UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34177

Warner Bros. Discovery, Inc.

(Exact name of registrant as specified in its charter)


Delaware									35-2333914
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

230 Park Avenue South									10003
New York, New York									(Zip Code)
(Address of principal executive offices)

(212) 548-5555

(Registrant’s telephone number, including area code)

~~Discovery, Inc.~~N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered
Series A Common Stock	WBD	The Nasdaq Global Select Market

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 ý No o

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 ý No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	o	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 ý

Total number of shares outstanding of each class of the Registrant’s common stock as of April ~~18, 2022:~~21, 2023:


Series A Common Stock, par value $0.01 per share			~~2,426,844,405~~2,436,107,460

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Financial Statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)
Three Months Ended March 31,
2022 2021
Revenues:
Advertising $ 1,482 $ 1,415
Distribution 1,422 1,310
Other 255 67
Total revenues 3,159 2,792
Costs and expenses:
Costs of revenues, excluding depreciation and amortization 1,236 969
Selling, general and administrative 1,040 1,051
Depreciation and amortization 525 361
Restructuring and other charges 5 15
Total costs and expenses 2,806 2,396
Operating income 353 396
Interest expense, net (153) (163)
Loss from equity investees, net (14) (4)
Other income, net 490 68
Income before income taxes 676 297
Income tax expense (201) (106)
Net income 475 191
Net income attributable to noncontrolling interests (16) (46)
Net income attributable to redeemable noncontrolling interests (3) (5)
Net income available to Warner Bros. Discovery, Inc. $ 456 $ 140
Net income per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic $ 0.69 $ 0.21
Diluted $ 0.69 $ 0.21
Weighted average shares outstanding:
Basic 591 585
Diluted 665 667
The accompanying notes are an integral part of these consolidated financial statements.


	Three Months Ended March 31,
	2023		2022
Revenues:
Distribution	$	5,163	$	1,352
Advertising	2,298		1,476
Content	2,954		323
Other	285		8
Total revenues	10,700		3,159
Costs and expenses:
Costs of revenues, excluding depreciation and amortization	6,685		1,236
Selling, general and administrative	2,388		1,040
Depreciation and amortization	2,058		525
Restructuring	95		5
Impairments and loss on dispositions	31		—


Total costs and expenses	11,257		2,806
Operating (loss) income	(557)		353
Interest expense, net	(571)		(153)

Loss from equity investees, net	(37)		(14)
Other (expense) income, net	(73)		490
(Loss) income before income taxes	(1,238)		676
Income tax benefit (expense)	178		(201)
Net (loss) income	(1,060)		475
Net income attributable to noncontrolling interests	(8)		(16)
Net income attributable to redeemable noncontrolling interests	(1)		(3)
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(1,069)	$	456
Net (loss) income per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic	$	(0.44)	$	0.69
Diluted	$	(0.44)	$	0.69
Weighted average shares outstanding:
Basic	2,432		591
Diluted	2,432		665

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited; in millions)

Three Months Ended March 31,
2022 2021
Net income $ 475 $ 191
Other comprehensive income (loss) adjustments, net of tax:
Currency translation (99) (167)
Derivatives (18) 237
Comprehensive income 358 261
Comprehensive income attributable to noncontrolling interests (16) (46)
Comprehensive income attributable to redeemable noncontrolling interests (3) (5)
Comprehensive income attributable to Warner Bros. Discovery, Inc. $ 339 $ 210
The accompanying notes are an integral part of these consolidated financial statements.


	Three Months Ended March 31,
	2023		2022
Net (loss) income	$	(1,060)	$	475
Other comprehensive (loss) income:
Currency translation

Change in net unrealized gains (losses)	426		(97)
Less: reclassification adjustment for net (gains) losses included in net income	—		(2)
Net change, net of income tax benefit (expense) of $(5) and $(14)	426		(99)
Pension plan and SERP liability, net of income tax benefit (expense) of $(3) and $—	(9)		—
Derivatives

Change in net unrealized gains (losses)	3		(12)
Less: reclassification adjustment for net (gains) losses included in net income	(2)		(6)
Net change, net of income tax benefit (expense) of $2 and $1	1		(18)
Comprehensive (loss) income	(642)		358
Comprehensive income attributable to noncontrolling interests	(8)		(16)
Comprehensive income attributable to redeemable noncontrolling interests	(1)		(3)
Comprehensive (loss) income attributable to Warner Bros. Discovery, Inc.	$	(651)	$	339

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,162	$	3,905	Cash and cash equivalents	$	2,594	$	3,731
Receivables, net	Receivables, net	2,426		2,446		Receivables, net	6,833		6,380
Content rights and prepaid license fees, net		143		245

Prepaid expenses and other current assets	Prepaid expenses and other current assets	442		668		Prepaid expenses and other current assets	4,300		3,888
Total current assets	Total current assets	7,173		7,264		Total current assets	13,727		13,999
Noncurrent content rights, net		3,866		3,832
Film and television content rights and games						Film and television content rights and games	25,473		26,652
Property and equipment, net	Property and equipment, net	1,328		1,336		Property and equipment, net	5,325		5,301

Goodwill	Goodwill	12,872		12,912		Goodwill	34,658		34,438
Intangible assets, net	Intangible assets, net	5,873		6,317		Intangible assets, net	43,239		44,982

Other noncurrent assets	Other noncurrent assets	2,687		2,766		Other noncurrent assets	8,162		8,629
Total assets	Total assets	$	33,799	$	34,427	Total assets	$	130,584	$	134,001
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	521	$	412	Accounts payable	$	1,123	$	1,454
Accrued liabilities	Accrued liabilities	1,966		2,230		Accrued liabilities	10,158		11,504

Deferred revenues	Deferred revenues	281		478		Deferred revenues	1,603		1,694
Current portion of debt	Current portion of debt	794		339		Current portion of debt	3,496		365
Total current liabilities	Total current liabilities	3,562		3,459		Total current liabilities	16,380		15,017
Noncurrent portion of debt	Noncurrent portion of debt	13,605		14,420		Noncurrent portion of debt	45,434		48,634
Deferred income taxes	Deferred income taxes	1,112		1,225		Deferred income taxes	10,211		11,014
Other noncurrent liabilities	Other noncurrent liabilities	1,958		1,927		Other noncurrent liabilities	10,717		10,669
Total liabilities	Total liabilities	20,237		21,031		Total liabilities	82,742		85,334
Commitments and contingencies (See Note 16)	Commitments and contingencies (See Note 16)	0		0		Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests	Redeemable noncontrolling interests	335		363		Redeemable noncontrolling interests	309		318
Equity:

Warner Bros. Discovery, Inc. stockholders’ equity:	Warner Bros. Discovery, Inc. stockholders’ equity:					Warner Bros. Discovery, Inc. stockholders’ equity:
Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and outstanding		—		—
Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 4 shares issued and outstanding		—		—
Series A common stock: $0.01 par value; 1,700 shares authorized; 173 and 170 shares issued; and 172 and 169 shares outstanding		2		2
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued and outstanding		—		—
Series C common stock: $0.01 par value; 2,000 shares authorized; 559 shares issued; and 330 shares outstanding		5		5
Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,666 and 2,660 shares issued; and 2,436 and 2,430 shares outstanding						Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,666 and 2,660 shares issued; and 2,436 and 2,430 shares outstanding	27		27
Preferred stock: $0 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding						Preferred stock: $0 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding	—		—

Additional paid-in capital	Additional paid-in capital	11,120		11,086		Additional paid-in capital	54,685		54,630
Treasury stock, at cost: 230 shares		(8,244)		(8,244)
Treasury stock, at cost: 230 and 230 shares						Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)
Retained earnings	Retained earnings	10,033		9,580		Retained earnings	1,133		2,205
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(947)		(830)		Accumulated other comprehensive loss	(1,105)		(1,523)
Total Warner Bros. Discovery, Inc. stockholders' equity		11,969		11,599
Total Warner Bros. Discovery, Inc. stockholders’ equity						Total Warner Bros. Discovery, Inc. stockholders’ equity	46,496		47,095
Noncontrolling interests	Noncontrolling interests	1,258		1,434		Noncontrolling interests	1,037		1,254
Total equity	Total equity	13,227		13,033		Total equity	47,533		48,349
Total liabilities and equity	Total liabilities and equity	$	33,799	$	34,427	Total liabilities and equity	$	130,584	$	134,001

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.					The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS

(unaudited; in millions)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating Activities	Operating Activities					Operating Activities
Net income		$	475	$	191
Adjustments to reconcile net income to cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(1,060)	$	475
Adjustments to reconcile net income to cash (used in) provided by operating activities:						Adjustments to reconcile net income to cash (used in) provided by operating activities:
Content rights amortization and impairment	Content rights amortization and impairment	973		743		Content rights amortization and impairment	4,723		973
Depreciation and amortization	Depreciation and amortization	525		361		Depreciation and amortization	2,058		525
Deferred income taxes	Deferred income taxes	(118)		(108)		Deferred income taxes	(669)		(118)

Share-based compensation expense	Share-based compensation expense	60		64		Share-based compensation expense	111		60

Equity in losses of equity method investee companies and cash distributions	Equity in losses of equity method investee companies and cash distributions	21		12		Equity in losses of equity method investee companies and cash distributions	62		21
Gain on sale of investments		—		(21)

Gain from derivative instruments, net	Gain from derivative instruments, net	(514)		(1)		Gain from derivative instruments, net	(23)		(514)
Other, net	Other, net	33		(3)		Other, net	97		33
Changes in operating assets and liabilities, net of acquisitions and dispositions:	Changes in operating assets and liabilities, net of acquisitions and dispositions:					Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net	Receivables, net	(5)		41		Receivables, net	(486)		(5)
Content rights and payables, net		(993)		(926)
Film and television content rights, games and payables, net						Film and television content rights, games and payables, net	(4,051)		(993)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(124)		(110)		Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(1,652)		(124)
Foreign currency, prepaid expenses and other assets, net	Foreign currency, prepaid expenses and other assets, net	(10)		26		Foreign currency, prepaid expenses and other assets, net	259		(10)
Cash provided by operating activities		323		269
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	(631)		323
Investing Activities	Investing Activities					Investing Activities
Purchases of property and equipment	Purchases of property and equipment	(85)		(90)		Purchases of property and equipment	(299)		(85)
Proceeds from sales and maturities of investments		—		274

Investments in and advances to equity investments	Investments in and advances to equity investments	(42)		(55)		Investments in and advances to equity investments	(13)		(42)
Proceeds from derivative instruments, net	Proceeds from derivative instruments, net	639		29		Proceeds from derivative instruments, net	20		639

Other investing activities, net						Other investing activities, net	35		17
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(257)		529
Financing Activities						Financing Activities

Other investing activities, net		17		(2)
Cash provided by investing activities		529		156
Financing Activities
Principal repayments of debt, including premiums to par value	Principal repayments of debt, including premiums to par value	(327)		(339)		Principal repayments of debt, including premiums to par value	(1,606)		(327)

Borrowings from debt, net of discount and issuance costs						Borrowings from debt, net of discount and issuance costs	1,500		—
Distributions to noncontrolling interests and redeemable noncontrolling interests	Distributions to noncontrolling interests and redeemable noncontrolling interests	(224)		(183)		Distributions to noncontrolling interests and redeemable noncontrolling interests	(237)		(224)

Borrowings under commercial paper program						Borrowings under commercial paper program	932		—
Repayments under commercial paper program						Repayments under commercial paper program	(933)		—

Other financing activities, net	Other financing activities, net	(36)		53		Other financing activities, net	(88)		(36)
Cash used in financing activities	Cash used in financing activities	(587)		(469)		Cash used in financing activities	(432)		(587)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(5)		(70)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	29		(5)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	260		(114)		Net change in cash, cash equivalents, and restricted cash	(1,291)		260
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	3,905		2,122		Cash, cash equivalents, and restricted cash, beginning of period	3,930		3,905
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	4,165	$	2,008	Cash, cash equivalents, and restricted cash, end of period	$	2,639	$	4,165

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.					The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)

Preferred Stock Common Stock Additional
Paid-In
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Loss Warner Bros. Discovery, Inc.
Stockholders’ Equity Noncontrolling
Interests Total
Equity
Shares Par Value Shares Par Value
December 31, 2021 12 $ — 736 $ 7 $ 11,086 $ (8,244) $ 9,580 $ (830) $ 11,599 $ 1,434 $ 13,033
Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests — — — — — — 456 — 456 16 472
Other comprehensive loss — — — — — — — (117) (117) — (117)
Share-based compensation — — — — 53 — — — 53 — 53
Tax settlements associated with share-based plans — — — — (38) — — — (38) — (38)
Dividends paid to noncontrolling interests — — — — — — — — — (192) (192)
Issuance of stock in connection with share-based plans — — 3 — 19 — — — 19 — 19
Redeemable noncontrolling interest adjustments to redemption value — — — — — — (3) — (3) — (3)
March 31, 2022 12 $ — 739 $ 7 $ 11,120 $ (8,244) $ 10,033 $ (947) $ 11,969 $ 1,258 $ 13,227
The accompanying notes are an integral part of these consolidated financial statements.


	Warner Bros. Discovery, Inc. Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Warner Bros. Discovery, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Par Value
December 31, 2022	2,660	$	27	$	54,630	$	(8,244)	$	2,205	$	(1,523)	$	47,095	$	1,254	$	48,349


Net loss available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—		—		(1,069)		—		(1,069)		8		(1,061)
Other comprehensive income	—	—		—		—		—		418		418		—		418
Share-based compensation	—	—		101		—		—		—		101		—		101



Tax settlements associated with share-based plans	—	—		(53)		—		—		—		(53)		—		(53)
Dividends paid to noncontrolling interests	—	—		—		—		—		—		—		(225)		(225)
Issuance of stock in connection with share-based plans	6	—		9		—		—		—		9		—		9
Redeemable noncontrolling interest adjustments to redemption value	—	—		—		—		(3)		—		(3)		—		(3)
Other adjustments to stockholders' equity	—	—		(2)		—		—		—		(2)		—		(2)
March 31, 2023	2,666	$	27	$	54,685	$	(8,244)	$	1,133	$	(1,105)	$	46,496	$	1,037	$	47,533





























The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)

Preferred Stock Common Stock Additional
Paid-In
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Loss Warner Bros. Discovery,
Inc.
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares Par Value Shares Par Value
December 31, 2020 13 $ — 717 $ 7 $ 10,809 $ (8,244) $ 8,543 $ (651) $ 10,464 $ 1,536 $ 12,000
Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests — — — — — — 140 — 140 46 186
Other comprehensive income — — — — — — — 70 70 — 70
Share-based compensation — — — — 32 — — — 32 — 32
Preferred stock conversion (1) — 11 — — — — — — — —
Tax settlements associated with share-based compensation — — — — (68) — — — (68) — (68)
Dividends paid to noncontrolling interest — — — — — — — — — (178) (178)
Issuance of stock in connection with share-based plans — — 8 — 186 — — — 186 — 186
Redeemable noncontrolling interest adjustment to redemptions value — — — — (8) — (1) — (9) — (9)
March 31, 2021 12 $ — 736 $ 7 $ 10,951 $ (8,244) $ 8,682 $ (581) $ 10,815 $ 1,404 $ 12,219
The accompanying notes are an integral part of these consolidated financial statements.


	Discovery, Inc. Preferred Stock			Discovery, Inc. Common Stock			Warner Bros. Discovery, Inc. Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Warner Bros. Discovery, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Par Value		Shares	Par Value		Shares	Par Value
December 31, 2021	12	$	—	736	$	7	—	$	—	$	11,086	$	(8,244)	$	9,580	$	(830)	$	11,599	$	1,434	$	13,033


Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—	—		—		—		456		—		456		16		472
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(117)		(117)		—		(117)
Share-based compensation	—	—		—	—		—	—		53		—		—		—		53		—		53



Tax settlements associated with share-based plans	—	—		—	—		—	—		(38)		—		—		—		(38)		—		(38)
Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—		—		(192)		(192)
Issuance of stock in connection with share-based plans	—	—		3	—		—	—		19		—		—		—		19		—		19
Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—	—		—		—		(3)		—		(3)		—		(3)

March 31, 2022	12	$	—	739	$	7	—	$	—	$	11,120	$	(8,244)	$	10,033	$	(947)	$	11,969	$	1,258	$	13,227





























The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

On April 8, 2022, Discovery, Inc. (“Discovery”), a global media company that provides content across multiple distribution platforms including linear, free-to-air and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer (“DTC”) subscription products, completed its merger (the “Merger”) with the WarnerMedia business of AT&T, Inc. (the “WarnerMedia Business”) and changed its name from “Discovery, Inc.” to “WarnerWarner Bros. Discovery, Inc.” (“Warner Bros. Discovery”, “WBD”, the “Company”, “we”, “us” or “our”) is a premier global media and entertainment company that combines the WarnerMedia Business’s premium entertainment, sports and news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, thus offering audiences a differentiated portfolio of content, brands and franchises across television, film, streaming and gaming. Some of our iconic brands and franchises include Warner Bros. Pictures Group, Warner Bros. Television Group, DC, HBO, HBO Max, Discovery Channel, discovery+, CNN, HGTV, Food Network, TNT, TBS, TLC, OWN, Warner Bros. Games, Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna-Barbera, Game of Thrones, and The Lord of the Rings.

Merger with the WarnerMedia Business of AT&T

On April 8, 2022 (the “Closing Date”), Discovery, Inc. (“Discovery”) completed its merger (the “Merger”) with the WarnerMedia business (the “WarnerMedia Business”, “WM Business” or “WM”) of AT&T Inc. (“AT&T”) and changed its name to “Warner Bros. Discovery, Inc.”. On April 11, 2022, the Company’s shares started trading on the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol WBD.

Warner Bros. Discovery is a leading global media and entertainment company that creates and distributes the world’s most differentiated and complete portfolio of content and brands across television, film and streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its iconic brands and products including: Discovery Channel, discovery+, CNN, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others.

~~Merger with the WarnerMedia Business of AT&T~~

The Merger was executed through a Reverse Morris Trust type transaction, under which ~~the WarnerMedia Business~~WM was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery. (See Note ~~19.) In connection with~~2 and Note 3). Prior to the Merger, ~~AT&T received~~WarnerMedia Holdings, Inc. distributed $40.5 billion to AT&T (subject to working capital and other adjustments) in a combination of cash, debt securities, and ~~WarnerMedia's~~WM's retention of certain ~~debt, and~~debt. Discovery transferred purchase consideration of $42.4 billion in equity to AT&T ~~shareholders.~~shareholders in the Merger. In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which resulted in the Company receiving a $1.2 billion payment from AT&T in the third quarter of 2022 in lieu of adjusting the equity issued as purchase consideration in the Merger. AT&T shareholders received shares of WBD Series A common stock (“WBD common stock”) in the ~~distribution~~Merger representing 71% of the combined ~~company~~Company and the Company's pre-Merger shareholders ~~will continue~~continued to own 29% of the combined ~~company,~~Company, in each case on a fully diluted basis.

Discovery was deemed to be the accounting acquirer of the ~~WarnerMedia~~WM Business for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”); therefore, Discovery is considered ~~WBD’s~~the Company’s predecessor and the historical financial statements of Discovery prior to April 8, 2022, are reflected in this Quarterly Report on Form 10-Q as ~~WBD’s~~the Company’s historical financial statements. Accordingly, the financial results of ~~WBD~~the Company as of and for any periods prior to April 8, 2022 do not include the financial results of the ~~WarnerMedia~~WM Business and current and future results will not be comparable to historical results.

~~Impact of COVID-19~~

The Company continues to closely monitor the ongoing impact of COVID-19 on all aspects of its business and geographies, including the impact on its customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties. Certain key sources of revenue for the WarnerMedia Business, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

The nature and full extent of COVID-19’s effects on our operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others. The consolidated financial statements reflect management’s estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

Principles of Consolidation ~~and Basis of Presentation~~

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries in which a controlling interest is maintained, including variable interest entities ~~("VIE"~~(“VIE”) for which the Company is the primary beneficiary. Intercompany accounts and transactions between consolidated entities have been eliminated.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Unaudited Interim Financial Statements

These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”).

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.

Summary of Significant ~~estimates and judgments inherent~~Accounting Policies

There have been no changes to the Company's significant accounting policies described in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, estimated credit losses, content rights, leases, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, and the determination of whether the Company should consolidate certain entities.

~~Accounting and Reporting Pronouncements Adopted~~

~~LIBOR~~

In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company applied the relevant provisions of the guidance to hedge relationships that were subsequently terminated in the first quarter of 2022.

~~Convertible Instruments~~

In August 2020, the FASB issued guidance simplifying the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This guidance amends the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance. The Company adopted the guidance effective January 1, 2022, and there was no material impact on its consolidated financial statements.

~~NOTE 2. DISPOSITIONS~~

~~Dispositions~~

~~Great American Country~~

~~In June 2021, the Company completed the sale of its Great American Country network to Hicks Equity Partners for a sale price of $90 million and recorded a gain of $76 million.~~Form 10-K.

1110

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Accounting and Reporting Pronouncements Adopted

Supplier Finance Programs

In September 2022, the Financial Accounting Standards Board issued guidance updating the disclosure requirements for supplier finance program obligations. This guidance provides specific authoritative guidance for disclosure of supplier finance programs, including key terms of such programs, amounts outstanding, and where the obligations are presented in the statement of financial position. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods, except for the disclosure of roll forward information, which is effective for annual periods beginning after December 15, 2023. Certain components of this guidance must be applied retrospectively, while others may be applied prospectively. The Company adopted the guidance effective January 1, 2023 and has provided the required disclosures in Note 14.

NOTE ~~3. INVESTMENTS~~2. EQUITY AND EARNINGS PER SHARE

Common Stock Issued in Connection with the WarnerMedia Merger

In connection with the Merger, each issued and outstanding share of Discovery Series A common stock, Discovery Series B convertible common stock, and Discovery Series C common stock, was reclassified and automatically converted into one share of WBD common stock, and each issued and outstanding share of Discovery Series A-1 convertible preferred stock (“Series A-1 Preferred Stock”) and Series C-1 convertible preferred stock was reclassified and automatically converted into 13.1135 and 19.3648 shares of WBD common stock, respectively.

The ~~Company’s equity investments consisted~~Merger required the consent of Advance/Newhouse Programming Partnership under Discovery's certificate of incorporation as the sole holder of the ~~following, net~~Series A-1 Preferred Stock. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of ~~investments recorded~~the significant rights attached to the Series A-1 Preferred Stock in ~~other noncurrent liabilities (in millions).~~
Category Balance Sheet Location Ownership March 31, 2022 December 31, 2021
Equity method investments:
nC+ Other noncurrent assets 32% $ 150 $ 151
All3Media Other noncurrent assets 50% 105 78
Discovery Solar Ventures, LLC (a)
Other noncurrent assets N/A 72 75
Other Other noncurrent assets 227 237
Total equity method investments 554 541
Investments with readily determinable fair values:
Lionsgate Entertainment Corp. Other noncurrent assets 78 80
Sharecare Prepaid expenses and other current assets 22 40
Total investments with readily determinable fair values 100 120
Equity investments without readily determinable fair values:
Vox Media (b)
Other noncurrent assets 8% 171 191
Formula E (c)
Other noncurrent assets 28% 83 83
Philo Other noncurrent assets 19% 50 50
Other Other noncurrent assets 171 172
Total equity investments without readily determinable fair values 475 496
Total investments $ 1,129 $ 1,157
(a) Discovery Solar Ventures, LLC invests in limited liability companies that sponsor renewable energy projects related to solar energy. These investments are considered VIEs of the Company and are accounted for under the equity method of accounting using the Hypothetical Liquidation at Book Value methodology for allocating earnings.
(b) Overall ownership percentage for Vox Media is calculated on an outstanding shares basis. The amount shown as of December 31, 2021 includes a $20 million note receivable balance presented within prepaid expenses and other current assets on the Company's consolidated balance sheets. During the three months ended March 31, 2022, the note receivable was settled. Group Nine Media and Vox Media merged during the three months ended March 31, 2022, changing the Company's ownership percentage from 25% to 8% post-merger. The Company reduced its liquidation preference for an additional ownership percentage in Vox Media.
(c) Ownership percentage for Formula E includes holdings accounted for as an equity method investment and holdings accounted for as an equity investment without a readily determinable fair value.

