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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 June 30, 2021
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 filerAccelerated filer
Non-accelerated filer
Smaller 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 July 28, 2021, there were 116,921,554 shares of Class A Common Stock and 397,461,268 shares of Class B Common Stock of the registrant outstanding.




WARNER MUSIC GROUP CORP.
INDEX
Page
Number




PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Warner Music Group Corp.
Consolidated Balance Sheets (Unaudited)
June 30,
2021
September 30,
2020
(in millions, except share data)
Assets
Current assets:
Cash and equivalents$442 $553 
Accounts receivable, net of allowances of $19 million and $23 million
834 771 
Inventories79 79 
Royalty advances expected to be recouped within one year315 220 
Prepaid and other current assets64 55 
Total current assets1,734 1,678 
Royalty advances expected to be recouped after one year385 269 
Property, plant and equipment, net347 331 
Operating lease right-of-use assets, net273 273 
Goodwill1,836 1,831 
Intangible assets subject to amortization, net2,061 1,653 
Intangible assets not subject to amortization156 154 
Deferred tax assets, net35 68 
Other assets213 153 
Total assets$7,040 $6,410 
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable$226 $264 
Accrued royalties1,841 1,628 
Accrued liabilities385 382 
Accrued interest31 30 
Operating lease liabilities, current43 39 
Deferred revenue275 297 
Other current liabilities101 80 
Total current liabilities2,902 2,720 
Long-term debt3,367 3,104 
Operating lease liabilities, noncurrent293 299 
Deferred tax liabilities, net211 163 
Other noncurrent liabilities172 169 
Total liabilities$6,945 $6,455 
Equity (deficit):
Class A common stock, $0.001 par value; 1,000,000,000 shares authorized, 116,921,554 and 88,578,361 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively
$ $ 
Class B common stock, $0.001 par value; 1,000,000,000 shares authorized, 397,461,268 and 421,450,000 issued and outstanding as of June 30, 2021 and September 30, 2020, respectively
1 1 
Additional paid-in capital1,934 1,907 
Accumulated deficit(1,660)(1,749)
Accumulated other comprehensive loss, net(194)(222)
Total Warner Music Group Corp. equity (deficit)81 (63)
Noncontrolling interest14 18 
Total equity (deficit)95 (45)
Total liabilities and equity (deficit)$7,040 $6,410 
See accompanying notes
1


Warner Music Group Corp.
Consolidated Statements of Operations (Unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2021202020212020
(in millions, except share and per share data)
Revenue$1,340 $1,010 $3,925 $3,337 
Costs and expenses:
Cost of revenue(681)(527)(1,990)(1,727)
Selling, general and administrative expenses (a)(437)(869)(1,256)(1,786)
Amortization expense(60)(47)(170)(141)
Total costs and expenses(1,178)(1,443)(3,416)(3,654)
Operating income (loss)162 (433)509 (317)
Loss on extinguishment of debt(12) (12) 
Interest expense, net(30)(32)(93)(98)
Other (expense) income(18)(3) (12)
Income (loss) before income taxes102 (468)404 (427)
Income tax expense(41)(51)(127)(44)
Net income (loss)61 (519)277 (471)
Less: Income attributable to noncontrolling interest (1)(1)(3)
Net income (loss) attributable to Warner Music Group Corp.$61 $(520)$276 $(474)
Net income (loss) per share attributable to common stockholders:
Class A – Basic and Diluted$0.12 $(1.03)$0.53 $(1.09)
Class B – Basic and Diluted$0.12 $(1.03)$0.53 $(0.94)
Weighted average common shares:
Class A – Basic and Diluted116,890,95920,307,692108,245,5996,769,231
Class B – Basic and Diluted397,461,268483,796,267404,933,311495,926,718
(a) Includes depreciation expense:$(19)$(15)$(57)$(53)
See accompanying notes
2


Warner Music Group Corp.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2021202020212020
(in millions)
Net income (loss)$61 $(519)$277 $(471)
Other comprehensive income (loss), net of tax:
Foreign currency adjustment12 17 19 9 
Deferred gain (loss) on derivative financial instruments3 (2)9 (22)
Other comprehensive income (loss), net of tax15 15 28 (13)
Total comprehensive income (loss)76 (504)305 (484)
Less: Income attributable to noncontrolling interest (1)(1)(3)
Comprehensive income (loss) attributable to Warner Music Group Corp.
$76 $(505)$304 $(487)
See accompanying notes
3


