Item 1. Unaudited Financial Statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Revenues:
Distribution			$	5,026					$	4,990					$	15,324					$	11,180
Advertising			1,796						2,042						6,613						6,239
Content			2,840						2,531						8,240						4,918
Other			317						260						860						472
Total revenues			9,979						9,823						31,037						22,809
Costs and expenses:
Costs of revenues, excluding depreciation and amortization			5,309						5,627						18,630						13,488
Selling, general and administrative			2,291						2,589						7,241						7,167
Depreciation and amortization			1,989						2,233						5,961						5,024
Restructuring and other charges			269						1,521						510						2,559
Impairments and loss on dispositions			24						43						61						47
Total costs and expenses			9,882						12,013						32,403						28,285
Operating income (loss)			97						(2,190)						(1,366)						(5,476)
Interest expense, net			(574)						(555)						(1,719)						(1,219)
Gain on extinguishment of debt			22						—						17						—
Loss from equity investees, net			(14)						(78)						(73)						(135)
Other (expense) income, net			(63)						(28)						(109)						411
Loss before income taxes			(532)						(2,851)						(3,250)						(6,419)
Income tax benefit			125						566						563						1,201
Net loss			(407)						(2,285)						(2,687)						(5,218)
Net income attributable to noncontrolling interests			(8)						(21)						(32)						(44)
Net income attributable to redeemable noncontrolling interests			(2)						(2)						(7)						(8)
Net loss available to Warner Bros. Discovery, Inc.			$	(417)					$	(2,308)					$	(2,726)					$	(5,270)
Net loss per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic			$	(0.17)					$	(0.95)					$	(1.12)					$	(3.00)
Diluted			$	(0.17)					$	(0.95)					$	(1.12)					$	(3.00)
Weighted average shares outstanding:
Basic			2,438						2,428						2,436						1,775
Diluted			2,438						2,428						2,436						1,775
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 September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Net loss						$	(407)					$	(2,285)					$	(2,687)					$	(5,218)
Other comprehensive income (loss):
Currency translation
Change in net unrealized gains (losses)						(393)						(690)						93						(1,275)
Less: Reclassification adjustment for net (gains) losses included in net income						—						—						—						(2)
Net change, net of income tax benefit (expense) of $(22), $(11), $(32) and $(50)						(393)						(690)						93						(1,277)
Pension plan and SERP liability, net of income tax benefit (expense) of $(2), $0, $(8) and $0						(1)						—						(14)						—
Derivatives
Change in net unrealized gains (losses)						15						28						29						9
Less: Reclassification adjustment for net (gains) losses included in net income						(6)						(4)						(12)						(21)
Net change, net of income tax benefit (expense) of $3, $0, $(1) and $5						9						24						17						(12)
Comprehensive loss						(792)						(2,951)						(2,591)						(6,507)
Comprehensive income attributable to noncontrolling interests						(8)						(21)						(32)						(44)
Comprehensive income attributable to redeemable noncontrolling interests						(2)						(2)						(7)						(8)
Comprehensive loss attributable to Warner Bros. Discovery, Inc.						$	(802)					$	(2,974)					$	(2,630)					$	(6,559)
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)

			September 30, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	2,383					$	3,731
Receivables, net			6,312						6,380
Prepaid expenses and other current assets			4,136						3,888
Total current assets			12,831						13,999
Film and television content rights and games			22,454						26,652
Property and equipment, net			5,810						5,301
Goodwill			34,727						34,438
Intangible assets, net			39,874						44,982
Other noncurrent assets			8,053						8,629
Total assets			$	123,749					$	134,001
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	1,329					$	1,454
Accrued liabilities			10,040						11,504
Deferred revenues			1,917						1,694
Current portion of debt			1,302						365
Total current liabilities			14,588						15,017
Noncurrent portion of debt			43,498						48,634
Deferred income taxes			9,098						11,014
Other noncurrent liabilities			10,423						10,669
Total liabilities			77,607						85,334
Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests			281						318
Warner Bros. Discovery, Inc. stockholders’ equity:
Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,668 and 2,660 shares issued; and 2,438 and 2,430 shares outstanding			27						27
Preferred stock: $0.01 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding			—						—
Additional paid-in capital			54,944						54,630
Treasury stock, at cost: 230 and 230 shares			(8,244)						(8,244)
(Accumulated deficit) retained earnings			(526)						2,205
Accumulated other comprehensive loss			(1,427)						(1,523)
Total Warner Bros. Discovery, Inc. stockholders’ equity			44,774						47,095
Noncontrolling interests			1,087						1,254
Total equity			45,861						48,349
Total liabilities and equity			$	123,749					$	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)