~~Equity Method Investments~~

~~Investments in equity method investees are those for~~the reclassification of the shares of Series A-1 Preferred Stock into common stock, it received an increase to the number of shares of common stock of the Company into which the ~~Company has~~Series A-1 Preferred Stock converted. The impact of the ~~ability to exercise significant influence but does not control~~issuance of such additional shares of common stock was $789 million and ~~is not~~was recorded as a transaction expense in selling, general and administrative expense upon the ~~primary beneficiary. The Company had impairment losses~~closing of ~~$11 million for~~the Merger in the three months ended ~~March 31,~~June 30, 2022.

On April 8, 2022, the Company issued 1.7 billion shares of WBD common stock as consideration paid for the acquisition of WM. (See Note 3).

Earnings Per Share

All share and per share amounts have been retrospectively adjusted to reflect the reclassification and automatic conversion into WBD common stock, except for Series A-1 Preferred Stock, which has not been recast because the ~~change~~conversion of Series A-1 Preferred Stock into WBD common stock in ~~value~~connection with the Merger was considered ~~other-than-temporary.~~a discrete event and treated prospectively.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The table below sets forth the Company’s calculated earnings per share (in millions). Earnings per share amounts may not recalculate due to rounding.


	Three Months Ended March 31,
	2023		2022
Numerator:
Net (loss) income	$	(1,060)	$	475
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock	—		(49)
Net income attributable to noncontrolling interests	(8)		(16)
Net income attributable to redeemable noncontrolling interests	(1)		(3)

Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net (loss) income per share	$	(1,069)	$	407

Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders	$	—	$	49
Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for diluted net (loss) income per share	$	(1,069)	$	456

Denominator — weighted average:
Common shares outstanding — basic	2,432		591
Impact of assumed preferred stock conversion	—		71
Dilutive effect of share-based awards	—		3
Common shares outstanding — diluted	2,432		665

Basic net (loss) income per share allocated to common stockholders	$	(0.44)	$	0.69
Diluted net (loss) income per share allocated to common stockholders	$	(0.44)	$	0.69

The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).


	Three Months Ended March 31,
	2023	2022
Anti-dilutive share-based awards	62	33

NOTE 3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

WarnerMedia

On April 8, 2022, the Company completed its Merger with the WarnerMedia Business of AT&T. The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro-rata distribution, and immediately thereafter, combined with Discovery. Discovery was deemed to be the accounting acquirer of WM.

The Merger combined WM’s content library of popular and valuable intellectual property with Discovery’s global footprint, collection of local-language content and deep regional expertise across more than 220 countries and territories. The Company ~~had no impairment losses~~expects this broad, worldwide portfolio of brands, coupled with its DTC potential and the attractiveness of the combined assets, to result in increased market penetration globally. The Merger is also expected to create significant cost synergies for the ~~three months ended March 31, 2021.~~

With the exception of nC+, the carrying values of the Company’s equity method investments are consistent with its ownership in the underlying net assets of the investees. For nC+, there is a basis difference of $32 million, which is attributable to finite-lived intangible assets with a remaining life of 6 years and is included in the carrying value of nC+. Earnings from nC+ were reduced by the amortization of these intangibles of $2 million and $3 million for the three months ended March 31, 2022 and 2021, respectively.Company.

WARNER BROS. DISCOVERY, INC.

~~(formerly known~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Purchase Price

The following table summarizes the components of the aggregate purchase consideration paid to acquire WM (in millions).


Fair value of WBD common stock issued to AT&T shareholders (1)	$	42,309
Estimated fair value of share-based compensation awards attributable to pre-combination services (2)	94
Settlement of preexisting relationships (3)	(27)
Purchase consideration	$	42,376

(1)The fair value of WBD common stock issued to AT&T shareholders represents approximately 1,732 million shares of WBD common stock multiplied by the closing share price for Discovery Series A common stock of $24.43 on Nasdaq on the Closing Date. The number of shares of WBD common stock issued in the Merger was determined based on the number of fully diluted shares of Discovery, Inc. common stock immediately prior to the closing of the Merger, multiplied by the quotient of 71%/29%.

(2)This amount represents the value of AT&T restricted stock unit awards that were not vested and were replaced by WBD restricted stock unit awards with similar terms and conditions as ~~Discovery, Inc.)~~the original AT&T awards. The conversion was based on the ratio of the volume-weighted average per share closing price of AT&T common stock on the ten trading days prior to the Closing Date and the volume-weighted average per share closing price of WBD common stock on the ten trading days following the Closing Date. The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger.

(3)The amount represents the effective settlement of outstanding payables and receivables between the Company and WM. No gain or loss was recognized upon settlement as amounts were determined to be reflective of fair market value.

Balances reflect rounding of dollar and share amounts to millions, which may result in differences for recalculated standalone amounts compared with the amounts presented above. In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which resulted in the Company receiving a $1.2 billion payment from AT&T in the third quarter of 2022.

Preliminary Purchase Price Allocation

The Company applied the acquisition method of accounting to WM, whereby the excess of the fair value of the purchase price paid over the fair value of identifiable net assets acquired and liabilities assumed was allocated to goodwill. Goodwill reflects the assembled workforce of WM as well as revenue enhancements, cost savings and operating synergies that are expected to result from the Merger. The goodwill recorded as part of the Merger has been provisionally allocated to the Studios, Networks and DTC reportable segments in the amount of $9,129 million, $7,076 million and $5,683 million, respectively, and is not deductible for tax purposes.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The purchase price allocation is preliminary and subject to change. The Company has estimated the preliminary fair value of assets acquired and liabilities assumed based on information currently available and will continue to adjust those estimates as additional information pertaining to events or circumstances present at the Closing Date becomes available during the measurement period. The Company reflects measurement period adjustments in the period in which the adjustments occur, and the Company will finalize its accounting for the Merger within one year of the Closing Date. The current period adjustments were $148 million, primarily related to taxes, and were recorded in other noncurrent assets, deferred income taxes and other noncurrent liabilities, with an offset to goodwill.The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, measurement period adjustments, and a reconciliation to total consideration transferred is presented in the table below (in millions).


	Preliminary April 8, 2022		Measurement Period Adjustments		Updated Preliminary April 8, 2022
Cash	$	2,419	$	(10)	$	2,409
Accounts receivable	4,224		(60)		4,164
Other current assets	4,619		(149)		4,470
Film and television content rights and games	28,729		(344)		28,385
Property and equipment	4,260		13		4,273
Goodwill	21,513		375		21,888
Intangible assets	44,889		100		44,989
Other noncurrent assets	5,206		309		5,515
Current liabilities	(10,544)		7		(10,537)
Debt assumed	(41,671)		(9)		(41,680)
Deferred income taxes	(13,264)		716		(12,548)
Other noncurrent liabilities	(8,004)		(948)		(8,952)
Total consideration paid	$	42,376	$	—	$	42,376

The preliminary fair values of the assets acquired and liabilities assumed were determined using several valuation approaches including, but not limited to, various cost approaches and income approaches, such as relief from royalty, multi -period excess earnings, and with-or-without.

The table below presents a summary of intangible assets acquired, exclusive of content assets, and the weighted average useful life of these assets.


	Fair Value		Weighted Average Useful Life in Years
Trade names	$	21,084	34
Affiliate, advertising and subscriber relationships	14,800		6
Franchises	7,900		35
Other intangible assets	1,205
Total intangible assets acquired	$	44,989

The Company incurred acquisition-related costs of $47 million and $87 millionfor the three months ended March 31, 2023 and 2022, respectively. These costs were associated with legal and professional services and integration activities and were recognized as operating expenses on the consolidated statement of operations.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As a result of the Merger, WM’s assets, liabilities, and operations were included in the Company’s consolidated financial statements from the Closing Date. The following table presents WM revenue and earnings as reported within the consolidated financial statements (in millions).


	Three Months Ended March 31, 2023
Revenues:
Distribution	$	3,885
Advertising	1,154
Content	3,338
Other	228
Total revenues	8,605
Inter-segment eliminations	(477)
Net revenues	$	8,128
Net loss available to Warner Bros. Discovery, Inc.	$	(1,047)

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information presents the combined results of the Company and WM as if the Merger had been completed on January 1, 2021. The unaudited pro forma combined financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the Merger had occurred on January 1, 2021, nor is it indicative of future results. The following table presents the Company’s pro forma combined revenues and net income (in millions).


	Three Months Ended March 31, 2022

Revenues	$	11,441
Net loss available to Warner Bros. Discovery, Inc.	(299)

The unaudited pro forma combined financial information includes, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments. These pro forma adjustments are based on available information as of the date hereof and upon assumptions that the Company believes are reasonable to reflect the impact of the Merger with WM on the Company’s historical financial information on a supplemental pro forma basis. Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business.

NOTE 4. RESTRUCTURING

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company. The Company finalized the framework supporting its ongoing restructuring and transformation initiatives during the year ended December 31, 2022, which will include, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. While the Company’s restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024.

Restructuring by reportable segments and corporate and inter-segment eliminations were as follows (in millions).


	Three Months Ended March 31,
	2023		2022
Studios	$	76	$	—
Networks	3		4
DTC	9		—
Corporate and inter-segment eliminations	7		1

Total restructuring	$	95	$	5

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

During the three months ended March 31, 2023, restructuring charges primarily included contract terminations and facility consolidation activities of $56 million, organization restructuring of $35 million, and other charges of $4 million. During the three months ended March 31, 2022, restructuring charges were not material.

Changes in restructuring liabilities recorded in accrued liabilities and other noncurrent liabilities by major category and by reportable segment and corporate and inter-segment eliminations were as follows (in millions).


	Studios		Networks		DTC		Corporate and Inter-Segment Eliminations		Total
December 31, 2022	$	156	$	361	$	188	$	159	$	864


Contract termination accruals, net	25		2		—		—		27

Employee termination accruals, net	12		11		5		7		35
Other accruals	—		2		—		—		2
Cash paid	(76)		(207)		(88)		(61)		(432)
March 31, 2023	$	117	$	169	$	105	$	105	$	496

NOTE 5. REVENUES

The following table presents the Company’s revenues disaggregated by revenue source (in millions).


	Three Months Ended March 31, 2023
	Studios		Networks		DTC		Corporate and Inter-segment Eliminations		Total
Revenues:
Distribution	$	3	$	2,995	$	2,165	$	—	$	5,163
Advertising	3		2,237		103		(45)		2,298
Content	3,027		245		185		(503)		2,954
Other	179		104		2		—		285
Total	$	3,212	$	5,581	$	2,455	$	(548)	$	10,700


	Three Months Ended March 31, 2022
	Studios		Networks		DTC		Corporate and Inter-segment Eliminations		Total
Revenues:
Distribution	$	—	$	1,120	$	232	$	—	$	1,352
Advertising	—		1,430		46		—		1,476
Content	5		316		2		—		323
Other	—		7		1		—		8
Total	$	5	$	2,873	$	281	$	—	$	3,159

Contract Liabilities and Contract Assets

The following table presents contract liabilities on the consolidated balance sheets (in millions).


Category	Balance Sheet Location	March 31, 2023		December 31, 2022


Contract liabilities	Deferred revenues	$	1,603	$	1,694
Contract liabilities	Other noncurrent liabilities	379		361

For the three months ended March 31, 2023 and 2022, respectively, revenues of $856 million and $295 million were recognized that were included in deferred revenues as of December 31, 2022 and December 31, 2021, respectively.Contract assets were not material as of March 31, 2023 and December 31, 2022.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Remaining Performance Obligations

As of March 31, 2023, $11,888 million of revenue is expected to be recognized from remaining performance obligations under our long-term contracts. The following table presents a summary of remaining performance obligations by contract type (in millions).

Contract Type

March 31, 2023

Duration

Distribution - fixed price or minimum guarantee

4,379

Through 2031

Content licensing and sports sublicensing

4,424

Through 2026

Brand licensing

2,322

Through 2043

Advertising

763

Through 2027

Total

11,888

The value of unsatisfied performance obligations disclosed above does not include: (i) contracts involving variable consideration for which revenues are recognized in accordance with the sales or usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as most advertising contracts; however for content licensing revenues, including revenues associated with the licensing of theatrical and television product for television and streaming services, the Company has included all contracts regardless of duration.

NOTE 6. SALES OF RECEIVABLES

Revolving Receivables Program

Our bankruptcy-remote consolidated subsidiary held $3,453 million of pledged receivables as of March 31, 2023 in connection with the Company’s revolving receivables program. For the three months ended March 31, 2023, the Company has recognized $33 millioninselling, general and administrative expenses from the revolving receivables program in the consolidated statements of operations. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,300 million as of March 31, 2023.

The following table presents a summary of receivables sold (in millions).


	Three Months Ended March 31, 2023
Gross receivables sold/cash proceeds received	$	2,779
Collections reinvested under revolving agreement	(2,845)
Net cash proceeds remitted	$	(66)
Net receivables sold	$	2,698
Obligations recorded (Level 3)	$	148

The following table presents a summary of the amounts transferred or pledged (in millions):


	March 31, 2023		December 31, 2022
Gross receivables pledged as collateral	$	3,453	$	3,468
Restricted cash pledged as collateral	$	—	$	150
Balance sheet classification:
Receivables, net	$	3,275	$	3,015
Prepaid expenses and other current assets	$	—	$	150
Other noncurrent assets	$	178	$	453

Accounts Receivable Factoring

Total trade accounts receivable sold under the Company’s factoring arrangement was $72 millionfor the three months ended March 31, 2023. The impact to the consolidated statements of operations was immaterial for the three months ended March 31, 2023. This accounts receivable factoring agreement is separate and distinct from the revolving receivables program.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 7. CONTENT RIGHTS

For purposes of amortization and impairment, capitalized content costs are grouped based on their predominant monetization strategy: individually or as a group. Programming rights include content licensed from third parties, such as film, television and sports rights. The table below presents the components of content rights (in millions).


	March 31, 2023
		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:
Released, less amortization		$	2,032	$	—	$	2,032
Completed and not released		637		—		637
In production		1,545		—		1,545
In development		96		—		96

Television production costs:
Released, less amortization		2,216		6,325		8,541
Completed and not released		608		540		1,148
In production		322		4,558		4,880
In development		47		15		62
Total theatrical film and television production costs		$	7,503	$	11,438	$	18,941

Programming rights, less amortization						6,763
Game development costs, less amortization						513
Total film and television content rights and games						26,217
Less: Current content rights and prepaid license fees, net						(744)
Total noncurrent film and television content rights and games						$	25,473


	December 31, 2022
		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:
Released, less amortization		$	3,544	$	—	$	3,544
Completed and not released		507		—		507
In production		1,700		—		1,700
In development		95		—		95

Television production costs:
Released, less amortization		2,200		6,513		8,713
Completed and not released		939		310		1,249
In production		427		4,424		4,851
In development		30		15		45
Total theatrical film and television production costs		$	9,442	$	11,262	$	20,704

Programming rights, less amortization						5,843
Game development costs, less amortization						650
Total film and television content rights and games						27,197
Less: Current content rights and prepaid license fees, net						(545)
Total noncurrent film and television content rights and games						$	26,652

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Content amortization consisted of the following (in millions).


	Three Months Ended March 31,
	2023		2022

Predominately monetized individually	$	1,531	$	251





Predominately monetized as a group	3,096		718



Total content amortization	$	4,627	$	969

Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations. For the three months ended March 31, 2023, total content impairments were $96 million. For the three months ended March 31, 2022, content impairments were not material.

NOTE 8. INVESTMENTS

The Company’s equity investments consisted of the following, (in millions).


Category	Balance Sheet Location	Ownership	March 31, 2023		December 31, 2022
Equity method investments:
The Chernin Group (TCG) 2.0-A, LP	Other noncurrent assets	44%	$	291	$	313
nC+	Other noncurrent assets	32%	143		135
Other	Other noncurrent assets		590		614
Total equity method investments			1,024		1,062

Investments with readily determinable fair values	Other noncurrent assets		53		28


Investments without readily determinable fair values	Other noncurrent assets (a)		449		498
Total investments			$	1,526	$	1,588

(a) Investments without readily determinable fair values included $27 million as of March 31, 2023 and $10 million as of December 31, 2022 that were included in prepaid expenses and other current assets.

Equity Method Investments

Certain of the ~~Company's~~Company’s other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of March 31, ~~2022,~~2023, the Company’s maximum exposure for all of its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately ~~$169~~$725 million. The ~~Company's~~Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were ~~$105~~$703 million as of March 31, ~~2022~~2023 and ~~$126~~$720 million as of December 31, ~~2021. The Company recognized its portion~~2022. VIE gains and losses are recorded in loss from equity investees, net on the consolidated statements of ~~VIE operating results with net losses of $17 million~~operations, and ~~$8 million~~were not material for the three months ended March 31, ~~2022~~2023 and ~~2021, respectively~~.2022.

Equity Investments ~~with~~Without Readily Determinable Fair ~~Value~~

~~Investments in entities or other securities in which~~Values Assessed Under the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other income, net on the consolidated statements of operations.

~~The gains and losses related to the Company's investments with readily determinable fair values for the three months ended March 31, 2022 and 2021 are summarized in the table below (in millions).~~

Three Months Ended March 31,
2022 2021
Net gains (losses) recognized during the period on equity securities $ (20) $ 33
Less: Net gains recognized on equity securities sold — 16
Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date $ (20) $ 17

~~Equity investments without readily determinable fair values assessed under the measurement alternative~~

Equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence and these investments do not have readily determinable fair values.Measurement Alternative

During the three months ended March 31, ~~2022,~~2023, the Company ~~did not investin equity investments without readily determinable fair values and~~ concluded that its other equity method investments without readily determinable fair values had ~~no indicators that a change~~decreased $68 million in fair value ~~had taken place.~~as a result of observable price changes in orderly transactions for the identical or similar investment of the same issuer. The decrease in fair value is recorded in other (expense) income, net on the consolidated statements of operations. (See Note 14). As of March 31, ~~2022,~~2023, the Company had recorded cumulative ~~upward adjustments of $9 million and cumulative~~ impairments of ~~$88~~$297 millionfor its equity method investments without readily determinable fair values.

1319

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE ~~4. FAIR VALUE MEASUREMENTS~~

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:


~~Level 1~~	–	~~Quoted prices for identical instruments in active markets.~~
~~Level 2~~	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
~~Level 3~~	–	~~Valuations derived from techniques in which one or more significant inputs are unobservable.~~

~~The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).~~
March 31, 2022
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ — $ 525 $ — $ 525
Equity securities:
Money market funds Cash and cash equivalents 550 — — 550
Mutual funds Prepaid expenses and other current assets 26 — — 26
Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1
Mutual funds Other noncurrent assets 196 — — 196
Company-owned life insurance contracts Other noncurrent assets — 30 — 30
Total $ 772 $ 556 $ — $ 1,328
Liabilities
Deferred compensation plan Accrued liabilities $ 36 $ — $ — $ 36
Deferred compensation plan Other noncurrent liabilities 217 — — 217
Total $ 253 $ — $ — $ 253

December 31, 2021
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ — $ 426 $ — $ 426
Equity securities:
Money market funds Cash and cash equivalents 425 — — 425
Mutual funds Prepaid expenses and other current assets 12 — — 12
Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1
Mutual funds Other noncurrent assets 215 — — 215
Company-owned life insurance contracts Other noncurrent assets — 32 — 32
Total $ 652 $ 459 $ — $ 1,111
Liabilities
Deferred compensation plan Accrued Liabilities $ 21 $ — $ — $ 21
Deferred compensation plan Other noncurrent liabilities 238 — — 238
Total $ 259 $ — $ — $ 259

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Equity securities include money market funds, time deposits, investments in mutual funds held in separate trusts, which are owned as part of the Company's supplemental retirement plans, and company-owned life insurance contracts. The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation. Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

In addition to the financial instruments listed in the tables above, the Company has other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of March 31, 2022 and December 31, 2021. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $14.9 billion and $17.2 billion as of March 31, 2022 and December 31, 2021, respectively.

~~The Company's derivative financial instruments are discussed in Note 8 and its investments with readily determinable fair value are discussed in Note 3.~~

~~NOTE 5. CONTENT RIGHTS~~

~~The table below presents the components of content rights (in millions).~~

March 31, 2022 December 31, 2021
Produced content rights:
Completed $ 10,900 $ 10,404
In-production 722 696
Coproduced content rights:
Completed 1,032 1,003
In-production 71 91
Licensed content rights:
Acquired 1,116 1,213
Prepaid 238 251
Content rights, at cost 14,079 13,658
Accumulated amortization (10,070) (9,581)
Total content rights, net 4,009 4,077
Current portion (143) (245)
Noncurrent portion $ 3,866 $ 3,832

~~Content expense consisted of the following (in millions).~~

Three Months Ended March 31,
2022 2021
Content amortization $ 969 $ 743
Other production charges 113 80
Content impairments 4 —
Total content expense $ 1,086 $ 823

Content expense is generally a component of costs of revenue on the consolidated statements of operations. Content impairments of $4 million are reflected in restructuring and other charges for the three months ended March 31, 2022.

As of March 31, 2022, the Company expects to amortize approximately 57%, 26% and 13% of its produced and co-produced content, excluding content in-production, and 49%, 22% and 11% of its licensed content rights in the next three twelve-month operating cycles ending March 31, 2022, 2023 and 2024, respectively.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 6. GOODWILL~~

~~The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows (in millions).~~
U.S.
Networks International
Networks Total
December 31, 2021 $ 10,813 $ 2,099 $ 12,912
Foreign currency translation and other — (40) (40)
March 31, 2022 $ 10,813 $ 2,059 $ 12,872

The carrying amount of goodwill at the U.S. Networks segment included accumulated impairments of $20 million as of March 31, 2022 and December 31, 2021. The carrying amount of goodwill at the International Networks segment included accumulated impairments of $1.6 billion as of March 31, 2022 and December 31, 2021.

~~Impairment Analysis~~

During the fourth quarter of 2021, the Company performed a qualitative goodwill impairment assessment for all reporting units and it determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, therefore, no quantitative goodwill impairment analysis was performed.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 7.~~9. DEBT

The table below presents the components of outstanding debt (in millions).
March 31, 2022 December 31, 2021
2.375% Senior Notes, euro denominated, annual interest, due March 2022 $ — $ 339
2.950% Senior Notes, semi-annual interest, due March 2023 796 796
3.250% Senior Notes, semi-annual interest, due April 2023 192 192
3.800% Senior Notes, semi-annual interest, due March 2024 450 450
2.500% Senior Notes, sterling denominated, annual interest, due September 2024 527 540
3.900% Senior Notes, semi-annual interest, due November 2024 497 497
3.450% Senior Notes, semi-annual interest, due March 2025 300 300
3.950% Senior Notes, semi-annual interest, due June 2025 500 500
4.900% Senior Notes, semi-annual interest, due March 2026 700 700
1.900% Senior Notes, euro denominated, annual interest, due March 2027 667 678
3.950% Senior Notes, semi-annual interest, due March 2028 1,700 1,700
4.125% Senior Notes, semi-annual interest, due May 2029 750 750
3.625% Senior Notes, semi-annual interest, due May 2030 1,000 1,000
5.000% Senior Notes, semi-annual interest, due September 2037 548 548
6.350% Senior Notes, semi-annual interest, due June 2040 664 664
4.950% Senior Notes, semi-annual interest, due May 2042 285 285
4.875% Senior Notes, semi-annual interest, due April 2043 516 516
5.200% Senior Notes, semi-annual interest, due September 2047 1,250 1,250
5.300% Senior Notes, semi-annual interest, due May 2049 750 750
4.650% Senior Notes, semi-annual interest, due May 2050 1,000 1,000
4.000% Senior Notes, semi-annual interest, due September 2055 1,732 1,732
Total debt 14,824 15,187
Unamortized discount, premium and debt issuance costs, net (a)
(425) (428)
Debt, net of unamortized discount, premium and debt issuance costs 14,399 14,759
Current portion of debt (794) (339)
Noncurrent portion of debt $ 13,605 $ 14,420

~~(a)~~ ~~Current portion~~


	Weighted-Average Interest Rate as of March 31, 2023		March 31, 2023		December 31, 2022
Term loans with maturities of 3 years or less	6.01	%	$	2,500	$	4,000
Floating rate senior notes with maturities of 5 years or less	6.20	%	500		500
Senior notes with maturities of 5 years or less	3.92	%	15,964		12,759
Senior notes with maturities between 5 and 10 years	4.28	%	8,607		10,373
Senior notes with maturities greater than 10 years	5.11	%	21,644		21,644
Total debt			49,215		49,276
Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net			(285)		(277)
Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting			48,930		48,999
Current portion of debt			(3,496)		(365)
Noncurrent portion of debt			$	45,434	$	48,634

During the three months ended March 31, 2023 the Company issued $1.5 billion of ~~unamortized discount, premium,~~6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and ~~debt issuance costs, net is not material.~~unpaid interest. The proceeds were used to pay $1.5 billion of aggregate principal amount outstanding of the Company’s term loan prior to the due date of April 2025. The Company also repaid $106 million of aggregate principal amount outstanding of its senior notes due February 2023.

