Item 1. Unaudited Financial Statements.

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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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE 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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)


	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	4,162	$	3,905
Receivables, net	2,426		2,446
Content rights and prepaid license fees, net	143		245
Prepaid expenses and other current assets	442		668
Total current assets	7,173		7,264
Noncurrent content rights, net	3,866		3,832
Property and equipment, net	1,328		1,336
Goodwill	12,872		12,912
Intangible assets, net	5,873		6,317

Other noncurrent assets	2,687		2,766
Total assets	$	33,799	$	34,427
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	521	$	412
Accrued liabilities	1,966		2,230

Deferred revenues	281		478
Current portion of debt	794		339
Total current liabilities	3,562		3,459
Noncurrent portion of debt	13,605		14,420
Deferred income taxes	1,112		1,225
Other noncurrent liabilities	1,958		1,927
Total liabilities	20,237		21,031
Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests	335		363
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
Additional paid-in capital	11,120		11,086
Treasury stock, at cost: 230 shares	(8,244)		(8,244)
Retained earnings	10,033		9,580
Accumulated other comprehensive loss	(947)		(830)
Total Warner Bros. Discovery, Inc. stockholders' equity	11,969		11,599
Noncontrolling interests	1,258		1,434
Total equity	13,227		13,033
Total liabilities and equity	$	33,799	$	34,427

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

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)


	Three Months Ended March 31,
	2022		2021
Operating Activities
Net income	$	475	$	191
Adjustments to reconcile net income to cash provided by operating activities:
Content rights amortization and impairment	973		743
Depreciation and amortization	525		361
Deferred income taxes	(118)		(108)
Share-based compensation expense	60		64

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


Gain from derivative instruments, net	(514)		(1)
Other, net	33		(3)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net	(5)		41
Content rights and payables, net	(993)		(926)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(124)		(110)
Foreign currency, prepaid expenses and other assets, net	(10)		26
Cash provided by operating activities	323		269
Investing Activities
Purchases of property and equipment	(85)		(90)
Proceeds from sales and maturities of investments	—		274
Investments in and advances to equity investments	(42)		(55)
Proceeds from derivative instruments, net	639		29





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

Distributions to noncontrolling interests and redeemable noncontrolling interests	(224)		(183)











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

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.

(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.

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 “Warner Bros. Discovery, Inc.” (“Warner Bros. Discovery”, “WBD”, the “Company”, “we”, “us” or “our”). On April 11, 2022, the Company’s shares started trading on the Nasdaq Global Select Market 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 was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery. (See Note 19.) 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.

Discovery was deemed to be the accounting acquirer of the WarnerMedia Business for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”); therefore, 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.

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") 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 (the “2021 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.

Significant estimates and judgments inherent 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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3. INVESTMENTS

The Company’s equity investments consisted of the following, net of investments recorded 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 which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. The Company had impairment losses of $11 million for the three months ended March 31, 2022, because the change in value was considered other-than-temporary. The Company had no impairment losses 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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Certain of the Company's other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of March 31, 2022, 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 million. The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $105 million as of March 31, 2022 and $126 million as of December 31, 2021. The Company recognized its portion of VIE operating results with net losses of $17 million and $8 million for the three months ended March 31, 2022 and 2021, respectively.

Investments with Readily Determinable Fair Value

Investments in entities or other securities in which 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.

During the three months ended March 31, 2022, the Company did not invest in equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had no indicators that a change in fair value had taken place. As of March 31, 2022, the Company had recorded cumulative upward adjustments of $9 million and cumulative impairments of $88 million for its equity investments without readily determinable fair values.

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. 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 of unamortized discount, premium, and debt issuance costs, net is not material.

.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, all senior notes are fully and unconditionally guaranteed by the Company and Scripps Networks Interactive, Inc. ("Scripps Networks"), except for the remaining $23 million of un-exchanged Scripps Networks senior notes.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, 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 credit agreement (the "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 Credit Facility 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 Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As 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 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 and December 31, 2021, the Company had no outstanding borrowings under the Credit Facility or the commercial paper program.

Credit Agreement Financial Covenants

The Credit Agreement includes 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.

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates 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 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, net in the consolidated statements of operations.

Net Investment Hedges

During the 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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Finally, during the three months ended March 31, 2022, 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 in other income, net in the consolidated statements of operations.

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, 2022 and December 31, 2021. The fair value of the Company's derivative financial instruments 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 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 as of March 31, 2022 remained static over the next twelve months, the Company would reclassify $7 million of net deferred losses from accumulated other comprehensive loss into income 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.

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)

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.

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 usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as advertising contracts.

NOTE 11. SHARE-BASED COMPENSATION

The Company has various incentive plans under which performance-based restricted stock units ("PRSUs"), service-based restricted stock units ("RSUs"), 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

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 (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.

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 12. INCOME TAXES

Income tax expense was $201 million and $106 million for the three months ended March 31, 2022 and March 31, 2021, respectively. The increase in the three months ended March 31, 2022 was primarily attributable to an increase in pre-tax book income. Income tax expense for the three months ended March 31, 2022 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the effect of foreign operations and state and local income taxes.

The Company's reserves for uncertain tax positions as of March 31, 2022 and December 31, 2021 totaled $510 million and $420 million, respectively. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $93 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 and December 31, 2021, the Company had accrued approximately $58 million and $60 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. 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 Income, net


	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

Supplemental Cash Flow Information


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


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

Cash, Cash Equivalents, and Restricted Cash


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	4,162	$	3,905
Restricted cash - other current assets	3		—
Total cash, cash equivalents, and restricted cash	$	4,165	$	3,905

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") and their subsidiaries and equity method investees (collectively the “Liberty Group”). The Company’s Board of Directors includes Dr. Malone, who is Chairman of the Board of Liberty Global and beneficially owns approximately 30% of the aggregate voting power with respect to the election of directors of Liberty Global. Dr. Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 47% of the aggregate voting power with respect to the election of directors of Liberty Broadband. 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.

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)

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

NOTE 16. COMMITMENTS AND CONTINGENCIES

Put Rights

The Company has granted put rights to certain consolidated subsidiaries.

Legal Matters

From 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, vendors, other business partners or patent issues. 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 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"), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions. The Company expects to reevaluate its segment presentation and reportable segments following the Merger during the quarter ending June 30, 2022.

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. The Company does not report assets by segment because this 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. Adjusted OIBDA is defined as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction and integration costs, 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 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 and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes the depreciation of fixed assets and amortization of intangible assets, 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 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 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

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

WARNER BROS. DISCOVERY, INC.

(formerly known as Discovery, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Reconciliation of Net 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

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. SUBSEQUENT EVENTS

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.

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 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.

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.

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