Warner Music Group Corp.
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
June 30,
20212020
(in millions)
Cash flows from operating activities
Net income (loss)$277 $(471)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization227 194 
Unrealized losses and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts17 14 
Deferred income taxes27 (34)
Loss on extinguishment of debt12  
Net (gain) loss on divestitures and investments(26)2 
Non-cash interest expense3 4 
Non-cash stock-based compensation expense33 600 
Changes in operating assets and liabilities:
Accounts receivable, net(48)45 
Inventories2 16 
Royalty advances(202)(41)
Accounts payable and accrued liabilities(62)(113)
Royalty payables172 60 
Accrued interest1 (12)
Operating lease liabilities(3)(2)
Deferred revenue(27)11 
Other balance sheet changes7 14 
Net cash provided by operating activities410 287 
Cash flows from investing activities
Acquisition of music publishing rights and music catalogs, net(459)(28)
Capital expenditures(58)(48)
Investments and acquisitions of businesses, net of cash received(49)(11)
Net cash used in investing activities(566)(87)
Cash flows from financing activities
Proceeds from issuance of 3.000% Senior Secured Notes due 2031
244  
Proceeds from increase supplement to Senior Term Loan Facility325  
Repayment of 5.500% Senior Notes due 2026
(325) 
Deferred financing costs paid(8)(1)
Call premiums paid on early redemption of debt(8) 
Distribution to noncontrolling interest holders(6)(6)
Dividends paid(187)(281)
Net cash provided by (used in) financing activities35 (288)
Effect of exchange rate changes on cash and equivalents10 1 
Net decrease in cash and equivalents(111)(87)
Cash and equivalents at beginning of period553 619 
Cash and equivalents at end of period$442 $532 
See accompanying notes
4


Warner Music Group Corp.
Consolidated Statements of Equity (Deficit) (Unaudited)
Nine Months Ended June 30, 2021
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp. Equity (Deficit)
Non-controlling
Interest
Total Equity (Deficit)
SharesValueSharesValue
(in millions, except share and per share data)
Balance at September 30, 202088,578,361 $ 421,450,000 $1 $1,907 $(1,749)$(222)$(63)$18 $(45)
Net income— — — — — 276 — 276 1 277 
Other comprehensive income, net of tax— — — — — — 28 28 — 28 
Dividends ($0.36 per share)
— — — — — (187)— (187)— (187)
Stock-based compensation expense— — — — 27 — — 27 — 27 
Distribution to noncontrolling interest holders— — — — — — — — (6)(6)
Exchange of Class B shares for Class A shares19,234,103 — (19,234,106)— — — — — — — 
Shares issued under the Plan4,321,259 — — — — — — — — — 
Conversion of Class B shares4,754,626 — (4,754,626)— — — — — — — 
Shares issued under Omnibus Incentive Plan33,205 — — — — — — — — — 
Other— — — — — — — — 1 1 
Balance at June 30, 2021116,921,554 $ 397,461,268 $1 $1,934 $(1,660)$(194)$81 $14 $95 

Three Months Ended June 30, 2021
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp. Equity (Deficit)
Non-controlling
Interest
Total Equity (Deficit)
SharesValueSharesValue
(in millions, except share and per share data)
Balance at March 31, 2021116,921,411 $ 397,461,268 $1 $1,924 $(1,659)$(209)$57 $16 $73 
Net income— — — — — 61 — 61  61 
Other comprehensive income, net of tax— — — — — — 15 15 — 15 
Dividends ($0.12 per share)
— — — — — (62)— (62)— (62)
Stock-based compensation expense— — — — 10 — — 10 — 10 
Distribution to noncontrolling interest holders— — — — — — — — (3)(3)
Shares issued under Omnibus Incentive Plan143 — — — — — — — — — 
Other— — — — — — — — 1 1 
Balance at June 30, 2021116,921,554 $ 397,461,268 $1 $1,934 $(1,660)$(194)$81 $14 $95 
5