.~~Senior Notes~~

During the three months ended March 31, 2022, the Company repaid in full at maturity $327 million aggregate principal amount outstanding of its 2.375% Euro Denominated Senior Notes due March 2022.

In the third quarter of 2021, the Company redeemed in full $168 million aggregate principal amount outstanding of its 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of its 3.500% Senior Notes due June 2022. In the first quarter of 2021, the Company redeemed in full $335 million aggregate principal amount outstanding of its 4.375% Senior Notes due June 2021.

~~The redemptions during 2022 and 2021 resulted in an immaterial loss on extinguishment of debt.~~

As of March 31, ~~2022,~~2023, all senior notes are fully and unconditionally guaranteed by the Company, ~~and~~ Scripps Networks Interactive, Inc. ("(“Scripps ~~Networks"~~Networks”), Discovery Communications, LLC (“DCL”) (to the extent it is not the primary obligor on such senior notes), and WarnerMedia Holdings, Inc. (to the extent it is not the primary obligor on such senior notes), except for $1.4 billion of senior notes of the ~~remaining~~legacy WarnerMedia Business assumed by the Company in connection with the Merger and $23 million of un-exchanged senior notes issued by Scripps ~~Networks senior notes.~~

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery,~~Networks. Additionally, the term loans of WarnerMedia Holdings, Inc.)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Revolving Credit Facility and Commercial Paper Programs~~

~~In June 2021, Discovery Communications, LLC ("DCL") entered into a multicurrency revolving~~, made under the $10.0 billion term loan credit agreement (the ~~"Credit Agreement"~~“Term Loan Credit Agreement”), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. DCL has the capacity to initially borrow up to $2.5 billion under the Credit Agreement. Following the closing of the Merger and subject to certain conditions, the available commitments increased by $3.5 billion, to an aggregate amount not to exceed $6 billion (the “Credit Facility”). The Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. DCL may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by the Company, Scripps Networks, and ~~following the closing of the Merger, WarnerMedia Holdings, Inc., which was originally named Magallanes, Inc. The~~DCL.

Revolving Credit Facility ~~will be available on~~and Commercial Paper Programs

The Company has a multicurrency revolving ~~basis until June 2026, with an option for~~credit agreement (the “Revolving Credit Agreement”) and has the capacity to borrow up to ~~2 additional 364-day renewal periods subject to~~$6.0 billion under the ~~lenders' consent. The~~Revolving Credit Agreement ~~contains customary representations and warranties as well as affirmative and negative covenants. As~~(the “Credit Facility”). The Company may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of ~~March 31, 2022, DCL was in compliance with all covenants and there were no events of default under the Credit Facility.~~

~~Additionally, the Company's~~certain conditions. The Company’s commercial paper program is supported by the Credit Facility. ~~Under the commercial paper program, the Company may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings.~~ Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had no outstanding borrowings under ~~the~~its Credit Facility or ~~the~~its commercial paper program.

Credit Agreement Financial Covenants

The Revolving Credit Agreement ~~includes~~and the Term Loan Credit Agreement (together, the “Credit Agreements”) include financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of ~~4.50 to 1.00, which increased to~~ 5.75 to 1.00 following the closing of the Merger, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively. As of March 31, 2023, DCL was in compliance with all covenants and there were no events of default under the Credit Agreements.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company is exposed to foreign currency exchange rate and interest rate fluctuations. As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign currency forward contracts, fixed-to-fixed currency swaps, and interest rate swaps, to hedge certain foreign currency and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.

The following table summarizes the impact of derivative financial instruments on the Company’s consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements as of March 31, 2023 and December 31, 2022. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2).


	March 31, 2023										December 31, 2022
			Fair Value										Fair Value
	Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities		Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities
Cash flow hedges:
Foreign exchange	$	2,031	$	55	$	33	$	47	$	21	$	1,382	$	49	$	35	$	42	$	25
Cross-currency swaps	495		4		67		—		—		482		3		58		—		—

Net investment hedges: (a)
Cross-currency swaps	1,728		20		11		18		49		1,778		20		12		—		73

Fair value hedges:
Interest rate swaps	1,500		13		—		—		1		—		—		—		—		—
No hedging designation:
Foreign exchange	939		1		1		5		98		976		5		1		3		96
Cross-currency swaps	139		—		—		1		—		139		3		—		—		3

Total return swaps	373		7		—		—		—		291		—		—		13		—



Total			$	100	$	112	$	71	$	169			$	80	$	106	$	58	$	197

(a) Excludes €164 million of euro-denominated notes ($179 million and $174 million equivalent at March 31, 2023 and December 31, 2022, respectively) designated as net investment hedges. (See Note 9.)

Derivatives Designated for Hedge Accounting

Cash Flow Hedges

The Company uses foreign exchange forward contracts to mitigate the foreign currency risk related to revenues, production rebates and production expenses.

The Company uses fixed-to-fixed cross-currency swaps to mitigate foreign currency risk associated with its British Pound Sterling denominated debt.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive (loss) income (in millions).


	Three Months Ended March 31,
	2023		2022
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments	$	1	$	(13)

Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - distribution revenue	(1)		4
Foreign exchange - advertising revenue	—		1
Foreign exchange - costs of revenues	2		1
Interest rate - interest expense, net	1		—

If current fair values of designated cash flow hedges as of March 31, 2023 remained static over the next twelve months, the amount the Company would reclassify from accumulated other comprehensive loss into income in the next twelve months would not be material for the current fiscal year. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 32 years.

Net Investment Hedges

The Company uses fixed-to-fixed cross currency swaps to mitigate foreign currency risk associated with the net assets of non-USD functional entities and foreign denominated debt.

The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive (loss) income (in millions). Other than amounts excluded from effectiveness testing, there were no other gains (losses) reclassified from accumulated other comprehensive loss to income during the three months ended March 31, 2023 and 2022.


	Three Months Ended March 31,
	Amount of gain (loss) recognized in AOCI				Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
	2023		2022			2023		2022
Cross currency swaps	$	22	$	19	Interest expense, net	$	5	$	15


Euro-denominated notes (foreign denominated debt)	5		—		N/A	—		—
Sterling notes (foreign denominated debt)	—		13		N/A	—		—
Total	$	27	$	32		$	5	$	15

Fair Value Hedges

During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate. Changes in the fair value of the senior note and the interest rate swap are recorded in interest expense, net.

The following table presents fair value hedge adjustments to hedged borrowings (in millions).


	Carrying Amount of Hedged Borrowings				Cumulative Amount of Fair Value Hedging Adjustments Included in Hedged Borrowings
Balance Sheet Location	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022

Noncurrent portion of debt	$	1,512	$	—	$	12	$	—

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents the pretax impact of derivatives designated as fair value hedges on income, including offsetting changes in fair value of the hedged items (in millions).


	Three Months Ended March 31,
	2023		2022
Loss on changes in fair value of hedged fixed rate debt (1)	$	(12)	$	—
Gains on changes in the fair value of derivative contracts (1)	12		—

Total in interest expense, net	$	—	$	—

(1) Accrued interest related to the hedged debt and derivative contracts is excluded from the amounts above and was not material as of March 31, 2023.

Derivatives Not Designated for Hedge Accounting

Prior to the Merger, the Company was exposed to interest rate risk associated with the expected issuance of debt related to the Merger. To mitigate this risk, the Company entered into interest rate swaps and subsequently unwound them prior to the Merger.

As part of the Merger, the Company acquired deferred compensation plans that have risk related to the fair value gains and losses on these investments and entered into total return swaps to mitigate this risk. The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses.

As production spend occurs or when rebate receivables are recognized, the aforementioned forward contracts designated as cash flow hedges are unwound and de-designated. After de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.

The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in other (expense) income, net in the consolidated statements of operations (in millions).


	Three Months Ended March 31,
	2023		2022
Interest rate swaps	$	—	$	512



Foreign exchange derivatives	3		(15)
Total in other (expense) income, net	$	3	$	497
Total return swaps (selling, general and administrative expense)	18		—
Total	$	21	$	497

NOTE ~~8. DERIVATIVE FINANCIAL INSTRUMENTS~~11. FAIR VALUE MEASUREMENTS

~~The Company uses derivative financial instruments~~Fair value is defined as the amount that would be received for selling an asset or paid to ~~modify its exposure to~~transfer a liability in an orderly transaction between market ~~risks from changes in foreign currency exchange rates~~participants. Assets and ~~interest rates. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.~~

~~Cash Flow Hedges~~

~~On January 1, 2022, the Company discontinued hedge accounting for certain forward starting interest rate swap contracts with a total notional~~liabilities carried at fair value of $2 billion. The Company recognized a gain of $33 million in accumulated other comprehensive loss that will be amortized as an adjustment to interest expense, net over the respective terms of future issuances of debt. Subsequently, the Company unwound and settled the contracts and received cash of $122 million, including an $89 million realized gain for changes in fair market value between the dedesignation date and settlement date that was recognized in other income, netare classified in the ~~consolidated statements of operations.~~

~~Net Investment Hedges~~

~~During the~~following three months ended March 31, 2022, the Company unwound and settled certain fixed-to-fixed cross-currency swaps with a total notional value of $705 million associated with the Company's Euro functional subsidiaries. The Company recognized a realized gain of $10 million related to the excluded component of the hedge relationship in other income, net in the consolidated statements of operations, and recognized a gain of $6 million in accumulated other comprehensive loss.

Also during the three months ended March 31, 2022, the Company executed cross currency swaps with a notional value of $664 million with expiration dates in 2025 to replace the aforementioned swaps that matured.

~~No Hedging Designation~~

During the three months ended March 31, 2022, the Company dedesignated, unwound and settled forward starting interest rate swap contracts with a total notional value of $5.0 billion, swaption collars with a total notional value of $2.5 billion, and purchase payer swaptions with a total notional value of $7.5 billion. The Company received cash of $474 million upon settlement, including $142 million in premiums paid at execution during 2021, resulting in a gain of $332 million that was recognized in other income, net in the consolidated statements of operations.

Also during the three months ended March 31, 2022, the Company executed and subsequently settled treasury locks with a total notional value of $14.5 billion. The Company received cash of $90 million upon settlement, resulting in a gain of $90 million that was recognized in other income, net in the consolidated statements of operations.categories:


Level 1	–	Quoted prices for identical instruments in active markets.
Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3	–	Valuations derived from techniques in which one or more significant inputs are unobservable.

1823

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).


		March 31, 2023
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	148	$	—	$	148

Equity securities:
Money market fund	Cash and cash equivalents	3		—		—		3
Mutual funds	Prepaid expenses and other current assets	9		—		—		9
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		3		—		3
Mutual funds	Other noncurrent assets	240		—		—		240
Company-owned life insurance contracts	Other noncurrent assets	—		95		—		95
Time deposits	Other noncurrent assets	—		10		—		10


Total		$	252	$	256	$	—	$	508
Liabilities
Deferred compensation plan	Accrued liabilities	$	70	$	—	$	—	$	70
Deferred compensation plan	Other noncurrent liabilities	603		—		—		603
Total		$	673	$	—	$	—	$	673

~~Finally, during~~


		December 31, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	50	$	—	$	50

Equity securities:
Money market funds	Cash and cash equivalents	20		—		—		20

Mutual funds	Prepaid expenses and other current assets	14		—		—		14
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		1		—		1
Mutual funds	Other noncurrent assets	243		—		—		243
Company-owned life insurance contracts	Other noncurrent assets	—		94		—		94
Time deposits	Other noncurrent assets	—		8		—		8
Total		$	277	$	153	$	—	$	430
Liabilities
Deferred compensation plan	Accrued liabilities	$	73	$	—	$	—	$	73
Deferred compensation plan	Other noncurrent liabilities	590		—		—		590
Total		$	663	$	—	$	—	$	663

In addition to the ~~three months ended March 31, 2022,~~financial instruments listed in the tables above, the Company unwound and settled a foreign exchange forward contract with a notional value of $375 million associated with the Company's Euro denominated debt that was paid in full at maturity. The Company recognized a loss of $48 million inholds other ~~income, net in the consolidated statements of operations.~~

~~The following table summarizes the impact of derivative~~ financial instruments, onincluding cash deposits, accounts receivable, accounts payable, term loans, and senior notes. The carrying values for such financial instruments, other than the ~~Company's consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements~~senior notes, each approximated their fair values as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. The estimated fair value of the ~~Company's derivative financial instruments~~Company’s outstanding senior notes, including accrued interest, using quoted prices from over-the-counter markets, considered Level 2 inputs, was ~~determined using a market-based approach (Level 2).~~

March 31, 2022 December 31, 2021
Fair Value Fair Value
Notional Prepaid expenses and other current assets Other non-
current assets Accounts payable and accrued liabilities Other non-
current liabilities Notional Prepaid expenses and other current assets Other non-
current assets Accounts payable and accrued liabilities Other non-
current liabilities
Cash flow hedges:
Foreign exchange $ 752 $ 6 $ — $ 11 $ 1 $ 777 $ 14 $ — $ 2 $ —
Interest rate swaps — — — — — 2,000 44 — 11 —
Net investment hedges: (a)
Cross-currency swaps 3,437 31 53 1 76 3,512 54 61 20 76
No hedging designation:
Foreign exchange 673 — — — 68 1,020 — — 34 66
Interest rate swaps — — — — — 15,000 126 28 9 5
Cross-currency swaps 139 3 — — 4 139 3 — — 5
Total $ 40 $ 53 $ 12 $ 149 $ 241 $ 89 $ 76 $ 152

~~(a)~~ ~~Excludes £400 million of sterling notes ($527 million equivalent at March 31, 2022) designated as a net investment hedge. (See Note 7.)~~

~~The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income~~$41.6 billion and ~~other comprehensive income (loss) (in millions).~~

Three Months Ended March 31,
2022 2021
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments $ (13) $ 37
Interest rate - derivative adjustments — 260
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - advertising revenue 1 —
Foreign exchange - distribution revenue 4 (3)
Foreign exchange - costs of revenues 1 —

~~If current fair values of designated cash flow hedges~~$38.0 billion as of March 31, 2023 and December 31, 2022, ~~remained static over~~respectively.

The Company’s derivative financial instruments are discussed in Note 10, its investments with readily determinable fair value are discussed in Note 8, and the ~~next twelve months, the Company would reclassify $7 million of net deferred losses from accumulated other comprehensive loss into income~~obligation for its revolving receivable program is discussed in ~~the next twelve months. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 33 years.~~Note 6.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive income (loss) (in millions). Other than amounts excluded from effectiveness testing, there were no other gains (losses) reclassified from accumulated other comprehensive loss to income during the three months ended March 31, 2022 and 2021.
Three Months Ended March 31,
Amount of gain (loss) recognized in AOCI Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2022 2021 2022 2021
Cross currency swaps $ 19 $ 52 Interest expense, net $ 15 $ 10
Sterling notes (foreign denominated debt) 13 (5) N/A — —
Total $ 32 $ 47 $ 15 $ 10

~~The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in other income, net in the consolidated statements of operations (in millions).~~

Three Months Ended March 31,
2022 2021
Interest rate swaps $ 512 $ —
Cross-currency swaps — 5
Foreign exchange derivatives (15) (25)
Total in other income, net $ 497 $ (20)

~~NOTE 9. EQUITY~~

As a result of the Merger, each share of Discovery, Inc.'s issued, and outstanding common stock and preferred stock was reclassified and automatically converted to shares of Warner Bros. Discovery common stock (as further described in Note 19 below).

~~Repurchase Programs~~

In February 2020, the Company's Board of Directors authorized additional stock repurchases of up to $2 billion upon completion of its existing $1 billion repurchase authorization announced in May 2019. Under the stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors.

All common stock repurchases, including prepaid common stock repurchase contracts, have been made through open market transactions and have been recorded as treasury stock on the consolidated balance sheet. Over the life of the Company's repurchase programs and as of March 31, 2022, the Company had repurchased 3 million and 229 million shares of its historical Series A and Series C common stock, respectively, for an aggregate purchase price of $171 million and $8.2 billion, respectively. There were no stock repurchases during the three months ended March 31, 2022 or 2021.

~~Preferred Stock~~

During the three months ended March 31, 2021, Advance Newhouse Programming Partnership converted 0.6 million of its Series C-1 convertible preferred stock into 11.0 million shares of Series C common stock.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Other Comprehensive Income (Loss) Adjustments~~

~~The table below presents the tax effects related to each component of other comprehensive income (loss) and reclassifications made in the consolidated statements of operations (in millions).~~
Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Pretax
Tax benefit (expense)

Net-of-tax

Pretax
Tax benefit (expense)

Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency $ (105) $ — $ (105) $ (230) $ 16 $ (214)
Net investment hedges 22 (14) 8 42 5 47
Reclassifications:
Gain on disposition (2) — (2) — — —
Total currency translation adjustments (85) (14) (99) (188) 21 (167)
Derivative adjustments:
Unrealized gains (losses) (13) 1 (12) 297 (62) 235
Reclassifications from other comprehensive income to net income (6) — (6) 3 (1) 2
Total derivative adjustments (19) 1 (18) 300 (63) 237
Other comprehensive income (loss) adjustments $ (104) $ (13) $ (117) $ 112 $ (42) $ 70

~~Accumulated Other Comprehensive Loss~~

~~The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).~~
Three Months Ended March 31, 2022
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated
Other
Comprehensive Loss
Beginning balance $ (845) $ 28 $ (13) $ (830)
Other comprehensive income (loss) before reclassifications (97) (12) — (109)
Reclassifications from accumulated other comprehensive loss to net income (2) (6) — (8)
Other comprehensive income (loss) (99) (18) — (117)
Ending balance $ (944) $ 10 $ (13) $ (947)

Three Months Ended March 31, 2021
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated
Other
Comprehensive Loss
Beginning balance $ (555) $ (81) $ (15) $ (651)
Other comprehensive income (loss) before reclassifications (167) 235 — 68
Reclassifications from accumulated other comprehensive loss to net income — 2 — 2
Other comprehensive income (loss) (167) 237 — 70
Ending balance $ (722) $ 156 $ (15) $ (581)

2124

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~NOTE 10. REVENUES AND ACCOUNTS RECEIVABLE~~

~~Disaggregated Revenue~~

The following table presents the Company’s revenues disaggregated by revenue source (in millions). Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.

Three Months Ended March 31,
2022 2021
U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total
Revenues:
Advertising $ 1,025 $ 457 $ — $ 1,482 $ 980 $ 435 $ — $ 1,415
Distribution 886 536 — 1,422 796 514 — 1,310
Other 21 236 (2) 255 30 38 (1) 67
Total $ 1,932 $ 1,229 $ (2) $ 3,159 $ 1,806 $ 987 $ (1) $ 2,792

~~Accounts Receivable and Credit Losses~~

Receivables include amounts currently due from customers and are presented net of an estimate for lifetime expected credit losses. Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates. To assess collectability, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks, and records a provision for estimated credit losses expected over the lifetime of receivables. The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses.

The Company’s accounts receivable balances and the related credit losses arise primarily from distribution and advertising revenue. The Company monitors ongoing credit exposure through active review of customers’ financial conditions, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectability. The allowance for credit losses increased from $54 million at December 31, 2021 to $61 million at March 31, 2022. The activity in the allowance for credit losses for the three months ended March 31, 2022 was not material.

~~Contract Liability~~

A contract liability, such as deferred revenue, is recorded when cash is received in advance of the Company's performance. Total deferred revenues, including both current and noncurrent, were $401 million and $573 million at March 31, 2022 and December 31, 2021, respectively. Noncurrent deferred revenue is a component of other noncurrent liabilities on the consolidated balance sheets. The change in deferred revenue for the three months ended March 31, 2022 was primarily due to revenue recognized during the period, of which $295 million was included in the deferred revenue balance at December 31, 2021, partially offset by cash payments received for which the performance obligation was not satisfied prior to the end of the period. Revenue recognized for the three months ended March 31, 2021 related to the deferred revenue balance at December 31, 2020 was $99 million.

~~Transaction Price Allocated to Remaining Performance Obligations~~

Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue. Accordingly, in these instances revenue is recognized based upon the royalties earned to date. However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year. The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees; by calculating one twelfth of annual license fees specified in its distribution contracts; or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $1.4 billion as of March 31, 2022 and is expected to be recognized over the next five years.

The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $606 million as of March 31, 2022 and is expected to be recognized over the next five years.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Company's brand licensing contracts are licenses of symbolic intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $84 million as of March 31, 2022 and is expected to be recognized over the next eleven years.

NOTE ~~11.~~12. SHARE-BASED COMPENSATION

The Company has various incentive plans under which ~~performance-based~~performance based restricted stock units ~~("PRSUs"~~(“PRSUs”), ~~service-based~~service based restricted stock units ~~("RSUs"~~(“RSUs”), and stock options ~~and stock appreciation rights ("SARs")~~ have been issued.

The table below presents the components of share-based compensation expense (in millions), which is recorded in selling, general and administrative expense in the consolidated statements of operations.
Three Months Ended March 31,
2022 2021
PRSUs $ 3 $ 19
RSUs 38 22
Stock options 18 10
SARs 1 13
Total share-based compensation expense $ 60 $ 64
Tax benefit recognized $ 9 $ 8

The Company recorded total liabilities for cash-settled and other liability-settled share-based compensation awards of $7 million and $22 million as of March 31, 2022 and December 31, 2021, respectively. The current portion of the liability for cash-settled and other liability-settled awards was $5 million and $17 million as of March 31, 2022 and December 31, 2021, respectively.

The table below presents awards granted (in millions, except weighted-average grant price).
Three Months Ended March 31, 2022
Awards Weighted-Average Grant Price
Awards granted:
PRSUs 0.4 $ 24.92
RSUs 6.9 $ 28.11
Stock options 0.4 $ 32.90


	Three Months Ended March 31, 2023
	Awards	Weighted-Average Grant Price
Awards granted:
PRSUs	4.0	$	15.41
RSUs	26.2	$	15.00
Stock options	2.2	$	15.02

The table below presents unrecognized compensation cost related to non-vested share-based awards and the weighted-average amortization period over which these expenses will be recognized as of March 31, ~~2022~~2023 (in millions, except years).
Unrecognized Compensation Cost Weighted-Average Amortization Period
(years)
PRSUs $ 10 0.8
RSUs 388 2.3
Stock options 212 3.5
Total unrecognized compensation cost $ 610

Of the $388 million of unrecognized compensation cost related to RSUs, $44 million is related to cash-settled RSUs. Stock-settled RSUs are expected to be recognized over a weighted-average period of 2.3 years and cash-settled RSUs are expected to be recognized over a weighted-average period of 2.4 years.


