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

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

BUSINESS OVERVIEW

Warner Bros. Discovery 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, 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.

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

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

The Writers Guild of America and Screen Actors Guild-American Federation of Television and Radio Artists went on strike in May and July 2023, respectively. There were no material impacts to our business during the three months ended June 30, 2023 as a result of the strikes. We continue to closely monitor the ongoing impact to our business; however, the effects on our operations and results are not yet known and will depend on future developments, which are highly uncertain and cannot be predicted.

In May 2023, we launched Max, our enhanced streaming service. Max combines HBO Max and discovery+ content to create a unique and complete viewing experience for consumers by combining our unrivaled breadth and superior quality of content and brands with iconic franchises and strong product experience. discovery+ will continue to be available to consumers.

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 includes, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. While the Company’s restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024. We expect that we will incur approximately $4.1 - $5.3 billion in pre-tax restructuring charges, of which we have incurred $4.0 billion as of June 30, 2023. Of the total expected pre-tax restructuring charges, we expect total cash expenditures to be $1.0 - $ 1.5 billion. During the three and six months ended June 30, 2023, we incurred $146 million and $241 million, respectively, of pre-tax restructuring charges. While our restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024.

As of June 30, 2023, we classified our operations in three reportable segments:

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

• Networks -** Our Networks segment primarily consists of our domestic and international television networks.

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

Our segment presentation is aligned with our management structure and the financial information management uses to make decisions about operating matters, such as the allocation of resources and business performance assessments.

RESULTS OF OPERATIONS

The discussion below compares our actual results for the three and six months ended June 30, 2023 to our pro forma combined results, as if the Merger occurred on January 1, 2021, for the three and six months ended June 30, 2022. Management believes reviewing our pro forma combined operating results in addition to actual operating results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. Our Studios, Networks, DTC, Corporate, and inter-segment eliminations information is based on the historical operating results of the respective segments and include, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments.

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

Foreign Exchange Impacting Comparability

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

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

Consolidated Results of Operations

The tables below present our consolidated results of operations (in millions).

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Combined (ex-FX)
Revenues:
Distribution						$	5,135											$	4,838		$	343		$	5,181								6		%	(1)		%	—		%
Advertising						2,519												2,721			178			2,899									(7)		%	(13)		%	(13)		%
Content						2,446												2,064			446			2,510									19		%	(3)		%	(3)		%
Other						258												204			29			233									26		%	11		%	9		%
Total revenues						10,358												9,827			996			10,823									5		%	(4)		%	(4)		%
Costs of revenues, excluding depreciation and amortization						6,636												6,625			520			7,145									—		%	(7)		%	(7)		%
Selling, general and administrative						2,562												3,538			(553)			2,985									(28)		%	(14)		%	(14)		%
Depreciation and amortization						1,914												2,266			(420)			1,846									(16)		%	4		%	4		%
Restructuring						146												1,033			(89)			944									(86)		%	(85)		%	(85)		%
Impairments and loss on dispositions						6												4			—			4									50		%	50		%	(25)		%
Total costs and expenses						11,264												13,466			(542)			12,924									(16)		%	(13)		%	(13)		%
Operating loss						(906)												(3,639)			1,538			(2,101)									75		%	57		%	57		%
Interest expense, net						(574)												(511)			(54)			(565)
Loss on extinguishment of debt						(5)												—			—			—
Loss from equity investees, net						(22)												(43)			(7)			(50)
Other income (expense), net						27												(51)			25			(26)
Loss before income taxes						(1,480)												(4,244)			1,502			(2,742)
Income tax benefit						260												836			60			896
Net loss						(1,220)												(3,408)			1,562			(1,846)
Net income attributable to noncontrolling interests						(16)												(7)			(1)			(8)
Net income attributable to redeemable noncontrolling interests						(4)												(3)			—			(3)
Net loss available to Warner Bros. Discovery, Inc.						$	(1,240)											$	(3,418)		$	1,561		$	(1,857)

