Total Revenues$1,748 $1,488 
Revenue by Geographical Location
U.S. Recorded Music$627 $539 
U.S. Music Publishing172 133 
Total U.S.799 672 
International Recorded Music818 700 
International Music Publishing132 117 
Total International950 817 
Intersegment eliminations(1)(1)
Total Revenues$1,748 $1,488 
Sales Returns and Uncollectible Accounts
Based on management’s analysis of sales returns, refund liabilities of $25 million and $19 million were established at December 31, 2023 and September 30, 2023, respectively.
Based on management’s analysis of estimated credit losses, reserves of $19 million and $19 million were established at December 31, 2023 and September 30, 2023, respectively.
Deferred Revenue
Deferred revenue increased by $160 million during the three months ended December 31, 2023 related to cash received from customers for fixed fees and minimum guarantees in advance of performance, including amounts recognized in the period. Revenues of $151 million were recognized during the three months ended December 31, 2023 related to the balance of deferred revenue at September 30, 2023. There were no other significant changes to deferred revenue during the reporting period.
Performance Obligations
For the three months ended December 31, 2023 and December 31, 2022, the Company recognized revenue of $30 million and $27 million, respectively, from performance obligations satisfied in previous periods.
8


Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at December 31, 2023 are as follows:
Rest of FY24
FY25
FY26
ThereafterTotal
(in millions)
Remaining performance obligations$468 $226 $22 $6 $722 
Total$468 $226 $22 $6 $722 
5. Acquisitions
On August 25, 2023, the Company purchased 51% of the issued and outstanding equity securities of TenThousand Projects Holdings LLC (“TenThousand Projects”), an independent U.S. record label pursuant to the terms of the unit purchase agreement of the same date among Warner Music Inc., a wholly-owned subsidiary of the Company, TenThousand Projects LLC, and Ten Thousand Projects Holdings LLC (the “Unit Purchase Agreement”). The consideration transferred on the acquisition date was approximately $98 million which was comprised of the base purchase price of $102 million and the preliminary working capital adjustments, primarily comprised of cash acquired, net of a deferred purchase price of $12 million which is payable on or prior to one year from the acquisition date.
At December 31, 2023, the Company updated the purchase price allocation recorded at September 30, 2023, which resulted in a decrease to intangible assets of approximately $1 million and a net increase to other acquired assets and liabilities of approximately $3 million, with a corresponding net decrease to goodwill of approximately $2 million. The acquisition accounting is subject to revision based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired, in addition to the determination of the final consideration, including the determination of the final working capital adjustment pursuant to the mechanism set forth in the Unit Purchase Agreement.
See Note 5, “Acquisitions,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for the preliminary purchase price allocation, valuation methodology, and other information related to the TenThousand Projects acquisition.
6. Comprehensive Income
Comprehensive income, which is reported in the accompanying condensed consolidated statements of equity, consists of net income and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income. For the Company, the components of other comprehensive income primarily consist of foreign currency translation gains and losses, minimum pension liabilities, and deferred gains and losses on financial instruments designated as hedges under ASC 815, Derivatives and Hedging. The following summary sets forth the changes in the components of accumulated other comprehensive loss, net of related tax benefit of less than $1 million:
Foreign Currency Translation Loss (a)Minimum Pension Liability AdjustmentDeferred Gains (Losses) On Derivative Financial InstrumentsAccumulated Other Comprehensive Loss, net
 
(in millions)
Balances at September 30, 2023$(322)$(1)$1 $(322)
Other comprehensive income (loss)64 (1)(1)62 
Balances at December 31, 2023$(258)$(2)$ $(260)
______________________________________
(a)Includes historical foreign currency translation related to certain intra-entity transactions.
9


7. Goodwill and Intangible Assets
Goodwill
The following analysis details the changes in goodwill for each reportable segment:
Recorded
Music
Music
Publishing
Total
(in millions)
Balances at September 30, 2023$1,529 $464 $1,993 
Acquisitions3  3 
Other adjustments (a)19  19 
Balances at December 31, 2023$1,551 $464 $2,015 
______________________________________
(a)Other adjustments during the three months ended December 31, 2023 represent foreign currency movements.
The Company performs its annual goodwill impairment test in accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”) during the fourth quarter of each fiscal year as of July 1. The Company may conduct an earlier review if events or circumstances occur that would suggest the carrying value of the Company’s goodwill may not be recoverable. No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.
Intangible Assets
Intangible assets consist of the following:
Weighted-Average Useful LifeDecember 31,
2023
September 30,
2023
(in millions)
Intangible assets subject to amortization:
Recorded music catalog12 years$1,540 $1,507 
Music publishing copyrights25 years2,111 2,026 
Artist and songwriter contracts13 years1,113 1,091 
Trademarks14 years113 111 
Other intangible assets6 years106 104 
Total gross intangible assets subject to amortization4,983 4,839 
Accumulated amortization(2,593)(2,486)
Total net intangible assets subject to amortization2,390 2,353 
Intangible assets not subject to amortization:
Trademarks and tradenamesIndefinite151 149 
Total net intangible assets$2,541 $2,502 
10


8. Debt
Debt Capitalization
Long-term debt, all of which was issued by Acquisition Corp., consists of the following:
December 31,
2023
September 30,
2023
(in millions)
Revolving Credit Facility (a)$ $ 
Senior Term Loan Facility due 20281,295 1,295 
2.750% Senior Secured Notes due 2028 (€325 face amount)
360 343 
3.750% Senior Secured Notes due 2029
540 540 
3.875% Senior Secured Notes due 2030
535 535 
2.250% Senior Secured Notes due 2031 (€445 face amount)
493 471 
3.000% Senior Secured Notes due 2031
800 800 
Mortgage Term Loan due 203318 $18 
Total long-term debt, including the current portion$4,041 $4,002 
Issuance premium less unamortized discount and unamortized deferred financing costs(37)(38)
Total long-term debt, including the current portion, net$4,004 $3,964 
______________________________________
(a)Reflects $350 million and $300 million of commitments under the Revolving Credit Facility, less letters of credit outstanding of approximately $4 million and $2 million as of December 31, 2023 and September 30, 2023, respectively. There were no loans outstanding under the Revolving Credit Facility at December 31, 2023 or September 30, 2023.
The Company is the direct parent of Holdings, which is the direct parent of Acquisition Corp. Acquisition Corp. is party to a $1,295 million senior secured term loan credit facility, pursuant to a credit agreement dated November 1, 2012, as amended or supplemented (the “Senior Term Loan Credit Agreement”) with JPMorgan Chase Bank NA, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “Senior Term Loan Facility”). Additionally, as of December 31, 2023 Acquisition Corp. had issued and outstanding the 2.750% Senior Secured Notes due 2028, the 3.750% Senior Secured Notes due 2029, the 3.875% Senior Secured Notes due 2030, the 2.250% Senior Secured Notes due 2031 and the 3.000% Senior Secured Notes due 2031 (together, the “Acquisition Corp. Notes”).
All of the Acquisition Corp. Notes are guaranteed by all of Acquisition Corp.’s domestic wholly-owned subsidiaries. The guarantee of the Acquisition Corp. Notes by Acquisition Corp.’s domestic wholly-owned subsidiaries is full, unconditional and joint and several. The secured notes are guaranteed on a senior secured basis.
The Company and Holdings are holding companies that conduct substantially all of their business operations through Acquisition Corp. Accordingly, while Acquisition Corp. and its subsidiaries are not currently restricted from distributing funds to the Company and Holdings under the indentures for the Acquisition Corp. Notes or the credit agreements for the Acquisition Corp. Senior Credit Facilities, including the Revolving Credit Facility (as defined below) and the Senior Term Loan Facility, should Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increase above 3.50:1.00 and the term loans not achieve an investment grade rating, the covenants under the Revolving Credit Facility, which are currently suspended, will be reinstated and the ability of the Company and Holdings to obtain funds from their subsidiaries will be restricted by the Revolving Credit Facility. The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 2023.
11


Fiscal 2024 Transactions
Revolving Credit Agreement Amendment
On November 30, 2023, Acquisition Corp. entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018, as amended, among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, Cayman Islands Branch, as predecessor administrative agent, governing Acquisition Corp.’s revolving credit facility (the “Revolving Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto. The Revolving Credit Agreement Amendment (among other changes): (i) increased the commitments under the Revolving Credit Facility from an aggregate principal amount of $300 million to an aggregate principal amount of $350 million, (ii) extended the final maturity date of the Revolving Credit Facility from April 3, 2025 to November 30, 2028, (iii) appointed JPMorgan Chase Bank, N.A. as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch, (iv) modified the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant by increasing the springing threshold from $105,000,000 to $140,000,000, and (v) included provisions that allow Acquisition Corp. to terminate the security interests securing the obligations under the Revolving Credit Facility upon the satisfaction of the Collateral Suspension Conditions (as defined below) and, in the event that the security interests are so terminated, the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant (which is calculated net of up to $250 million of cash and cash equivalents held by Acquisition Corp. and its restricted subsidiaries) shall automatically be replaced with a new financial maintenance covenant prohibiting Acquisition Corp. from permitting the Total Indebtedness to EBITDA Ratio to be greater than 3.60:1.00 (calculated net of all cash and cash equivalents held by Acquisition Corp. and its restricted subsidiaries) as of the end of any fiscal quarter.

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

For purposes the Revolving Credit Agreement Amendment, (i) “Collateral Suspension Conditions” means conditions that are satisfied if (x) the investment grade condition has been satisfied and (y) the aggregate outstanding principal amount of senior secured indebtedness incurred by Acquisition Corp. and its restricted subsidiaries is not in excess of $500,000,000 and (ii) “Collateral Suspension Reversion Date” means, the earlier of (x) the date on which the Collateral Suspension Conditions cease to be satisfied or (y) the date on which Acquisition Corp. delivers a collateral suspension reversion notice to the Administrative Agent.