			Nine Months Ended September 30,
			2023						2022
Operating Activities
Net loss			$	(2,687)					$	(5,218)
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Content rights amortization and impairment			12,547						11,441
Depreciation and amortization			5,961						5,024
Deferred income taxes			(2,071)						(2,105)
Preferred stock conversion premium			—						789
Share-based compensation expense			391						317
Equity in losses of equity method investee companies and cash distributions			136						178
Gain on sale of investments			—						(144)
Gain from derivative instruments, net			(100)						(479)
Other, net			230						187
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net			(33)						(139)
Film and television content rights, games and payables, net			(9,853)						(8,612)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities			(1,245)						(182)
Foreign currency, prepaid expenses and other assets, net			623						401
Cash provided by operating activities			3,899						1,458
Investing Activities
Purchases of property and equipment			(1,048)						(623)
Cash acquired from business acquisition and working capital settlement			—						3,609
Proceeds from sales and maturities of investments			—						162
Investments in and advances to equity investments			(91)						(137)
Proceeds from derivative instruments, net			38						722
Other investing activities, net			76						9
Cash (used in) provided by investing activities			(1,025)						3,742
Financing Activities
Principal repayments of term loans			(2,850)						(6,000)
Principal repayments of debt, including premiums and discounts to par value			(2,818)						(327)
Borrowings from debt, net of discount and issuance costs			1,496						—
Distributions to noncontrolling interests and redeemable noncontrolling interests			(282)						(286)
Securitization receivables collected but not remitted			238						236
Borrowings under commercial paper program and revolving credit facility			4,298						885
Repayments under commercial paper program and revolving credit facility			(4,304)						(885)
Other financing activities, net			(86)						(93)
Cash used in financing activities			(4,308)						(6,470)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(66)						(122)
Net change in cash, cash equivalents, and restricted cash			(1,500)						(1,392)
Cash, cash equivalents, and restricted cash, beginning of period			3,930						3,905
Cash, cash equivalents, and restricted cash, end of period			$	2,430					$	2,513
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 Deficit)						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) income 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
Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests						—						—						—						—						(1,240)						—						(1,240)						16						(1,224)
Other comprehensive income						—						—						—						—						—						63						63						—						63
Share-based compensation						—						—						130						—						—						—						130						—						130
Tax settlements associated with share-based plans						—						—						(7)						—						—						—						(7)						—						(7)
Dividends paid to noncontrolling interests						—						—						—						—						—						—						—						(26)						(26)
Issuance of stock in connection with share-based plans						1						—						8						—						—						—						8						—						8
Redeemable noncontrolling interest adjustments to redemption value						—						—						—						—						2						—						2						—						2
June 30, 2023						2,667						$	27					$	54,816					$	(8,244)					$	(105)					$	(1,042)					$	45,452					$	1,027					$	46,479
Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests						—						—						—						—						(417)						—						(417)						8						(409)
Other comprehensive loss						—						—						—						—						—						(385)						(385)						—						(385)
Share-based compensation						—						—						126						—						—						—						126						—						126
Reclassification of redeemable noncontrolling interest to noncontrolling interest (See Note 14)						—						—						2						—						—						—						2						60						62
Tax settlements associated with share-based compensation						—						—						(5)						—						—						—						(5)						—						(5)
Dividends paid to noncontrolling interests						—						—						—						—						—						—						—						(8)						(8)
Issuance of stock in connection with share-based plans						1						—						5						—						—						—						5						—						5
Redeemable noncontrolling interest adjustments to redemption value						—						—						—						—						(4)						—						(4)						—						(4)
September 30, 2023						2,668						$	27					$	54,944					$	(8,244)					$	(526)					$	(1,427)					$	44,774					$	1,087					$	45,861
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
Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests						—						—						—						—						—						—						—						—						(3,418)						—						(3,418)						7						(3,411)
Other comprehensive loss						—						—						—						—						—						—						—						—						—						(506)						(506)						—						(506)
Share-based compensation						—						—						—						—						—						—						143						—						—						—						143						—						143
Conversion and issuance of common stock and noncontrolling interest in connection with the acquisition of the WarnerMedia Business						(12)						—						(739)						(7)						2,658						27						43,173						—						—						—						43,193						2						43,195
Dividends paid to noncontrolling interests						—						—						—						—						—						—						—						—						—						—						—						(31)						(31)
Issuance of stock in connection with share-based plans						—						—						—						—						—						—						3						—						—						—						3						—						3
Redeemable noncontrolling interest adjustments to redemption value						—						—						—						—						—						—						—						—						(1)						—						(1)						—						(1)
June 30, 2022						—						$	—					—						$	—					2,658						$	27					$	54,439					$	(8,244)					$	6,614					$	(1,453)					$	51,383					$	1,236					$	52,619
Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests						—						—						—						—						—						—						—						—						(2,308)						—						(2,308)						21						(2,287)
Other comprehensive loss						—						—						—						—						—						—						—						—						—						(666)						(666)						—						(666)
Share-based compensation						—						—						—						—						—						—						111						—						—						—						111						—						111
Tax settlements associated with share-based plans						—						—						—						—						—						—						(5)						—						—						—						(5)						—						(5)
Dividends paid to noncontrolling interests						—						—						—						—						—						—						—						—						—						—						—						(12)						(12)
Issuance of stock in connection with share-based plans						—						—						—						—						—						—						2						—						—						—						2						—						2
September 30, 2022						—						$	—					—						$	—					2,658						$	27					$	54,547					$	(8,244)					$	4,306					$	(2,119)					$	48,517					$	1,245					$	49,762
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, 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. (“WMH”) 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 results will not be comparable to historical results.