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual (a)			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	10,298											$	6,190		$	4,339		$	10,529								66		%	(2)		%	(1)		%
Advertising						4,817												4,197			1,412			5,609									15		%	(14)		%	(14)		%
Content						5,400												2,387			3,297			5,684									NM			(5)		%	(4)		%
Other						543												212			230			442									NM			23		%	22		%
Total revenues						21,058												12,986			9,278			22,264									62		%	(5)		%	(4)		%
Costs of revenues, excluding depreciation and amortization						13,321												7,861			5,781			13,642									69		%	(2)		%	(2)		%
Selling, general and administrative						4,950												4,578			1,745			6,323									8		%	(22)		%	(21)		%
Depreciation and amortization						3,972												2,791			997			3,788									42		%	5		%	5		%
Restructuring						241												1,038			(90)			948									(77)		%	(75)		%	(75)		%
Impairments and loss on dispositions						37												4			—			4									NM			NM			NM
Total costs and expenses						22,521												16,272			8,433			24,705									38		%	(9)		%	(8)		%
Operating loss						(1,463)												(3,286)			845			(2,441)									55		%	40		%	42		%
Interest expense, net						(1,145)												(664)			(499)			(1,163)
Loss on extinguishment of debt						(5)												—			—			—
Loss from equity investees, net						(59)												(57)			(20)			(77)
Other (expense) income, net						(46)												439			139			578
Loss before income taxes						(2,718)												(3,568)			465			(3,103)
Income tax benefit						438												635			342			977
Net loss						(2,280)												(2,933)			807			(2,126)
Net income attributable to noncontrolling interests						(24)												(23)			(1)			(24)
Net income attributable to redeemable noncontrolling interests						(5)												(6)			—			(6)
Net loss available to Warner Bros. Discovery, Inc.						$	(2,309)											$	(2,962)		$	806		$	(2,156)
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

NM - Not meaningful

Unless otherwise indicated, the discussion through operating (loss) income below reflects results for the three and six months ended June 30, 2022 on a pro-forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenues, and selling, general and administrative expenses are substantially attributable to the Merger. The percent changes of line items below operating (loss) income in the table above are not included as the activity is principally in U.S. dollars.

Revenues

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

Distribution revenue was flat and decreased 1% for the three and six months ended June 30, 2023, respectively. For the three months ended June 30, 2023, declines in linear subscribers in the U.S. and DTC wholesale revenues were offset by global DTC subscriber growth and higher U.S. contractual affiliate rates. The decrease for the six months ended June 30, 2023 was primarily attributable to declines in DTC wholesale revenues and linear subscribers in the U.S., partially offset by global DTC subscriber growth and higher U.S. contractual affiliate rates.

Advertising revenues are principally generated from the sale of commercial time on linear (television networks and authenticated TVE applications) and digital platforms (DTC subscription services and websites), and sold primarily on a national basis in the U.S. and on a pan-regional or local-language feed basis outside the U.S. Advertising contracts generally have a term of one year or less. Advertising revenue is dependent upon a number of factors, including the number of subscribers to our channels, viewership demographics, the popularity of our content, our ability to sell commercial time over a group of channels, the stage of development of television markets, and the popularity of FTA television. Revenue from advertising is subject to seasonality, market-based variations, the mix in sales of commercial time between the upfront and scatter markets, and general economic conditions. Advertising revenue is typically highest in the second and fourth quarters. In some cases, advertising sales are subject to ratings guarantees that require us to provide additional advertising time if the guaranteed audience levels are not achieved. We also generate revenue from the sale of advertising through our digital platforms on a stand-alone basis and as part of advertising packages with our television networks.

Advertising revenue decreased 13% and 14% for the three and six months ended June 30, 2023, respectively, primarily attributable to audience declines in domestic general entertainment and news networks, soft advertising markets in the U.S. and, to a lesser extent, certain international markets, and broadcast of the NCAA March Madness Final Four and Championship in 2022, partially offset by the broadcast of the Stanley Cup Finals. Additionally, the six months ended June 30, 2023 was unfavorably impacted by the prior year broadcast of the Olympics in Europe.

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

Content revenue decreased 3% and 4% for the three and six months ended June 30, 2023, respectively. The decrease for the three months ended June 30, 2023 was primarily attributable to lower TV licensing, games, home entertainment revenue, and theatrical film rentals, partially offset by the timing of certain DTC licensing deals. The decrease for the six months ended June 30, 2023 was primarily attributable to lower TV licensing, theatrical film rental, and home entertainment revenue, partially offset by higher games revenue due to the release of Hogwarts Legacy and the timing of certain DTC licensing deals.

Other revenue primarily consists of studio production services and tours.

Other revenue increased 9% and 22% for the three and six months ended June 30, 2023, respectively, primarily attributable to services provided to the unconsolidated TNT Sports joint venture (formerly known as BT Sport) and continued strong attendance at Warner Bros. Studio Tour London and Hollywood, as well as the opening of the Warner Bros. Studio Tour Tokyo. In addition, the six months ended June 30, 2023 was favorably impacted by higher studio production services.

Costs of Revenues

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

Costs of revenues decreased 7% and 2% for the three and six months ended June 30, 2023, respectively. The decrease for the three months ended June 30, 2023 was primarily attributable to lower content expense for Studios (television, theatrical, and games), DTC, and Networks. The decrease for the six months ended June 30, 2023 was primarily attributable to lower content expense for Studios (television and theatrical products) and Networks, partially offset by higher games cost of revenue.