December 2023 Senior Term Loan Credit Agreement Amendment
On December 29, 2023, Acquisition Corp. entered into an amendment (the “Thirteenth Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the other loan parties, Holdings, each lender party hereto, Credit Suisse AG, Cayman Islands Branch as the resigning administrative agent, and JPMorgan Chase Bank, N.A, as the successor administrative agent. The Thirteenth Amendment appointed JPMorgan Chase Bank, N.A. as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch.
Interest Rates
The loans under the Revolving Credit Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Revolving Term SOFR”), and other rates for alternate currencies, such as EURIBOR and SONIA, as provided in the Revolving Credit Agreement, subject to a zero floor, plus 1.75% per annum in the case of Initial Revolving Loans (as defined in the Revolving Credit Agreement), or 1.875% per annum in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement), or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) the one-month Revolving Term SOFR plus 1.0% per annum, plus, in each case, 0.75% per annum in the case of Initial Revolving Loans, or 0.875% per annum in the case of 2020 Revolving Loans; provided that, in respect of 2020 Revolving Loans, the applicable margin with respect to such loans is subject to adjustment as set forth in the pricing grid in the Revolving Credit Agreement. Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.66x at December 31, 2023, the applicable margin for SOFR loans and RFR loans would be 1.375% instead of 1.875% and the applicable margin for ABR loans would be 0.375% instead of 0.875% in the case of 2020 Revolving Loans. If there is a payment default at any time, then the interest rate applicable to overdue principal will be the rate otherwise applicable to such loan plus 2.0% per annum. Default interest will also be payable on other overdue amounts at a rate of 2.0% per annum above the amount that would apply to an alternative base rate loan.
12


The loans under the Senior Term Loan Facility bear interest at Acquisition Corp.’s election at a rate equal to (i) the forward-looking term rate based on the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable interest period (“Term SOFR”) plus an adjustment based on the applicable interest period subject to a zero floor, plus 2.125% per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00% per annum, subject to a 1.00% floor, plus, in each case, 1.125% per annum. If there is a payment default at any time, then the interest rate applicable to overdue principal and interest will be the rate otherwise applicable to such loan plus 2.0% per annum. Default interest will also be payable on other overdue amounts at a rate of 2.0% per annum above the amount that would apply to an alternative base rate loan.
The term loan entered into on January 27, 2023 (the “Term Loan Mortgage”) bears interest at a rate of 30-day SOFR plus the applicable margin of 1.40%, subject to a zero floor.
The Company has entered into, and in the future may enter into, interest rate swaps to manage interest rate risk. Please refer to Note 13 of our condensed consolidated financial statements for further discussion.
Maturity of Senior Term Loan Facility
The loans outstanding under the Senior Term Loan Facility mature on January 20, 2028.
Maturity of Revolving Credit Facility
The maturity date of the Revolving Credit Facility is November 30, 2028.
Maturities of Senior Secured Notes
As of December 31, 2023, there are no scheduled maturities of notes until 2028, when $360 million is scheduled to mature. Thereafter, $2.368 billion is scheduled to mature.
Maturity of Term Loan Mortgage
The maturity date of the Term Loan Mortgage is January 27, 2033, subject to a call option exercisable by Truist Bank at any time after January 27, 2028 if certain criteria relating to the Company’s creditworthiness are met.
Interest Expense, net
Total interest expense, net was $39 million and $32 million for the three months ended December 31, 2023 and 2022, respectively. Interest expense, net includes interest expense related to our outstanding indebtedness of $45 million and $36 million for the three months ended December 31, 2023 and 2022, respectively. The weighted-average interest rate of the Company’s total debt was 4.6% at December 31, 2023, 4.1% at September 30, 2023, and 3.7% at December 31, 2022.

9. Restructuring
In March 2023, the Company announced a restructuring plan (the “Restructuring Plan”) intended to drive the evolution of the Company and position the Company for long-term growth, primarily through headcount reductions. The Restructuring Plan was substantially complete as of December 31, 2023, with related cash expenditures expected by the end of fiscal 2024. There were no restructuring costs recorded for the three months ended December 31, 2023. The following table sets forth the activity for the three months ended December 31, 2023 in the restructuring accrual included within accrued liabilities in the accompanying condensed consolidated balance sheets:
Severance Costs
(in millions)
Balance at September 30, 2023$19 
Restructuring charges$ 
Cash payments$(8)
Balance at December 31, 2023$11 
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10. Commitments and Contingencies
From time to time the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company is currently subject to several such claims and legal proceedings. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors.
11. Equity
Stock-Based Compensation
The Company’s stock-based compensation plans are described in Note 14, “Equity,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Stock-based compensation consists primarily of common stock, restricted stock units and market-based performance share units granted to eligible employees and executives under the Omnibus Incentive Plan.
For the three months ended December 31, 2023, the Company recognized a total of $9 million of non-cash stock-based compensation expense which was recorded to additional paid-in capital. For the three months ended December 31, 2022, the Company recognized a total of $14 million of non-cash stock-based compensation expense, of which $4 million was recorded to additional paid-in capital and $10 million was recorded as a share-based compensation liability. During the three months ended December 31, 2023, $15 million of share-based compensation liabilities were reclassified to additional paid-in capital.
Common Stock
During the three months ended December 31, 2023, in connection with the Senior Management Free Cash Flow Plan (the “Plan”), the Company issued a total of 1,738,016 shares of Class A Common Stock to settle a portion of participants’ deferred equity units previously issued under the Plan. Additionally, a Plan participant redeemed a portion of their vested Class B equity units of WMG Management Holdings LLC in exchange for a total of 547,249 shares of Class B Common Stock which were converted to shares of Class A Common Stock upon the exchange.
During the three months ended December 31, 2023, the Company issued approximately 7,000 shares of Class A Common Stock, under the Omnibus Incentive Plan.
12. Income Taxes
For the three months ended December 31, 2023, the Company recorded an income tax expense of $72 million. The income tax expense for the three months ended December 31, 2023 is higher than the expected tax expense at the statutory rate of 21% primarily due to withholding taxes, foreign income taxed at rates higher than the United States, U.S. state and local taxes, non-deductible executive compensation under IRC Section 162(m), and unrecognized tax benefit related to uncertain tax positions. These charges were partially offset by non-controlling interest, the net impact of GILTI and foreign derived intangible income (“FDII”), and tax benefits associated with Research and Development (“R&D”) credits.
For the three months ended December 31, 2022, the Company recorded an income tax expense of $48 million. The income tax expense for the three months ended December 31, 2022 is higher than the expected tax benefit at the statutory tax rate of 21% primarily due to U.S. state and local taxes, withholding taxes, foreign income taxed at rates higher than the U.S., and non-deductible executive compensation under IRC Section 162(m), offset by a deduction against FDII.
The Company has determined that it is reasonably possible that the gross unrecognized tax benefits as of December 31, 2023 could decrease by up to approximately $4 million related to various ongoing audits and settlement discussions in various jurisdictions during the next twelve months.
The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax rate by January 1, 2025. We are currently evaluating the potential impact of the rules on our consolidated financial statements and related disclosures.
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The Inflation Reduction Act of 2022 (H.R. 5376) includes a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with average profits over $1 billion over a three-year period. Although the U.S. Treasury and Internal Revenue Service (IRS) issued interim CAMT guidance during 2023, many details and specifics of application of the CAMT remain subject to future guidance. The Company is not expecting to be subject to CAMT for our fiscal year 2024.
13. Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts and interest rate swaps, for the purposes of managing foreign currency exchange rate risk and interest rate risk on expected future cash flows.
The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 20, “Fair Value Measurements,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Interest income or expense related to interest rate swaps is recognized in interest income (expense), net in the same period as the related expense is recognized. The ineffective portions of interest rate swaps are recognized in other income (expense) in the period measured.
As of December 31, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $366 million and the purchase of $219 million of foreign currencies at fixed rates that will be settled by September 2024.
As of December 31, 2023, the Company had no outstanding interest rate swaps and no unrealized deferred gains or losses in comprehensive income related to the interest rate swaps. As of September 30, 2023, the Company had outstanding $500 million in a pay-fixed receive-variable interest rate swap with $1 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.
The Company recorded no realized pre-tax gains or losses and unrealized pre-tax losses of $6 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the three months ended December 31, 2023. The Company recorded realized pre-tax losses of $1 million and unrealized pre-tax losses of $7 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the three months ended December 31, 2022.
The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the three months ended December 31, 2023 and December 31, 2022 were $1 million and $2 million, respectively.
The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at December 31, 2023 and September 30, 2023:
December 31,
2023
September 30,
2023
(in millions)
Other Current Assets:
Interest Rate Swap
$ $2 
Other Current Liabilities:
Foreign Currency Forward Exchange Contracts (a)
(6) 
______________________________________
(a)Includes $9 million and $15 million of foreign exchange derivative contracts in asset and liability positions, respectively, which net to $6 million of current liabilities.
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14. Segment Information
Based on the nature of its products and services, the Company classifies its business interests into two fundamental operations: Recorded Music and Music Publishing, which also represent the reportable segments of the Company. Information as to each of these operations is set forth below. The Company evaluates performance based on several factors, of which the primary financial measure is operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets adjusted to exclude the impact of non-cash stock-based compensation and other related expenses and certain items that affect comparability including but not limited to gains or losses on divestitures and expenses related to restructuring and transformation initiatives, which includes costs associated with the Company’s financial transformation initiative to upgrade our information technology and finance infrastructure (“Adjusted OIBDA”). Items excluded are not viewed to contribute directly to management’s evaluation of operating results.