Labor Disruption

The Writers Guild of America (“WGA”) and Screen Actors Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) went on strike in May and July 2023 following the expiration of their respective collective bargaining agreements with the Alliance of Motion Picture and Television Producers (“AMPTP”). The WGA strike ended on September 27, 2023, and a new collective bargaining agreement was ratified on October 9, 2023. The SAG-AFTRA remains on strike. As a result of the strikes, we have paused and may continue to pause certain theatrical and television productions, which has resulted in delayed production spending.

The strikes have had, and are expected to continue to have, a material impact on the operations and results of the Company. This includes a positive impact on cash flow from operations attributed to delayed production spend, and a negative impact on the results of operations attributed to timing and performance of the remainder of the 2023 film slate, as well as the Company’s ability to produce, license, and deliver content. We continue to closely monitor the ongoing impact to our business; however, the full effects on our operations and results will depend on future developments, which are highly uncertain and cannot be predicted.

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.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Unaudited Interim Financial Statements

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

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Numerator:
Net loss			$	(407)					$	(2,285)					$	(2,687)					$	(5,218)
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock			—						—						—						(49)
Net income attributable to noncontrolling interests			(8)						(21)						(32)						(44)
Net income attributable to redeemable noncontrolling interests			(2)						(2)						(7)						(8)
Net loss allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net loss per share			$	(417)					$	(2,308)					$	(2,726)					$	(5,319)
Denominator — weighted average:
Common shares outstanding — basic and diluted			2,438						2,428						2,436						1,775
Basic net loss per share allocated to common stockholders			$	(0.17)					$	(0.95)					$	(1.12)					$	(3.00)
Diluted net loss per share allocated to common stockholders			$	(0.17)					$	(0.95)					$	(1.12)					$	(3.00)

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 September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Anti-dilutive share-based awards						73						59						68						48

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.

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
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%.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(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.

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 allocated to the Studios, Networks and DTC reportable segments in the amount of $9,308 million, $7,074 million and $5,727 million, respectively, and is not deductible for tax purposes.