Selling, General and Administrative

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

Selling, general and administrative expenses decreased 14%and 21% for the three and six months ended June 30, 2023, respectively, primarily attributable to more efficient marketing-related spend, notwithstanding increased costs in the three months ended June 30, 2023 for the Max U.S. launch campaign, and a reduction in personnel costs and technology-related operating expenses.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization increased 4% and 5% for the three and six months ended June 30, 2023, respectively, primarily attributable to intangible assets acquired during the Merger that are being amortized using the sum of the months’ digits method, which resulted in lower pro forma amortization in the three and six months ended June 30, 2022.

Restructuring

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company. Restructuring costs were primarily attributable to contract terminations, facility consolidation activities, organizational restructuring, and other charges and decreased $797 million and $707 million for the three and six months ended June 30, 2023, respectively. (See Note 4 to the accompanying consolidated financial statements.)

Impairments and Loss on Dispositions

Impairments and loss on dispositions was $6 million and $37 million for the three and six months ended June 30, 2023, respectively.

Interest Expense, net

Actual interest expense, net increased $63 million and $481 million for the three and six months ended June 30, 2023, respectively, primarily attributable to debt assumed as a result of the Merger. (See Note 9 and Note 10 to the accompanying consolidated financial statements.)

Loss From Equity Investees, net

Actual losses from our equity method investees were $22 million and $59 million for the three and six months ended June 30, 2023, respectively. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 8 to the accompanying consolidated financial statements.)

Other Income (Expense), net

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

						Three Months Ended June 30,												Six Months Ended June 30,
						2023						2022						2023						2022
Foreign currency losses, net						$	(4)					$	(81)					$	(97)					$	(70)
(Losses) gains on derivative instruments, net						—						(24)						3						473
Change in the value of investments with readily determinable fair value						(8)						(70)						21						(90)
Gain on sale of equity method investments						—						133						—						133
Change in fair value of equity investments without readily determinable fair value						(3)						—						(71)						—
Other income (expense), net						42						(9)						98						(7)
Total other income (expense), net						$	27					$	(51)					$	(46)					$	439

Income Tax Benefit

Income tax benefit was $260 million and $438 million for the three and six months ended June 30, 2023, respectively, and income tax benefit was $836 million and $635 million for the three and six months ended June 30, 2022, respectively. The decrease in income tax benefit for the three and six months ended June 30, 2023 was primarily attributable to an increase in pre-tax book income. The decrease is partially offset by the tax benefit from an uncertain tax position reserve release as a result of a multi-year audit resolution recorded in the three months ended June 30, 2023 and an unfavorable tax adjustment related to the preferred stock conversion transaction expense recorded in the three months ended June 30, 2022 associated with the merger.

Income tax benefit for the three and six months ended June 30, 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.

Segment Results of Operations

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;

• 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. Integration costs include transformative system implementations and integrations, such as Enterprise Resource Planning systems, and may take several years to complete. 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 table below presents our Adjusted EBITDA by segment (in millions).

						Three Months Ended June 30,																		Six Months Ended June 30,
						2023						2022						% Change						2023						2022						% Change
Studios						$	306					$	239					28		%				$	913					$	242					NM
Networks						$	2,166					$	2,262					(4)		%				$	4,459					$	3,617					23		%
DTC						$	(3)					$	(518)					99		%				$	47					$	(745)					NM
Corporate						$	(245)					$	(305)					20		%				$	(600)					$	(409)					(47)		%
Inter-segment eliminations						$	(75)					$	(14)					NM						$	(59)					$	(14)					NM

Studios Segment

The following tables present, for our Studios segment, revenues by type, certain operating expenses, Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating (loss) income (in millions).

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	3											$	4		$	1		$	5								(25)		%	(40)		%	(40)		%
Advertising						4												10			—			10									(60)		%	(60)		%	(60)		%
Content						2,398												2,636			551			3,187									(9)		%	(25)		%	(25)		%
Other						176												146			16			162									21		%	9		%	9		%
Total revenues						2,581												2,796			568			3,364									(8)		%	(23)		%	(24)		%
Costs of revenues, excluding depreciation and amortization						1,645												2,006			328			2,334									(18)		%	(30)		%	(30)		%
Selling, general and administrative						630												551			70			621									14		%	1		%	1		%
Adjusted EBITDA						306												239			170			409									28		%	(25)		%	(26)		%
Depreciation and amortization						143												158			(21)			137
Employee share-based compensation						—												—			1			1
Restructuring						10												200			(38)			162
Transaction and integration costs						2												—			—			—
Amortization of fair value step-up for content						271												563			(422)			141
Amortization of capitalized interest for content						22												—			—			—
Impairments and loss on dispositions						(1)												—			—			—
Operating (loss) income						$	(141)											$	(682)		$	650		$	(32)