    During the three months ended December 31, 2023, the Company changed the measure used to evaluate segment profitability from OIBDA to Adjusted OIBDA which is consistent with how the Company's CODM evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that Adjusted OIBDA represents the most relevant measure of segment profit and loss. All disclosures relating to segment profitability, including those for the three months ended December 31, 2022, have been revised as a result of this change. Hereafter, the Company will revise other prior quarterly and year-to-date periods for fiscal year 2023 when they are subsequently reported in later filings for comparative purposes.
The accounting policies of the Company’s business segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. The Company accounts for intersegment sales at fair value as if the sales were to third parties. While intercompany transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses recognized by the segment that is counterparty to the transaction) are eliminated in consolidation, and therefore, do not themselves impact consolidated results.
Recorded
Music
Music
Publishing
Corporate
expenses and
eliminations
Total
Three Months Ended(in millions)
December 31, 2023    
Revenues$1,445 $304 $(1)$1,748 
Adjusted OIBDA
412 86 (47)451 
December 31, 2022
Revenues$1,239 $250 (1)1,488 
Adjusted OIBDA
299 72 (36)335 
Adjusted OIBDA is not a measure defined by U.S. GAAP but is computed using amounts that are determined in accordance with U.S. GAAP. A reconciliation of the Company’s Adjusted OIBDA to operating income is presented below.
For the Three Months Ended
December 31,
20232022
Operating income354 265 
Amortization expense55 63 
Depreciation expense26 21 
Transformation initiatives and other related costs
19 12 
Net gain on divestitures
(17)(41)
Non-cash stock-based compensation and other related costs
14 15 
Adjusted OIBDA$451 $335 
In connection with the aforementioned change in segment profitability measure, the Company has also revised disclosures relating to segment profitability for the fiscal years ended September 30, 2023, 2022 and 2021, as presented below, to be comparable to the current period presentation.
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Recorded
Music
Music
Publishing
Corporate
expenses and
eliminations
Total
Twelve Months Ended
(in millions)
September 30, 2023    
Revenues$4,955 $1,088 $(6)$6,037 
Adjusted OIBDA
1,093 296 (154)1,235 
September 30, 2022
Revenues$4,966 $958 $(5)$5,919 
Adjusted OIBDA
1,046 233 (130)1,149 
September 30, 2021
Revenues$4,544 $761 (4)$5,301 
Adjusted OIBDA
975 179 (136)1,018 
For the Twelve Months Ended September 30,
202320222021
Operating income790 714 609 
Amortization expense245 263 229 
Depreciation expense87 76 77 
Restructuring
42 8 18 
Transformation initiatives and other related costs
53 46 36 
Executive transition costs
7   
Net gain on divestitures
(41)  
COVID-19 related costs
  1 
Non-cash stock-based compensation and other related costs
52 42 48 
Adjusted OIBDA$1,235 $1,149 $1,018 
15. Additional Financial Information
Supplemental Cash Flow Disclosures
The Company made interest payments of approximately $33 million and $25 million during the three months ended December 31, 2023 and 2022, respectively. The Company paid approximately $39 million and $45 million of income and withholding taxes, net of refunds, for the three months ended December 31, 2023 and 2022, respectively. Noncash investing activities was approximately $18 million related to the acquisition of music publishing rights and music catalogs, net during the three months ended December 31, 2023.
Net Gain on Divestitures
The Company recognized a pre-tax gain of $17 million and $41 million, during the three months ended December 31, 2023 and December 31, 2022, respectively, in connection with the divestiture of certain sound recordings rights in the quarter and has been reflected as a net gain on divestiture in the accompanying condensed consolidated statement of operations.
Dividends
The Company’s ability to pay dividends may be restricted by covenants in the credit agreement for the Revolving Credit Facility which are currently suspended but which will be reinstated if Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increases above 3.50:1.00 and the term loans do not achieve an investment grade rating.
The Company intends to pay quarterly cash dividends to holders of its Class A Common Stock and Class B Common Stock. The declaration of each dividend will continue to be at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, earnings, liquidity and capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that the Company’s
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board of directors deems relevant in making such a determination. Therefore, there can be no assurance that the Company will pay any dividends to holders of the Company’s common stock, or as to the amount of any such dividends.
On November 9, 2023, the Company’s board of directors declared a cash dividend of $0.17 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on December 1, 2023. The Company paid an aggregate of approximately $89 million, or $0.17 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2023.
16. Fair Value Measurements
The following tables show the fair value of the Company’s financial instruments that are required to be measured at fair value as of December 31, 2023 and September 30, 2023.
Fair Value Measurements as of December 31, 2023
(Level 1)(Level 2)(Level 3)Total
(in millions)
Other Current Liabilities:
Foreign Currency Forward Exchange Contracts (a)$ $(6)$ $(6)
Other Noncurrent Assets:
Equity Investments with Readily Determinable Fair Value (c)13   13 
Other Noncurrent Liabilities:
Contractual Obligations (b)  (1)(1)