	Unrecognized Compensation Cost		Weighted-Average Amortization Period (years)
PRSUs	$	62	2.1
RSUs	790		2.4
Stock options	160		3.2

Total unrecognized compensation cost	$	1,012

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

NOTE ~~12.~~13. INCOME TAXES

Income tax ~~expense~~benefit was ~~$201 million and $106~~$178 million for the three months ended March 31, ~~2022~~2023, and income tax expense was $201 million for the three months ended March 31, ~~2021, respectively.~~2022. The ~~increase~~decrease in the three months ended March 31, ~~2022~~2023 was primarily attributable to ~~an increase~~a decrease in pre-tax book income.

Income tax ~~expense~~benefit for the three months ended March 31, ~~2022~~2023 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the effect of foreign operations, changes in uncertain tax positions, and state and local income taxes.

As of March 31, 2023 and December 31, 2022, the Company’s reserves for uncertain tax positions totaled $2,195 millionand $1,929 million, respectively. The ~~Company's reserves~~increase in the reserve for uncertain tax positions as of March 31, ~~2022 and December 31, 2021 totaled $510 million and $420 million, respectively.~~2023 is primarily attributable to tax reserves that were recorded in 2023 through purchase accounting related to the Merger. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the ~~Company's~~Company’s uncertain tax positions could decrease by as much as ~~$93~~$165 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had accrued approximately ~~$58~~$492 million and ~~$60~~$413 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The increase in the interest and penalties accrual as of March 31, 2023 includes interest and penalty accruals recorded in 2023 through purchase accounting related to the Merger. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

~~NOTE 13. EARNINGS PER SHARE~~

All share and per share amounts have been retrospectively adjusted to reflect the reclassification and automatic conversion of each issued and outstanding share of Discovery Series A common stock, Discovery Series B common stock, Discovery Series C common stock, into one share of Warner Bros. Discovery common stock, and each issued and outstanding share of Discovery Series C-1 preferred stock was reclassified and automatically converted into 19.3648 shares of Warner Bros. Discovery common stock. Discovery Series A-1 preferred stock and per share data has not been recast because the conversion to Warner Bros. Discovery common stock in connection with the Merger was considered a discrete event and treated prospectively.

~~The table below sets forth the Company's calculated earnings per share. Earnings per share amounts may not recalculate due to rounding.~~

Three Months Ended March 31,
2022 2021
Numerator:
Net income $ 475 $ 191
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock (49) (15)
Net income attributable to noncontrolling interests (16) (46)
Net income attributable to redeemable noncontrolling interests (3) (5)
Net income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic net income per share $ 407 $ 125
Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders 49 15
Net income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for diluted net income per share $ 456 $ 140
Denominator — weighted average:
Common shares outstanding — basic 591 585
Impact of assumed preferred stock conversion 71 71
Dilutive effect of share-based awards 3 11
Common shares outstanding — diluted 665 667

Basic net income per share allocated to common stockholders $ 0.69 $ 0.21
Diluted net income per share allocated to common stockholders $ 0.69 $ 0.21

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).~~

Three Months Ended March 31,
2022 2021
Anti-dilutive share-based awards 33 1

NOTE 14. SUPPLEMENTAL DISCLOSURES

The following tables present supplemental information related to the consolidated financial statements (in millions).

Other (Expense) Income, net

Other ~~Income,~~(expense) income, net, consisted of the following (in millions).
Three Months Ended March 31,
2022 2021
Foreign currency gain, net $ 11 $ 52
Gains (losses) on derivative instruments, net 497 (20)
Gain on sale of investment with readily determinable fair value — 16
Change in the value of investments with readily determinable fair value (20) 17
Gain on sale of equity method investments — 5
Loss on extinguishment of debt — (3)
Interest income 2 1
Total other income, net $ 490 $ 68


	Three Months Ended March 31,
	2023		2022

Foreign currency (losses) gains, net	$	(93)	$	11
Gains on derivative instruments, net	3		497

Change in the value of investments with readily determinable fair value	29		(20)


Change in fair value of equity investments without readily determinable fair value	(68)		—



Other income, net	56		2
Total other (expense) income, net	$	(73)	$	490

Supplemental Cash Flow Information


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash paid for taxes, net	Cash paid for taxes, net	$	97	$	100	Cash paid for taxes, net	$	312	$	97
Cash paid for interest, net	Cash paid for interest, net	186		188		Cash paid for interest, net	920		186
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:

Accrued purchases of property and equipment	Accrued purchases of property and equipment	26		23		Accrued purchases of property and equipment	33		26
Assets acquired under finance lease and other arrangements	Assets acquired under finance lease and other arrangements	13		12		Assets acquired under finance lease and other arrangements	29		13

Cash, Cash Equivalents, and Restricted Cash


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	4,162	$	3,905	Cash and cash equivalents	$	2,594	$	3,731
Restricted cash - other current assets		3		—
Restricted cash - recorded in prepaid expenses and other current assets (1)						Restricted cash - recorded in prepaid expenses and other current assets (1)	45		199
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	4,165	$	3,905	Total cash, cash equivalents, and restricted cash	$	2,639	$	3,930

(1) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables and hedging programs. (See Note 6 and Note 10).						(1) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables and hedging programs. (See Note 6 and Note 10).

Goodwill Impairment Analysis

During the three months ended March 31, 2023, the Company performed goodwill impairment monitoring procedures for all of its reporting units and identified no indicators of impairment or triggering events. Due to declining levels of global GDP growth, a weakening advertising market associated with the Company’s Networks reporting unit, and execution risk associated with anticipated growth in the Company’s DTC reporting unit, the Company will continue to monitor its reporting units for changes that could impact recoverability.

Assets Held for Sale

In 2022, the Company classified its Ranch Lot and Knoxville office building and land as assets held for sale. The Company reclassified $209 million to prepaid expenses and other assets on the consolidated balance sheet during 2022 and stopped recording depreciation on the assets. The Knoxville office building and land was sold during the three months ended March 31, 2023.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Supplier Finance Programs

Consistent with customary industry practice, the Company generally pays certain content producers at or near the completion of the production cycle. In these arrangements, content producers may earn fees upon contractual milestones to be invoiced at or near completion of production. In these instances, the Company accrues the content in progress in accordance with the contractual milestones. Certain of the Company’s content producers sell their related receivables to a bank intermediary who provides payments that coincide with these contractual production milestones upon confirmation with the Company of our obligation to the content producer. This confirmation does not involve a security interest in the underlying content or otherwise result in the payable receiving seniority with respect to other payables of the Company. As of March 31, 2023 and December 31, 2022, the Company has confirmed $246 million and $273 million, respectively, of accrued content producer liabilities. These amounts were outstanding and unpaid by the Company and were recorded in accrued liabilities on the consolidated balance sheets, given the principal purpose of the arrangement is to allow producers access to funds prior to the typical payment due date and the arrangement does not significantly change the nature of the payables and does not significantly extend the payment terms beyond the industry norms. Invoices processed through the program are subject to a one-year maximum tenor. The Company does not incur any fees or expenses associated with the paying agent services, and this service may be terminated by the Company or the financial institution upon 30 days’ notice. At, or near, the production completion date (invoice due date), the Company pays the financial institution the stated amounts for confirmed producer invoices. These payments are reported as cash flows from operating activities.

Accumulated Other Comprehensive Loss

The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).


	Three Months Ended March 31, 2023
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(1,498)	$	14	$	(39)	$	(1,523)
Other comprehensive income (loss) before reclassifications	426		3		(9)		420
Reclassifications from accumulated other comprehensive loss to net income	—		(2)		—		(2)
Other comprehensive income (loss)	426		1		(9)		418


Ending balance	$	(1,072)	$	15	$	(48)	$	(1,105)


	Three Months Ended March 31, 2022
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(845)	$	28	$	(13)	$	(830)
Other comprehensive income (loss) before reclassifications	(97)		(12)		—		(109)
Reclassifications from accumulated other comprehensive loss to net income	(2)		(6)		—		(8)

Other comprehensive income (loss)	(99)		(18)		—		(117)

Ending balance	$	(944)	$	10	$	(13)	$	(947)

NOTE 15. RELATED PARTY TRANSACTIONS

In the normal course of business, the Company enters into transactions with related parties. Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation ("(“Liberty ~~Broadband"~~Broadband”) and their subsidiaries ~~and equity method investees~~ (collectively the “Liberty Group”). The Company’s Board of Directors includes Dr. John Malone, who is Chairman of the Board of Liberty Global and Liberty Broadband and beneficially owns approximately 30% and 48% of the aggregate voting power with respect to the election of directors of Liberty ~~Global. Dr. Malone is also Chairman of the Board of~~Global and Liberty Broadband, ~~and beneficially owns approximately 47% of the aggregate voting power with respect to the election of directors of Liberty Broadband.~~respectively. The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements. Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees, or minority partners of consolidated subsidiaries.

2527

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The table below presents a summary of the transactions with related parties (in millions).
Three Months Ended March 31,
2022 2021
Revenues and service charges:
Liberty Group $ 158 $ 175
Equity method investees 58 56
Other 33 27
Total revenues and service charges $ 249 $ 258
Expenses $ (76) $ (57)
Distributions to noncontrolling interests and redeemable noncontrolling interests $ (224) $ (183)


	Three Months Ended March 31,
	2023		2022
Revenues and service charges:
Liberty Group	$	518	$	158
Equity method investees	175		58
Other	47		33
Total revenues and service charges	$	740	$	249
Expenses	$	99	$	76
Distributions to noncontrolling interests and redeemable noncontrolling interests	$	237	$	224

The table below presents receivables due from and payables due to related parties (in millions).
March 31, 2022 December 31, 2021
Receivables $ 167 $ 172
Payables $ 32 $ 23


	March 31, 2023		December 31, 2022
Receivables	$	354	$	338
Payables	$	23	$	38

NOTE 16. COMMITMENTS AND CONTINGENCIES

Put Rights

The Company has granted put rights to non-controlling interest holders in certain consolidated ~~subsidiaries.~~subsidiaries, but the Company is unable to reasonably predict the ultimate amount or timing of any payment.

In 2022, GoldenTree exercised its irrevocable put right for MotorTrend Group LLC (“MTG”), and the Company will be required to purchase GoldenTree’s 32.5% noncontrolling interest. The Company performed an analysis of the redemption value as of December 31, 2022, and both parties have begun the process of determining a fair market value based on their own appraisals. The Company does not expect this process, which is one of potentially several steps to agreeing to a redemption value, will be completed until later in 2023. Accordingly, there has been no change in the classification of MTG as mezzanine equity since the amount or date of the put is not certain.

Legal Matters

~~From~~From time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including ~~claims~~those related to employees, stockholders, vendors, other business partners, or ~~patent issues.~~intellectual property. However, a determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgment about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the ~~Company's~~Company’s results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on the Company's future consolidated financial position, future results of operations, or cash flows.

NOTE 17. REPORTABLE SEGMENTS

The Company’s operating segments are determined based on: (i) financial information reviewed by its chief operating decision maker, the Chief Executive Officer ~~("CEO"~~(“CEO”), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions. ~~The~~In connection with the Merger, the Company ~~expects to reevaluate~~reevaluated and changed its segment presentation and reportable segments ~~following the Merger~~ during the quarter ~~ending~~ended June 30, 2022. Prior periods have been recast to conform to the current period presentation.

The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level. Inter-segment transactions primarily include advertising and content ~~purchases.~~licenses. The Company records inter-segment transactions of content licenses at the gross amount. Prior year amounts have been recast to reflect the current presentation. The Company does not report assets by segment because ~~this~~it is not used to allocate resources or evaluate segment performance.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Company evaluates the operating performance of its operating segments based on financial measures such as revenues and Adjusted ~~OIBDA.~~EBITDA. Adjusted ~~OIBDA~~EBITDA is defined as operating income excluding: ~~(i)~~

•employee share-based ~~compensation, (ii)~~ compensation;

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

•depreciation and ~~amortization, (iii)~~ amortization;

•restructuring and ~~other charges, (iv)~~ facility consolidation;

•certain impairment ~~charges, (v)~~ charges;

•gains and losses on business and asset ~~dispositions, (vi)~~ dispositions;

•certain inter-segment ~~eliminations related to production studios, (vii)~~ eliminations;

•third-party transaction and integration ~~costs,~~costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and ~~(viii)~~

•other items impacting comparability.

The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. The Company believes Adjusted ~~OIBDA~~EBITDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes employee share-based compensation, restructuring, ~~and other charges,~~ certain impairment charges, gains and losses on business and asset dispositions, and ~~acquisition~~transaction and integration costs from the calculation of Adjusted ~~OIBDA~~EBITDA due to their impact on comparability between periods. The Company also excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted ~~OIBDA~~EBITDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with U.S. GAAP.

The tables below present summarized financial information for each of the ~~Company's~~Company’s reportable segments and ~~corporate,~~ inter-segment eliminations ~~and other~~ (in millions).

Revenues
Three Months Ended March 31,
2022 2021
U.S. Networks $ 1,932 $ 1,806
International Networks 1,229 987
Corporate, inter-segment eliminations and other (2) (1)
Total revenues $ 3,159 $ 2,792


	Three Months Ended March 31,
	2023		2022
Studios	$	3,212	$	5
Networks	5,581		2,873
DTC	2,455		281

Inter-segment eliminations	(548)		—
Total revenues	$	10,700	$	3,159

Adjusted ~~OIBDA~~
Three Months Ended March 31,
2022 2021
U.S. Networks $ 1,025 $ 823
International Networks 161 151
Corporate, inter-segment eliminations and other (159) (137)
Adjusted OIBDA $ 1,027 $ 837
EBITDA


	Three Months Ended March 31,
	2023		2022
Studios	$	607	$	3
Networks	2,293		1,355
DTC	50		(227)
Corporate	(355)		(104)
Inter-segment eliminations	16		—
Adjusted EBITDA	$	2,611	$	1,027

2729

WARNER BROS. DISCOVERY, INC.

~~(formerly known as Discovery, Inc.)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Reconciliation of Net (Loss) Income available to Warner Bros. Discovery, Inc. to Adjusted ~~OIBDA~~
Three Months Ended March 31,
2022 2021
Net income available to Warner Bros. Discovery, Inc. $ 456 $ 140
Net income attributable to redeemable noncontrolling interests 3 5
Net income attributable to noncontrolling interests 16 46
Income tax expense 201 106
Income before income taxes 676 297
Other income, net (490) (68)
Loss from equity investees, net 14 4
Interest expense, net 153 163
Operating income 353 396
Restructuring and other charges 5 15
Depreciation and amortization 525 361
Employee share-based compensation 57 61
Transaction and integration costs 87 4
Adjusted OIBDA $ 1,027 $ 837
EBITDA


	Three Months Ended March 31,
	2023		2022
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(1,069)	$	456
Net income attributable to redeemable noncontrolling interests	1		3
Net income attributable to noncontrolling interests	8		16
Income tax (benefit) expense	(178)		201
(Loss) income before income taxes	(1,238)		676
Other expense (income), net	73		(490)
Loss from equity investees, net	37		14

Interest expense, net	571		153
Operating (loss) income	(557)		353

Restructuring	95		5
Impairments and loss on dispositions	31		—
Depreciation and amortization	2,058		525
Employee share-based compensation	106		57
Transaction and integration costs	47		87
Amortization of fair value step-up for content	831		—

Adjusted EBITDA	$	2,611	$	1,027

~~NOTE 18. RESTRUCTURING AND OTHER CHARGES~~

~~Restructuring and other charges by reportable segments and corporate, inter-segment eliminations, and other were as follows (in millions).~~

Three Months Ended March 31,
2022 2021
International Networks $ 4 $ 15
Corporate, inter-segment eliminations, and other 1 —
Total restructuring and other charges $ 5 $ 15

Changes in restructuring and other liabilities recorded in accrued liabilities by major category and by reportable segment and corporate, inter-segment eliminations, and other were as follows (in millions).
U.S. Networks International Networks Corporate, inter-segment eliminations, and other Total
December 31, 2021 $ 4 $ 13 $ 2 $ 19
Employee termination accruals, net — (1) — (1)
Cash paid — 1 — 1
March 31, 2022 $ 4 $ 13 $ 2 $ 19

NOTE ~~19.~~18. SUBSEQUENT EVENTS

~~Merger with the WarnerMedia Business of AT&T~~

OnIn April ~~8, 2022,~~2023, the Company ~~completed~~borrowed $750 million under its ~~Merger with the WarnerMedia Business of AT&T, Inc. The Merger was executed through a Reverse Morris Trust type transaction, under~~Credit Facility to fund certain sports rights payments, which the WarnerMedia Business was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery. In connection with the Merger, AT&T received $40.5 billion (subject to working capital and other adjustments) in a combination of cash, debt securities, and WarnerMedia's retention of certain debt, and Discovery transferred purchase consideration of $42.4 billion in equity to AT&T shareholders. AT&T shareholders received WBD stock in the distribution representing 71% of the combined company and the Company's shareholders will continue to own 29% of the combined company, in each case on a fully diluted basis.

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Immediately prior to the consummation of the Merger, each issued and outstanding share of Discovery Series A common stock, Discovery Series B common stock, and Discovery Series C common stock, was reclassified and automatically converted into 1 share of WBD common stock, and each issued and outstanding share of Discovery Series C-1 preferred stock was reclassified and automatically converted into 19.3648 shares of WBD common stock. For earnings per share purposes, all share and per share amounts of the aforesaid share classes have been retroactively adjusted for all periods presented to give effect to this reclassification and conversion. Additionally, each issued and outstanding share of Discovery Series A-1 preferred stock was reclassified and automatically converted into 13.1135 shares of WBD common stock. Discovery Series A-1 preferred stock and earnings per share data has not been recast because the conversion to WBD common stock in connection with the Merger was considered a discrete event and treated prospectively. Other than earnings per share presentation, the reclassification and conversion of all share classes to WBD common stock will be adjusted in the period the transaction took place.

~~Discovery was deemed~~is expected to be the accounting acquirer of the WarnerMedia Business for accounting purposes under U.S. GAAP. In identifying Discovery as the accounting acquirer, Discovery’s conclusion was based primarily upon the following facts: (1) Discovery initiated the Merger, was the legal acquirer of Magallanes, Inc., ("Spinco"), and transferred equity consideration to Spinco stockholders, (2) AT&T received $40.5 billion of consideration as part of its disposition of the WarnerMedia Business, (3)repaid within the current Chief Executive Officer of Discovery will continue as Chief Executive Officer of WBD for a substantial period of time after the Merger and was primarily responsible for appointing the rest of the executive management team of WBD, and the current Chief Financial Officer of Discovery will serve as Chief Financial Officer of WBD, (4) no stockholder or group of stockholders will hold a controlling interest in WBD after the completion of the Merger and a key Discovery stockholder has the largest minority interest in WBD, and (5) AT&T has no input on the strategic direction and management of WBD after the completion of the Merger. The above facts were deemed to outweigh the fact that the holders of shares of Spinco common stock that received shares of WBD common stock in the Merger in the aggregate own a majority of WBD common stock on a fully diluted basis and associated voting rights after the Merger.

As the accounting acquirer, Discovery is considered WBD's predecessor and the historical financial statements of Discovery prior to April 8, 2022, are reflected in this Quarterly Report on Form 10-Q as WBD's historical financial statements. Accordingly, the financial results of WBD as of and for any periods prior to April 8, 2022 do not include the financial results of the WarnerMedia Business and future results will not be comparable to historical results.

The Merger required the consent of Advance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder of the Series A-1 Preferred Stock. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A-1 Preferred Stock into common stock, it received an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock converted. The impact of the issuance of such additional shares of common stock was $789 million and was recorded as a transaction expense upon the closing of the Merger.

Discovery and WarnerMedia employee share-based awards, issued and outstanding immediately prior to the Merger, were converted into equity-based awards on comparable terms and conditions with respect to shares of WBD stock. 70% of Chief Executive Officer David M. Zaslav's unvested stock options vested upon closing of the Merger according to the terms of his amended and restated employment agreement. The remaining 30% of such options will remain outstanding and continue to vest as provided by the prior employment agreement.

In anticipation of the Merger, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan (the "Term Loan") and issued $30 billion aggregate principal amount of senior unsecured notes. The proceeds were used to fund the cash payments to AT&T and to otherwise fund the transaction and pay fees and expenses. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor under the Term Loan or the Credit Facility, and will rank equally with all of the Company's other unsecured senior debt.

Due to the limited time between the transaction date and the Company's filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, initial accounting for the business combination is incomplete and the Company is not yet able to disclose the provisional amounts to be recognized as of the acquisition date for assets acquired and liabilities assumed. The Company expects to provide preliminary purchase price allocation information in the Quarterly Report on Form 10-Q for the quarter ending June 30, 2022.

~~Dispositions~~

~~In April 2022, the Company completed the sale of a minority interest for a sale price of $138 million and recorded a gain of $133 million.~~

~~WARNER BROS. DISCOVERY, INC.~~

~~(formerly known as Discovery, Inc.)~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~CNN+~~

~~In April 2022, the Company announced that CNN+ will cease operations effective April 30, 2022, and it is evaluating the impact this will have on its consolidated financial statements.~~quarter.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. This section provides additional information regarding our businesses, current developments, results of operations, cash flows and financial condition. Additional context can also be found in our ~~2021~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

BUSINESS OVERVIEW

Warner Bros. Discovery is a ~~leading~~premier global media and entertainment company that ~~creates~~combines the WarnerMedia Business’s premium entertainment, sports and ~~distributes~~news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, thus offering audiences a differentiated portfolio of content, brands and franchises across television, film, streaming and gaming. Some of our iconic brands and franchises include Warner Bros. Pictures Group, Warner Bros. Television Group, DC, HBO, HBO Max, Discovery Channel, discovery+, CNN, HGTV, Food Network, TNT, TBS, TLC, OWN, Warner Bros. Games, Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna-Barbera, Game of Thrones, and The Lord of the ~~world’s~~Rings.

We are home to a powerful creative engine and one of the largest collections of owned content in the world and have one of the strongest hands in the industry in terms of the completeness and quality of assets and intellectual property across sports, news, lifestyle, and entertainment in virtually every region of the globe and in most ~~differentiated~~languages. Additionally, we serve audiences and consumers around the world with content that informs, entertains, and, when at its best, inspires.

Our asset mix positions us to drive a balanced approach to creating long-term value for shareholders. It represents the full entertainment eco-system, and the ability to serve consumers across the entire spectrum of offerings from domestic and international networks, premium pay-TV, streaming, production and release of feature films and original series, related consumer products and themed experience licensing, and interactive gaming.

In April 2023, we announced the debut of our enhanced streaming service, Max, which we expect to launch in the U.S. in May 2023. Max will combine HBO Max and discovery+ content to create a unique and complete ~~portfolio~~viewing experience for consumers by combining our unrivaled breadth and superior quality of content and brands ~~across television, film~~with iconic franchises and streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its iconic brands and products including: Discovery Channel,strong product experience. discovery+, CNN, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others. will continue to be available to consumers.

In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, references to “Warner Bros. Discovery,” “the Company,” “we,” “us,” or “our” refer to Discovery, Inc. as a standalone company prior to April 8, 2022, the date we completedconnection with the Merger, ~~with~~ the ~~WarnerMedia Business,~~Company has announced and onhas taken actions to implement projects to achieve cost synergies for the Company. The Company finalized the framework supporting its ongoing restructuring and ~~after April 8,~~transformation initiatives during the year ended December 31, 2022, ~~refer~~which includes, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. While the Company’s restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the ~~combined company~~end of 2024. We expect that we will incur approximately $4.1 - $5.3 billion in pre-tax restructuring charges, of which we have incurred $3.8 billion as ~~a result~~ of March 31, 2023. Of the ~~Merger.~~total expected pre-tax restructuring charges, we expect total cash expenditures to be $1.0 - $ 1.5 billion. During the three months ended March 31, 2023, we incurred $95 millionof pre-tax restructuring charges. While our restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024.

In 2021, we launched discovery+, our aggregated DTC product, in the U.S. across several streaming platforms and entered into a partnership with Verizon. Since launch, discovery+ has expanded internationally including in the U.K., Canada, the Philippines, Brazil, Italy, and India. As of March 31, ~~2022, we had 24 million total paid DTC subscribers.~~1 ~~discovery+ currently has an extensive content library including original series and documentaries. The service is available with ads or on an ad-free tier, providing us with dual revenue streams.~~

~~Although we utilize certain brands and content globally, as of March 31, 2022,~~2023, we classified our operations in ~~two~~three reportable segments: ~~U.S.~~

•Studios - Our Studios segment primarily consists of the production and release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC services, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming.