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	6											$	4		$	6		$	10								50		%	(40)		%	(40)		%
Advertising						7												10			9			19									(30)		%	(63)		%	(63)		%
Content						5,425												2,641			3,898			6,539									NM			(17)		%	(16)		%
Other						355												146			154			300									NM			18		%	18		%
Total revenues						5,793												2,801			4,067			6,868									NM			(16)		%	(15)		%
Costs of revenues, excluding depreciation and amortization						3,604												2,007			2,392			4,399									80		%	(18)		%	(18)		%
Selling, general and administrative						1,276												552			698			1,250									NM			2		%	4		%
Adjusted EBITDA						913												242			977			1,219									NM			(25)		%	(24)		%
Depreciation and amortization						315												158			115			273
Employee share-based compensation						—												—			26			26
Restructuring						86												200			(38)			162
Transaction and integration costs						4												—			—			—
Amortization of fair value step-up for content						713												563			(251)			312
Amortization of capitalized interest for content						22												—			—			—
Inter-segment eliminations						1												—			—			—
Impairments and loss on dispositions						(1)												—			—			—
Operating (loss) income						$	(227)											$	(679)		$	1,125		$	446

The discussion below reflects results for the three and six months ended June 30, 2022 on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and Adjusted EBITDA are substantially attributable to the Merger.

Revenues

Content revenue decreased 25% and 16% for the three and six months ended June 30, 2023, respectively. The decrease for the three months ended June 30, 2023 was primarily attributable to lower TV licensing, games, home entertainment, and theatrical film rental revenue. TV licensing revenue decreased due to the timing of TV production, fewer CW series, and fewer series sold to our owned platforms. Games revenue decreased due to the release of LEGO Star Wars: The Skywalker Saga in the second quarter of 2022. Home entertainment and theatrical film rental revenue decreased due to the performance of prior year theatrical releases, including The Batman.

The decrease for the six months ended June 30, 2023 was primarily attributable to lower TV licensing, theatrical film rental, and home entertainment revenue, partially offset by higher games revenue due to the release of Hogwarts Legacy. TV licensing revenue decreased due to certain large TV licensing deals in the prior year, fewer CW series, fewer series sold to our owned platforms, the quantity and mix of theatrical availabilities, and the timing of TV production. Theatrical film rental revenue and home entertainment revenue decreased due to the performance of prior year theatrical releases, including The Batman.

Other revenue increased 9% and 18% for the three and six months ended June 30, 2023, respectively. The increase for the three and six months ended June 30, 2023 was primarily attributable to continued strong attendance at Warner Bros. Studio Tour London and Hollywood, as well as the opening of Warner Bros. Studio Tour Tokyo. In addition, the six months ended June 30, 2023 was favorably impacted by higher studio production services.

Costs of Revenues

Costs of revenues decreased 30% and 18% for the three and six months ended June 30, 2023, respectively. The decrease for the three months ended June 30, 2023 was primarily attributable to lower content expense for television, theatrical, and games products associated with lower revenues. The decrease for the six months ended June 30, 2023 was primarily attributable to lower content expense for television and theatrical products, partially offset by higher games cost of revenue.

Selling, General and Administrative

Selling, general and administrative expenses increased 1% and 4% for the three and six months ended June 30, 2023, respectively. The increase for the three months ended June 30, 2023 was primarily attributable to higher theatrical marketing expense. The increase for the six months ended June 30, 2023 was primarily attributable to higher marketing expense for games to support the release of Hogwarts Legacy.

Adjusted EBITDA

Adjusted EBITDA decreased 26% and 24% for the three and six months ended June 30, 2023, respectively.

Networks Segment

The tables below present, for our Networks segment, revenues by type, certain operating expenses, Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating income (in millions).

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	2,941											$	2,841		$	171		$	3,012								4		%	(2)		%	(1)		%
Advertising						2,448												2,624			178			2,802									(7)		%	(13)		%	(13)		%
Content						284												220			21			241									29		%	18		%	18		%
Other						85												57			9			66									49		%	29		%	24		%
Total revenues						5,758												5,742			379			6,121									—		%	(6)		%	(5)		%
Costs of revenues, excluding depreciation and amortization						2,849												2,767			253			3,020									3		%	(6)		%	(5)		%
Selling, general and administrative						743												713			31			744									4		%	—		%	—		%
Adjusted EBITDA						2,166												2,262			95			2,357									(4)		%	(8)		%	(7)		%
Depreciation and amortization						1,262												1,482			(281)			1,201
Restructuring						110												308			(5)			303
Transaction and integration costs						8												1			—			1
Amortization of fair value step-up for content						279												1			293			294
Inter-segment eliminations						22												(2)			—			(2)
Impairments and loss on dispositions						4												—			—			—
Operating income						$	481											$	472		$	88		$	560