During the three months ended June 30, 2023, the Company finalized the fair value of assets acquired and liabilities assumed. Measurement period adjustments were reflected in the period in which the adjustments occurred. Adjustments recorded during the six months ended June 30, 2023 were $368 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 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						Final April 8, 2022
Cash						$	2,419					$	(10)					$	2,409
Accounts receivable						4,224						(60)						4,164
Other current assets						4,619						(133)						4,486
Film and television content rights and games						28,729						(344)						28,385
Property and equipment						4,260						13						4,273
Goodwill						21,513						596						22,109
Intangible assets						44,889						100						44,989
Other noncurrent assets						5,206						283						5,489
Current liabilities						(10,544)						12						(10,532)
Debt assumed						(41,671)						(9)						(41,680)
Deferred income taxes						(13,264)						492						(12,772)
Other noncurrent liabilities						(8,004)						(940)						(8,944)
Total consideration paid						$	42,376					$	—					$	42,376

The 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 methods.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 $31 million and $125 million for the three and nine months ended September 30, 2023, respectively, and $59 million and $340 million for the three and nine months ended September 30, 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. Additionally, the expense related to the issuance of additional shares of common stock in connection with the conversion of Advance/Newhouse Programming’s Series A-1 Preferred Stock was $789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the Merger. (See Note 2.)

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 September 30, 2022												Nine Months Ended September 30, 2022
Revenues:
Distribution												$	3,730											$	7,256
Advertising												761												1,924
Content												3,147												5,982
Other												245												453
Total revenues												7,883												15,615
Inter-segment eliminations												(699)												(1,539)
Net revenues												$	7,184											$	14,076
Net loss available to Warner Bros. Discovery, Inc.												$	(2,135)											$	(5,155)

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).

																								Nine Months Ended September 30, 2022
Revenues																								$	32,087
Net loss available to Warner Bros. Discovery, Inc.																								(3,951)

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

Dispositions

In September and October 2023, the Company sold two of its three regional sports networks (“RSN”), and expects to exit its remaining RSN during the fourth quarter of 2023.

In September 2022, the Company sold 75% of its interest in The CW Network to Nexstar Media Inc. (“Nexstar”), in exchange for Nexstar agreeing to fund a majority of The CW Network’s expenses and the retention of the Company’s share of certain receivables that existed prior to the transaction. There was no cash consideration exchanged in the transaction. The Company recorded an immaterial gain and retained a 12.5% ownership interest in The CW Network, which is accounted for as an equity method investment.

In April 2022, the Company completed the sale of its minority interest in Discovery Education for a sale price of $138 million and recorded a gain of $133 million**.**

NOTE 4. RESTRUCTURING AND OTHER CHARGES

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. Additionally, the Company initiated a strategic realignment plan associated with its WB Theatrical Animation group during the three months ended September 30, 2023.

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

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Studios						$	134					$	562					$	220					$	762
Networks						48						354						161						666
DTC						34						517						61						992
Corporate and inter-segment eliminations						53						88						68						139
Total restructuring and other charges						$	269					$	1,521					$	510					$	2,559

During the three months ended September 30, 2023, restructuring and other charges primarily included content impairments and other content development costs and write-offs of $112 million, contract terminations and facility consolidation activities of $31 million, organization restructuring costs of $125 million, and other charges of $1 million. During the three months ended September 30, 2022, restructuring and other charges primarily included content impairments of $891 million, organization restructuring costs of $238 million, other content development costs and write-offs of $377 million, and contract termination costs of $15 million.