Fair Value Measurements as of September 30, 2023
(Level 1)(Level 2)(Level 3)Total
(in millions)
Other Current Assets:
Interest Rate Swap (d)$ $2 $ $2 
Other Noncurrent Assets:
Equity Investment with Readily Determinable Fair Value (c)15   15 
Other Noncurrent Liabilities:
Contractual Obligations (b)  (1)(1)
______________________________________
(a)The fair value of foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.
(b)This represents contingent consideration related to acquisitions. This is based on a probability weighted performance approach and it is adjusted to fair value on a recurring basis and any adjustments are typically included as a component of operating income in the condensed consolidated statements of operations. This amount was primarily calculated using unobservable inputs such as future earnings performance of the acquiree and the expected timing of payments.
(c)These represent equity investments with a readily determinable fair value. The Company has measured its investments to fair value in accordance with ASC 321, Investments—Equity Securities, based on quoted prices in active markets.
(d)The fair value of the interest rate swaps is based on dealer quotes of market forward rates and reflects the amount that the Company would receive or pay as of each reporting period for contracts involving the same attributes and maturity dates.
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The following table reconciles the beginning and ending balances of net liabilities classified as Level 3:
Total
(in millions)
Balance at September 30, 2023$(1)
Additions 
Reductions 
Payments 
Balance at December 31, 2023$(1)
The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, inventories and property, plant and equipment, are not required to be re-measured to fair value on a recurring basis. 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 $1 million of impairment charges on these investments during the three months ended December 31, 2023. The Company did not record any impairment charges on these investments during the three months ended December 31, 2022. In addition, there were no observable price changes events that were completed during the three months ended December 31, 2023 and 2022.
Fair Value of Debt
Based on the level of interest rates prevailing at December 31, 2023, the fair value of the Company’s debt was $3.763 billion. Based on the level of interest rates prevailing at September 30, 2023, the fair value of the Company’s debt was $3.525 billion. 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.
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17. Subsequent Events
January 2024 Senior Term Loan Credit Agreement Amendment
On January 24, 2024, Acquisition Corp. entered into an amendment (the “Fourteenth Amendment”) to the credit agreement, dated November 1, 2012, as amended or supplemented, among Acquisition Corp., the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, governing Acquisition Corp.’s senior secured term loan facility with JPMorgan Chase Bank N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto. The Fourteenth Amendment (among other changes) extended the maturity date of its outstanding term loans from January 20, 2028 to January 24, 2031 through the issuance of tranche I term loans and refinancing of the existing tranche G term loans. The tranche I term loans shall bear interest at a rate equal to, at Acquisition Corp.’s election (i) the forward-looking term rate based on Term SOFR as administered by the Federal Reserve Bank of New York for the applicable interest period subject to a zero floor, plus 2.000% per annum or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) 0.50% in excess of the overnight federal funds rate and (z) one-month Term SOFR, plus 1.00% per annum, in each case, subject to a 1.00% floor, plus 1.000% per annum.
Strategic Restructuring Plan
On February 6, 2024, the Company’s board of directors approved and the Company subsequently announced a strategic restructuring plan (the “Strategic Restructuring Plan”) designed to free up more funds to invest in music and accelerate the Company's growth for the next decade. The Company expects the Strategic Restructuring Plan to generate pre-tax cost savings by the end of fiscal year 2025 and anticipates allocating a majority of the cost savings to increase investment in the Company’s core Recorded Music and Music Publishing businesses, new skill sets and tech capabilities.
The cost savings under the Strategic Restructuring Plan will be achieved through a combination of the disposal or winding down of certain of the Company’s non-core owned and operated media properties including the Company’s in-house ad sales function (the “O&O Media Properties”), continuing to manage overhead, sharpening focus, expanding shared services, and implementing previously disclosed expected operational efficiencies made possible by the Company’s financial transformation initiative. The Strategic Restructuring Plan anticipates a reduction in headcount, a majority of which will be related to the O&O Media Properties, Corporate and various support functions.
The Strategic Restructuring Plan is expected to result in approximately $140 million of total non-recurring pre-tax charges and approximately $105 million in total after tax charges. The pre-tax charges include approximately $85 million representing severance payments and other related termination costs, and approximately $55 million represents non-cash impairment charges primarily in connection with the disposal or winding down of the O&O Media Properties. The majority of the charges associated with the Strategic Restructuring Plan are expected to be incurred by the end of fiscal year 2024 and the actions related to those charges will commence immediately. The severance payments and other termination costs are expected to be paid by the end of fiscal year 2026 with approximately $35 million of those payments and costs expected to be paid by the end of fiscal year 2024.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition with the unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2023 (the “Quarterly Report”).
“SAFE HARBOR” STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report includes forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms or the negative thereof. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include, without limitation, our ability to compete in the highly competitive markets in which we operate, statements regarding our ability to develop talent and attract future talent, our ability to reduce future capital expenditures, our ability to monetize our music, including through new distribution channels and formats to capitalize on the growth areas of the music entertainment industry, our ability to effectively deploy our capital, the development of digital music and the effect of digital distribution channels on our business, including whether we will be able to achieve higher margins from digital sales, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music entertainment industry, the effectiveness of our ongoing efforts to reduce overhead expenditures and manage our variable and fixed cost structure and our ability to generate expected cost savings from such efforts, our success in limiting piracy, the growth of the music entertainment industry and the effect of our and the industry’s efforts to combat piracy on the industry, our intention and ability to pay dividends or repurchase or retire our outstanding debt or notes in open market purchases, privately or otherwise, the impact on us of potential strategic transactions, our ability to fund our future capital needs and the effect of litigation on us.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to accurately predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:
our inability to compete successfully in the highly competitive markets in which we operate;
our ability to identify, sign and retain recording artists and songwriters and the existence or absence of superstar releases;
slower growth in streaming adoption and revenue;
our dependence on a limited number of digital music services for the online distribution and marketing of our music and their ability to significantly influence the pricing structure for online music stores;
the ability to further develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music entertainment business;
the popular demand for particular recording artists and/or songwriters and music and the timely delivery to us of music by major recording artists and/or songwriters;
risks related to the effects of natural or man-made disasters, including pandemics such as COVID-19;
the diversity and quality of our recording artists, songwriters and releases;
trends, developments or other events in some foreign countries in which we operate;
risks associated with our non-U.S. operations, including limited legal protections of our intellectual property rights and restrictions on the repatriation of capital;
unfavorable currency exchange rate fluctuations;
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the impact of heightened and intensive competition in the recorded music and music publishing industries and our inability to execute our business strategy;
significant fluctuations in our operations, cash flows and the trading price of our common stock from period to period;
our failure to attract and retain our executive officers and other key personnel;
a significant portion of our revenues are subject to rate regulation either by government entities or by local third-party collecting societies throughout the world and rates on other income streams may be set by governmental proceedings, which may limit our profitability;
risks associated with obtaining, maintaining, protecting and enforcing our intellectual property rights;
our involvement in intellectual property litigation;
threats to our business associated with digital piracy, including organized industrial piracy;
an impairment in the carrying value of goodwill or other intangible and long-lived assets;
the impact of, and risks inherent in, acquisitions or other business combinations;
risks inherent to our outsourcing certain finance and accounting functions;
the fact that we have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings;
our ability to maintain the security of information relating to our customers, employees and vendors and our music;
risks related to evolving laws and regulations concerning data privacy which might result in increased regulation and different industry standards;
legislation limiting the terms by which an individual can be bound under a “personal services” contract;
new legislation that affects the terms of our contracts with recording artists and songwriters;
a potential loss of catalog if it is determined that recording artists have a right to recapture U.S. rights in their recordings under the U.S. Copyright Act;
any delays and difficulties in satisfying obligations incident to being a public company;
the impact of our substantial leverage on our ability to raise additional capital to fund our operations, on our ability to react to changes in the economy or our industry and on our ability to meet our obligations under our indebtedness;
the ability to generate sufficient cash to service all of our indebtedness, and the risk that we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful;
the fact that our debt agreements contain restrictions that may limit our flexibility in operating our business;
the significant amount of cash required to service our indebtedness and the ability to generate cash or refinance indebtedness as it becomes due depends on many factors, some of which are beyond our control;
our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness, which may increase the risks created by our substantial indebtedness;
risks of downgrade, suspension or withdrawal of the rating assigned by a rating agency to us could impact our cost of capital;
the dual class structure of our common stock and Access’s existing ownership of our Class B Common Stock have the effect of concentrating control over our management and affairs and over matters requiring stockholder approval with Access;
the fact that we maintain certain cash deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits, which could have an adverse effect on liquidity and financial performance in the event of a bank failure or receivership; and
risks related to other factors discussed under “Risk Factors” of this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this Quarterly Report are qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in
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assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Other risks, uncertainties and factors, including those discussed in the “Risk Factors” of our Quarterly Reports and our Annual Report on Form 10-K, could cause our actual results to differ materially from those projected in any forward-looking statements we make. You should read carefully the factors described in the “Risk Factors” section of our Quarterly Reports and our Annual Report on Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements.
INTRODUCTION
Warner Music Group Corp. (the “Company”) was formed on November 21, 2003. The Company is the direct parent of WMG Holdings Corp. (“Holdings”), which is the direct parent of WMG Acquisition Corp. (“Acquisition Corp.”). Acquisition Corp. is one of the world’s major music entertainment companies.
The Company and Holdings are holding companies that conduct substantially all of their business operations through their subsidiaries. The terms “we,” “us,” “our,” “ours” and the “Company” refer collectively to Warner Music Group Corp. and its consolidated subsidiaries, except where otherwise indicated.
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to the unaudited financial statements and related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. MD&A is organized as follows:
Business overview. This section provides a general description of our business, as well as a discussion of factors that we believe are important in understanding our results of operations and comparability and in anticipating future trends.
Results of operations. This section provides an analysis of our results of operations for the three months ended December 31, 2023 and December 31, 2022. This analysis is presented on both a consolidated and segment basis.
Financial condition and liquidity. This section provides an analysis of our cash flows for the three months ended December 31, 2023 and December 31, 2022, as well as a discussion of our financial condition and liquidity as of December 31, 2023. The discussion of our financial condition and liquidity includes recent debt financings and a summary of the key debt covenant compliance measures under our debt agreements.
Use of Adjusted OIBDA
We evaluate our operating performance based on several factors, including our primary financial measure of operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets adjusted to exclude the impact of non-cash stock-based compensation and other related expenses and certain items that affect comparability including but not limited to gains or losses on divestitures and expenses related to restructuring and transformation initiatives (“Adjusted OIBDA”). We consider Adjusted OIBDA to be an important indicator of the operational strengths and performance of our businesses. However, a limitation of the use of Adjusted OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses. Accordingly, Adjusted OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) attributable to Warner Music Group Corp. and other measures of financial performance reported in accordance with United States generally accepted accounting principles (“U.S. GAAP”). In addition, our definition of Adjusted OIBDA may differ from similarly titled measures used by other companies. A reconciliation of consolidated Adjusted OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp. is provided in our “Results of Operations.”
Use of Constant Currency
As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and Adjusted OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares revenue and Adjusted OIBDA between periods as if exchange rates had remained constant period over period. We use revenue and Adjusted OIBDA on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency by calculating prior-year revenue and Adjusted OIBDA using current-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant-currency basis as “excluding the impact of foreign currency exchange rates.” Revenue and Adjusted OIBDA on a constant-currency basis should be considered in addition to, not as a substitute for, revenue and Adjusted OIBDA reported in
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accordance with U.S. GAAP. Revenue and Adjusted OIBDA on a constant-currency basis, as we present it, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.
BUSINESS OVERVIEW
We are one of the world’s leading music entertainment companies. Our renowned family of iconic record labels, including Atlantic Records, Warner Records, Elektra Records and Parlophone Records, is home to many of the world’s most popular and influential recording artists. In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 100,000 songwriters and composers, with a global collection of more than one million musical compositions. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing. A brief description of each of those operations is presented below.
Components of Our Operating Results
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.
In the United States, our Recorded Music business is conducted principally through our major record labels—Atlantic Records and Warner Records. In October 2018, we launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels, and in December 2021, we acquired 300 Entertainment and subsequently launched 300 Elektra Entertainment, or 3EE, a frontline label group that brings together the multi-genre power of 300 Entertainment and Elektra Music Group. Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault. We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, TenThousand Projects, Warner Classics and Warner Music Nashville.
Outside the United States, our Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates and non-affiliated licensees. Internationally, we engage in the same activities as in the United States: discovering and signing artists and distributing, selling, marketing and promoting their music. In most cases, we also market, promote, distribute and sell the music of those recording artists for whom our domestic record labels have international rights. In certain smaller markets, we license the right to distribute and sell our music to non-affiliated third-party record labels.
Our Recorded Music business’ operations include WMX, a next generation services division that connects artists with fans and amplifies brands in creative, immersive, and engaging ways. This division includes a rebranded WEA commercial services & marketing network (formerly Warner-Elektra-Atlantic Corporation, or WEA Corp.), which markets, distributes and sells music and video products to retailers and wholesale distributors, as well as acting as the Company’s media and creative content arm. Our business’ distribution operations also includes Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.
In addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music and YouTube, radio services such as iHeart Radio and SiriusXM and other download services.
We have integrated the marketing of digital content into all aspects of our business, including artists and repertoire (“A&R”) and distribution. Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music-centered destinations. We also work side-by-side with our online and mobile partners to test new concepts. We believe existing and new digital businesses will be a significant source of growth and will provide new opportunities to successfully monetize our assets and create new revenue streams. The proportion of digital revenues attributable to each distribution channel varies by region and proportions may change as the introduction of new technologies continues. As one of the world’s largest music entertainment companies, we believe we are well positioned to take advantage of growth in digital distribution and emerging technologies to maximize the value of our assets.
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We have diversified our revenues beyond our traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers. Under these agreements, we provide services to and participate in recording artists’ activities outside the traditional recorded music business such as touring, merchandising and sponsorships. We have built and acquired artist services capabilities and platforms for marketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands we help create. We believe that entering into expanded-rights deals and enhancing our artist services capabilities in areas such as merchandising, VIP ticketing, fan clubs, concert promotion and management has permitted us to diversify revenue streams and capitalize on other revenue opportunities. This provides for improved long-term relationships with our recording artists and allows us to more effectively connect recording artists and fans.
Recorded Music revenues are derived from four main sources:
Digital: the rightsholder receives revenues with respect to streaming and download services;
Physical: the rightsholder receives revenues with respect to sales of physical products such as vinyl, CDs and DVDs;
Artist services and expanded-rights: the rightsholder receives revenues with respect to our artist services businesses and our participation in expanded rights, including advertising, merchandising such as direct-to-consumer sales, touring, concert promotion, ticketing, sponsorship, fan clubs, artist websites, social publishing, and artist and brand management; and
Licensing: the rightsholder receives royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and video games; the rightsholder also receives royalties if sound recordings are performed publicly through broadcast of music on television, radio and cable, and in public spaces such as shops, workplaces, restaurants, bars and clubs.
The principal costs associated with our Recorded Music business are as follows:
A&R costs: the costs associated with (i) paying royalties to recording artists, producers, songwriters, other copyright holders and trade unions; (ii) signing and developing recording artists; and (iii) creating master recordings in the studio;
Product costs: the costs to manufacture, package and distribute products to wholesale and retail distribution outlets, the royalty costs associated with distributing products of independent labels to wholesale and retail distribution outlets, as well as the costs related to our artist services business;
Selling and marketing expenses: the costs associated with the promotion and marketing of recording artists and music, including costs to produce music videos for promotional purposes and artist tour support; and
General and administrative expenses: the costs associated with general overhead and other administrative expenses.
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.
The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, with operations in over 70 countries through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers. We own or control rights to more than one million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions. Assembled over decades, our award-winning catalog includes over 100,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios. We have an extensive production music catalog collectively branded as Warner Chappell Production Music.
Music Publishing revenues are derived from five main sources:
Digital: the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services, digital performance and other digital music services;
Performance: the rightsholder receives revenues if 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
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concert or other venue (e.g., arena concerts and nightclubs), and performance of music in staged theatrical productions;
Mechanical: the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs;
Synchronization: the rightsholder receives revenues for the right to use the musical 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; and
Other: the rightsholder receives revenues for use in sheet music and other uses.
The principal costs associated with our Music Publishing business are as follows:
A&R costs: the costs associated with (i) paying royalties to songwriters, co-publishers and other copyright holders in connection with income generated from the uses of their works and (ii) signing and developing songwriters; and
Selling and marketing, general overhead and other administrative expenses: the costs associated with selling and marketing, general overhead and other administrative expenses.
Recent Events and Factors Affecting Results of Operations and Comparability
Restructuring
In March 2023, the Company announced a restructuring plan (the “Restructuring Plan”) intended to drive the evolution of the Company and position the Company for long-term growth, primarily through headcount reductions. The headcount reductions generated pre-tax cost savings of approximately $12 million for the three months ended December 31, 2023.
BMG Termination
In September 2023, the Company announced its distribution agreement with BMG will be terminated as BMG will begin to bring digital distribution in-house and license directly with digital service partners beginning in fiscal 2024 (the “BMG Termination”). Alternative Distribution Alliance (“ADA”), which is part of our Recorded Music business, had previously been distributing BMG’s recorded music catalog and revenues are reported within our Recorded Music segment. The shift to direct deals by BMG will be a phased in-sourcing of distribution during the current fiscal year and we expect BMG to be largely rolled off by October 2024.