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	5,936											$	3,961		$	2,183		$	6,144								50		%	(3)		%	(2)		%
Advertising						4,685												4,054			1,380			5,434									16		%	(14)		%	(13)		%
Content						529												536			220			756									(1)		%	(30)		%	(28)		%
Other						189												64			55			119									NM			59		%	56		%
Total revenues						11,339												8,615			3,838			12,453									32		%	(9)		%	(8)		%
Costs of revenues, excluding depreciation and amortization						5,443												3,822			2,148			5,970									42		%	(9)		%	(8)		%
Selling, general and administrative						1,437												1,176			364			1,540									22		%	(7)		%	(5)		%
Adjusted EBITDA						4,459												3,617			1,326			4,943									23		%	(10)		%	(9)		%
Depreciation and amortization						2,566												1,887			598			2,485
Employee share-based compensation						—												—			9			9
Restructuring						113												312			(5)			307
Transaction and integration costs						11												—			—			—
Amortization of fair value step-up for content						400												1			419			420
Inter-segment eliminations						15												(2)			—			(2)
Impairments and loss on dispositions						5												—			—			—
Operating income						$	1,349											$	1,419		$	305		$	1,724

The discussion below reflects results for the three and six months ended June 30, 2022 on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general and administrative expenses and Adjusted EBITDA are substantially attributable to the Merger.

Revenues

Distribution revenue decreased 1% and 2% for the three and six months ended June 30, 2023, respectively, primarily attributable to a decline in linear subscribers in the U.S., partially offset by higher U.S. contractual affiliate rates.

Advertising revenue decreased 13% and 13% for the three and six months ended June 30, 2023, respectively, primarily attributable to audience declines in domestic general entertainment and news networks, soft advertising markets in the U.S. and, to a lesser extent, certain international markets, and broadcast of the NCAA March Madness Final Four and Championship in 2022, partially offset by the broadcast of the Stanley Cup Finals. Additionally, the six months ended June 30, 2023 was unfavorably impacted by the prior year broadcast of the Olympics in Europe.

Content revenue increased 18% and decreased 28% for the three and six months ended June 30, 2023, respectively. The increase for the three months ended June 30, 2023 was primarily attributable to the timing of inter-segment licensing of content to DTC. The decrease for the six months ended June 30, 2023 was primarily attributable to the prior year broadcast of the Olympics in Europe.

Other revenue increased 24% and 56% for the three and six months ended June 30, 2023, respectively, primarily attributable to services provided to the unconsolidated TNT Sports joint venture (formerly known as BT Sport).

Costs of Revenues

Costs of revenues decreased 5% and 8% for the three and six months ended June 30, 2023, respectively. The decrease for the three months ended June 30, 2023 was primarily attributable to the broadcast of the NCAA March Madness Final Four and Championship in 2022 and lower domestic general entertainment content expense, partially offset by higher domestic sports related expense and costs associated with the unconsolidated TNT Sports joint venture. The decrease for the six months ended June 30, 2023 was primarily attributable to the broadcast of the 2022 Olympics, lower domestic general entertainment content expense, and the broadcast of the NCAA March Madness Final Four and Championship in 2022, partially offset by higher domestic sports related expense and costs associated with the unconsolidated TNT Sports joint venture.

Selling, General and Administrative

Selling, general and administrative expenses were flat for the three months ended June 30, 2023 and decreased 5% for the six months ended June 30, 2023, primarily attributable to lower personnel and marketing expenses.

Adjusted EBITDA

Adjusted EBITDA decreased 7% and 9% for the three and six months ended June 30, 2023, respectively.

DTC Segment

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

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	2,192											$	1,993		$	171		$	2,164								10		%	1		%	2		%
Advertising						121												96			1			97									26		%	25		%	25		%
Content						410												132			11			143									NM			NM			NM
Other						9												4			2			6									NM			50		%	29		%
Total revenues						2,732												2,225			185			2,410									23		%	13		%	14		%
Costs of revenues, excluding depreciation and amortization						1,951												1,902			163			2,065									3		%	(6)		%	(5)		%
Selling, general and administrative						784												841			62			903									(7)		%	(13)		%	(13)		%
Adjusted EBITDA						(3)												(518)			(40)			(558)									99		%	99		%	99		%
Depreciation and amortization						424												554			(103)			451
Employee share-based compensation						—												—			(1)			(1)
Restructuring						18												475			(3)			472
Transaction and integration costs						1												—			—			—
Amortization of fair value step-up for content						104												65			16			81
Inter-segment eliminations						—												10			—			10
Impairments and loss on dispositions						(4)												4			—			4
Operating loss						$	(546)											$	(1,626)		$	51		$	(1,575)

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Revenues:
Distribution						$	4,357											$	2,225		$	2,150		$	4,375								96		%	—		%	—		%
Advertising						224												142			36			178									58		%	26		%	27		%
Content						595												134			230			364									NM			63		%	62		%
Other						11												5			3			8									NM			38		%	38		%
Total revenues						5,187												2,506			2,419			4,925									NM			5		%	6		%
Costs of revenues, excluding depreciation and amortization						3,766												2,082			1,977			4,059									81		%	(7)		%	(7)		%
Selling, general and administrative						1,374												1,169			909			2,078									18		%	(34)		%	(34)		%
Adjusted EBITDA						47												(745)			(467)			(1,212)									NM			NM			NM
Depreciation and amortization						930												650			275			925
Restructuring						27												475			(3)			472
Transaction and integration costs						1												1			—			1
Amortization of fair value step-up for content						238												65			76			141
Inter-segment eliminations						2												10			—			10
Impairments and loss on dispositions						1												4			—			4
Operating loss						$	(1,152)											$	(1,950)		$	(815)		$	(2,765)

The discussion below reflects results for the three and six months ended June 30, 2022 on a pro forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenue, selling, general, and administrative expenses and Adjusted EBITDA are substantially attributable to the Merger.