During the nine months ended September 30, 2023, restructuring and other charges primarily included content impairments and other content development costs and write-offs of $123 million, contract terminations and facility consolidation activities of $102 million, organization restructuring costs of $284 million, and other charges of $1 million. During the nine months ended September 30, 2022, restructuring and other charges primarily included content impairments of $1,392 million, organization restructuring costs of $446 million, other content development costs and write-offs of $706 million, and contract termination costs of $15 million.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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																		41						15						2						16						74
Employee termination accruals, net																		42						138						51						53						284
Other accruals																		—						2						—						—						2
Cash paid																		(132)						(300)						(150)						(128)						(710)
September 30, 2023																		$	107					$	216					$	91					$	100					$	514

NOTE 5. REVENUES

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

			Three Months Ended September 30, 2023
			Studios						Networks						DTC						Corporate and Inter-segment Eliminations						Total
Revenues:
Distribution			$	13					$	2,833					$	2,179					$	1					$	5,026
Advertising			4						1,709						138						(55)						1,796
Content			3,000						215						120						(495)						2,840
Other			209						111						1						(4)						317
Total			$	3,226					$	4,868					$	2,438					$	(553)					$	9,979

																																	Three Months Ended September 30, 2022
																																	Studios						Networks						DTC						Corporate and Inter-segment Eliminations						Total
Revenues:
Distribution																																	$	4					$	2,924					$	2,062					$	—					$	4,990
Advertising																																	8						1,944						106						(16)						2,042
Content																																	2,884						277						145						(775)						2,531
Other																																	192						69						4						(5)						260
Total																																	$	3,088					$	5,214					$	2,317					$	(796)					$	9,823

			Nine Months Ended September 30, 2023
			Studios						Networks						DTC						Corporate and Inter-segment Eliminations						Total
Revenues:
Distribution			$	19					$	8,769					$	6,536					$	—					$	15,324
Advertising			11						6,394						362						(154)						6,613
Content			8,425						744						715						(1,644)						8,240
Other			564						300						12						(16)						860
Total			$	9,019					$	16,207					$	7,625					$	(1,814)					$	31,037

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

			Nine Months Ended September 30, 2022
			Studios						Networks						DTC						Corporate and Inter-segment Eliminations						Total
Revenues:
Distribution			$	8					$	6,885					$	4,287					$	—					$	11,180
Advertising			18						5,998						248						(25)						6,239
Content			5,525						813						279						(1,699)						4,918
Other			338						133						9						(8)						472
Total			$	5,889					$	13,829					$	4,823					$	(1,732)					$	22,809

Contract Liabilities and Contract Assets

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

Category						Balance Sheet Location						September 30, 2023						December 31, 2022
Contract liabilities						Deferred revenues						$	1,917					$	1,694
Contract liabilities						Other noncurrent liabilities						142						361

For the nine months ended September 30, 2023 and 2022, respectively, revenues of $1,202 million and $376 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 September 30, 2023 and December 31, 2022.

Remaining Performance Obligations

As of September 30, 2023, $12,508 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						September 30, 2023						Duration
Distribution - fixed price or minimum guarantee						$	3,620					Through 2031
Content licensing and sports sublicensing						5,792						Through 2030
Brand licensing						2,279						Through 2043
Advertising						817						Through 2027
Total						$	12,508

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

During the three months ended September 30, 2023, the Company amended its revolving receivables program to reduce the facility limit to $5,500 million and extend the program to August 2024. The Company’s bankruptcy-remote consolidated subsidiary held $2,892 million of pledged receivables as of September 30, 2023 in connection with its revolving receivables program. For the three and nine months ended September 30, 2023, the Company has recognized $36 million and $78 million, respectively, in selling, general and administrative expenses, net of non-designated derivatives from the revolving receivables program in the consolidated statements of operations. (See Note 10.) For the three and nine months ended September 30, 2022, the Company recognized $93 million and $134 million in selling, general and administrative expenses in the consolidated statements of operations, respectively. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,190 million as of September 30, 2023.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Gross receivables sold/cash proceeds received			$	3,381					$	3,283					$	9,797					$	6,488
Collections reinvested under revolving agreement			(3,487)						(3,792)						(9,974)						(7,297)
Net cash proceeds remitted (a)			$	(106)					$	(509)					$	(177)					$	(809)
Net receivables sold			$	3,352					$	3,272					$	9,656					$	6,470
Obligations recorded (Level 3)			$	114					$	129					$	374					$	227
(a) Includes the collection on receivables sold but not remitted of $238 million and $236 million as of September 30, 2023 and 2022, respectively.