Nine Months Ended June 30, 2020
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp.
Deficit
Non-controlling
Interest
Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at September 30, 2019 $ 505,830,022 $1 $1,127 $(1,177)$(240)$(289)$20 $(269)
Cumulative effect of ASC 842 adoption— — — — — 7 — 7 — 7 
Cumulative effect of ASC 718 accounting policy change— — — — — 33 — 33 — 33 
Net loss— — — — — (474)— (474)3 (471)
Other comprehensive loss, net of tax— — — — — — (13)(13)— (13)
Dividends ($0.15 per share)
— — — — — (75)— (75)— (75)
Distribution to noncontrolling interest holders— — — — — — — — (6)(6)
Modification of stock-based compensation plan— — — — 769 — — 769 — 769 
Stock-based compensation expense— — — — 3 — — 3 — 3 
Shares listed through IPO77,000,000 — (77,000,000)— — — — — — — 
Other— — 4,169,978 — — 1 — 1 — 1 
Balance at June 30, 202077,000,000 $ 433,000,000 $1 $1,899 $(1,685)$(253)$(38)$17 $(21)

Three Months Ended June 30, 2020
Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Warner Music
Group Corp.
Deficit
Non-controlling
Interest
Total
Deficit
SharesValueSharesValue
(in millions, except share and per share data)
Balance at March 31, 2020 $ 510,000,000 $1 $1,127 $(1,166)$(268)$(306)$21 $(285)
Net loss— — — — — (520)— (520)1 (519)
Other comprehensive income, net of tax— — — — — — 15 15 — 15 
Distribution to noncontrolling interest holders— — — — — — — — (5)(5)
Modification of stock-based compensation plan— — — — 769 — — 769 — 769 
Stock-based compensation expense— — — — 3 — — 3 — 3 
Shares listed through IPO77,000,000 — (77,000,000)— — — — — — — 
Other— — — — — 1 — 1 — 1 
Balance at June 30, 202077,000,000 $ 433,000,000 $1 $1,899 $(1,685)$(253)$(38)$17 $(21)
See accompanying notes
6


Warner Music Group Corp.
Notes to Consolidated Interim 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.
Acquisition of Warner Music Group by Access Industries
Pursuant to the Agreement and Plan of Merger, dated as of May 6, 2011 (the “Merger Agreement”), by and among the Company, AI Entertainment Holdings LLC (formerly Airplanes Music LLC), a Delaware limited liability company (“Parent”) and an affiliate of Access Industries, Inc., and Airplanes Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), on July 20, 2011 (the “Merger Closing Date”), Merger Sub merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). In connection with the Merger, the Company delisted its common stock from the New York Stock Exchange.
Initial Public Offering
On June 5, 2020, the Company completed an initial public offering (“IPO”) of 77,000,000 shares of Class A common stock of the Company, par value $0.001 per share (“Class A Common Stock”) at a public offering price of $25 per share. The Company listed these shares on the NASDAQ stock market under the ticker symbol “WMG.” The offering consisted entirely of secondary shares sold by Access Industries, LLC (collectively with its affiliates, “Access”) and certain related selling stockholders. On July 7, 2020, the Company completed the sale of an additional 11,550,000 shares of Class A Common Stock from the selling stockholders to the underwriters of the Company’s IPO pursuant to the exercise by the underwriters of their option to purchase additional shares of Class A Common Stock. The Company did not receive any of the proceeds of the IPO or exercise of the underwriters’ option.
Following the completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, Access and its affiliates held an aggregate of 421,450,000 shares of Class B common stock of the Company, par value $0.001 per share (“Class B Common Stock”), representing approximately 99% of the total combined voting power of the Company’s outstanding common stock and approximately 83% of the economic interest. As a result, the Company is a “controlled company” within the meaning of the corporate governance standards of NASDAQ.
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. 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, 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’ distribution operations include Warner-Elektra-Atlantic Corporation (“WEA Corp.”), which markets, distributes and sells music and video products to retailers and wholesale distributors; 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.
7