Revenues

As of June 30, 2023, we had 95.8 million DTC subscribers.1

Distribution revenue increased 2% and was flat for the three and six months ended June 30, 2023, respectively, primarily attributable to global Max/HBO Max retail subscriber gains and Amazon Prime Video Channels subscriber growth from the re-launch in December 2022, partially offset by a decline in wholesale subscribers.

Advertising revenue increased 25% and 27% for the three and six months ended June 30, 2023, respectively, primarily attributable to subscriber growth.

Content revenue increased 184% and 62% for the three and six months ended June 30, 2023, respectively, primarily attributable to the timing of certain licensing deals.

Costs of Revenues

Costs of revenues decreased 5% and 7% for the three and six months ended June 30, 2023, respectively, primarily attributable to lower content amortization and the shutdown of CNN+ in the prior year, partially offset by increased content licensing costs commensurate with higher content revenue.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 13% and 34% for the three and six months ended June 30, 2023, respectively, primarily attributable to more efficient marketing-related spend, notwithstanding increased costs in the three months ended June 30, 2023 for the Max U.S. launch campaign, and the shutdown of CNN+ in the prior year.

Adjusted EBITDA

Adjusted EBITDA increased $554 million and $1,258 million for the three and six months ended June 30, 2023, respectively.

Corporate

The following tables presents our Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating loss (in millions).

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Adjusted EBITDA						$	(245)											$	(305)		$	(100)		$	(405)								20		%	40		%	39		%
Depreciation and amortization						85												72			(15)			57
Employee share-based compensation						135												147			(32)			115
Restructuring						10												68			(43)			25
Transaction and integration costs						36												982			(782)			200
Facility consolidation costs						23												—			—			—
Amortization of fair value step-up for content						(8)												—			—			—
Inter-segment eliminations						(22)												(8)			—			(8)
Impairments and loss on dispositions						7												—			—			—
Operating loss						$	(511)											$	(1,566)		$	772		$	(794)

1 We define a “DTC Subscription” as:

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

We may refer to the aggregate number of DTC Subscriptions as “subscribers”.

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

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Adjusted EBITDA						$	(600)											$	(409)		$	(353)		$	(762)								(47)		%	21		%	21		%
Depreciation and amortization						161												96			9			105
Employee share-based compensation						241												204			(11)			193
Restructuring						17												69			(44)			25
Transaction and integration costs						78												1,069			(564)			505
Facility consolidation costs						23												—			—			—
Amortization of fair value step-up for content						(8)												—			—			—
Inter-segment eliminations						(18)												(8)			—			(8)
Impairments and loss on dispositions						32												—			—			—
Operating loss						$	(1,126)											$	(1,839)		$	257		$	(1,582)

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

As reported transaction and integration costs for the six months ended June 30, 2022 included the impact of the issuance of additional shares of common stock to Advance/Newhouse Programming Partnership of $789 million upon the closing of the Merger. (See Note 2 to the accompanying consolidated financial statements.)

Adjusted EBITDA improved 39% and 21% for the three and six months ended June 30, 2023, respectively, primarily attributable to reductions to personnel costs and technology-related operating expenses, as well as a favorable timing impact related to the hedging of the securitization program, partially offset by higher deferred compensation expense.

Inter-segment Eliminations

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

						Three Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Inter-segment revenue eliminations						$	(712)											$	(949)		$	(139)		$	(1,088)								25		%	35		%	35		%
Inter-segment expense eliminations						(637)												(935)			(116)			(1,051)									32		%	39		%	39		%
Adjusted EBITDA						(75)												(14)			(23)			(37)									NM			NM			NM
Restructuring						(2)												(18)			—			(18)
Amortization of fair value step-up for content						116												241			—			241
Operating loss						$	(189)											$	(237)		$	(23)		$	(260)

						Six Months Ended June 30,
						2023						2022															% Change
						Actual												Actual			Pro Forma Adjustments			Pro Forma Combined									Actual			Pro Forma Combined (Actual)			Pro Forma Combined (ex-FX)
Inter-segment revenue eliminations						$	(1,260)											$	(949)		$	(1,065)		$	(2,014)								(33)		%	37		%	37		%
Inter-segment expense eliminations						(1,201)												(935)			(1,038)			(1,973)									(28)		%	39		%	39		%
Adjusted EBITDA						(59)												(14)			(27)			(41)									NM			(44)		%	(44)		%
Restructuring						(2)												(18)			—			(18)
Amortization of fair value step-up for content						250												241			—			241
Operating loss						$	(307)											$	(237)		$	(27)		$	(264)