•Networks ~~consisting principally~~- Our Networks segment primarily consists of our domestic ~~television networks~~ and ~~digital content services, and International Networks, consisting primarily of~~ international television ~~networks~~networks.

•DTC- Our DTC segment primarily consists of our premium pay-TV and ~~digital content~~streaming services.

Our segment presentation is aligned with our management structure and the financial information management uses to make decisions about operating matters, such as the allocation of resources and business performance assessments. ~~We expect~~Prior periods have been recast to ~~reevaluate our segment presentation and reportable segments following the Merger during the quarter ending June 30, 2022.~~

During the three months ended March 31, 2022, we exited our operations in Russia and removed all of our channels and services from the market. We do not expect these actions will have a material effect on our consolidated financial statements.

~~Merger with the WarnerMedia Business of AT&T~~

On April 8, 2022, the Company completed its Merger with the WarnerMedia Business of AT&T, Inc. The Merger was executed through a Reverse Morris Trust type transaction, under which the WarnerMedia Business was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery. In connection with the Merger, AT&T received $40.5 billion (subject to working capital and other adjustments) in a combination of cash, debt securities, and WarnerMedia's retention of certain debt, and Discovery transferred purchase consideration of $42.4 billion in equity to AT&T shareholders. AT&T shareholders received WBD stock in the distribution representing 71% of the combined company and the Company's shareholders will continue to own 29% of the combined company, in each case on a fully diluted basis.

1We define a DTC subscription as (i) a subscription to a direct-to-consumer product for which we have recognized subscription revenue from a direct-to-consumer platform; (ii) a subscription received through wholesale arrangements for which we receive a fee for the distribution of our direct-to-consumer platforms, as well as subscriptions provided directly or through third-party platforms; and (iii) a subscription recognized by certain joint venture partners and affiliated parties. We may referconform to the aggregate number of subscriptions across our direct-to-consumer services as subscribers. A subscription is only counted if it is on a paying status, and excludes users on free trials. At the end of each quarter, the subscription count includes the actual number of users that rolled to pay up to seven days immediately following quarter end.~~Our quarterly subscriber count continues to include Ukraine subscribers to discovery+ who are temporarily receiving the service for free, the total of which is not material. .~~current period presentation.

Immediately prior to the consummation of the Merger, each issued and outstanding share of Discovery Series A common stock, Discovery Series B common stock, and Discovery Series C common stock, was reclassified and automatically converted into one share of WBD common stock, and each issued and outstanding share of Discovery Series C-1 preferred stock was reclassified and automatically converted into 19.3648 shares of WBD common stock. For earnings per share purposes, all share and per share amounts of the aforesaid share classes have been retroactively adjusted for all periods presented to give effect to this reclassification and conversion. Additionally, each issued and outstanding share of Discovery Series A-1 preferred stock was reclassified and automatically converted into 13.1135 shares of WBD common stock. Discovery Series A-1 preferred stock and earnings per share data has not been recast because the conversion to WBD common stock in connection with the Merger was considered a discrete event and treated prospectively. Other than earnings per share presentation, the reclassification and conversion of all share classes to WBD common stock will be adjusted in the period the transaction took place.

Discovery was deemed to be the accounting acquirer of the WarnerMedia Business for accounting purposes under U.S. GAAP. In identifying Discovery as the accounting acquirer, Discovery’s conclusion was based primarily upon the following facts: (1) Discovery initiated the Merger, was the legal acquirer of Magallanes, Inc., ("Spinco"), and transferred equity consideration to Spinco stockholders, (2) AT&T received $40.5 billion of consideration as part of its disposition of the WarnerMedia Business, (3) the current Chief Executive Officer of Discovery will continue as Chief Executive Officer of WBD for a substantial period of time after the Merger and was primarily responsible for appointing the rest of the executive management team of WBD, and the current Chief Financial Officer of Discovery will serve as Chief Financial Officer of WBD, (4) no stockholder or group of stockholders will hold a controlling interest in WBD after the completion of the Merger and a key Discovery stockholder has the largest minority interest in WBD, and (5) AT&T has no input on the strategic direction and management of WBD after the completion of the Merger. The above facts were deemed to outweigh the fact that the holders of shares of Spinco common stock that received shares of WBD common stock in the Merger in the aggregate own a majority of WBD common stock on a fully diluted basis and associated voting rights after the Merger.

~~Impact of COVID-19~~

We continue to closely monitor the ongoing impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties. Certain key sources of revenue for the WarnerMedia Business, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

The nature and full extent of COVID-19’s effects on our operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others. Our consolidated financial statements reflect management’s estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

RESULTS OF OPERATIONS

~~Except~~The discussion below compares our actual results for the three months ended March 31, 2023 to our pro forma combined results, as ~~expressly stated,~~if the ~~financial condition~~Merger occurred on January 1, 2021, for the three months ended March 31, 2022. Management believes reviewing our pro forma combined operating results in addition to actual operating results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. Our Studios, Networks, DTC, Corporate, and inter-segment eliminations information is based on the historical operating results of the respective segments and include, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments.

Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined businesses. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the combined businesses since January 1, 2021 and should not be taken as indicative of the Company’s future consolidated results of operations.

Actual amounts for the three months ended March 31, 2022 do not include results of operations discussed throughout Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q are those of Warner Bros. Discovery, Inc. and its consolidated subsidiaries prior to the Merger.for WM.

Foreign Exchange Impacting Comparability

~~The~~In addition to the Merger, the impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis ~~("ex-FX"~~(“ex-FX”), in addition to results reported in accordance with U.S. GAAP provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with U.S. GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the ~~“2022~~“2023 Baseline Rate”), and the prior year amounts translated at the same ~~2022~~2023 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

Consolidated Results of Operations

The table below presents our consolidated results of operations (in millions).
Three Months Ended March 31,
2022 2021 % Change % Change (ex-FX)
Revenues:
Advertising $ 1,482 $ 1,415 5 % 7 %
Distribution 1,422 1,310 9 % 10 %
Other 255 67 NM NM
Total revenues 3,159 2,792 13 % 15 %
Costs of revenues, excluding depreciation and amortization 1,236 969 28 % 31 %
Selling, general and administrative 1,040 1,051 (1) % — %
Depreciation and amortization 525 361 45 % 48 %
Restructuring and other charges 5 15 (67) % (64) %
Total costs and expenses 2,806 2,396 17 % 20 %
Operating income 353 396 (11) % (12) %
Interest expense, net (153) (163) (6) %
Loss from equity investees, net (14) (4) NM
Other income, net 490 68 NM
Income before income taxes 676 297 NM
Income tax expense (201) (106) 90 %
Net income 475 191 NM
Net income attributable to noncontrolling interests (16) (46) (65) %
Net income attributable to redeemable noncontrolling interests (3) (5) (40) %
Net income available to Warner Bros. Discovery, Inc. $ 456 $ 140 NM


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual (a)		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Combined (ex-FX)
Revenues:
Distribution	$	5,163		$	1,352	$	3,996	$	5,348		NM		(3)	%	(2)	%
Advertising	2,298			1,476		1,234		2,710			56	%	(15)	%	(14)	%
Content	2,954			323		2,851		3,174			NM		(7)	%	(5)	%
Other	285			8		201		209			NM		36	%	37	%
Total revenues	10,700			3,159		8,282		11,441			NM		(6)	%	(5)	%
Costs of revenues, excluding depreciation and amortization	6,685			1,236		5,261		6,497			NM		3	%	4	%
Selling, general and administrative	2,388			1,040		2,298		3,338			NM		(28)	%	(28)	%
Depreciation and amortization	2,058			525		1,417		1,942			NM		6	%	6	%
Restructuring	95			5		(1)		4			NM		NM		NM
Impairments and loss on dispositions	31			—		—		—			NM		NM		NM

Total costs and expenses	11,257			2,806		8,975		11,781			NM		(4)	%	(3)	%
Operating (loss) income	(557)			353		(693)		(340)			NM		(64)	%	(47)	%
Interest expense, net	(571)			(153)		(445)		(598)

Loss from equity investees, net	(37)			(14)		(13)		(27)
Other (expense) income, net	(73)			490		114		604
(Loss) income before income taxes	(1,238)			676		(1,037)		(361)
Income tax benefit (expense)	178			(201)		282		81
Net (loss) income	(1,060)			475		(755)		(280)
Net income attributable to noncontrolling interests	(8)			(16)		—		(16)
Net income attributable to redeemable noncontrolling interests	(1)			(3)		—		(3)
Net (loss) income available to Warner Bros. Discovery, Inc.	$	(1,069)		$	456	$	(755)	$	(299)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

NM - Not meaningful

Unless otherwise indicated, the discussion through operating (loss) income below reflects results for the three months ended March 31, 2022 on a pro-forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenues, and selling, general and administrative expenses are substantially attributable to the Merger. The percent changes of line items below operating (loss) income in the table above are not included as the activity is principally in U.S. dollars.

Revenues

Distribution revenues are generated from fees charged to network distributors, which include cable, DTH satellite, telecommunications and digital service providers, and DTC subscribers. The largest component of distribution revenue is comprised of linear distribution rights to our networks from cable, DTH satellite and telecommunication service providers. We have contracts with distributors representing most cable and satellite service providers around the world, including the largest operators in the U.S. and major international distributors. Distribution revenues are largely dependent on the rates negotiated in the agreements, the number of subscribers that receive our networks, the number of platforms covered in the distribution agreement, and the market demand for the content that we provide. From time to time, renewals of multi-year carriage agreements include significant year one market adjustments to re-set subscriber rates, which then increase at rates lower than the initial increase in the following years. In some cases, we have provided distributors launch incentives, in the form of cash payments or free periods, to carry our networks.

Distribution revenue decreased 2% for the three months ended March 31, 2023, primarily attributable to declines in DTC wholesale revenues and linear subscribers in the U.S., partially offset by global DTC retail subscriber gains and higher U.S. contractual affiliate rates.

Advertising revenues are principally generated from the sale of commercial time on linear (television networks and authenticated TVE applications) and digital platforms (DTC subscription services and websites), and sold primarily on a national basis in the U.S. and on a pan-regional or local-language feed basis outside the U.S. Advertising contracts generally have a term of one year or less. Advertising revenue is dependent upon a number of factors, including ~~the stage of development of television markets,~~ the number of subscribers to our channels, viewership demographics, the popularity of our content, our ability to sell commercial time over a group of channels, ~~market demand,~~the stage of development of television markets, and the popularity of FTA television. Revenue from advertising is subject to seasonality, market-based variations, the mix in sales of commercial time between the upfront and scatter markets, and general economic conditions. ~~These factors impact the pricing and volume of our advertising inventory.~~

Advertising revenue ~~increased~~is typically highest in the second and fourth quarters. In some cases, advertising sales are subject to ratings guarantees that require us to provide additional advertising time if the guaranteed audience levels are not achieved. We also generate revenue from the sale of advertising through our digital platforms on a stand-alone basis and as part of advertising packages with our television networks.

Advertising revenue decreased 14% for the three months ended March 31, 2023, primarily attributable to audience declines in domestic general entertainment and news networks, soft advertising markets in the U.S., and to a lesser extent, certain international markets, and the broadcast of the 2022 Olympics in Europe, partially offset by higher sports advertising due to the NCAA March Madness tournament.

Content revenues are generated from the release of feature films for initial exhibition in theaters, the licensing of feature films and television programs to various television, SVOD and other digital markets, distribution of feature films and television programs in the physical and digital home entertainment market, sales of console games and mobile in-game content, sublicensing of sports rights, and licensing of intellectual property such as characters and brands.

Content revenue decreased 5% for the three months ended March 31, ~~2022. Excluding~~2023, primarily attributable to lower TV licensing and theatrical film rental revenues and lower sub-licensing of sports rights internationally related to the ~~impact~~prior year broadcast of ~~foreign currency fluctuations, advertising~~the 2022 Olympics, partially offset by higher games revenue due to the release of Hogwarts Legacy.

Other revenue primarily consists of studio production services and tours.

Other revenue increased 7%37% for the three months ended March 31, ~~2022, respectively. The increase for the three months ended March 31, 2022 was~~2023, primarily attributable to an increase at U.S. Networks due to higher pricing and the continued monetization of content offerings on our next generation initiatives, partially offset by secular declines in the pay-TV ecosystem, and to a lesser extent, lower overall ratings.

Distribution revenue consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from subscription video on demand content licensing and DTC subscription services.

Distribution revenue increased 9% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, distribution revenue increased 10% for the three months ended March 31, 2022. The increase for the three months ended March 31, 2022 was primarily attributable to an increase at U.S. Networks dueservices provided to the ~~growth of discovery+~~unconsolidated BT Sport joint venture, higher studio production services, and ~~an increase in contractual affiliate rates, partially offset by a decline in linear subscribers.~~

Other revenue increased $188 million for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, other revenue increased $193 million for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctu~~ations, the increase~~ ~~for the three months ended March 31, 2022~~ ~~was primarily attributable to sublicensing of Olympics sports rights to broadcast networks throughout Europe.~~

~~Revenue for our segments is discussed separately below under the heading “Segment Results of Operations.”~~continued strong attendance at Warner Bros. Studio Tour London and Hollywood.

Costs of Revenues

~~The Company's~~Our principal component of costs of revenues is content expense. Content expense includes ~~television~~television/digital series, ~~television~~ specials, films, games, and sporting ~~events, and digital products.~~events. The costs of producing a content asset and bringing that asset to market consist of ~~film~~production costs, participation costs, and exploitation ~~costs, and production~~ costs.

Costs of revenues increased ~~28%~~4% for the three months ended March 31, ~~2022. Excluding the impact of foreign currency fluctuations, cost of revenues increased 31% for the three months ended March 31, 2022. The increase for the three months ended March 31, 2022, was~~2023, primarily attributable to amortization of the fair value step-up of content acquired in the Merger and higher games costs of revenue, partially offset by lower content expense for TV licensing, theatrical products, and linear networks, and lower costs related to the ~~Olympics at International Networks and higher content amortization at U.S. Networks.~~prior year broadcast of the 2022 Olympics.

Selling, General and Administrative

Selling, general and administrative expenses consist principally of employee costs, marketing costs, research costs, occupancy, and back office support fees.

Selling, general and administrative expenses decreased 1%28% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses was flat for the three months ended March 31, 2022. The decrease for the three months ended March 31, 2022 was2023, primarily attributable to ~~lower~~more efficient marketing-related expenses at U.S. Networks for discovery+ due to its launch in January 2021, partially offset by an increase in transaction and integration costs related to the Merger at corporate, inter-segment eliminations, and other.spend.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization increased ~~45%~~6% for the three months ended March 31, ~~2022. Excluding~~2023, primarily attributable to intangible assets acquired during the ~~impact~~Merger that are being amortized using the sum of ~~foreign currency fluctuations, depreciation and~~the months’ digits method, which resulted in lower pro forma amortization ~~increased 48% for~~in the three months ended March 31, 2022. ~~The increase~~

Restructuring

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the three months ended March 31, 2022 was primarily attributable to a change in amortization method from the straight-line method to the sum of the years digits method for acquired customer relationships that was effective October 1, 2021.

Company. Restructuring ~~and Other Charges~~

~~Restructuring and other charges were $5~~increased $90 million for the three months ended March 31, ~~2022, as compared~~2023, primarily attributable to ~~$15~~contract terminations, facility consolidation activities, and organizational restructuring. (See Note 4 to the accompanying consolidated financial statements.)

Impairments and Loss on Dispositions

Impairments and loss on dispositions was a $31 million loss for the three months ended March 31, 2023.

Interest Expense, net

Actual interest expense, net increased $418 million for the three months ended March 31, ~~2021. Restructuring and other charges~~2023, primarily ~~include employee relocation, termination costs, and content impairments during~~attributable to debt assumed as a result of the ~~three months ended March 31, 2022 and 2021.~~Merger. (See Note 189 and Note 10 to the accompanying consolidated financial statements.)

~~Interest Expense, net~~

~~Interest expense, net decreased 6% for the three months ended March 31, 2022 compared to the prior year period. (See Note 7 and Note 8 to the accompanying consolidated financial statements.)~~

Loss From Equity Investees, net

~~We reported~~Actual losses from our equity method investees ~~of $14~~were $37 million for the three months ended March 31, ~~2022, as compared to losses of $4 million for the three months ended March 31, 2021.~~2023. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 38 to the accompanying consolidated financial statements.)

Other (Expense) Income, net

The table below presents the details of other (expense) income, net (in millions).

Three Months Ended March 31,
2022 2021
Foreign currency gain, net $ 11 $ 52
Gains (losses) on derivative instruments, net 497 (20)
Gain on sale of investment with readily determinable fair value — 16
Change in the value of investments with readily determinable fair value (20) 17
Gain on sale of equity method investments — 5
Loss on extinguishment of debt — (3)
Interest income 2 1
Total other income, net $ 490 $ 68


	Three Months Ended March 31,
	2023		2022

Foreign currency (losses) gains, net	$	(93)	$	11
Gains on derivative instruments, net	3		497

Change in the value of investments with readily determinable fair value	29		(20)

Change in fair value of equity investments without readily determinable fair value	(68)		—



Other income, net	56		2
Total other (expense) income, net	$	(73)	$	490

Income Tax ~~Expense~~Benefit (Expense)

Segment Results of Operations

~~We evaluate~~The Company evaluates the operating performance of ~~our~~its operating segments based on financial measures such as revenues and Adjusted ~~OIBDA.~~EBITDA. Adjusted ~~OIBDA~~EBITDA is defined as operating income excluding: ~~(i)~~

•employee share-based ~~compensation, (ii)~~ compensation;

•depreciation and ~~amortization, (iii)~~ amortization;

•restructuring and ~~other charges, (iv)~~ facility consolidation;

•certain impairment ~~charges, (v)~~ charges;

•gains and losses on business and asset ~~dispositions, (vi)~~ dispositions;

•certain inter-segment ~~eliminations related to production studios, (vii)~~ eliminations;

•third-party transaction and integration ~~costs,~~costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and ~~(viii)~~

•other items impacting comparability. ~~We use~~

The Company uses this measure to assess the operating results and performance of ~~our~~its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. ~~We believe~~The Company believes Adjusted ~~OIBDA~~EBITDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. ~~We exclude~~The Company excludes employee share-based compensation, restructuring, ~~and other charges,~~ certain impairment charges, gains and losses on business and asset dispositions, and ~~acquisition~~transaction and integration costs from the calculation of Adjusted ~~OIBDA~~EBITDA due to their impact on comparability between periods. WeThe Company also ~~exclude~~excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted ~~OIBDA~~EBITDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with U.S. GAAP.

The table below presents our Adjusted EBITDA by segment (in millions).


	Three Months Ended March 31,
	2023		2022		% Change









Studios	$	607	$	3	NM
Networks	$	2,293	$	1,355	69	%
DTC	$	50	$	(227)	NM
Corporate	$	(355)	$	(104)	NM
Inter-segment eliminations	$	16	$	—	NM

Studios Segment

The following table ~~below~~ presents, for our Studios segment, revenues by type, certain operating expenses, Adjusted EBITDA and a reconciliation of ~~consolidated net~~Adjusted EBITDA to operating (loss) income ~~available to Warner Bros. Discovery, Inc. to Adjusted OIBDA and Adjusted OIBDA by segment (in millions).~~
Three Months Ended March 31,
2022 2021 % Change
Net income available to Warner Bros. Discovery, Inc. $ 456 $ 140 NM
Net income attributable to redeemable noncontrolling interests 3 5 (40) %
Net income attributable to noncontrolling interests 16 46 (65) %
Income tax expense 201 106 90 %
Income before income taxes 676 297 NM
Other income, net (490) (68) NM
Loss from equity investees, net 14 4 NM
Interest expense, net 153 163 (6) %
Operating income 353 396 (11) %
Restructuring and other charges 5 15 (67) %
Depreciation and amortization 525 361 45 %
Employee share-based compensation 57 61 (7) %
Transaction and integration costs 87 4 NM
Adjusted OIBDA $ 1,027 $ 837 23 %
Adjusted OIBDA
U.S. Networks $ 1,025 $ 823 25 %
International Networks 161 151 7 %
Corporate, inter-segment eliminations, and other (159) (137) (16) %
Adjusted OIBDA $ 1,027 $ 837 23 %

~~The table below presents the calculation of Adjusted OIBDA~~ (in millions).

Three Months Ended March 31,
2022 2021 % Change
Revenues:
U.S. Networks $ 1,932 $ 1,806 7 %
International Networks 1,229 987 25 %
Corporate, inter-segment eliminations, and other (2) (1) NM
Total revenues 3,159 2,792 13 %
Costs of revenues, excluding depreciation and amortization 1,236 969 28 %
Selling, general and administrative (a)
896 986 (9) %
Adjusted OIBDA $ 1,027 $ 837 23 %
(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual (a)		Pro Forma Adjustments		Pro Forma Combined			Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	3		$	—	$	5	$	5		NM	(40)	%	(40)	%
Advertising	3			—		9		9			NM	(67)	%	(67)	%
Content	3,027			5		3,347		3,352			NM	(10)	%	(8)	%
Other	179			—		138		138			NM	30	%	30	%
Total revenues	3,212			5		3,499		3,504			NM	(8)	%	(7)	%
Costs of revenues, excluding depreciation and amortization	1,959			1		2,064		2,065			NM	(5)	%	(4)	%
Selling, general and administrative	646			1		628		629			NM	3	%	6	%
Adjusted EBITDA	607			3		807		810			NM	(25)	%	(23)	%
Depreciation and amortization	172			—		136		136
Employee share-based compensation	—			—		25		25

Restructuring	76			—		—		—
Transaction and integration costs	2			—		—		—
Amortization of fair value step-up for content	442			—		171		171
Inter-segment eliminations	1			—		—		—

Operating (loss) income	$	(86)		$	3	$	475	$	478

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

The discussion below reflects results for the three months ended March 31, 2022 on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and Adjusted EBITDA are substantially attributable to the Merger.

Revenues

Content revenue decreased 8% for the three months ended March 31, 2023, primarily attributable to lower TV licensing, theatrical film rental, and home entertainment revenues, partially offset by higher games revenue due to the release of Hogwarts Legacy. TV licensing revenue decreased mainly due to certain large TV licensing deals in the first quarter of 2022, as well as fewer theatrical availabilities. Theatrical film rental revenue decreased due to the performance of The Batman, which was releasedin the first quarter of 2022. Home entertainment revenue decreased due to fewer new releases of theatrical products and lower library sales.

Other revenue increased 30% for the three months ended March 31, 2023, primarily attributable to higher studio production services and continued strong attendance at Warner Bros. Studio Tour London and Hollywood.

Costs of Revenues

Costs of revenues decreased 4% for the three months ended March 31, 2023, primarily attributable to lower content expense for TV licensing and theatrical products, partially offset by higher games costs of revenue.

Selling, General and Administrative

Selling, general and administrative expenses increased 6% for the three months ended March 31, 2023, primarily attributable to higher marketing expense for games to support the release of Hogwarts Legacy, partially offset by lowertheatrical marketing expense.

Adjusted EBITDA

Adjusted EBITDA decreased 23% for the three months ended March 31, 2023.