    During the quarter ended December 31, 2023, in connection with the BMG Termination, the Company reported lower Recorded Music digital revenue of $13 million compared to the prior-year quarter, of which $12 million was streaming revenue. The impact to Recorded Music’s Adjusted OIBDA was immaterial in the quarter.
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RESULTS OF OPERATIONS
Three Months Ended December 31, 2023 Compared with Three Months Ended December 31, 2022
Consolidated Results
Revenues
Our revenues were composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Revenue by Type
Digital$908 $803 $105 13 %
Physical154 133 21 16 %
Total Digital and Physical1,062 936 126 13 %
Artist services and expanded-rights204 206 (2)-1 %
Licensing179 97 82 85 %
Total Recorded Music1,445 1,239 206 17 %
Performance51 45 13 %
Digital196 149 47 32 %
Mechanical15 14 %
Synchronization39 39 — — %
Other— — %
Total Music Publishing304 250 54 22 %
Intersegment eliminations(1)(1)— — %
Total Revenues$1,748 $1,488 $260 17 %
Revenue by Geographical Location
U.S. Recorded Music$627 $539 $88 16 %
U.S. Music Publishing172 133 39 29 %
Total U.S.799 672 127 19 %
International Recorded Music818 700 118 17 %
International Music Publishing132 117 15 13 %
Total International950 817 133 16 %
Intersegment eliminations(1)(1)— — %
Total Revenues$1,748 $1,488 $260 17 %
Total Revenues
Total revenues increased by $260 million, or 17%, to $1,748 million for the three months ended December 31, 2023 from $1,488 million for the three months ended December 31, 2022. The quarter included $68 million from a licensing agreement extension for an artist’s catalog (the “Licensing Extension”) in Recorded Music licensing revenue and $27 million from a new deal with one of the Company’s digital partners (the “Digital License Renewal”) in Recorded Music streaming revenue. Additionally, the quarter included the impact of the termination of the distribution agreement with BMG (the “BMG Termination”) which resulted in $13 million of lower Recorded Music digital revenue in the three months ended December 31, 2023 compared to the prior-year quarter. Adjusted for these items, total revenues increased by 12%. The increase includes $20 million of favorable currency exchange fluctuations. Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 83% and 17% of total revenue for the three months ended December 31, 2023, respectively, and 83% and 17% of total revenue for the three months ended December 31, 2022, respectively. Prior to intersegment eliminations, U.S. and international revenues represented 46% and 54% of total revenues for the three months ended December 31, 2023 and 45% and 55% of total revenues for the three months ended December 31, 2022.
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Total digital revenues after intersegment eliminations increased by $152 million, or 16%, to $1,104 million for the three months ended December 31, 2023 from $952 million for the three months ended December 31, 2022. Total streaming revenue increased 17% driven by growth across Recorded Music and Music Publishing. Prior to intersegment eliminations, total digital revenues for the three months ended December 31, 2023 were composed of U.S. revenues of $536 million and international revenues of $568 million, or 49% and 51% of total digital revenues, respectively. Prior to intersegment eliminations, total digital revenues for the three months ended December 31, 2022 were composed of U.S. revenues of $484 million and international revenues of $468 million, or 51% and 49% of total digital revenues, respectively.
Recorded Music revenues increased by $206 million, or 17%, to $1,445 million for the three months ended December 31, 2023 from $1,239 million for the three months ended December 31, 2022. The increase includes $16 million of favorable currency exchange fluctuations. U.S. Recorded Music revenues were $627 million and $539 million, or 43% and 44% of consolidated Recorded Music revenues for each of the three months ended December 31, 2023 and December 31, 2022, respectively. International Recorded Music revenues were $818 million and $700 million, or 57% and 56% of consolidated Recorded Music revenues for each of the three months ended December 31, 2023 and December 31, 2022, respectively.
The overall increase in Recorded Music revenue was driven by increases in digital, licensing and physical revenues, partially offset by a decrease in artist services and expanded-rights revenue. Digital revenue increased by $105 million, which includes the favorable impact of foreign currency exchange rates of $5 million. Revenue from streaming services increased by $107 million, or 14%, to $887 million for the three months ended December 31, 2023 from $780 million for the three months ended December 31, 2022, which includes the favorable impact of foreign currency exchange rates of $4 million, or 1%. Streaming revenue includes $27 million from the Digital License Renewal, partially offset by the impact of the BMG Termination of $12 million. Adjusted for these items, streaming revenues increased 12%. The quarter included carryover success from Ed Sheeran, Dua Lipa and Zach Bryan. Download and other digital revenues decreased by $2 million, or 9%, to $21 million for the three months ended December 31, 2023 from $23 million for the three months ended December 31, 2022 due to the continued shift to streaming services. Licensing revenue increased by $82 million, primarily due to $68 million from the Licensing Extension, the timing of new licensing deals primarily in the United States, and the favorable impact of foreign currency exchange rates of $2 million. Physical revenue increased by $21 million, driven by the favorable impact of foreign currency exchange rates of $3 million and stronger performances in the United States, Japan and the UK. Artist services and expanded-rights revenue decreased by $2 million due to lower merchandising revenue, partially offset by higher concert promotion revenue and the favorable impact of foreign currency exchange rates of $6 million.
Music Publishing revenues increased by $54 million, or 22%, to $304 million for the three months ended December 31, 2023 from $250 million for the three months ended December 31, 2022. U.S. Music Publishing revenues were $172 million and $133 million, or 57% and 53% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively. International Music Publishing revenues were $132 million and $117 million, or 43% and 47% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.
The overall increase in Music Publishing revenue was mainly driven by increases in digital revenue of $47 million, or 32%, and performance revenue of $6 million, or 13%. The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the impact of digital deal renewals, and the favorable impact of foreign currency exchange rates of $2 million. Revenue from streaming services grew by $47 million, or 32%, to $193 million for the three months ended December 31, 2023 from $146 million for the three months ended December 31, 2022. Performance revenue increased due to strong live performance in Europe and the favorable impact of foreign currency exchange rates of $1 million. Synchronization revenue remained constant, attributable to lower commercial licensing activity in the United States, partially offset by the timing of legal settlements. Mechanical revenue increased due to the favorable impact of foreign currency exchange rates of $1 million.
Revenue by Geographical Location
U.S. revenue increased by $127 million, or 19%, to $799 million for the three months ended December 31, 2023 from $672 million for the three months ended December 31, 2022. U.S. Recorded Music revenue increased by $88 million, or 16%. The primary driver was the increase in licensing revenue of $81 million, primarily due to $68 million from the Licensing Extension. U.S. Recorded Music digital revenue increased by $15 million, or 4%. U.S. Recorded Music streaming revenue increased by $17 million, or 4%, as a result of a stronger release schedule. Download and other digital decreased by $2 million. Increases are also attributable to higher U.S. Recorded Music physical revenue of $6 million due to growth in vinyl sales. U.S. Recorded Music artist services and expanded-rights revenue decreased by $14 million primarily driven by lower advertising and merchandising revenue. U.S. Music Publishing revenue increased by $39 million, or 29%, to $172 million for the three months ended December 31, 2023 from $133 million for the three months ended December 31, 2022. This was primarily driven by the increase in U.S. Music Publishing digital revenue of $37 million due to the continued growth in streaming services and the impact of digital deal renewals. U.S. Music Publishing streaming revenue increased by $36 million, or 40%. Performance revenue increased by $2 million. Synchronization revenue remained constant, and Mechanical revenue decreased by $1 million.
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International revenue increased by $133 million, or 16%, to $950 million for the three months ended December 31, 2023 from $817 million for the three months ended December 31, 2022. Excluding the favorable impact of foreign currency exchange rates of $20 million, International revenue increased by $113 million, or 14%. International Recorded Music revenue increased by $118 million due to increases in digital revenue of $90 million, physical revenue of $15 million, artist services and expanded-rights revenue of $12 million and licensing revenue of $1 million. International Recorded Music digital revenue increased due to a $90 million, or 23%, increase in streaming revenue, which includes $27 million from the Digital License Renewal and the favorable impact of foreign currency exchange rates of $4 million. International Recorded Music physical revenue increased by $15 million, primarily driven by stronger performances in Japan and the UK and the favorable impact of foreign currency exchange rates. International Recorded Music artist services and expanded-rights revenue increased by $12 million due to higher concert promotion revenue and the favorable impact of foreign currency exchange rates of $6 million, partially offset by lower direct-to-consumer merchandising revenue at EMP. International Recorded Music licensing revenue increased by $1 million primarily due to higher broadcast fees and the favorable impact of foreign currency exchange rates. International Music Publishing revenue increased from the prior-year quarter by $15 million, or 13%, to $132 million for the three months ended December 31, 2023 from $117 million for the three months ended December 31, 2022. This was primarily driven by the increase in digital revenue of $10 million, performance revenue of $4 million and mechanical revenue of $2 million. International Music Publishing streaming revenue increased by $11 million or 20%, which includes the favorable impact of foreign currency exchange rates of $2 million, while download and other digital decreased by $1 million. Performance revenue increased driven by strong live performance in Europe. Mechanical revenue increased primarily due to the favorable impact of foreign currency exchange rates of $1 million. Synchronization revenue remained constant.
Cost of revenues
Our cost of revenues was composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Artist and repertoire costs$540 $464 $76 16 %
Product costs340 297 43 14 %
Total cost of revenues$880 $761 $119 16 %
Artist and repertoire costs increased by $76 million, to $540 million for the three months ended December 31, 2023 from $464 million for the three months ended December 31, 2022. Artist and repertoire costs as a percentage of revenue remained constant at 31% for each of the three months ended December 31, 2023 and December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix and the unfavorable impact of foreign currency exchange rates.
Product costs increased by $43 million, to $340 million for the three months ended December 31, 2023 from $297 million for the three months ended December 31, 2022. Product costs as a percentage of revenue decreased to 19% for the three months ended December 31, 2023 from 20% for the three months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix from higher third-party distributed label revenue.
Selling, general and administrative expenses
Our selling, general and administrative expenses were composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
General and administrative expense (1)$269 $221 $48 22 %
Selling and marketing expense176 188 (12)-6 %
Distribution expense31 31 — — %
Total selling, general and administrative expense$476 $440 $36 %
______________________________________
(1)Includes depreciation expense of $26 million and $21 million for the three months ended December 31, 2023 and December 31, 2022, respectively.
Total selling, general and administrative expense increased by $36 million, or 8%, to $476 million for the three months ended December 31, 2023 from $440 million for the three months ended December 31, 2022. Expressed as a percentage of revenue, total selling, general and administrative expense decreased to 27% for the three months ended December 31, 2023 from 30% for the three months ended December 31, 2022.
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General and administrative expense increased by $48 million to $269 million for the three months ended December 31, 2023 from $221 million for the three months ended December 31, 2022. The increase in general and administrative expense was mainly due to higher employee related costs, net of savings from the Restructuring Plan, incremental investment in technology of $11 million and expenses related to transformation initiatives of $7 million, the unfavorable movements in foreign currency exchange rates of $5 million. Expressed as a percentage of revenue, general and administrative expense remained constant at 15% for each of the three months ended December 31, 2023 and December 31, 2022.
Selling and marketing expense decreased by $12 million, or 6%, to $176 million for the three months ended December 31, 2023 from $188 million for the three months ended December 31, 2022. Expressed as a percentage of revenue, selling and marketing expense decreased to 10% for the three months ended December 31, 2023 from 13% for the three months ended December 31, 2022 due to lower variable marketing spend and savings from the Restructuring Plan.
Distribution expense remained constant at $31 million for the three months ended December 31, 2023 and the three months ended December 31, 2022. Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the three months ended December 31, 2023 and December 31, 2022.
Reconciliation of Net Income Attributable to Warner Music Group Corp. and Operating Income to Consolidated Adjusted OIBDA
As previously described, we use Adjusted OIBDA as our primary measure of financial performance. The following table reconciles operating income to Adjusted OIBDA, and further provides the components from net income attributable to Warner Music Group Corp. to operating income for purposes of the discussion that follows (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Net income attributable to Warner Music Group Corp.$159 $122 $37 30 %
Income attributable to noncontrolling interest34 32 — %
Net income193 124 69 56 %
Income tax expense72 48 24 50 %
Income before income taxes265 172 93 54 %
Other expense50 61 (11)(18)%
Interest expense, net39 32 22 %
Loss on extinguishment of debt— — — — %
Operating income354 265 89 34 %
Amortization expense55 63 (8)(13)%
Depreciation expense26 21 24 %
Transformation initiatives and other related costs
19 12 58 %
Net gain on divestitures
(17)(41)24 (59)%
Non-cash stock-based compensation and other related costs
14 15 (1)(7)%
Adjusted OIBDA$451 $335 $116 35 %
Adjusted OIBDA
Adjusted OIBDA increased by $116 million to $451 million for the three months ended December 31, 2023 as compared to $335 million for the three months ended December 31, 2022 primarily due to strong operating performance, savings from the Restructuring Plan, the impact of the Licensing Extension of $67 million and the Digital License Renewal of $10 million, partially offset by revenue mix, the incremental investment in technology of $11 million, and the unfavorable impact of foreign currency exchange rates. Expressed as a percentage of total revenue, Adjusted OIBDA margin increased to 26% for the three months ended December 31, 2023 from 23% for the three months ended December 31, 2022 due to the factors noted above. Excluding the impact of the Licensing Extension and Digital License Renewal, Adjusted OIBDA margin was 23% for the three months ended December 31, 2023.