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Sources of Cash

Historically, we have generated a significant amount of cash from operations. During the six months ended June 30, 2023, we funded our working capital needs primarily through cash flows from operations. As of June 30, 2023, we had $3.0 billion of cash and cash equivalents on hand. We are a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock and preferred stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured. We have a $6.0 billion revolving credit facility and a commercial paper program described below. We also participate in a revolving receivables program and an accounts receivable factoring program described below.

*•*Debt

Senior Notes

During the six months ended June 30, 2023, we issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and unpaid interest.

Revolving Credit Facility and Commercial Paper

We have a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and have the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of June 30, 2023, DCL was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.

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

During the six months ended June 30, 2023, we borrowed and repaid $2,599 million and $2,602 million, respectively, under our Credit Facility and commercial paper program. As of June 30, 2023, we had no outstanding borrowings under the Credit Facility or the commercial paper program.

*•*Revolving Receivables Program

We have a revolving agreement to transfer up to $5,700 million of certain receivables through our bankruptcy-remote subsidiary, Warner Bros. Discovery Receivables Funding, LLC, to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. We service the sold receivables for the financial institution for a fee and pay fees to the financial institution in connection with this revolving agreement. As customers pay their balances, our available capacity under this revolving agreement increases and typically we transfer additional receivables into the program. In some cases, we may have collections that have not yet been remitted to the bank, resulting in a liability. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,295 million as of June 30, 2023.

*•*Accounts Receivable Factoring

We have a factoring agreement to sell certain of our non-U.S. trade accounts receivable on a non-recourse basis to a third-party financial institution. Total trade accounts receivable sold under our factoring arrangement was $72 million during the six months ended June 30, 2023.

*•*Derivatives

We received investing proceeds of $23 million during the six months ended June 30, 2023 from the unwind and settlement of derivative instruments. (See Note 10 to the accompanying consolidated financial statements.)

Uses of Cash

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

• Content Acquisition

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

*•*Debt

Term Loan

During the six months ended June 30, 2023, we repaid $2,600 million of aggregate principal amount outstanding of our term loan prior to the due date of April 2025.

Floating Rate Notes

During the six months ended June 30, 2023, we completed a tender offer and purchased $460 million of aggregate principal amount of our floating rate notes prior to the due date of March 2024.

Senior Notes

During the six months ended June 30, 2023, we purchased $194 million of aggregate principal amount outstanding of our senior notes due in 2023 and 2024. In addition, we have $179 million and $67 million of senior notes coming due in September and December 2023, respectively, and $2,753 million of senior notes coming due in the first and second quarter of 2024.

We may from time to time seek to prepay, retire or purchase our other outstanding indebtedness through prepayments, redemptions, open market purchases, privately negotiated transactions, tender offers or otherwise. Any such repurchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, general market conditions, as well as applicable regulatory, legal and accounting factors. Whether or not we repurchase or exchange any debt and the size and timing of any such repurchases or exchanges will be determined at our discretion.

*•*Capital Expenditures and Investments in Next Generation Initiatives

We effected capital expenditures of $591 million during the six months ended June 30, 2023, including amounts capitalized to support Max. In addition, we expect to continue to incur significant costs to develop and market Max.

*•*Investments and Business Combinations

Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value. (See Note 8 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time. During the six months ended June 30, 2023, we contributed $45 million for investments in and advances to our investees.

*•*Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we had redeemable equity balances of $306 million at June 30, 2023, which may require the use of cash in the event holders of noncontrolling interests put their interests to us. In 2022, GoldenTree exercised its put right and we are required to purchase GoldenTree’s noncontrolling interest. (See Note 16 to the accompanying consolidated financial statements.) Distributions to noncontrolling interests and redeemable noncontrolling interests totaled $269 million and $264 million for the six months ended June 30, 2023 and 2022, respectively.

*•*Income Taxes and Interest

We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the six months ended June 30, 2023, we made cash payments of $830 million and $1,137 million for income taxes and interest on our outstanding debt, respectively. Cash required for interest payments has increased significantly as a result of the Merger.

Cash Flows

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

						Six Months Ended June 30,
						2023						2022
Cash, cash equivalents, and restricted cash, beginning of period						$	3,930					$	3,905
Cash provided by operating activities						1,383						1,334
Cash (used in) provided by investing activities						(567)						2,880
Cash used in financing activities						(1,683)						(4,157)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash						14						(66)
Net change in cash, cash equivalents, and restricted cash						(853)						(9)
Cash, cash equivalents, and restricted cash, end of period						$	3,077					$	3,896

Operating Activities

Cash provided by operating activities was $1,383 million and $1,334 million during the six months ended June 30, 2023 and 2022, respectively. The increase in cash provided by operating activities was primarily attributable to an increase in net income, excluding non-cash items, partially offset by a negative fluctuation in working capital activity.