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 Entertainment Group and YouTube, radio services such as iHeart Radio and SiriusXM and 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.
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.
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 garners a share of the revenues generated from use of the musical compositions.
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 80,000 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, techno, 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.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021.
The consolidated balance sheet at September 30, 2020 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, 2020 (File No. 001-32502).
8


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.
The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period. As such, all references to June 30, 2021 and June 30, 2020 relate to the periods ended June 25, 2021 and June 26, 2020, respectively. For convenience purposes, the Company continues to date its third-quarter financial statements as of June 30. The fiscal year ended September 30, 2020 ended on September 25, 2020.
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.
Common Stock
On February 28, 2020, the Company amended its certificate of incorporation to increase its authorized capital stock to 2,100,000,000 shares, consisting of 1,000,000,000 shares of Class A Common Stock, 1,000,000,000 shares of Class B Common Stock, and 100,000,000 shares of preferred stock, par value $1.00 per share. In addition, the February 28, 2020 amendment to the Company’s certificate of incorporation also gave effect to the reclassification and 477,242.614671815-for-1 stock split of the Company’s existing common stock outstanding into 510,000,000 shares of Class B Common Stock. This stock split has been retrospectively presented throughout the interim financial statements. Upon completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, 88,550,000 shares of Class A Common Stock, 421,450,000 shares of Class B Common Stock and no shares of preferred stock were outstanding.
In connection with the IPO, the Company’s board of directors and stockholders approved the Warner Music Group Corp. 2020 Omnibus Incentive Plan, or the “Omnibus Incentive Plan.” The aggregate number of shares of common stock available for issuance under the Omnibus Incentive Plan is 31,169,099 shares of Class A Common Stock over the 10-year period from the date of adoption, including up to 1,000,000 shares of our Class A Common Stock in connection with the IPO. Since the IPO, a total of 61,423 shares of restricted stock have been issued under the Omnibus Incentive Plan to the Company’s directors, which includes zero and 33,062 shares issued during the three and nine months ended June 30, 2021, respectively. Refer to “Stock-Based Compensation” below regarding additional shares issued under our Omnibus Incentive Plan.
In December 2020, all of the outstanding equity interests held by certain participants in the Second Amended and Restated Warner Music Group Corp. Senior Management Free Cash Flow Plan (the “Plan”) were settled or redeemed in accordance with the terms of the Plan. The Class A and Class B equity units held by certain participants in WMG Management Holdings, LLC (“Management LLC”) were redeemed in exchange for 18,265,183 shares of Class B Common Stock. These shares of Class B Common Stock converted to shares of Class A Common Stock upon exchange. The Company also issued a total of 4,321,259 additional shares of Class A Common Stock to settle the participants’ remaining deferred equity units previously issued under the Plan. In March 2021, the Compensation Committee of the Board of Directors of the Company approved an amendment to the Plan that allowed certain remaining Plan participants to redeem a portion of their vested Class B equity units of Management LLC. These Class B equity units were redeemed in exchange for a total of 968,920 shares of Class B Common Stock, which shares of Class B Common Stock converted to shares of Class A Common Stock upon the exchange.
In February 2021, Access converted 4,754,626 shares of Class B Common Stock to the same number of shares of Class A Common Stock, which it subsequently sold through open market sales, which is reflected as an exchange of Class B Common Stock for Class A Common Stock in the consolidated statements of equity for the nine months ended June 30, 2021.
Earnings per Share
The consolidated statements of operations present basic and diluted earnings per share (“EPS”). Prior to the completion of the IPO, basic and diluted earnings per share were computed by dividing net income available to common stockholders by the weighted average number of outstanding common shares less shares issued for the exercise of the deferred equity units since these units were
9