~~U.S.~~ Networks Segment

The table below presents, for our ~~U.S.~~ Networks segment, revenues by type, certain operating expenses, Adjusted ~~OIBDA~~EBITDA and a reconciliation of Adjusted ~~OIBDA~~EBITDA to operating income (in millions).
Three Months Ended March 31,
2022 2021 % Change
Revenues:
Advertising $ 1,025 $ 980 5 %
Distribution 886 796 11 %
Other 21 30 (30) %
Total revenues 1,932 1,806 7 %
Costs of revenues, excluding depreciation and amortization 489 428 14 %
Selling, general and administrative 418 555 (25) %
Adjusted OIBDA $ 1,025 $ 823 25 %
Depreciation and amortization 385 224
Transaction and integration costs 1 —
Inter-segment eliminations 12 —
Operating income $ 627 $ 599

~~Revenues~~


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual (a)		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	2,995		$	1,120	$	2,012	$	3,132		NM		(4)	%	(3)	%
Advertising	2,237			1,430		1,202		2,632			56	%	(15)	%	(14)	%
Content	245			316		199		515			(22)	%	(52)	%	(51)	%
Other	104			7		46		53			NM		96	%	96	%
Total revenues	5,581			2,873		3,459		6,332			94	%	(12)	%	(10)	%
Costs of revenues, excluding depreciation and amortization	2,594			1,055		1,895		2,950			NM		(12)	%	(10)	%
Selling, general and administrative	694			463		333		796			50	%	(13)	%	(11)	%
Adjusted EBITDA	2,293			1,355		1,231		2,586			69	%	(11)	%	(10)	%
Depreciation and amortization	1,304			405		879		1,284
Employee share-based compensation	—			—		9		9
Restructuring	3			4		—		4
Transaction and integration costs	3			(1)		—		(1)
Amortization of fair value step-up for content	121			—		126		126
Inter-segment eliminations	(7)			—		—		—
Impairments and loss on dispositions	1			—		—		—
Operating income	$	868		$	947	$	217	$	1,164

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

~~Advertising revenue increased 5%~~The discussion below reflects results for the three months ended March 31, 2022 ~~compared~~on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and Adjusted EBITDA are substantially attributable to the prior year period. The increase was primarily attributable to higher pricing and the continued monetization of content offerings on our next generation initiatives, partially offset by secular declines in the pay-TV ecosystem, and to a lesser extent, lower overall ratings.Merger.

Revenues

Distribution revenue ~~increased 11%~~decreased 3% for the three months ended March 31, ~~2022, compared to the prior year period. The increase was~~2023, primarily attributable to ~~the growth of discovery+ and an increase in contractual affiliate rates, partially offset by~~ a decline in linear ~~subscribers. Total~~ subscribers ~~to our linear networks at March 31, 2022 were 8% lower than at March 31, 2021, while subscribers to our fully distributed linear networks were 4% lower than~~in the ~~prior year. Excluding the impact of the sale of our Great American Country linear network, total subscribers to our linear networks at March 31, 2022 were 4% lower than at March 31, 2021.~~U.S., partially offset by higher U.S. contractual affiliate rates.

~~Other revenues~~Advertising revenue decreased ~~$9 million for the three months ended March 31, 2022, compared to the prior year period.~~

~~Costs of Revenues~~

~~Costs of revenues increased~~ 14% for the three months ended March 31, ~~2022, compared to prior year. The increase was~~2023, primarily attributable to audience declines in domestic general entertainment and news networks, soft advertising markets in the U.S., and to a lesser extent, certain international markets, and the broadcast of the 2022 Olympics in Europe, partially offset by higher ~~content amortization at discovery+, which launched in January 2021, and our linear networks.~~domestic sports advertising due to the NCAA March Madness tournament.

Content ~~expense was $418 million and $364 million~~revenue decreased 51% for the three months ended March 31, 2023, primarily attributable to lower sublicensing of sports rights internationally related to the prior year broadcast of the 2022 Olympics.

Other revenue increased 96% for the three months ended March 31, 2023, primarily attributable to services provided to the unconsolidated BT Sport joint venture.

Costs of Revenues

Costs of revenues decreased 10% for the three months ended March 31, 2023, primarily attributable to lower costs related to the prior year broadcast of the 2022 Olympics and ~~2021, respectively.~~lower domestic general entertainment content expense, partially offset by higher domestic sports rights and costs associated with the unconsolidated BT Sport joint venture.

Selling, General and Administrative

Selling, general and administrative expenses decreased ~~25%~~11% for the three months ended March 31, 2023, primarily attributable to lower marketing expenses.

Adjusted EBITDA

Adjusted EBITDA decreased 10% for the three months ended March 31, 2023.

DTC Segment

The following table presents, for our DTC segment, revenues by type, certain operating expenses, Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating loss (in millions).


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual (a)		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	2,165		$	232	$	1,979	$	2,211		NM		(2)	%	(1)	%
Advertising	103			46		35		81			NM		27	%	29	%
Content	185			2		219		221			NM		(16)	%	(16)	%
Other	2			1		1		2			NM		—	%	NM
Total revenues	2,455			281		2,234		2,515			NM		(2)	%	(1)	%
Costs of revenues, excluding depreciation and amortization	1,815			180		1,814		1,994			NM		(9)	%	(8)	%
Selling, general and administrative	590			328		847		1,175			80	%	(50)	%	(50)	%
Adjusted EBITDA	50			(227)		(427)		(654)			NM		NM		NM
Depreciation and amortization	506			96		378		474
Employee share-based compensation	—			—		1		1

Restructuring	9			—		—		—
Transaction and integration costs	—			1		—		1
Amortization of fair value step-up for content	134			—		60		60
Inter-segment eliminations	2			—		—		—
Impairments and loss on dispositions	5			—		—		—
Operating loss	$	(606)		$	(324)	$	(866)	$	(1,190)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

The discussion below reflects results for the three months ended March 31, 2022 ~~compared~~on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and Adjusted EBITDA are substantially attributable to the ~~prior year period. The decrease was primarily attributable to lower marketing-related expenses for discovery+ due to its launch in January 2021.~~Merger.

~~Adjusted OIBDA~~Revenues

~~Adjusted OIBDA increased 25%~~As of March 31, 2023, we had97.6 million DTC subscribers.1

Distribution revenue decreased 1% for the three months ended March 31, ~~2022, compared~~2023, primarily attributable to ~~the prior year period.~~

~~International Networks~~a decline in wholesale revenues, partially offset by global retail subscriber gains.

The following tables present, for our International Networks segment, revenues by type, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
Three Months Ended March 31,
2022 2021 % Change % Change (ex-FX)
Revenues:
Advertising $ 457 $ 435 5 % 11 %
Distribution 536 514 4 % 8 %
Other 236 38 NM NM
Total revenues 1,229 987 25 % 30 %
Costs of revenues, excluding depreciation and amortization 751 543 38 % 45 %
Selling, general and administrative 317 293 8 % 14 %
Adjusted OIBDA 161 151 7 % 9 %
Depreciation and amortization 101 104
Restructuring and other charges 4 15
Transaction and integration costs 1 4
Inter-segment eliminations (7) —
Operating income $ 62 $ 28

~~Revenues~~

Advertising revenue increased 5% 29%for the three months ended March 31, ~~2022. Excluding the impact of foreign currency fluctuations, advertising~~2023, primarily attributable to subscriber growth on our DTC ad-supported tiers.

Content revenue ~~increased 11%~~decreased 16% for the three months ended March 31, ~~2022. Excluding the impact of foreign currency fluctuations, the increases were~~2023, primarily attributable to ~~the broadcast~~lower third-party licensing of ~~the Winter Olympics across Europe.~~HBO content.

~~Distribution revenue increased 4% for the three months ended March 31, 2022. Excluding the impact~~Costs of ~~foreign currency fluctuations, distribution revenue increased~~Revenues

Costs of revenues decreased 8% for the three months ended March 31, ~~2022. Excluding the impact of foreign currency fluctuations, the increases were~~2023, primarily attributable to ~~an increase~~lower content amortization and the shutdown of CNN+.

1We define a “DTC Subscription” as:

(i) a retail subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue, whether directly or through a third party, from a direct-to-consumer platform; (ii) a wholesale subscription to discovery+, HBO, or HBO Max for which we have recognized subscription revenue from a fixed-fee arrangement with a third party and where the individual user has activated their subscription; (iii) a wholesale subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue on a per subscriber basis; and (iv) users on free trials who convert to a subscription for which we have recognized subscription revenue within the first seven days of the calendar month immediately following the month in ~~next generation revenues due~~which their free trial expires.

We may refer to ~~subscriber growth for~~the aggregate number of DTC Subscriptions as “subscribers.”

The reported number of “subscribers” included herein and the definition of “DTC Subscription” as used herein excludes: (i) individuals who subscribe to DTC products, other than discovery+, ~~partially offset~~HBO and HBO Max, that may be offered by ~~lower contractual affiliate rates in some European markets.~~us or by certain joint venture partners or affiliated parties from time to time; (ii) a limited number of international discovery+ subscribers that are part of non-strategic partnerships or short-term arrangements as may be identified by the Company from time to time; (iii) domestic and international Cinemax subscribers, and international basic HBO subscribers; and (iv) users on free trials except for those users on free trial that convert to a DTC Subscription within the first seven days of the next month as noted above.

~~Other revenue~~

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 50% for the three months ended March 31, 2023, primarily attributable to more efficient marketing-related spend.

Adjusted EBITDA

Adjusted EBITDA increased ~~$198~~$704 million for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, other revenue increased $203 million for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to sublicensing of Olympics sports rights to broadcast networks throughout Europe.2023.

~~Costs of Revenues~~

Costs of revenues increased 38% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, costs of revenues increased 45% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to costs related to the Olympics.

~~Content expense, excluding the impact of foreign currency fluctuations, was $559 million and $368 million for the three months ended March 31, 2022 and 2021, respectively.~~

~~Selling, General and Administrative~~

Selling, general and administrative expenses increased 8% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses increased 14% for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to higher personnel costs and marketing-related expenses to support discovery+ and the Olympics.

~~Adjusted OIBDA~~

Adjusted OIBDA increased $10 million for the three months ended March 31, 2022. Excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased $13 million for the three months ended March 31, 2022.

Corporate ~~Inter-segment Eliminations, and Other~~

The following table presents our ~~unallocated corporate amounts including certain operating expenses,~~ Adjusted ~~OIBDA~~EBITDA and a reconciliation of Adjusted ~~OIBDA~~EBITDA to operating loss (in millions).
Three Months Ended March 31,
2022 2021 % Change
Revenues $ (2) $ (1) NM
Costs of revenues, excluding depreciation and amortization (4) (2) NM
Selling, general and administrative 161 138 17 %
Adjusted OIBDA (159) (137) (16) %
Employee share-based compensation 57 61
Depreciation and amortization 39 33
Restructuring and other charges 1 —
Transaction and integration costs 85 —
Inter-segment eliminations (5) —
Operating loss $ (336) $ (231)


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)



Adjusted EBITDA	$	(355)		$	(104)	$	(253)	$	(357)		NM	1	%	1	%
Employee share-based compensation	106			57		21		78
Depreciation and amortization	76			24		24		48
Restructuring	7			1		(1)		—
Transaction and integration costs	42			87		218		305
Impairments and loss on dispositions	25			—		—		—


Inter-segment eliminations	4			—		—		—
Operating loss	$	(615)		$	(273)	$	(515)	$	(788)

Corporate operations primarily consist of executive management and administrative support services, which are recorded in selling, general and administrative expense, as well as substantially all of our share-based compensation and third-party transaction and integration costs.

Adjusted EBITDA remained flat for the three months ended March 31, 2023,primarily attributable to reductions to personnel costs and technology-related operating expenses, which were largely offset by unfavorable interest rate impacts onsecuritization costs.

Inter-segment Eliminations

The following table presents our inter-segment eliminations by revenue and expense, Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating loss (in millions).


	Three Months Ended March 31,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)

Inter-segment revenue eliminations	$	(548)		$	—	$	(926)	$	(926)		NM	41	%	41	%
Inter-segment expense eliminations	(564)			—		(922)		(922)			NM	39	%	39	%
Adjusted EBITDA	16			—		(4)		(4)			NM	NM		NM




Amortization of fair value step-up for content	134			—		—		—


Operating loss	$	(118)		$	—	$	(4)	$	(4)

Inter-segment revenue and expense eliminations primarily represent inter-segment content transactions and marketing and promotion activity between reportable segments. In our current segment structure, in certain instances, production and distribution activities are in different segments. Inter-segment content transactions are presented “gross” (i.e. the segment producing and/or licensing the content reports revenue and profit from inter-segment transactions in a manner similar to the reporting of third-party transactions, and the required eliminations are reported on the separate “Eliminations” line when presenting our summary of segment results). Generally, timing of revenue recognition is similar to the reporting of third-party transactions. The segment distributing the content, e.g. via our DTC or linear services, capitalizes the cost of inter-segment content transactions, including “mark-ups” and amortizes the costs over the shorter of the license term, if applicable, or the expected period of use. The content amortization expense related to the inter-segment profit is also eliminated on the separate “Eliminations” line when presenting our summary of segment results.

~~FINANCIAL CONDITION~~LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Sources of Cash

Historically, we have generated a significant amount of cash from operations. During the three months ended March 31, ~~2022,~~2023, we funded our working capital needs primarily through cash flows from operations. As of March 31, ~~2022,~~2023, we had ~~$4.2~~$2.6 billion of cash and cash equivalents on hand. We are a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock and preferred stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured. ~~As of March 31, 2022, we also had~~We have a ~~$2.5~~$6.0 billion revolving credit facility ~~which has subsequently been increased to $6.0 billion~~ and a ~~$1.5 billion~~ commercial paper program as described below. ~~In connection with the closing of the Merger on April 8, 2022, we incurred~~We also participate in a ~~substantial amount of additional third-party indebtedness, which has significantly increased our future financial commitments, including aggregate interest payments.~~revolving receivables program and an accounts receivable factoring program described below.

•Debt

Senior Notes

During the three months ended March 31, 2023 we issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and unpaid interest.

Revolving Credit Facility and Commercial Paper

~~In June 2021, we entered into~~We have a multicurrency revolving credit agreement (the ~~"Credit Agreement"~~“Revolving Credit Agreement”)~~, replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. We had~~ and have the capacity to ~~initially~~ borrow up to ~~$2.5~~$6.0 billion under the ~~Credit Agreement. Upon completion of the Merger, the available commitments increased by $3.5 billion, to an aggregate amount not to exceed $6.0 billion. The~~Revolving Credit Agreement ~~includes a $150 million sublimit for the issuance of standby letters of credit.~~(the “Credit Facility”). We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. Obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by the Company, Scripps Networks, and upon completion of the Merger, WarnerMedia Holdings, Inc., which was originally named Magallanes, Inc.

The ~~Credit Agreement will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the lenders' consent. The~~Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of March 31, ~~2022,~~2023, DCL was in compliance with all covenants and there were no events of default under the Revolving Credit ~~Facility.~~Agreement.

Additionally, our commercial paper program is supported by the Credit Facility. Under the commercial paper program, we may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program.

During the three months ended March 31, 2023, we borrowed and repaid $933 million under our commercial paper program. As of March 31, ~~2022 and December 31, 2021,~~2023, we had no outstanding borrowings under the Credit Facility or the commercial paper program.

In April 2023, we borrowed $750 million under our Credit Facility to fund certain sports rights payments, which is expected to be repaid within the current quarter.

•Revolving Receivables Program

We have a revolving agreement to transfer up to $5,700 millionof certain receivables through our bankruptcy-remote subsidiary, Warner Bros. Discovery Receivables Funding, LLC, to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. We service the sold receivables for the financial institution for a fee and pay fees to the financial institution in connection with this revolving agreement. As customers pay their balances, our available capacity under this revolving agreement increases and typically we transfer additional receivables into the program. In some cases, we may have collections that have not yet been remitted to the bank, resulting in a liability. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,300 millionas of March 31, 2023.

•Accounts Receivable Factoring

We have a factoring agreement to sell certain of our non-U.S. trade accounts receivable on a non-recourse basis to a third-party financial institution. Total trade accounts receivable sold under our factoring arrangement was $72 million during thethree months ended March 31, 2023.

•Derivatives

We received investing proceeds of ~~$639 million and financing proceeds of $33~~$20 million during the three months ended March 31, ~~2022~~2023 from the unwind and settlement of derivative instruments. (See Note 810 to the accompanying consolidated financial statements.)

Uses of Cash

Our primary uses of cash include the creation and acquisition of new content, business acquisitions, ~~repurchases of our capital stock,~~ income taxes, personnel costs, costs to develop and market ~~discovery+ and HBO~~our enhanced streaming service Max, principal and interest payments on our outstanding senior notes and term loan, funding for various equity method and other ~~investments.~~investments, and repurchases of our capital stock.

•Content Acquisition

We plan to continue to invest significantly in the creation and acquisition of new ~~content. Prior to the Merger, contractual~~content, as well as certain sports rights. Contractual commitments to acquire content ~~had~~have not materially changed as set forth in ~~"Material~~“Material Cash Requirements from Known Contractual and Other ~~Obligations"~~Obligations” in Item 7, ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” in our ~~2021~~2022 Form 10-K. ~~Our contractual commitments to acquire content have increased significantly subsequent to the Merger.~~

•Debt

Term Loan

During the three months ended March 31, 2023, we repaid$1.5 billion of aggregate principal amount outstanding of our term loan prior to the due date of April 2025.

Senior Notes

During the three months ended March 31, ~~2022,~~2023, we repaid ~~in full at maturity $327~~$106 million of aggregate principal amount outstanding of our ~~2.375% Euro Denominated Senior Notes~~senior notes due ~~March 2022.~~February 2023. In addition, we have ~~$796~~$179 million and ~~$192~~$82 million of senior notes coming due in ~~March~~September and ~~April~~December 2023, respectively, and ~~$182 million of senior notes assumed in the Merger coming due in September 2023.~~

In anticipation of the Merger, WarnerMedia Holdings, Inc., formerly known as Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan and issued $30 billion aggregate principal amount of senior unsecured notes. The proceeds were used to fund the cash payments to AT&T and to otherwise fund the transaction and pay fees and expenses. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor under the Term Loan or the Credit Facility, and will rank equally with all of the Company's other unsecured senior debt.

~~We also assumed an additional $1.6~~$3.2 billion of senior notes ~~(includes accrued interest) from~~coming due in the ~~WarnerMedia Business that existed prior to the Merger.~~first quarter of 2024.

•Capital Expenditures and Investments in Next Generation Initiatives

We effected capital expenditures of ~~$85~~$299 million during the three months ended March 31, ~~2022,~~2023, including amounts capitalized to support ~~our next generation platforms, such as discovery+.~~Max. In addition, we expect to continue to incur significant costs to develop and market ~~discovery+ and HBO Max streaming products in the future.~~Max.

•Investments and Business Combinations

Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value. (See Note 38 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time. During the three months ended March 31, ~~2022,~~2023, we contributed ~~$42~~$13 million for investments in and advances to our investees.

~~In April 2022, we completed the Merger with the WarnerMedia Business.~~ We expect to incur significant, one-time transaction and integration costs during the first year following the Merger. ~~Due~~(See Note 3 to the limited time between the transaction date and our filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, initial accounting for the business combination is incomplete and we are not yet able to disclose the provisional amounts to be recognized as of the acquisition date for assets acquired and liabilities assumed. We expect to provide preliminary purchase price allocation information in our Quarterly Report on Form 10-Q for the quarter ending June 30, 2022.accompanying consolidated financial statements.)

•Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we ~~have~~had redeemable equity balances of ~~$335~~$309 million at March 31, ~~2022,~~2023, which may require the use of cash in the event holders of noncontrolling interests put their interests to us. In 2022, GoldenTree exercised its put right and we are required to purchase GoldenTree’s noncontrolling interest. (See Note 16 to the accompanying consolidated financial statements.) Distributions to noncontrolling interests and redeemable noncontrolling interests totaled ~~$224~~$237 million and ~~$183~~$224 million for the three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively.

•~~Common Stock Repurchases~~

Historically, we have funded our stock repurchases through a combination of cash on hand, cash generated by operations, and the issuance of debt. In February 2020, our Board of Directors authorized additional stock repurchases of up to $2 billion upon completion of our existing $1 billion authorization announced in May 2019. Under the new stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors. (See Note 9 to the accompanying consolidated financial statements.) During the three months ended March 31, 2022, we did not repurchase any of our common stock.

•Income Taxes and Interest

We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the three months ended March 31, ~~2022,~~2023, we made cash payments of ~~$97~~$312 million and ~~$186~~$920 million for income taxes and interest on our outstanding debt, respectively. ~~We expect cash~~Cash required for interest payments ~~to increase~~has increased significantly as a result of the Merger.

Cash Flows

The following table presents changes in cash and cash equivalents (in millions).


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	$	3,905	$	2,122	Cash, cash equivalents, and restricted cash, beginning of period	$	3,930	$	3,905
Cash provided by operating activities		323		269
Cash provided by investing activities		529		156
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	(631)		323
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(257)		529
Cash used in financing activities	Cash used in financing activities	(587)		(469)		Cash used in financing activities	(432)		(587)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(5)		(70)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	29		(5)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	260		(114)		Net change in cash, cash equivalents, and restricted cash	(1,291)		260
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	4,165	$	2,008	Cash, cash equivalents, and restricted cash, end of period	$	2,639	$	4,165

Operating Activities

Cash (used in) provided by operating activities was ~~$323~~$(631) million and ~~$269~~$323 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in cash provided by operating activities was primarily attributable to ~~an increase in net income excluding non-cash items, partially offset by~~ a negative fluctuation in working capital ~~activity.~~activity and a decrease in net income, excluding non-cash items.

Investing Activities

Cash (used in) provided by investing activities was ~~$529~~$(257) million and ~~$156~~$529 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in cash provided by investing activities was primarily attributable to less proceeds received from the unwind and settlement of derivative instruments ~~partially offset by a reduction in cash received from the sales~~ and ~~maturities~~increased purchases of ~~investments~~property and equipment during the three months ended March 31, ~~2022.~~2023.

Financing Activities

Cash used in financing activities was ~~$587~~$432 million and ~~$469~~$587 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in cash used in financing activities was primarily attributable to ~~an increase in distributions to noncontrolling interests and redeemable noncontrolling interests~~less net debt activity during the three months ended March 31, ~~2022.~~2023.

Capital Resources

As of March 31, ~~2022,~~2023, capital resources were comprised of the following (in millions).
March 31, 2022
Total
Capacity Outstanding
Indebtedness Unused
Capacity
Cash and cash equivalents $ 4,162 $ — $ 4,162
Revolving credit facility and commercial paper program 2,500 — 2,500
Senior notes (a)
14,824 14,824 —
Total $ 21,486 $ 14,824 $ 6,662
(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of March 31, 2022 had interest rates that ranged from 1.90% to 6.35% and will mature between 2023 and 2055.

~~We also assumed an additional $1.6 billion of senior notes (includes accrued interest) from the WarnerMedia Business that existed prior to the Merger.~~


	March 31, 2023
	Total Capacity		Outstanding Indebtedness		Unused Capacity
Cash and cash equivalents	$	2,594	$	—	$	2,594
Revolving credit facility and commercial paper program	6,000		—		6,000
Term loans	2,500		2,500		—
Senior notes (a)	46,715		46,715		—
Total	$	57,809	$	49,215	$	8,594

(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of March 31, 2023 had interest rates that ranged from 1.90% to 9.15% and will mature between 2023 and 2062.

We expect that our cash balance, cash generated from operations and availability under the Credit ~~Facility~~Agreements will be sufficient to fund our cash needs for both the short-term and the long-term. Our borrowing costs and access to capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.

As of March 31, ~~2022,~~2023, we held ~~$437 million~~$2.4 billion of our ~~$4.2~~$2.6 billion of cash and cash equivalents in our foreign subsidiaries. The 2017 Tax Act features a participation exemption regime with current taxation of certain foreign income and imposes a mandatory repatriation toll tax on unremitted foreign earnings. Notwithstanding the U.S. taxation of these amounts, we intend to continue to reinvest these funds outside of the U.S. Our current plans do not demonstrate a need to repatriate them to the U.S. However, if these funds ~~are~~were to be needed in the U.S., we would be required to accrue and pay non-U.S. taxes to repatriate them. The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.

Summarized Guarantor Financial Information

Basis of Presentation

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, all of the Company’s outstanding $13.8 billion registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, ~~and~~ Scripps Networks, ~~except for~~and WarnerMedia Holdings, Inc. As of March 31, 2023, the Company also has outstanding $31.5 billion of senior notes issued by WarnerMedia Holdings, Inc. and guaranteed by the Company, Scripps and DCL; $1.4 billion of senior notes issued by the legacy WarnerMedia Business (not guaranteed); and approximately $23 million of un-exchanged senior notes ~~outstanding as of March 31, 2022 that have been~~ issued by Scripps Networks ~~and are not guaranteed.~~(not guaranteed). (See Note 79 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned subsidiary of the Company. Scripps Networks is also ~~100%~~wholly owned by the Company.