Investing Activities

Cash (used in) provided by investing activities was $(567) million and $2,880 million during the six months ended June 30, 2023 and 2022, respectively. The decrease in cash provided by investing activities was primarily attributable to cash acquired from the Merger in the prior year, less proceeds received from the unwind and settlement of derivative instruments and sales of investments and increased purchases of property and equipment during the six months ended June 30, 2023.

Financing Activities

Cash used in financing activities was $1,683 million and $4,157 million during the six months ended June 30, 2023 and 2022, respectively. The decrease in cash used in financing activities was primarily attributable to less net debt activity during the six months ended June 30, 2023.

Capital Resources

As of June 30, 2023, capital resources were comprised of the following (in millions).

						June 30, 2023
						Total Capacity												Outstanding Indebtedness						Unused Capacity
Cash and cash equivalents						$	3,027											$	—					$	3,027
Revolving credit facility and commercial paper program						6,000												—						6,000
Term loans						1,400												1,400						—
Senior notes (a)						46,164												46,164						—
Total						$	56,591											$	47,564					$	9,027
(a) Interest on the senior notes is paid annually, semi-annually, or quarterly. Our senior notes outstanding as of June 30, 2023 had interest rates that ranged from 1.90% to 8.30% and will mature between 2023 and 2062.

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

The 2017 Tax Act features a participation exemption regime with current taxation of certain foreign income and imposes a mandatory repatriation toll tax on unremitted foreign earnings. Notwithstanding the U.S. taxation of these amounts, we intend to continue to reinvest these funds outside of the U.S. Our current plans do not demonstrate a need to repatriate them to the U.S. However, if these funds were to be needed in the U.S., we would be required to accrue and pay non-U.S. taxes to repatriate them. The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.

Summarized Guarantor Financial Information

Basis of Presentation

As of June 30, 2023 and December 31, 2022, all of the Company’s outstanding $13.7 billion registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, Scripps Networks, and WarnerMedia Holdings, Inc. As of June 30, 2023, the Company also has outstanding $31.0 billion of senior notes issued by WarnerMedia Holdings, Inc. and guaranteed by the Company, Scripps and DCL; $1.4 billion of senior notes issued by the legacy WarnerMedia Business (not guaranteed); and approximately $23 million of un-exchanged senior notes issued by Scripps Networks (not guaranteed). (See Note 9 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned subsidiary of the Company. Scripps Networks is also wholly owned by the Company.

The tables below present the summarized financial information as combined for Warner Bros. Discovery, Inc. (the “Parent”), Scripps Networks, DCL, and WarnerMedia Holdings, Inc. (collectively, the “Obligors”). All guarantees of DCL and WarnerMedia Holdings, Inc.’s senior notes (the “Note Guarantees”) are full and unconditional, joint and several and unsecured, and cover all payment obligations arising under the senior notes.

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

Summarized Financial Information

The Company has included the accompanying summarized combined financial information of the Obligors after the elimination of intercompany transactions and balances among the Obligors and the elimination of equity in earnings from and investments in any subsidiary of the Parent that is a non-guarantor (in millions).

						June 30, 2023						December 31, 2022
Current assets						$	1,418					$	1,949
Non-guarantor intercompany trade receivables, net						204						112
Noncurrent assets						5,733						5,785
Current liabilities						3,633						1,095
Noncurrent liabilities						44,474						48,839

						Six Months Ended June 30, 2023
Revenues						$	985
Operating income						200
Net income						(659)
Net income available to Warner Bros. Discovery, Inc.						(664)

MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS

In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. Contractual commitments have not increased significantly compared to our commitments set forth in “Material Cash Requirements from Known Contractual and Other Obligations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K.

RELATED PARTY TRANSACTIONS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

• Uncertain tax positions;

• Goodwill and intangible assets;

• Content rights;

• Consolidation; and

• Revenue recognition

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

We adopted certain new accounting and reporting standards during the six months ended June 30, 2023. (See Note 1 to the accompanying consolidated financial statements.)

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

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

• more intense competitive pressure from existing or new competitors in the industries in which we operate;

• reduced spending on domestic and foreign television advertising, due to macroeconomic trends, industry trends or unexpected reductions in our number of subscribers;

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

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

• negative publicity or damage to our brands, reputation or talent;

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

• realizing direct-to-consumer subscriber goals;

• general economic and business conditions, including the impact of the ongoing COVID-19 pandemic, fluctuations in foreign currency exchange rates, and political unrest in the international markets in which we operate;

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

• disagreements with our distributors or other business partners;

• continued consolidation of distribution customers and production studios;

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

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

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

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