mandatorily redeemable in cash. As such, the deferred equity units were excluded from the denominator of the basic and diluted EPS calculation prior to the IPO completion.
Subsequent to the completion of the IPO, the Company utilizes the two-class method to report earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders.
Stock-Based Compensation
The Company accounts for stock-based payments as required by ASC 718, Compensation—Stock Compensation (“ASC 718”). Under the recognition provision of ASC 718, the Company’s liability classified stock-based compensation costs are measured each reporting date until settlement. In February 2020, the Company filed a Form S-1 registration statement with the SEC in connection with the IPO, which required a change in accounting policy during the three months ended March 31, 2020 from the intrinsic value method to fair value method in determining the basis of measurement of its stock-based compensation liability.
Upon completion of the IPO in June 2020, the Plan was amended to remove the cash-settlement feature on all future redemptions. As a result, all awards previously issued under the Plan required settlement in equity. The participants in such plan were also allowed to sell a pro rata portion, consistent with Access’s percentage reduction in shares of Class B Common Stock as a result of the IPO, of their vested profits interests and acquired units of Management LLC, in the IPO through a “tag-along right.”
Under the provision of ASC 718, the Company determined the Plan was modified as of June 3, 2020, and as such, converted the awards from liability-classified to equity-classified. Prior to conversion, the Company performed a final measurement of its stock-based compensation liability under the fair value method. Subsequent to the amendment, the awards issued under the Plan will no longer be adjusted for changes in the value of the Company’s common stock. The Company will continue to incur non-cash stock-based compensation expense for awards that were unvested as of the modification date of the Plan and awards issued under the Omnibus Incentive Plan. During the nine months ended June 30, 2021, the Company granted restricted stock units (“RSUs”) under the Omnibus Incentive Plan to eligible employees and executives.
The Company recognized approximately $12 million and $33 million of non-cash stock-based compensation expense for the three and nine months ended June 30, 2021, respectively, of which $10 million and $27 million was recorded to additional paid-in capital, and a remaining $6 million has been classified as a share-based compensation liability as of June 30, 2021. The share-based compensation liability represents executive awards that have not yet been granted under the Omnibus Incentive Plan, where a total value is known and settlement will occur in a variable number of RSUs.
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.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The Company adopted ASU 2016-13 in the first quarter of fiscal 2021 and this adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This ASU eliminates certain exceptions to the general principles in ASC 740, Income Taxes. Specifically, it eliminates the exception to (1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations, and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity
10


method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies U.S. GAAP by making other changes. ASU 2019-12 will be effective for the annual periods beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. Earlier adoption is permitted. The Company is evaluating the impact of the adoption of this standard 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. Under the treasury-stock method, potential common shares are excluded from the computation of EPS in periods in which they have an anti-dilutive effect. The potentially dilutive common shares did not have a dilutive effect on the Company’s EPS calculation for the three and nine months ended June 30, 2021 and 2020, respectively.
In computing earnings per share subsequent to the completion of our IPO, the Company has allocated dividends declared to Class A Common Stock and Class B Common Stock based on timing and amounts actually declared for each class of stock and the undistributed earnings have been allocated to Class A Common Stock and Class B Common Stock pro rata on a basic weighted average shares outstanding basis since the two classes of stock participate equally on a per share basis upon liquidation.
Subsequent to the completion of the IPO, and modification of our stock-based compensation awards as described in Note 2, the Class B Common Stock issued to Management LLC for the exercise of the vested deferred equity units is included in the basic weighted average number of outstanding shares of Class B Common Stock. Upon issuance to the participants in the Plan, the Class B Common Stock will be converted into Class A Common Stock and included in the basic weighted average number of outstanding shares of Class A Common Stock. Since the shares expected to satisfy the vested portion of the deferred equity units are already included in the basic weighted average number of outstanding common shares, there is no potential dilutive effect associated with the vested portion of these stock-based compensation awards. Refer to Note 2 for a description of current period activity.
The following table sets forth the calculation of basic and diluted net income (loss) per common share under the two-class method for the three and nine months ended June 30, 2021 and 2020 (in millions, except share and per share data):
Three Months Ended June 30,
20212020
Class AClass BClass AClass B
Basic and Diluted EPS:
Numerator
Net income (loss) attributable to Warner Music Group Corp.$15 $46 $(21)$(499)
Less: Net income attributable to participating securities(1)   
Net income (loss) attributable to common stockholders$14 $46 $(21)$(499)
Denominator
Weighted average shares outstanding116,890,959 397,461,268 20,307,692 483,796,267 
Basic and Diluted EPS$0.12 $0.12 $(1.03)$(1.03)
Nine Months Ended June 30,
20212020
Class AClass BClass AClass B