In anticipation of the Merger, WarnerMedia Holdings, Inc., formerly known as Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan and $30 billion aggregate principal amount of senior unsecured notes. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor (currently DCL and Scripps Networks, and subsequent to the Merger, Discovery Communications Benelux B.V.), and will rank equally with all of the Company's other unsecured senior debt.

The tables below present the summarized financial information as combined for Warner Bros. Discovery, Inc. (the “Parent”), Scripps Networks, DCL, and ~~DCL~~WarnerMedia Holdings, Inc. (collectively, the “Obligors”)~~, and do not include the WarnerMedia Business.~~. All guarantees of ~~DCL's~~DCL and WarnerMedia Holdings, Inc.’s senior notes (the “Note Guarantees”) are full and unconditional, joint and several and unsecured, and cover all payment obligations arising under the senior notes. ~~The tables below do not include WarnerMedia.~~

Note Guarantees issued by Scripps Networks, DCL or WarnerMedia Holdings, Inc., or any subsidiary of the Parent that in the future issues a Note Guarantee (each, a “Subsidiary Guarantor”) may be released and discharged (i) concurrently with any direct or indirect sale or disposition of such Subsidiary Guarantor or any interest therein, (ii) at any time that such Subsidiary Guarantor is released from all of its obligations under its guarantee of payment, ~~by DCL,~~ (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into DCL, WarnerMedia Holdings, Inc. or the Parent or another Subsidiary Guarantor, as applicable, or upon the liquidation of such Subsidiary Guarantor and (iv) other customary events constituting a discharge of the Obligors’ obligations.

Summarized Financial Information

The Company has included the accompanying summarized combined financial information of the Obligors after the elimination of intercompany transactions and balances among the Obligors and the elimination of equity in earnings from and investments in any subsidiary of the Parent that is a non-guarantor (in millions).
March 31, 2022 December 31, 2021
Current assets $ 4,843 $ 4,452
Non-guarantor intercompany trade receivables, net 120 85
Noncurrent assets 5,925 5,969
Current liabilities 1,342 1,018
Noncurrent liabilities 14,888 15,778


	March 31, 2023		December 31, 2022
Current assets	$	1,262	$	1,949
Non-guarantor intercompany trade receivables, net	164		112
Noncurrent assets	5,774		5,785
Current liabilities	3,789		1,095
Noncurrent liabilities	45,663		48,839

Three Months Ended March 31, ~~2022~~2023

Revenues

~~542~~489

Operating income

~~137~~117

Net income

~~390~~ (340)

Net income available to Warner Bros. Discovery, Inc.

~~388~~ (342)

~~COMMITMENTS~~

MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS

In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. ~~The nature of our contractual~~Contractual commitments ~~is evolving with the launch and our support of discovery+. Prior to the Merger, total contractual commitments had~~have not increased ~~materially~~assignificantly compared to our commitments set forth in ~~"Material~~“Material Cash Requirements from Known Contractual and Other ~~Obligations"~~Obligations” in Item 7, ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” in our ~~2021 Annual Report on~~2022 Form 10-K. ~~Our contractual commitments have increased significantly subsequent to the Merger.~~

RELATED PARTY TRANSACTIONS

In the ordinary course of business, we enter into transactions with related parties, primarily the Liberty Group and our equity method investees. (See Note 15 to the accompanying consolidated financial statements.)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates have not changed since December 31, ~~2021.~~2022. For a discussion of each of our critical accounting estimates listed below, including information and analysis of estimates and assumptions involved in their application, see ~~"Critical~~“Critical Accounting Policies and ~~Estimates"~~Estimates” included in Item 7, ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021 Annual Report on~~2022 Form 10-K:

•Uncertain tax positions;

•Goodwill and intangible assets;

•Content rights;

•Consolidation; and

•Revenue recognition

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

We adopted certain new accounting and reporting standards during the three months ended March 31, ~~2022.~~2023. (See Note 1 to the accompanying consolidated financial statements.)

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q ~~as well as in other public statements we may make, may~~ constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects and anticipated sources and uses of ~~capital and our recently completed acquisition of the WarnerMedia Business.~~capital. Words such as “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would,” among other terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be accomplished. The following is a list of some, but not all, of the factors that could cause actual results or events to differ materially from those anticipated:

•potential unknown liabilities, adverse consequences or unforeseen increased expenses associated with the ~~effects~~WarnerMedia Business or our efforts to integrate the WarnerMedia Business;

•inherent uncertainties involved in the estimates and assumptions used in the preparation of financial forecasts;

•our ~~recently completed~~level of debt, including the significant indebtedness incurred in connection with the acquisition of the WarnerMedia ~~Business;~~

•~~changes in the distribution~~Business, and viewing of television programming, including the continuing expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, personal tablets and user-generated content and their impact on television advertising revenue;our future compliance with debt covenants;

•~~continued consolidation of distribution customers and production studios;~~more intense competitive pressure from existing or new competitors in the industries in which we operate;

•~~a failure~~reduced spending on domestic and foreign television advertising, due to ~~secure affiliate agreements~~macroeconomic trends, industry trends or ~~the renewal~~unexpected reductions in our number of ~~such agreements on less favorable terms;~~

•~~rapid technological changes;~~

•~~the inability of advertisers or affiliates to remit payment to us in a timely manner or at all;~~

•~~general economic and business conditions, including the impact of the ongoing COVID-19 pandemic;~~subscribers;

•industry trends, including the timing of, and spending on, sports programming, feature film, television and television commercial production;

•~~spending on domestic and foreign television advertising;~~

•~~disagreements with our distributors or other business partners over contract interpretation;~~

•fluctuations in foreign currency exchange rates, political unrest and regulatory changes in international markets, including any proposed or adopted regulatory changes that impact the operations of our international media properties and/or modify the terms under which we offer our services and operate in international markets;

•market demand for foreign first-run and existing content libraries;

•~~the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate;~~

•~~uncertainties regarding the financial performance of~~negative publicity or damage to our ~~investments in unconsolidated entities;~~

•our ability to complete, integrate, maintain and obtain the anticipated benefits and synergies from our proposed business combinations and acquisitions, including our recently completed acquisition of the WarnerMedia Business, on a timely basisbrands, reputation or ~~at all;~~talent;

•uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies, and the success of our ~~discovery+ and HBO Max~~ streaming ~~products;~~services;

•realizing direct-to-consumer subscriber goals;

•~~future financial performance,~~general economic and business conditions, including ~~availability, terms, and deployment of capital;~~

•the ~~ability of suppliers and vendors to deliver products, equipment, software, and services;~~

•~~the outcome of any pending or threatened or potential litigation, including any litigation that has been or may be instituted against usrelating to our recently completed acquisition~~impact of the ~~WarnerMedia Business;~~ongoing COVID-19 pandemic, fluctuations in foreign currency exchange rates, and political unrest in the international markets in which we operate;

•
~~availability of qualified personnel and recruiting, motivating and retaining talent;~~

•the possibility or duration of an industry-wide strike, player lock-outs or other job action affecting a major entertainment industry union, athletes or others involved in the development and production of our sports programming, television programming, feature films and interactive entertainment (e.g., games) who are covered by collective bargaining agreements;

•disagreements with our distributors or other business partners;

•continued consolidation of distribution customers and production studios;

•theft of our content and unauthorized duplication, distribution and exhibition of such content;

•threatened or actual cyber-attacks and cybersecurity breaches; and

•changes in, or failure or inability to comply with, laws and government regulations, including, without limitation, regulations of the Federal Communications Commission and similar authorities internationally and data privacy regulations and adverse outcomes from regulatory ~~proceedings;~~

•~~changes in income taxes due to regulatory changes or changes in our corporate structure;~~

•~~changes in the nature of key strategic relationships with partners, distributors and equity method investee partners;~~

•~~competitor responses to our products and services and the products and services of the entities in which we have interests;~~

•~~threatened or actual cyber-attacks and cybersecurity breaches;~~

•~~threatened terrorist attacks and military action, including the intensification or expansion of the conflict in Ukraine;~~

•~~service disruptions or the failure of communications satellites or transmitter facilities;~~

•~~theft of our content and unauthorized duplication, distribution and exhibition of such content;~~

•changes in existing U.S. and foreign laws and regulations, as well as possible private rights of action, regarding intellectual property rights protection and privacy, personal data protection and user consent;

•potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the Federal Communications Commission could negatively impact our WarnerMedia Business's ability to deliver pay-TV network feeds of our domestic pay-TV programming networks to our affiliates, and, in some cases, to produce high-value news and entertainment programming on location;

•~~our level of debt, including the significant indebtedness incurred in connection with the acquisition of the WarnerMedia Business, and our future compliance with debt covenants;~~

•~~reduced access to capital markets or significant increases in costs to borrow, including as a result of higher interest rates and perceived, potential or actual inflation; and~~

•~~a reduction of advertising revenue associated with unexpected reductions in the number of subscribers.~~proceedings.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill orand other intangibles. Additionally, many of these risks are ~~currently~~ amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. ~~For additional risk~~Management’s expectations and assumptions, and the continued validity of any forward-looking statements we make, cannot be foreseen with certainty and are subject to change due to a broad range of factors ~~refer~~affecting the U.S. and global economies and regulatory environments, factors specific to Warner Bros. Discovery, and other factors described under Part I, Item 1A, “Risk Factors,” in our ~~2021 Annual Report on~~2022 Form ~~10-K and Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q.~~10-K. These forward-looking statements and such risks, uncertainties, and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions, or circumstances on which any such statement is based.

ITEM 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.

Quantitative and qualitative disclosures about our existing market risk are set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the ~~2021~~2022 Form 10-K. Our exposures to market risk have not changed materially since December 31, ~~2021.~~2022.

ITEM 4. Controls and ~~Procedures~~Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, ~~2022.~~2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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 a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, ~~2022,~~2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, ~~2022,~~2023, there were no changes in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4746

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

InFrom time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including claims related to employees, stockholders, vendors, other business ~~we experience routine claims and legal proceedings. It is~~partners or intellectual property. However, a determination as to the ~~opinion of our management, based on information available at this time, that none~~amount of the ~~current claims~~accrual required for such contingencies is highly subjective and ~~proceedings~~requires judgments about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on our consolidated financial position, future results of operations, or cash flows. ~~See Note 16 to the accompanying consolidated financial statements.~~

~~As of April 1,~~Between September 23, 2022 ~~eight~~and October 24, 2022, two purported class action lawsuits ~~have been filed by alleged Discovery stockholders against Discovery and the Discovery~~(Collinsville Police Pension Board ~~related to the Merger. A complaint captioned Rahman~~ v. Discovery, Inc., et al., Case No. 1:~~21-cv-09785 (the “Rahman Complaint”)~~22-cv-08171; Todorovski v. Discovery, Inc., ~~was~~et a., Case No. 1:22-cv-09125) were filed in the United States District Court for the Southern District of New ~~York~~York. The complaints named Warner Bros. Discovery, Inc., Discovery, Inc., David Zaslav, and Gunnar Wiedenfels as defendants. The complaints generally alleged that the defendants made false and misleading statements in SEC filings and in certain public statements relating to the Merger, in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, and sought damages and other relief. On November 4, 2022, the court consolidated the Collinsville and Todorovski complaints under case number 1:22-CV-8171, and on ~~November 23, 2021. A~~December 12, 2022, the court appointed lead plaintiffs and lead counsel. On February 15, 2023, the lead plaintiffs filed an amended complaint ~~captioned Chiao~~adding Advance/Newhouse Partnership and Advance/Newhouse Programming Partnership (collectively, “Advance/Newhouse”), Steven A. Miron, Robert J. Miron, and Steven O. Newhouse as defendants. The amended complaint continues to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, and seeks damages and other relief. On April 7, 2023, defendants moved to dismiss the amended complaint. The Company intends to vigorously defend these litigations.

On December 2, 2022, a purported class action and derivative lawsuit (Monroe County Employees’ Retirement System, Plumbers Local Union No. 519 Pension Trust Fund, and Davant Scarborough v. ~~Discovery Inc.~~David M. Zaslav, et al., Case No. ~~1:21-cv-10409,~~2022-1115-JTL) was filed in the ~~United States District~~Delaware Court ~~for~~of Chancery (the “Monroe County Action”). The Monroe County Action named certain of the ~~Southern District~~Company’s directors and officers, Advance/Newhouse, and AT&T as defendants. The Monroe County Action generally alleged that former directors and officers of ~~New York~~Discovery and Advance/Newhouse breached their fiduciary duties in connection with the Merger, and that AT&T aided and abetted these alleged breaches of fiduciary duties. The Monroe County Action sought damages and other relief.

Also on December ~~6, 2021. A complaint captioned Whitfield~~2, 2022, a separate purported class action lawsuit (Bricklayers Pension Fund of Western Pennsylvania v. ~~Discovery Inc. et al.,~~Advance/Newhouse Partnership, Case No. 1:21-cv-10514 (the “Whitfield Complaint”), was filed by Matthew Whitfield in the United States District Court for the Southern District of New York on December 8, 2021. A complaint captioned Solakian v. Discovery Inc. et al., Case No. 1:21-cv-06806,2022-1114-JTL) was filed in the ~~United States District~~Delaware Court ~~for the Eastern District~~ of ~~New York on December 8, 2021. A~~Chancery (the “Bricklayers Action”). The complaint ~~captioned Finger v. Discovery Inc. et al., Case No. 2:21-cv-09799, was filed~~ in the United States District Court for the Central District of California on December 20, 2021. A complaint captioned Ciccotelli v. Discovery Inc. et al., Case No. 2:21-cv-05566, was filed in the United States District Court for the Eastern District of Pennsylvania on December 21, 2021. A complaint captioned Kent v. Discovery Inc. et al., Case No. 1:22-cv-00033-UNA, was filed by Michael Kent in the United States District Court for the District of Delaware on January 7, 2022. A complaint captioned Jones v. Discovery Inc. et al., Case No. 1:22-cv-00204, was filed by Brian Jones in the United States District Court for the Southern District of New York on January 10, 2022. EachBricklayers Action names Advance/Newhouse and certain of the ~~above complaints name~~Company’s current and former directors as defendants and generally alleges that former directors of Discovery and members of the Discovery Board. The Whitfield Complaint and the Rahman Complaint also name as defendants AT&T, Inc. and Drake Subsidiary, Inc. The Whitfield Complaint names Magallanes, Inc. as an additional defendant. Each of the complaints alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder. The complaints generally allege that the respective defendants filed a materially incomplete and misleading preliminary proxy statementAdvance/Newhouse breached their fiduciary duties in connection with the ~~SEC. Each~~Merger, and that Advance/Newhouse aided and abetted these alleged breaches of ~~the complaints~~fiduciary duties. The Bricklayers Action seeks ~~injunctive relief,~~ damages and other relief.

On January 11, 2023, the Delaware Court of Chancery consolidated the Monroe County Action and the Bricklayers Action under the caption In re Warner Bros. Discovery, Inc. Stockholders Litigation, Consolidated Case No. 2022-1114-JTL. On March 9, 2023, the court appointed the plaintiffs which filed the Bricklayers Action lead plaintiffs in the consolidated action. On April 5, 2023, the court approved a stipulated briefing schedule providing that the remaining defendants in the case (Advance/Newhouse, Robert Miron, Steven Miron, and Susan Swain) would respond to the complaint originally filed in the Bricklayers Action by May 15, 2023.

ITEM 1A. Risk Factors

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, and cash flows as set forth under Part I, Item 1A ~~- Risk Factors~~“Risk Factors” of the Company’s ~~Annual Report on~~2022 Form 10-K for the year ended December 31, 2021 (“Form 10-K”), and as supplemented by the additional risk factors described below under “Risk Related to our Acquisition of the WarnerMedia Business”. In addition, the risks described in our Form 10-K under “Risks Related to Corporate Structure” as well as risks related to COVID-19 are amended and restated as set forth below.

10-K. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position, and cash flows.

~~Risk Related to our Acquisition of the WarnerMedia Business~~

~~We expect to incur significant costs during the first year following the Merger.~~

On April 8, 2022, we completed the previously announced transaction (the “Merger”) in which we acquired the business, operations and activities that constitute the WarnerMedia segment of AT&T, Inc., subject to certain exceptions (the “WarnerMedia Business”). We have incurred significant costs in connection with the signing and closing of the Merger, and expect to continue to incur significant additional one-time cash costs during the first year following the Merger which costs we believe will be necessary to realize the anticipated cost synergies from the Merger. Additional unanticipated costs may also be incurred in connection with the integration of the legacy business, operations and activities of Discovery, Inc. prior to the Merger (the “Discovery Business”) and the WarnerMedia Business. No assurances of the timing or amount of synergies able to be captured, or the timing or amount of costs necessary to achieve those synergies, can be provided. Some of the factors affecting the costs associated in the integration phase of the Merger include the resources required in integrating the WarnerMedia Business with the Discovery Business and the length of time during which transition services are provided to us by AT&T. The amount and timing of any such charges could materially adversely affect our business, financial condition and results of operations.

~~We could be required to recognize impairment charges related to goodwill and other intangible assets.~~

The Merger added a significant amount of goodwill and other intangible assets to our consolidated balance sheet. In accordance with GAAP, management periodically assesses these assets to determine if they are impaired. Significant negative industry or economic trends, including the ongoing effects of the COVID-19 pandemic, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments could materially adversely affect our results of operations in the periods recognized.

We may be unable to provide (or obtain from third parties) the same types and level of services to the WarnerMedia Business that historically have been provided by AT&T or may be unable to provide (or obtain) them at the same cost.

Prior to the Merger, as part of a separate reporting segment of AT&T, the WarnerMedia Business was able to receive services from AT&T. Following the Merger, we have replaced these services either by providing them internally from our existing services or by obtaining them from unaffiliated third parties, including AT&T. These services include AT&T bundling HBO Max with some of its wireless and broadband offerings, and certain administrative and operating functions of which effective and appropriate performance is critical to the operations of the WarnerMedia Business and the Company as a whole following the Merger. AT&T is providing certain services on a transitional basis pursuant to a Transition Services Agreement (the “TSA”) with us. The duration of such services is subject to a limited term set out in the Services Schedule to the TSA. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those the WarnerMedia Business currently receives from AT&T. The costs for these services could in the aggregate be higher than the combination of our historical costs and those reflected in the historical financial statements of the WarnerMedia Business. If we are unable to replace the services provided by AT&T or are unable to replace them at the same cost or are delayed in replacing the services provided by AT&T, our results of operations may be materially adversely impacted.

Following the Merger, we will need to replace or renegotiate certain contracts that the WarnerMedia Business is party to. If we cannot negotiate terms that are as favorable as those AT&T had been able to negotiate, our business, financial condition and results of operations may be adversely affected.

Prior to the Merger, as a separate reporting segment of AT&T, the WarnerMedia Business was able to receive benefits from being a part of AT&T and had been able to benefit from AT&T’s financial strength, extensive business relationships and purchasing power. Following the Merger, the WarnerMedia Business is not able to leverage AT&T’s financial strength, does not have access to all of AT&T’s extensive business relationships and may not have purchasing power similar to what the WarnerMedia Business benefited from by being a part of AT&T prior to the Merger. In addition, certain contracts that AT&T or its subsidiaries are a party to on behalf of the WarnerMedia Business may have required consents of third parties in order to transfer them to us in connection with the Merger.We may not be able to obtain those consents, enter into new agreements with respect to those contracts if consents are not obtained or arrange for a lawful alternative arrangement to provide the WarnerMedia Business with the rights and obligations under such contracts. Additionally, some of those contracts may contain termination rights in connection with the Merger or the transactions contemplated thereby, and some third parties may exercise this right.It is therefore possible, whether as a result of routine renegotiations of terms in the ordinary course of business, or as part of a request for consent or a replacement of a contract where consent has not been obtained, or in connection with the termination of such contracts, that we may not be able to negotiate terms as favorable as those AT&T received previously for one or more contracts, and in the aggregate the loss or renegotiation of contracts in connection with the foregoing could materially adversely affect our business, financial condition and results of operations by increasing costs or decreasing revenues.

The success of the Company depends on relationships with third parties and existing customers of both the Discovery Business and the WarnerMedia Business, which relationships may be affected by customer or third-party preferences or public attitudes about the Merger. Any adverse changes in these relationships could adversely affect our business, financial condition and results of operations.

Our success will depend on our ability to maintain and renew relationships with existing customers, business partners and other third parties of both the Discovery Business and the WarnerMedia Business, and our ability to establish new relationships. There can be no assurance that the combined business of the Discovery Business and the WarnerMedia Business will be able to maintain and renew existing contracts and other business relationships, or that we will be able to enter into or maintain new contracts and other business relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse effect on our business, financial condition and results of operations.

If the results of operations of the WarnerMedia Business following the Merger are below management’s expectations, the Company may not achieve the increases in revenues and net earnings that management expects as a result of the Merger.

Management projected that the Discovery Business and WarnerMedia Business combined will derive a majority of its revenues and net earnings from the WarnerMedia Business after the Merger. Therefore, if the results of operations of the WarnerMedia Business following the Merger are below management’s expectations, the Company may not achieve the consolidated results of operations that were expected as a result of the Merger. Some of the significant factors that could negatively impact the results of operations of the WarnerMedia Business, and therefore harm the results of operations of the Company, include:

•~~more intense competitive pressure from existing or new competitors;~~

•~~fluctuations in the exchange rates in the jurisdictions in which the WarnerMedia Business operates;~~

•~~increases in promotional and operating costs for the WarnerMedia Business;~~

•~~a decline in the viewership or consumption of content provided by the WarnerMedia Business; and~~

•material variations in the results of operations of the WarnerMedia Business from expectations or projections of such results of operations, which were based on estimates and assumptions developed by our management, any or all of which may prove to be incorrect or inaccurate.

~~Service disruptions or the failure of communications satellites or transmitter facilities we rely upon could adversely impact our business, financial condition and results of operations.~~

The WarnerMedia Business relies on communications satellites and transmitter facilities and other technical infrastructure, including fiber, to transmit their programming to affiliates and other distributors. Shutdowns of communications satellites and transmitter facilities or service disruptions pose significant risks to the WarnerMedia Business’s operations and will pose significant risks to our operations. Such disruptions may be caused by power outages, natural disasters, extreme weather, terrorist attacks, war, failures or impairments of communications satellites or on-ground uplinks or downlinks or other technical facilities and services used to transmit programming, failure of service providers to meet contractual requirements, or other similar events. If a communications satellite or other transmission means (e.g., fiber) is not able to transmit our programming, or if any material component thereof fails or becomes inoperable, we may not be able to secure an alternative communications path in a timely manner because, among other factors, there are a limited number of communications satellites and other means available for the transmission of programming, and any alternatives may require lead time and additional technical resources and infrastructure to implement. If such an event were to occur, there could be a disruption in the delivery of our programming, which could harm our reputation and materially adversely affect our business, financial condition and results of operations.

~~Our participation in multiemployer defined benefit pension plans could subject the Company to liabilities that could adversely affect our business, financial condition and results of operations.~~

The WarnerMedia Business contributes to various multiemployer defined benefit pension plans (the “multiemployer plans”) under the terms of collective bargaining agreements that cover certain of its union-represented employees. Following the Merger, we assumed certain of the obligations under these multiemployer plans with respect to transferred employees from the WarnerMedia Business. The risks of participation in these multiemployer plans are different from single-employer pension plans in that: (1) contributions made by the Company to the multiemployer plans may be used to provide benefits to employees of other participating employers; (2) if we choose to stop participating or substantially reduce participation in certain of these multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability; and (3) actions taken by any participating employer that lead to a deterioration of the financial health of a multiemployer plan may result in the unfunded obligations of the multiemployer plan being borne by its remaining participating employers, including the Company. While we do not expect any of the multiemployer plans to which we contribute to be individually significant to the Company as a whole, as of December 31, 2021, the WarnerMedia Business was, and the Company could be, an employer that provides more than 5% of total contributions to certain of the multiemployer plans in which it participates or the Company will participate.

