Item 1. Unaudited Financial Statements.

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Item 1. Unaudited Financial Statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)


	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.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited; in millions)


	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.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,594	$	3,731
Receivables, net	6,833		6,380

Prepaid expenses and other current assets	4,300		3,888
Total current assets	13,727		13,999
Film and television content rights and games	25,473		26,652
Property and equipment, net	5,325		5,301


Goodwill	34,658		34,438
Intangible assets, net	43,239		44,982

Other noncurrent assets	8,162		8,629
Total assets	$	130,584	$	134,001
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,123	$	1,454
Accrued liabilities	10,158		11,504

Deferred revenues	1,603		1,694
Current portion of debt	3,496		365
Total current liabilities	16,380		15,017
Noncurrent portion of debt	45,434		48,634
Deferred income taxes	10,211		11,014
Other noncurrent liabilities	10,717		10,669
Total liabilities	82,742		85,334
Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests	309		318

Warner Bros. Discovery, Inc. stockholders’ equity:
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	—		—






Additional paid-in capital	54,685		54,630
Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)
Retained earnings	1,133		2,205
Accumulated other comprehensive loss	(1,105)		(1,523)
Total Warner Bros. Discovery, Inc. stockholders’ equity	46,496		47,095
Noncontrolling interests	1,037		1,254
Total equity	47,533		48,349
Total liabilities and equity	$	130,584	$	134,001

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

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited; in millions)


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

Share-based compensation expense	111		60

Equity in losses of equity method investee companies and cash distributions	62		21



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


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




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

Principal repayments of debt, including premiums to par value	(1,606)		(327)
Borrowings from debt, net of discount and issuance costs	1,500		—
Distributions to noncontrolling interests and redeemable noncontrolling interests	(237)		(224)







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


Other financing activities, net	(88)		(36)
Cash used in financing activities	(432)		(587)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	29		(5)
Net change in cash, cash equivalents, and restricted cash	(1,291)		260
Cash, cash equivalents, and restricted cash, beginning of period	3,930		3,905
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.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)


	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.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)


		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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Warner 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.

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. (See Note 2 and Note 3). Prior to the Merger, 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 WM's retention of certain debt. Discovery transferred purchase consideration of $42.4 billion in equity to AT&T 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 Merger representing 71% of the combined Company and the Company's pre-Merger shareholders continued 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 WM Business for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”); therefore, Discovery is considered 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 the Company’s historical financial statements. Accordingly, the financial results of the Company as of and for any periods prior to April 8, 2022 do not include the financial results of the WM Business and current and future results will not be comparable to historical results.

Principles of Consolidation

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.

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, 2022 (the “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 Accounting Policies

There have been no changes to the Company's significant accounting policies described in the 2022 Form 10-K.

WARNER BROS. 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 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 Merger required the consent of Advance/Newhouse Programming Partnership under Discovery'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 in selling, general and administrative expense upon the closing of the Merger in the three months ended 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 conversion of Series A-1 Preferred Stock into WBD common stock in connection with the Merger was considered 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 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 Company.

WARNER BROS. DISCOVERY, INC.

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 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 million for 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 million in selling, 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 million for 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 other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of March 31, 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 $725 million. The Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $703 million as of March 31, 2023 and $720 million as of December 31, 2022. VIE gains and losses are recorded in loss from equity investees, net on the consolidated statements of operations, and were not material for the three months ended March 31, 2023 and 2022.

Equity Investments Without Readily Determinable Fair Values Assessed Under the Measurement Alternative

During the three months ended March 31, 2023, the Company concluded that its other equity method investments without readily determinable fair values had decreased $68 million in fair value 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, 2023, the Company had recorded cumulative impairments of $297 million for its equity method investments without readily determinable fair values.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 9. DEBT

The table below presents the components of outstanding debt (in millions).


	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 6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and 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.

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.

As of March 31, 2023, all senior notes are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc. (“Scripps 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 legacy WarnerMedia Business assumed by the Company in connection with the Merger and $23 million of un-exchanged senior notes issued by Scripps Networks. Additionally, the term loans of WarnerMedia Holdings, Inc., made under the $10.0 billion term loan credit agreement (the “Term Loan Credit Agreement”), are fully and unconditionally guaranteed by the Company, Scripps Networks, and DCL.

Revolving Credit Facility and Commercial Paper Programs

The Company has a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and has the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). The Company may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. The Company’s commercial paper program is supported by the Credit Facility. Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program. As of March 31, 2023 and December 31, 2022, the Company had no outstanding borrowings under its Credit Facility or its commercial paper program.

Credit Agreement Financial Covenants

The Revolving Credit Agreement 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 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 11. 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.

WARNER BROS. 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


		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 financial instruments listed in the tables above, the Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, term loans, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of March 31, 2023 and December 31, 2022. The estimated fair value of the Company’s outstanding senior notes, including accrued interest, using quoted prices from over-the-counter markets, considered Level 2 inputs, was $41.6 billion and $38.0 billion as of March 31, 2023 and December 31, 2022, 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 obligation for its revolving receivable program is discussed in Note 6.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 12. SHARE-BASED COMPENSATION

The Company has various incentive plans under which performance based restricted stock units (“PRSUs”), service based restricted stock units (“RSUs”), and stock options have been issued. The table below presents awards granted (in millions, except weighted-average grant price).


	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, 2023 (in millions, except 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

NOTE 13. INCOME TAXES

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

Income tax benefit for the three months ended March 31, 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 million and $1,929 million, respectively. The increase in the reserve for uncertain tax positions as of March 31, 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 uncertain tax positions could decrease by as much as $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, 2023 and December 31, 2022, the Company had accrued approximately $492 million and $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.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 14. SUPPLEMENTAL DISCLOSURES

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

Other (Expense) Income, net

Other (expense) income, net, consisted of the following (in millions).


	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,
	2023		2022
Cash paid for taxes, net	$	312	$	97
Cash paid for interest, net	920		186
Non-cash investing and financing activities:




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

Cash, Cash Equivalents, and Restricted Cash


	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	2,594	$	3,731
Restricted cash - recorded in prepaid expenses and other current assets (1)	45		199
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).

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”) and their subsidiaries (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 and 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.

WARNER BROS. 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,
	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, 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, 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 time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including those related to employees, stockholders, vendors, other business partners, or 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 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. In connection with the Merger, the Company reevaluated and changed its segment presentation and reportable segments during the quarter 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 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 it is not used to allocate resources or evaluate segment performance.

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

employee share-based compensation;

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

depreciation and amortization;
restructuring and facility consolidation;
certain impairment charges;
gains and losses on business and asset dispositions;
certain inter-segment eliminations;
third-party transaction and integration costs;
amortization of purchase accounting fair value step-up for content;
amortization of capitalized interest for content; and
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 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, certain impairment charges, gains and losses on business and asset dispositions, and transaction and integration costs from the calculation of Adjusted 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 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 reportable segments and inter-segment eliminations (in millions).

Revenues


	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 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

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Reconciliation of Net (Loss) Income available to Warner Bros. Discovery, Inc. to Adjusted 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. SUBSEQUENT EVENTS

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

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