Non-cash stock based compensation and other related costs
Our non-cash stock based compensation and other related costs decreased by $1 million to $14 million for the three months ended December 31, 2023 from $15 million for the three months ended December 31, 2022.
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Net gain on divestitures
Net gain on divestitures decreased during the three months ended December 31, 2023, to a pre-tax gain of $17 million in connection with the divestiture of certain sound recording rights in the quarter. This compares to a pre-tax gain of $41 million in the three months ended December 31, 2022.

Transformation initiatives and other related costs
Our transformation initiatives and other related costs increased by $7 million to $19 million for the three months ended December 31, 2023 from $12 million for the three months ended December 31, 2022 due to an increase in costs associated with our finance transformation.
Depreciation expense
Our depreciation expense increased by $5 million to $26 million for the three months ended December 31, 2023 from $21 million for the three months ended December 31, 2022. This increase is primarily due to an increase in technology capital spend and assets being placed into service.
Amortization expense
Our amortization expense decreased by $8 million, or 13%, to $55 million for the three months ended December 31, 2023 from $63 million for the three months ended December 31, 2022. The decrease is primarily due to certain intangible assets becoming fully amortized.
Operating income
Our operating income increased by $89 million to $354 million for the three months ended December 31, 2023 from $265 million for the three months ended December 31, 2022. The increase in operating income was due to the factors that led to the increase in Adjusted OIBDA and lower amortization and net gains on divestitures, partially offset by higher depreciation as noted above.
Interest expense, net
Our interest expense, net, increased to $39 million for the three months ended December 31, 2023 from $32 million for the three months ended December 31, 2022 due to a higher principal balance related to the issuance of incremental Senior Term Loan Facility and higher interest rates on variable rate debt, partially offset by higher interest income.
Other expense
Other expense for the three months ended December 31, 2023 primarily includes foreign currency losses on our Euro-denominated debt of $39 million, currency exchange losses on our intercompany loans of $9 million, and unrealized losses on hedging activity of $6 million. This compares to foreign currency losses on our Euro-denominated debt of $68 million and unrealized losses on hedging activity of $8 million, partially offset by currency exchange gains on our intercompany loans of $15 million for the three months ended December 31, 2022.
Income tax expense
Our income tax expense increased by $24 million to $72 million for the three months ended December 31, 2023 from $48 million for the three months ended December 31, 2022. The increase of $24 million in income tax expense is primarily due to the impact of increase in pre-tax income, higher portion of the pre-tax income earned outside of the United States and taxed at rates higher than in the United States, increase in unrecognized tax benefit related to uncertain tax positions, and higher withholding taxes in the current year.
Net income
Net income increased by $69 million to $193 million for the three months ended December 31, 2023 from $124 million for the three months ended December 31, 2022 as a result of the factors described above.
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Noncontrolling interest
Income attributable to noncontrolling interest increased by $32 million to $34 million for the three months ended December 31, 2023, from $2 million for the three months ended December 31, 2022, largely driven by higher income from non-wholly-owned subsidiaries in the current period, primarily due to the impact of the Licensing Extension.
Business Segment Results
Revenues, operating income (loss) and Adjusted OIBDA by business segment were as follows (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Recorded Music
Revenues$1,445 $1,239 $206 17 %
Operating income374 283 91 32 %
Adjusted OIBDA
412 299 113 38 %
Music Publishing
Revenues304 250 54 22 %
Operating income63 49 14 29 %
Adjusted OIBDA
86 72 14 19 %
Corporate expenses and eliminations
Revenue eliminations(1)(1)— — %
Operating loss(83)(67)(16)24 %
Adjusted OIBDA loss
(47)(36)(11)31 %
Total
Revenues1,748 1,488 260 17 %
Operating income354 265 89 34 %
Adjusted OIBDA
451 335 116 35 %
Recorded Music
Revenues
Recorded Music revenue increased by $206 million, or 17%, to $1,445 million for the three months ended December 31, 2023 from $1,239 million for the three months ended December 31, 2022. Excluding the impact of the Licensing Extension, the BMG Termination and the Digital License Renewal, Recorded Music revenue increased 10% for the three months ended December 31, 2023. U.S. Recorded Music revenues were $627 million and $539 million, or 43% and 44% of consolidated Recorded Music revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively. International Recorded Music revenues were $818 million and $700 million, or 57% and 56% of consolidated Recorded Music revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.
The overall increase in Recorded Music revenue was driven by increases in digital, licensing and physical revenue, partially offset by lower artist services and expanded-rights revenue as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.
Cost of revenues
Recorded Music cost of revenues was composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Artist and repertoire costs$350 $311 $39 13 %
Product costs340 297 43 14 %
Total cost of revenues$690 $608 $82 13 %
Recorded Music cost of revenues increased by $82 million, or 13%, to $690 million for the three months ended December 31, 2023 from $608 million for the three months ended December 31, 2022. Expressed as a percentage of Recorded Music revenue, Recorded Music artist and repertoire costs decreased to 24% for the three months ended December 31, 2023 from 25% for the three
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months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix and the unfavorable impact of foreign currency exchange rates. Expressed as a percentage of Recorded Music revenue, Recorded Music product costs remained constant at 24% for the three months ended December 31, 2023 and the three months ended December 31, 2022, primarily due to the impact of the Licensing Extension, offset by revenue mix from higher third-party distributed label revenue.
Selling, general and administrative expense
Recorded Music selling, general and administrative expenses were composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
General and administrative expense (1)$163 $132 $31 23 %
Selling and marketing expense170 185 (15)-8 %
Distribution expense31 31 — — %
Total selling, general and administrative expense$364 $348 $16 %
______________________________________
(1)Includes depreciation expense of $13 million and $13 million for the three months ended December 31, 2023 and December 31, 2022, respectively.
Recorded Music selling, general and administrative expense increased by $16 million, or 5%, to $364 million for the three months ended December 31, 2023 from $348 million for the three months ended December 31, 2022. The increase in general and administrative expense was primarily due to the unfavorable movements in foreign currency exchange rates of $5 million, higher employee related costs, higher non-cash stock-based compensation expense and other related expenses of $5 million, incremental investment in technology of $6 million, partially offset by savings from the Restructuring Plan. The decrease in selling and marketing expense was primarily due to lower variable marketing spend and savings from the Restructuring Plan. Distribution expense remained constant at $31 million for the three months ended December 31, 2023 and the three months ended December 31, 2022. Expressed as a percentage of Recorded Music revenue, Recorded Music selling, general and administrative expense decreased to 25% for the three months ended December 31, 2023 from 28% for the three months ended December 31, 2022.
Net gain on divestitures
Net gain on divestitures decreased during the three months ended December 31, 2023, to a pre-tax gain of $17 million in connection with the divestiture of certain sound recording rights in the quarter. This compares to a pre-tax gain of $41 million in the three months ended December 31, 2022.
Operating Income and Adjusted OIBDA
Recorded Music operating income increased by $91 million to $374 million for the three months ended December 31, 2023 from $283 million for the three months ended December 31, 2022 due to the same factors affecting Adjusted OIBDA discussed below as well as lower amortization expense due to certain intangible assets becoming fully amortized, partially offset by a $24 million quarter-over-quarter decrease in net gain on divestitures and higher non-cash stock-based compensation expense in the quarter of $5 million.
Recorded Music Adjusted OIBDA increased by $113 million to $412 million for the three months ended December 31, 2023 from $299 million for the three months ended December 31, 2022 primarily driven by $67 million from the Licensing Extension and $10 million from the Digital License Renewal, strong operating performance and $12 million of savings from the Restructuring Plan of which a portion has been reinvested in the Company’s business, partially offset by revenue mix and the unfavorable impact of exchange rates. Expressed as a percentage of Recorded Music revenue, Recorded Music Adjusted OIBDA margin increased to 29% for the three months ended December 31, 2023 from 24% for the three months ended December 31, 2022 due to the factors noted above. Excluding the impact from the Digital License Renewal and Licensing Extension, Recorded Music Adjusted OIBDA margin increased to 25% for the three months ended December 31, 2023.
Music Publishing
Revenues
Music Publishing revenues increased by $54 million, or 22%, to $304 million for the three months ended December 31, 2023 from $250 million for the three months ended December 31, 2022. U.S. Music Publishing revenues were $172 million and $133 million, or 57% and 53% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and
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December 31, 2022, respectively. International Music Publishing revenues were $132 million and $117 million, or 43% and 47% of consolidated Music Publishing revenues, for the three months ended December 31, 2023 and December 31, 2022, respectively.
The overall increase in Music Publishing revenue was driven by growth in digital and performance revenues, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.
Cost of revenues
Music Publishing cost of revenues were composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
Artist and repertoire costs$191 $154 $37 24 %
Total cost of revenues$191 $154 $37 24 %
Music Publishing cost of revenues increased by $37 million, or 24%, to $191 million for the three months ended December 31, 2023 from $154 million for the three months ended December 31, 2022. Expressed as a percentage of Music Publishing revenue, Music Publishing cost of revenues increased to 63% for the three months ended December 31, 2023 from 62% for the three months ended December 31, 2022, primarily attributable to the unfavorable impact of foreign currency exchange rates.
Selling, general and administrative expense