To the extent that U.S.-registered multiemployer plans are underfunded, the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980 (collectively, “ERISA”), may subject the Company to substantial liabilities in the event of a complete or partial withdrawal from, or upon termination of, such plans. The WarnerMedia Business currently contributes to, and in the past has contributed to, multiemployer plans that are underfunded, and, therefore, could have potential liability associated with a voluntary or involuntary withdrawal from, or termination of, such plans. In addition, for a multiemployer plan in endangered, seriously endangered or critical status, additional required contributions, generally in the form of surcharges on contributions otherwise required, and benefit reductions may apply if such plan is determined to be underfunded, which could adversely affect our business, financial condition and results of operations if we are unable to adequately mitigate these costs.

As of December 31, 2021, two of the multiemployer plans in which the WarnerMedia Business participates were underfunded, but neither plan was considered to be in endangered, seriously endangered or critical status. The amount of funds the Company may be obligated to contribute to multiemployer plans in the future cannot be estimated, as these amounts are based on future levels of work of the union-represented employees covered by the multiemployer plans, investment returns and the funding status of such plans. The WarnerMedia Business does not currently intend to withdraw from the multiemployer plans in which it participates, and it is not aware of circumstances that would reasonably lead to material claims against the Company in connection with the multiemployer plans in which the Company will participate. There can be no assurance, however, that the Company will not be assessed liabilities in the future. Potential withdrawal liabilities, requirements to pay increased contributions, and/or surcharges in connection with any multiemployer plans in which the Company will participate could materially adversely affect our business, financial condition and results of operations.

~~Our businesses may be subject to labor disruption.~~

We and some of our suppliers and business partners retain the services of writers, directors, actors, announcers, athletes, technicians, trade employees and others involved in the development and production of our television programming, feature films and interactive entertainment (e.g., games) who are covered by collective bargaining agreements. If negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the affected unions could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns, work stoppages or the possibility of such actions could result in delays in the production of our television programming, feature films and interactive entertainment. We could also incur higher costs from such actions, enter into new collective bargaining agreements or renew collective bargaining agreements on less favorable terms. Many of the collective bargaining agreements that cover individuals providing services to the Company are industry-wide agreements, and we may lack practical control over the negotiations and terms of these agreements. Union or labor disputes or player lock-outs relating to certain professional sports leagues may preclude us from producing and telecasting scheduled games or events and could negatively impact our promotional and marketing opportunities. Depending on their duration, union or labor disputes or player lock-outs could have a material adverse effect on our business, financial condition and results of operations.

~~Risk Related to COVID-19~~

The COVID-19 pandemic has caused substantial disruption in theatrical and television production, financial markets and economies worldwide, which could result in adverse effects on the market price of our common stock and our business, operations and ability to raise capital.

The COVID-19 pandemic has negatively impacted the global economy and continues to create significant volatility and disruption in the credit and financial markets, and while some economic disruption may ease from time to time, such disruption is expected to continue and may worsen for an undetermined period of time. There is a significant degree of uncertainty and lack of visibility as to the extent and duration of the global economic disruption caused by COVID-19; however, a prolonged disruption, slowdown or recession could materially adversely affect the market price of our common stock and our credit ratings, ability to access capital on favorable terms and ability to meet its liquidity needs and could have a material adverse effect on our business, financial condition and results of operations.

The Discovery Business and the WarnerMedia Business, as with other businesses globally, have been significantly affected by the COVID-19 pandemic both domestically and internationally, including as a result of governmentally imposed shutdowns, workforce realignments, labor and supply chain interruptions, and quarantines and travel restrictions, among other factors. Certain key sources of revenue for the WarnerMedia Business, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks. Shutdowns and/or restrictions relating to television and theatrical production activity have impacted, and may continue to impact, various aspects of project scheduling, completion and budgets, as well as revenue streams tied to projected release or availability dates. All such impacts may continue for an indefinite length of time.

Our actions to limit the adverse effects of COVID-19 on our financial condition may not be successful, as the extent and duration of the adverse effects of the pandemic are not determinable and depend on future developments, which are highly uncertain and cannot be predicted. Events resulting from the effects of COVID-19 may negatively impact our ability to comply with its financial covenants. Also, additional funding may not be available to us on acceptable terms or at all. If adequate funding is not available, we may be required to reduce expenditures, including curtailing our growth strategies and reducing our product development efforts, or forego acquisition opportunities.

~~Risks Related to Domestic and Foreign Laws and Regulations and Other Risks Related to International Operations~~

~~Changes in domestic and foreign laws and regulations and other risks related to international operations could adversely impact our business, financial condition and results of operations.~~

Programming services like the Discovery Business and the WarnerMedia Business, and the distributors of our services, including cable operators, satellite operators and other multi-channel video programming distributors, are regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the Federal Communications Commission (the “FCC”), as well as by state and local governments, in ways that will affect the daily conduct of our video content business. These obligations and regulations, among other things, require closed captioning of programming for the hearing impaired, require certain content providers to make available audio descriptions of programming for the visually impaired, limit the amount and content of commercial matter that may be shown during programming aimed primarily at an audience of children aged 12 and under, and require the identification of (or the maintenance of lists of) sponsors of political advertising. The U.S. Congress, the FCC and the courts currently have under consideration, and may adopt or interpret in the future, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations of our U.S. media properties or modify the terms under which we offer our services and operate.

Similarly, the foreign jurisdictions in which the Discovery Business and the WarnerMedia Business networks are offered have, in varying degrees, laws and regulations that govern our business. The Discovery Business and the WarnerMedia Business have operations through which we offer for sale and distribute programming and other goods and services outside of the United States. As a result, our business will be subject to certain risks inherent in international business, many of which are beyond our control. These risks include:

•~~laws and policies affecting trade and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;~~

•local regulatory requirements (and any changes to such requirements), including restrictions on content, censorship, imposition of local content quotas, local production levies and restrictions or prohibitions on foreign ownership, outsourcing, consumer protection, intellectual property and related rights, including copyright and rightsholder rights and remuneration;

•~~our ability to obtain the appropriate licenses and other regulatory approvals we need to broadcast content in foreign countries;~~

•~~differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;~~

•~~significant fluctuations in foreign currency value;~~

•~~currency exchange and central banking controls;~~

•~~the instability of foreign economies and governments;~~

•~~the potential for political, social, or economic unrest, terrorism, hostilities, cyber-attacks or war, including the conflict between Russia and Ukraine;~~

•anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K. Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations;

•sanction laws and regulations such as those administered by the Office of Foreign Assets Control that restrict our dealings with certain sanctioned countries, territories, individuals and entities; these laws and regulations are complex, frequently changing, and increasing in number, and may impose additional prohibitions or compliance obligations on our dealings in certain countries and territories, including sanctions imposed on Russia and certain Ukrainian territories;

•~~foreign privacy and data protection laws and regulations and changes in these laws; and~~

•~~shifting consumer preferences regarding the viewing of video programming.~~

Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-U.S. sources, which could have a material adverse effect on our business, financial condition and results of operations. Acts of terrorism, hostilities, imposition of sanctions or financial, political, economic or other uncertainties could lead to a reduction in revenue or loss of investment, which could materially adversely affect our results of operations. Furthermore, some foreign markets where the Discovery Business, the WarnerMedia Business and our partners operate may be more adversely affected by current economic conditions than the United States. We also may incur substantial expense as a result of changes, including the imposition of new restrictions, in the existing regulatory, economic or political environment in the regions where we do business.

This is of particular concern in Poland, where we own and operate TVN, a portfolio of free-to-air and pay-TV lifestyle, entertainment, and news networks. On December 17, 2021, a proposed amendment to the Polish Broadcasting Act commonly referred to as “LEX TVN” was presented to the lower chamber of the Polish Parliament (the “Sejm”) for consideration and was subsequently passed by the Sejm. LEX TVN would prohibit the granting of licenses for television and radio broadcasting channels in Poland, such as the TVN portfolio of channels, to broadcasters with more than 49% of their share capital directly or indirectly controlled by an entity with a registered seat outside of the European Economic Area, essentially precluding non-European Economic Area ownership of media entities in Poland. LEX TVN was presented to the President of Poland for consideration and, on December 27, 2021, the President of Poland vetoed LEX TVN. In the future, if legislation similar to LEX TVN is enacted, it could, directly or indirectly, affect the future operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market in the future.

The evolving regulatory environment in international markets may also impact strategy, costs and results of operations, including with respect to local programming investment obligations, satisfaction of local content quotas, access to local production incentive schemes, such as film subsidies, and direct and indirect digital taxes or levies on internet-based programming services.

~~Risks Related to Corporate Structure~~

We have directors in common with those of Liberty Media Corporation (“Liberty Media”), Liberty Global plc (“Liberty Global”), Qurate Retail Group f/k/a Liberty Interactive Corporation (“Qurate Retail”), Liberty Broadband Corporation ("Liberty Broadband"), Liberty Latin America Ltd ("LLA") and Liberty Media Acquisition Corp (“LMAC”), which may result in the diversion of business opportunities or other potential conflicts.

Liberty Media, Liberty Global, Qurate Retail, Liberty Broadband and LLA (together, the "Liberty Entities") own interests in various U.S. and international companies, such as Charter Communications, Inc. ("Charter"), that have subsidiaries that own or operate domestic or foreign content services that may compete with the content services we offer. We have no rights in respect of U.S. or international content opportunities developed by or presented to the subsidiaries of any Liberty Entities, and the pursuit of these opportunities by such subsidiaries may adversely affect our interests and those of our stockholders. Because we and the Liberty Entities have overlapping directors, the pursuit of business opportunities may serve to intensify the conflicts of interest or appearance of conflicts of interest faced by the respective management teams. Our charter provides that none of our directors or officers will be liable to us or any of our subsidiaries for breach of any fiduciary duty by reason of the fact that such individual directs a corporate opportunity to another person or entity (including any Liberty Entities), for which such individual serves as a director or officer, or does not refer or communicate information regarding such corporate opportunity to us or any of our subsidiaries, unless (a) such opportunity was expressly offered to such individual solely in his or her capacity as a director or officer of us or any of our subsidiaries and (b) such opportunity relates to a line of business in which we or any of our subsidiaries is then directly engaged.

We have directors that are also related persons of Advance/Newhouse and that overlap with those of the Liberty Entities, which may lead to conflicting interests for those tasked with the fiduciary duties of our board.

~~Following the Merger, Advance/Newhouse owns shares representing approximately 8% of our outstanding common stock.~~

Our thirteen-person board of directors includes Steven A. Miron, the Chief Executive Officer of Advance/Newhouse Programming Partnership (“Advance/Newhouse”) and Steven O. Newhouse, Co-President of Advance Publications, Inc., which holds interests in Advance/Newhouse and Charter. Pursuant to a consent agreement entered into between Advance/Newhouse and the Company in connection with the Merger, the Company designated Mr. Miron and Mr. Newhouse to our board of directors with terms ending on the third annual meeting following the Merger. In addition, our board of directors includes two persons who are currently members of the board of directors of Liberty Media, two persons who are currently members of the board of directors of Liberty Global, one person who is currently a member of the board of directors of Qurate Retail, one person who is currently a member of the board of directors of Liberty Broadband, one person who is currently a member of the board of directors of Charter, of which Liberty Broadband owns an equity interest, one person who is currently a member of the board of directors of LLA, and one person who is currently a member of the board of directors of LMAC. John C. Malone is the Chairman of the boards of all of the Liberty Entities other than LLA and Qurate Retail. The parent company of Advance/Newhouse and the Liberty Entities own interests in a range of media, communications and entertainment businesses.

None of the Liberty Entities own any interest in us. Mr. Malone beneficially owns: shares of Liberty Media representing approximately 48% of the aggregate voting power of its outstanding stock, shares representing approximately 30% of the aggregate voting power of Liberty Global, shares representing approximately 6% of the aggregate voting power of Qurate Retail, shares representing approximately 49% of the aggregate voting power of Liberty Broadband and, following the Merger, shares representing less than 1% of our outstanding common stock. Our directors who are also directors of the Liberty Entities hold stock and stock-based compensation in the Liberty Entities and hold our stock and stock-based compensation.

These ownership interests and/or business positions could create, or appear to create, potential conflicts of interest when these individuals are faced with decisions that could have different implications for us, Advance/Newhouse and/or the Liberty Entities. For example, there may be the potential for a conflict of interest when we, on the one hand, or Advance/Newhouse and/or one or more of the Liberty Entities, on the other hand, consider acquisitions and other corporate opportunities that may be suitable for the other.

The members of our board of directors have fiduciary duties to us and our stockholders. Likewise, those persons who serve in similar capacities at Advance/Newhouse or a Liberty Entity have fiduciary duties to those companies. Therefore, such persons may have conflicts of interest or the appearance of conflicts of interest with respect to matters involving or affecting both respective companies, and there can be no assurance that the terms of any transactions will be as favorable to us or our subsidiaries as would be the case in the absence of a conflict of interest.

~~It may be difficult for a third party to acquire us, even if such acquisition would be beneficial to our stockholders.~~

~~Certain provisions of our charter and bylaws may discourage, delay or prevent a change in control that a stockholder may consider favorable. These provisions include the following:~~

•~~authorizing the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;~~

•classifying our Board of Directors with staggered three-year terms until the election of directors at our 2025 annual meeting of stockholders, which may lengthen the time required to gain control of our Board of Directors;

•~~limiting who may call special meetings of stockholders;~~

•~~prohibiting stockholder action by written consent (subject to certain exceptions), thereby requiring stockholder action to be taken at a meeting of the stockholders;~~

•~~establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;~~

•the existence of authorized and unissued stock which would allow our Board of Directors to issue shares to persons friendly to current management, thereby protecting the continuity of our management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us.

In addition, under our charter, we have not opted out of the protections of Section 203 of the Delaware General Corporation Law, and we are therefore governed by Section 203. Accordingly, it is expected that Section 203 will have an anti-takeover effect with respect to transactions that the Board does not approve in advance and that Section 203 may discourage takeover attempts that might result in a premium over the market price of WBD capital stock.

~~If Advance/Newhouse were to sell its shares following the exercise of its registration rights, it may cause a significant decline in our stock price, even if our business is doing well.~~

Advance/Newhouse and Advance Newhouse Partnership (“ANP”) have been granted registration rights covering all of the shares of common stock now held or hereafter acquired by them. The registration rights, which are immediately exercisable subject to certain customary “blackout periods”, are transferable with the sale or transfer by them to their affiliates and successors, as well as a specified family foundation. The registration rights have been partially exercised, and this exercise or any other exercise of the registration rights, and subsequent sale of possibly large amounts of our common stock in the public market, could materially and adversely affect the market price of our common stock.

5547

ITEM 6. Exhibits.

Exhibit No.

Description

~~3.1~~

Second Restated Certificate of Incorporation of Warner Bros. Discovery, Inc. (incorporated by reference to Exhibit 3.1 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

~~3.2~~

~~Amended and Restated Bylaws of Warner Bros. Discovery, Inc. (incorporated by reference to Exhibit 3.2 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).~~

4.1

~~Twentieth Supplemental~~Base Indenture, dated as of ~~April 8, 2022, by and~~March 10, 2023, among ~~Discovery Communications, LLC,~~WarnerMedia Holdings, Inc., Warner Bros. Discovery, ~~Inc., Magallanes,~~ Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 ~~on Warner Bros. Discovery, Inc. Current Report on~~to the Form 8-K filed on ~~April 12, 2022).~~March 10, 2023 (SEC File No. 001-34177))

4.2

~~Twenty-First~~First Supplemental Indenture, dated as of ~~April 8, 2022, by and~~March 10, 2023, among ~~Discovery Communications, LLC,~~WarnerMedia Holdings, Inc., Warner Bros. Discovery, Inc., ~~Magallanes,~~Discovery Communications, LLC, Scripps Networks Interactive, Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.2 ~~on Warner Bros. Discovery, Inc. Current Report on~~to the Form 8-K filed on ~~April 12, 2022).~~March 10, 2023 (SEC File No. 001-34177))

~~4.3~~

Indenture, dated as of March 15, 2022, by and among Magallanes, Inc., AT&T Inc. and U.S. Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.3 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

~~4.4~~

First Supplemental Indenture, dated as of April 8, 2022, by and among Magallanes, Inc., Warner Bros. Discovery, Inc., Discovery Communications, LLC, Scripps Networks Interactive, Inc., and U.S. Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.4 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

~~4.5~~

Registration Rights Agreement, dated as of March 15, 2022, by and among Magallanes, Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC (incorporated by reference to Exhibit 4.5 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

~~4.6~~

Amended and Restated Registration Rights Agreement, dated as of April 11, 2022, by and among Discovery, Inc., Advance/Newhouse Partnership and Advance/Newhouse Programming Partnership (incorporated by reference to Exhibit 4.6 on Warner Bros. Discovery, Inc. Current Report on Form 8-K filed on April 12, 2022).

10.1

Warner Bros. Discovery, ~~Communications, LLC Supplemental Deferred Compensation~~Inc. Non-Employee Directors Deferral Plan ~~amended and restated as of March 11,~~(incorporated by reference to Exhibit 10.1 to the Form S-8 filed on December 16, 2022 ~~(filed herewith)~~(SEC File No. 001-34177))*

10.2

Letter amendment dated March 8, 2023, by and between David Zaslav and Warner Bros. Discovery, Inc. ~~Incentive Compensation Program~~, amending the Amended and Restated Employment Agreement dated as of May 16, 2021, as amended (filed herewith)*

10.3

~~Form of~~Warner Bros. Discovery, Inc. Annual Performance Restricted Stock Unit Grant Agreement for David Zaslav dated March 8, 2023 (filed herewith)*

10.4

Warner Bros. Discovery, Inc. Additional Performance Restricted Stock Unit Grant Agreement for David Zaslav dated March 8, 2023 (filed herewith)*

10.5

Form of Warner Bros. Discovery, Inc. 2023 Special PRSU Agreement for Executives (filed herewith)*

Table of Senior Notes, Issuer and Guarantors (filed herewith).

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document (filed herewith)†

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)†

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)†

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)†

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)†

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Indicates management contract or compensatory plan, contract or arrangement.

†Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, (ii) Consolidated Statements of Operations for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, (v) Consolidated Statement of Equity for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, and (vi) Notes to Consolidated Financial Statements.

5749

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.

WARNER BROS. DISCOVERY, INC.

(Registrant)

Date: ~~April 26, 2022~~May 5, 2023

By:

/s/ David M. Zaslav

David M. Zaslav

President and Chief Executive Officer

Date: ~~April 26, 2022~~May 5, 2023

By:

/s/ Gunnar Wiedenfels

Gunnar Wiedenfels

Chief Financial Officer

5850



			Page

PART I. FINANCIAL INFORMATION.

ITEM 1. Unaudited Financial Statements.

Consolidated Statements of Operations.			4

Consolidated Statements of Comprehensive ~~Income~~(Loss) Income..			5

Consolidated Balance Sheets.			6

Consolidated Statements of Cash Flows.			7

Consolidated Statements of Equity.			8

Notes to Consolidated Financial Statements.			10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			31

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.			4746

ITEM 4. Controls and Procedures.			4746

PART II. OTHER INFORMATION.

ITEM 1. Legal Proceedings.			4847

ITEM 1A. Risk Factors.			4847





ITEM 6. Exhibits.			5648

SIGNATURES.			5850


	Preferred Stock			Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Warner Bros. Discovery, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Par Value		Shares	Par Value
December 31, 2021	12	$	—	736	$	7	$	11,086	$	(8,244)	$	9,580	$	(830)	$	11,599	$	1,434	$	13,033


Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—		—		456		—		456		16		472
Other comprehensive loss	—	—		—	—		—		—		—		(117)		(117)		—		(117)
Share-based compensation	—	—		—	—		53		—		—		—		53		—		53



Tax settlements associated with share-based plans	—	—		—	—		(38)		—		—		—		(38)		—		(38)
Dividends paid to noncontrolling interests	—	—		—	—		—		—		—		—		—		(192)		(192)
Issuance of stock in connection with share-based plans	—	—		3	—		19		—		—		—		19		—		19
Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—		—		(3)		—		(3)		—		(3)

March 31, 2022	12	$	—	739	$	7	$	11,120	$	(8,244)	$	10,033	$	(947)	$	11,969	$	1,258	$	13,227





























The accompanying notes are an integral part of these consolidated financial statements.


	March 31, 2022		December 31, 2021
Produced content rights:
Completed	$	10,900	$	10,404
In-production	722		696
Coproduced content rights:
Completed	1,032		1,003
In-production	71		91
Licensed content rights:
Acquired	1,116		1,213
Prepaid	238		251
Content rights, at cost	14,079		13,658
Accumulated amortization	(10,070)		(9,581)
Total content rights, net	4,009		4,077
Current portion	(143)		(245)
Noncurrent portion	$	3,866	$	3,832


	U.S. Networks		International Networks		Total





December 31, 2021	$	10,813	$	2,099	$	12,912



Foreign currency translation and other	—		(40)		(40)
March 31, 2022	$	10,813	$	2,059	$	12,872


	March 31, 2022		December 31, 2021
2.375% Senior Notes, euro denominated, annual interest, due March 2022	$	—	$	339
2.950% Senior Notes, semi-annual interest, due March 2023	796		796
3.250% Senior Notes, semi-annual interest, due April 2023	192		192
3.800% Senior Notes, semi-annual interest, due March 2024	450		450
2.500% Senior Notes, sterling denominated, annual interest, due September 2024	527		540
3.900% Senior Notes, semi-annual interest, due November 2024	497		497
3.450% Senior Notes, semi-annual interest, due March 2025	300		300
3.950% Senior Notes, semi-annual interest, due June 2025	500		500
4.900% Senior Notes, semi-annual interest, due March 2026	700		700
1.900% Senior Notes, euro denominated, annual interest, due March 2027	667		678
3.950% Senior Notes, semi-annual interest, due March 2028	1,700		1,700
4.125% Senior Notes, semi-annual interest, due May 2029	750		750
3.625% Senior Notes, semi-annual interest, due May 2030	1,000		1,000
5.000% Senior Notes, semi-annual interest, due September 2037	548		548
6.350% Senior Notes, semi-annual interest, due June 2040	664		664
4.950% Senior Notes, semi-annual interest, due May 2042	285		285
4.875% Senior Notes, semi-annual interest, due April 2043	516		516
5.200% Senior Notes, semi-annual interest, due September 2047	1,250		1,250
5.300% Senior Notes, semi-annual interest, due May 2049	750		750
4.650% Senior Notes, semi-annual interest, due May 2050	1,000		1,000
4.000% Senior Notes, semi-annual interest, due September 2055	1,732		1,732



Total debt	14,824		15,187
Unamortized discount, premium and debt issuance costs, net (a)	(425)		(428)
Debt, net of unamortized discount, premium and debt issuance costs	14,399		14,759
Current portion of debt	(794)		(339)
Noncurrent portion of debt	$	13,605	$	14,420


	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit (expense)		Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency	$	(105)	$	—	$	(105)	$	(230)	$	16	$	(214)
Net investment hedges	22		(14)		8		42		5		47
Reclassifications:
Gain on disposition	(2)		—		(2)		—		—		—
Total currency translation adjustments	(85)		(14)		(99)		(188)		21		(167)

Derivative adjustments:
Unrealized gains (losses)	(13)		1		(12)		297		(62)		235
Reclassifications from other comprehensive income to net income	(6)		—		(6)		3		(1)		2
Total derivative adjustments	(19)		1		(18)		300		(63)		237
Other comprehensive income (loss) adjustments	$	(104)	$	(13)	$	(117)	$	112	$	(42)	$	70


	U.S. Networks		International Networks		Corporate, inter-segment eliminations, and other		Total
December 31, 2021	$	4	$	13	$	2	$	19

Employee termination accruals, net	—		(1)		—		(1)

Cash paid	—		1		—		1
March 31, 2022	$	4	$	13	$	2	$	19