Music Publishing selling, general and administrative expenses were composed of the following amounts (in millions):
For the Three Months Ended
December 31,
2023 vs. 2022
20232022$ Change% Change
General and administrative expense (1)$29 $25 $16 %
Selling and marketing expense— — — — %
Total selling, general and administrative expense$29 $25 $16 %
______________________________________
(1)Includes depreciation expense of $1 million for each of the three months ended December 31, 2023 and December 31, 2022.
Music Publishing selling, general and administrative expense increased by $4 million, or 16%, to $29 million for the three months ended December 31, 2023 from $25 million for the three months ended December 31, 2022. Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense remained constant at 10% for each of the three months ended December 31, 2023 and December 31, 2022.
Operating Income and Adjusted OIBDA
Music Publishing operating income increased by $14 million to $63 million for the three months ended December 31, 2023 from $49 million for the three months ended December 31, 2022 primarily driven by the same factors affecting Adjusted OIBDA discussed below.
Music Publishing Adjusted OIBDA increased by $14 million, or 19%, to $86 million for the three months ended December 31, 2023 from $72 million for the three months ended December 31, 2022 largely due to higher revenues. Expressed as a percentage of Music Publishing revenue, Music Publishing Adjusted OIBDA margin decreased to 28% for the three months ended December 31, 2023 from 29% for the three months ended December 31, 2022, primarily due to the unfavorable impact of foreign currency exchange rates.
Corporate Expenses and Eliminations
Our operating loss from corporate expenses and eliminations increased by $16 million for the three months ended December 31, 2023 to $83 million from $67 million for the three months ended December 31, 2022, primarily due to incremental investment in technology of $4 million, higher expenses related to transformation initiatives of $7 million, higher depreciation of $5 million, partially offset by lower non-cash stock-based compensation and other related expenses of $7 million.
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Our Adjusted OIBDA loss from corporate expenses and eliminations increased by $11 million for the three months ended December 31, 2023 to $47 million from $36 million for the three months ended December 31, 2022, primarily due to the operating loss factors noted above.
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FINANCIAL CONDITION AND LIQUIDITY
Financial Condition at December 31, 2023
At December 31, 2023, we had $4.004 billion of debt (which is net of $37 million of premiums, discounts and deferred financing costs), $754 million of cash and equivalents (net debt of $3.250 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $463 million of Warner Music Group Corp. equity. This compares to $3.964 billion of debt (which is net of $38 million of premiums, discounts and deferred financing costs), $641 million of cash and equivalents (net debt of $3.323 billion) and $307 million of Warner Music Group Corp. equity at September 30, 2023.
Cash Flows
The following table summarizes our historical cash flows (in millions). The financial data for the three months ended December 31, 2023 and December 31, 2022 are unaudited and have been derived from our condensed consolidated interim financial statements included elsewhere herein.
Three Months Ended
December 31,
20232022
Cash provided by (used in):
Operating activities$293 $209 
Investing activities(92)(10)
Financing activities(93)(70)
Operating Activities
Cash provided by operating activities was $293 million for the three months ended December 31, 2023 as compared with cash provided by operating activities of $209 million for the three months ended December 31, 2022. The $84 million increase in cash provided by operating activities was largely a result of strong operating performance and other movements within working capital.
Investing Activities
Cash used in investing activities was $92 million for the three months ended December 31, 2023 as compared with cash used in investing activities of $10 million for the three months ended December 31, 2022. The $92 million of cash used in investing activities in the three months ended December 31, 2023 consisted of $17 million relating to investments and acquisitions of businesses, $59 million to acquire music-related assets, and $29 million relating to capital expenditures, partially offset by $4 million of proceeds from divestitures and $9 million of proceeds from the sale of investments. The $10 million of cash used in investing activities in the three months ended December 31, 2022 consisted of $8 million relating to investments and acquisitions of businesses and $33 million to acquire music-related assets, a portion of which was debt-financed, and $21 million relating to capital expenditures, partially offset by $42 million of proceeds from divestitures and $10 million of proceeds from the sale of investments.
Financing Activities
Cash used in financing activities was $93 million for the three months ended December 31, 2023 as compared with cash used in financing activities of $70 million for the three months ended December 31, 2022. The $93 million of cash used in financing activities for the three months ended December 31, 2023 consisted of dividends paid of $89 million and distributions to noncontrolling interest holders of $4 million. The $70 million of cash used in financing activities for the three months ended December 31, 2022 consisted of cash paid to settle deferred consideration related to a fiscal year 2022 acquisition of music publishing rights of $125 million, dividends paid of $84 million, deferred financing costs of $2 million and distributions to noncontrolling interest holders of $6 million, partially offset by proceeds from the incremental Senior Term Loan Facility of $147 million.
Liquidity
Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and equivalents and funds available for drawing under our Revolving Credit Facility. These sources of liquidity are needed to fund our debt service requirements, working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and dividends, prepayments of debt, repurchases or retirement of our outstanding debt or notes or repurchases of our outstanding equity securities in open market purchases, privately negotiated purchases or otherwise, we may elect to pay or make in the future. We maintain our cash in various banks and other financial institutions around the world, and in some cases those cash deposits are in excess of FDIC or other deposit insurance. In the event of a bank failure or receivership, we may not have access to those cash deposits in excess of the relevant deposit insurance, which could have an adverse effect on our liquidity and financial performance.
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We believe that our primary sources of liquidity will be sufficient to support our existing operations over the next twelve months.
We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $250 million, which includes capital expenditures of approximately $105 million. The timing of global deployment has been delayed as the size and scale of this global system implementation requires rigorous system testing and data validation to ensure go-live readiness. To address these implementation requirements, we are deploying our new technology platform in a wave-based approach. In fiscal years 2023 and 2024, we successfully launched certain components of our new technology platform in select territories in three waves in April 2023, August 2023 and October 2023. We will continue to deploy the platform to remaining territories through the remainder of fiscal year 2024 and into fiscal year 2025. Annualized run-rate savings from the financial transformation initiative are expected to be between approximately $35 million and $40 million, once fully implemented and we expect to achieve benefits through the implementation of the platform including process and data standardization, improved security and compliance, operational efficiencies and enhanced productivity. We expect that our primary sources of liquidity will be sufficient to fund these expenditures.
Debt Capital Structure
Since Access acquired us in 2011, we have sought to extend the maturity dates on our outstanding indebtedness, reduce interest expense and improve our debt ratings. For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba2 in April 2023. In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.6% as of December 31, 2023. Our nearest-term maturity date is in 2028. Subject to market conditions, we expect to continue to take opportunistic steps to extend our maturity dates and reduce related interest expense. From time to time, we may incur additional indebtedness for, among other things, working capital, repurchasing, redeeming or tendering for existing indebtedness and acquisitions or other strategic transactions.

Revolving Credit Agreement Amendment
On November 30, 2023, Acquisition Corp. entered into an amendment (the “Revolving Credit Agreement Amendment”) to the revolving credit agreement, dated January 31, 2018, as amended, among Acquisition Corp., the several banks and other financial institutions party thereto and Credit Suisse AG, Cayman Islands Branch, as predecessor administrative agent, governing Acquisition Corp.’s revolving credit facility (the “Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions and lenders from time to time party thereto. The Revolving Credit Agreement Amendment (among other changes): (i) increases the commitments under the Revolving Credit Facility from an aggregate principal amount of $300 million to an aggregate principal amount of $350 million, (ii) extended the final maturity date of the Revolving Credit Facility from April 3, 2025 to November 30, 2028, (iii) appointed JPMorgan Chase Bank, N.A. as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch, (iv) modified the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant by increasing the springing threshold from $105,000,000 to $140,000,000, and (v) included provisions that allow Acquisition Corp. to terminate the security interests securing the obligations under the Revolving Credit Facility upon the satisfaction of the Collateral Suspension Conditions (as defined below) and, in the event that the security interests are so terminated, the existing springing Secured Indebtedness to EBITDA Ratio financial maintenance covenant (which is calculated net of up to $250 million of cash and cash equivalents held by Acquisition Corp. and its restricted subsidiaries) shall automatically be replaced with a new financial maintenance covenant prohibiting Acquisition Corp. from permitting the Total Indebtedness to EBITDA Ratio to be greater than 3.60:1.00 (calculated net of all cash and cash equivalents held by Acquisition Corp. and its restricted subsidiaries) as of the end of any fiscal quarter.

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

For purposes of the Revolving Credit Agreement Amendment, (i) “Collateral Suspension Conditions” means conditions that are satisfied if (x) the investment grade condition has been satisfied and (y) the aggregate outstanding principal amount of senior secured indebtedness incurred by Acquisition Corp. and its restricted subsidiaries is not in excess of $500,000,000 and (ii) “Collateral Suspension Reversion Date” means, the earlier of (x) the date on which the Collateral Suspension Conditions cease to be satisfied or (y) the date on which Acquisition Corp. delivers a collateral suspension reversion notice to the Administrative Agent.






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December 2023 Senior Term Loan Credit Agreement Amendment
On December 29, 2023, Acquisition Corp. entered into an amendment (the “Thirteenth Amendment”) to the Senior Term Loan Credit Agreement among Acquisition Corp., the other loan parties, Holdings, each lender party hereto, Credit Suisse AG, Cayman Islands Branch as the resigning administrative agent, and JPMorgan Chase Bank, N.A, as the successor administrative agent. The Thirteenth Amendment appointed JPMorgan Chase Bank, N.A. as administrative agent in the place of Credit Suisse AG, Cayman Islands Branch.
Existing Debt as of December 31, 2023
As of December 31, 2023, our long-term debt, all of which was issued by Acquisition Corp., was as follows (in millions):
Revolving Credit Facility (a)$— 
Senior Term Loan Facility due 20281,295 
2.750% Senior Secured Notes due 2028 (€325 face amount)360 
3.750% Senior Secured Notes due 2029540 
3.875% Senior Secured Notes due 2030535 
2.250% Senior Secured Notes due 2031 (€445 face amount)493 
3.000% Senior Secured Notes due 2031800 
Mortgage Term Loan due 203318 
Total long-term debt, including the current portion$4,041 
Issuance premium less unamortized discount and unamortized deferred financing costs(37)
Total long-term debt, including the current portion, net$4,004 
______________________________________
(a)Reflects $350 million of commitments under the Revolving Credit Facility available at December 31, 2023, less letters of credit outstanding of approximately $4 million at December 31, 2023. There were no loans outstanding under the Revolving Credit Facility at December 31, 2023.
For further discussion of our debt agreements, see “Liquidity” in the “Financial Condition and Liquidity” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Dividends
The Company’s ability to pay dividends may be restricted by covenants in the credit agreement for the Revolving Credit Facility which are currently suspended but which will be reinstated if Acquisition Corp.’s Total Indebtedness to EBITDA Ratio increases above 3.50:1.00 and the term loans do not achieve an investment grade rating.
The Company intends to pay quarterly cash dividends to holders of its Class A Common Stock and Class B Common Stock. The declaration of each dividend will continue to be at the discretion of the Company’s board of directors and will depend on the Company’s financial condition, earnings, liquidity and capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and any other factors that the Company’s board of directors deems relevant in making such a determination. Therefore, there can be no assurance that the Company will pay any dividends to holders of the Company’s common stock, or as to the amount of any such dividends.
On November 9, 2023, the Company’s board of directors declared a cash dividend of $0.17 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid to stockholders on December 1, 2023. The Company paid an aggregate of approximately $89 million, or $0.17 per share, in cash dividends to stockholders and participating security holders for the three months ended December 31, 2023.
Covenant Compliance
The Company was in compliance with its covenants under its outstanding notes, the Revolving Credit Facility and the Senior Term Loan Facility as of December 31, 2023.
On January 18, 2019, we delivered a notice to the trustee under the 2012 Secured Indenture and 2014 Unsecured Indenture changing the Fixed GAAP Date, as defined under the indentures, to October 1, 2018. Under the Senior Term Loan Facility, the Revolving Credit Facility and the Secured Notes Indenture, the Fixed GAAP Date is set for April 3, 2020, other than in respect of capital leases, which are frozen at November 1, 2012.
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The Revolving Credit Facility contains a springing leverage ratio that is tied to a ratio based on EBITDA, which is defined under the Revolving Credit Agreement. Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans. 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. EBITDA as defined in the Revolving Credit Facility is based on Consolidated Net Income (as defined in the Revolving Credit Facility), both of which terms differ from the terms “EBITDA” and “net income” as they are commonly used. For example, the calculation of EBITDA under the Revolving Credit Facility, in addition to adjusting net income to exclude interest expense, income taxes and depreciation and amortization, also adjusts net income by excluding items or expenses such as, among other items, (1) the amount of any restructuring charges or reserves; (2) any non-cash charges (including any impairment charges); (3) any net loss resulting from hedging currency exchange risks; (4) the amount of management, monitoring, consulting and advisory fees paid to Access; (5) business optimization expenses (including consolidation initiatives, severance costs and other costs relating to initiatives aimed at profitability improvement); (6) transaction expenses; (7) equity-based compensation expense; and (8) certain extraordinary, unusual or non-recurring items. The definition of EBITDA under the Revolving Credit Facility also includes adjustments for the pro forma impact of certain projected cost savings, operating expense reductions and synergies and any quality of earnings analysis prepared by independent certified public accountants in connection with an acquisition, merger, consolidation or other investment. The Senior Term Loan Facility and the Secured Notes Indenture use financial measures called “Consolidated EBITDA” or “EBITDA” and “Consolidated Net Income” that have substantially the same definitions to EBITDA and Consolidated Net Income, each as defined under the Revolving Credit Agreement.
EBITDA as defined in the Revolving Credit Facility (referred to in this section as “Adjusted EBITDA”) is presented herein because it is a material component of the leverage ratio contained in the Revolving Credit Agreement. Non-compliance with the leverage ratio could result in the inability to use the Revolving Credit Facility, which could have a material adverse effect on our results of operations, financial position and cash flow. Adjusted EBITDA does not represent net income or cash from operating activities as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations. In particular, the definition of Adjusted EBITDA in the Revolving Credit Agreement allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income. However, these are expenses that may recur, vary greatly and are difficult to predict.
Adjusted EBITDA as presented below should not be used by investors as an indicator of performance for any future period. Further, our debt instruments require that it be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four quarter period or any complete fiscal year. In addition, our debt instruments require that the leverage ratio be calculated on a pro forma basis for certain transactions including acquisitions as if such transactions had occurred on the first date of the measurement period and may include expected cost savings and synergies resulting from or related to any such transaction. There can be no assurances that any such cost savings or synergies will be achieved in full.
In addition, Adjusted EBITDA is a key measure used by our management to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of those limitations include: (1) it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue for our business; (2) it does not reflect the significant interest expense or cash requirements necessary to service interest or principal payments on our indebtedness; and (3) it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments. In particular, this measure adds back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income; however, these are expenses that may recur, vary greatly and are difficult to predict. In addition, Adjusted EBITDA is not the same as net income or cash flow provided by operating activities as those terms are defined by U.S. GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Accordingly, Adjusted EBITDA should be considered in addition to, not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP.
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The following is a reconciliation of net income (loss), which is a U.S. GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2023, for the twelve months ended December 31, 2022 and for the three months ended December 31, 2023 and December 31, 2022. In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended December 31, 2023. The terms and related calculations are defined in the Revolving Credit Agreement. All amounts in the reconciliation below reflect Acquisition Corp. (in millions, except ratios):
Twelve Months Ended
December 31,
Three Months Ended
December 31,
2023202220232022
Net Income$508 $491 $193 $124 
Income tax expense194 158 72 48 
Interest expense, net148 127 39 32 
Depreciation and amortization329 342 81 84 
Loss on extinguishment of debt (a)— — — 
Net gains on divestitures and sale of securities (b)(25)(32)(24)(41)
Restructuring costs (c)59 21 
Net foreign exchange losses (gains) (d)
36 (93)54 61 
Transaction costs (e)— — 
Business optimization expenses (f)76 55 23 15 
Non-cash stock-based compensation expense (g)44 29 13 
Other non-cash charges (h)34 
Pro forma impact of cost savings initiatives and specified transactions (i)38 27 
Adjusted EBITDA$1,416 $1,162 $461 $350 
Senior Secured Indebtedness (j)$3,766 
Leverage Ratio (k)2.66x
______________________________________
(a)Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.
(b)Reflects net gains on sale of securities and divestitures.
(c)Reflects severance costs and other restructuring related expenses, including those related to the Restructuring Plan as well as the Executive Transition Costs in the twelve months ended December 31, 2023.
(d)Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from foreign currency forward exchange contracts and intercompany transactions.
(e)Reflects mainly transaction related costs and mark to market adjustments of an earn out liability related to a transaction in 2021.
(f)Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $19 million and $56 million related to our finance transformation and other transformation related costs for the three and twelve months ended December 31, 2023, respectively, as well as $10 million and $41 million for the three and twelve months ended December 31, 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, including the Restructuring Plan, and the pro forma impact of certain specified transactions for the three and twelve months ended December 31, 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 $4 million decrease in the twelve months ended December 31, 2023 Adjusted EBITDA, primarily driven by the shift in the timing of the financial transformation initiative.
(j)Reflects the balance of senior secured debt at Acquisition Corp. of approximately $4.016 billion 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 December 31, 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 $140 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
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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 $140 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.
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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in Note 16 to our audited consolidated financial statements for the fiscal year ended September 30, 2023, 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 December 31, 2023, other than as described below, there have been no material changes to the Company’s exposure to market risk since September 30, 2023.
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 December 31, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $366 million and the purchase of $219 million of foreign currencies at fixed rates. Subsequent to December 31, 2023, certain of our foreign exchange contracts expired and were not replaced.
The fair value of foreign exchange contracts is subject to changes in foreign currency exchange rates. For the purpose of assessing the specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments. For foreign exchange forward contracts outstanding at December 31, 2023, we typically perform a sensitivity analysis assuming a hypothetical 10% depreciation of the U.S. dollar against foreign currencies from prevailing foreign currency exchange rates and assuming no change in interest rates. The fair value of the foreign exchange forward contracts would have decreased by $15 million based on this analysis. Hypothetically, even if there was a decrease in the fair value of the forward contracts, because our foreign exchange contracts are used to manage foreign currency exchange rate risk, these losses would be largely offset by gains on the underlying transactions.
Interest Rate Risk
We had $4.041 billion of principal debt outstanding at December 31, 2023, of which $1.313 billion was variable-rate debt and $2.728 billion was fixed-rate debt. As such, we are exposed to changes in interest rates. At December 31, 2023, 68% of the Company’s debt was at a fixed rate. In addition, as of December 31, 2023, we have the option under our floating rate loans under the Senior Term Loan Facility to select a one, three or six month Term SOFR.
Based on the level of interest rates prevailing at December 31, 2023, the fair value of the Company’s fixed-rate and variable-rate debt was approximately $3.763 billion. Further, as of December 31, 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 $35 million or increase the fair value of the fixed-rate debt by approximately $35 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.
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ITEM 4.    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 three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
From time to time the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company is currently subject to several such claims and legal proceedings. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors.
ITEM 1A.    RISK FACTORS
There are no material changes to the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.    OTHER INFORMATION
Not applicable.
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ITEM 6.    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, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Exhibit
Number
Exhibit Description
10.1
10.2*†
10.3*
31.1*
31.2*
32.1**
32.2**
101.INSInline 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.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL 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 Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, 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.
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SIGNATURES
Pursuant to the requirements of 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.
February 8, 2024
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)

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