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

			September 30, 2023						December 31, 2022
Gross receivables pledged as collateral			$	2,892					$	3,468
Restricted cash pledged as collateral			$	—					$	150
Balance sheet classification:
Receivables, net			$	2,629					$	3,015
Prepaid expenses and other current assets			$	—					$	150
Other noncurrent assets			$	263					$	453

Accounts Receivable Factoring

Total trade accounts receivable sold under the Company’s factoring arrangement was $72 million for the nine months ended September 30, 2023. No amounts were sold under the Company’s factoring arrangement for the nine months ended September 30, 2022. The impact to the consolidated statements of operations was immaterial for the three and nine months ended September 30, 2023 and 2022. 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. Beginning this quarter, programming rights are presented as two separate captions: licensed content and advances and live programming and advances. Live programming includes licensed sports rights and related advances. The table below presents the components of content rights (in millions).

			September 30, 2023
						Predominantly Monetized Individually						Predominantly Monetized as a Group						Total
Theatrical film production costs:
Released, less amortization						$	2,867					$	—					$	2,867
Completed and not released						555						—						555
In production and other						1,188						—						1,188
Television production costs:
Released, less amortization						1,590						5,834						7,424
Completed and not released						354						720						1,074
In production and other						425						2,653						3,078
Total theatrical film and television production costs						$	6,979					$	9,207					$	16,186
Licensed content and advances, net																		4,499
Live programming and advances, net																		2,038
Game development costs, less amortization																		630
Total film and television content rights and games																		23,353
Less: Current content rights and prepaid license fees, net																		(899)
Total noncurrent film and television content rights and games																		$	22,454

			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 and other						1,795						—						1,795
Television production costs:
Released, less amortization						2,200						6,143						8,343
Completed and not released						939						401						1,340
In production and other						457						3,386						3,843
Total theatrical film and television production costs						$	9,442					$	9,930					$	19,372
Licensed content and advances, net																		4,961
Live programming and advances, net																		2,214
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 September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Predominately monetized individually						$	631					$	1,357					$	3,193					$	3,534
Predominately monetized as a group						2,364						2,584						9,039						6,492
Total content amortization						$	2,995					$	3,941					$	12,232					$	10,026

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 and nine months ended September 30, 2023, total content impairments were $191 million and $315 million, respectively. Content impairments and other content development costs and write-offs of $112 million and $123 million, respectively, for the three and nine months ended September 30, 2023 were primarily due to the abandonment of certain films in connection with the third quarter 2023 strategic realignment plan associated with the WB Theatrical Animation group and are reflected in restructuring and other charges in the Studios segment. For the three and nine months ended September 30, 2022, total content impairments were $909 million and $1,415 million, respectively. Content impairments of $891 million and $1,392 million, respectively, and content development write-offs of $234 million and $563 million, respectively, for the three and nine months ended September 30, 2022 were due to the abandonment of certain content categories in connection with the strategic realignment of content following the Merger and are reflected in restructuring and other charges in the Studios, Networks and DTC segments.

NOTE 8. INVESTMENTS

The Company’s equity investments consisted of the following, net of investments recorded in other noncurrent liabilities (in millions).

Category						Balance Sheet Location						Ownership						September 30, 2023						December 31, 2022
Equity method investments:
The Chernin Group (TCG) 2.0-A, LP						Other noncurrent assets						44%						$	274					$	313
nC+						Other noncurrent assets						32%						125						135
TNT Sports						Other noncurrent assets						50%						102						96
Other						Other noncurrent assets												470						518
Total equity method investments																		971						1,062
Investments with readily determinable fair values						Other noncurrent assets												41						28
Investments without readily determinable fair values						Other noncurrent assets(a)												434						498
Total investments																		$	1,446					$	1,588

(a) Investments without readily determinable fair values included $17 million as of September 30, 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 September 30, 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 $767 million. The Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $708 million as of September 30, 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. VIE losses were $6 million and $59 million for the three and nine months ended September 30, 2023, respectively, and $15 million and $35 million for the three and nine months ended September 30, 2022, respectively.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

During the three and nine months ended September 30, 2023, the Company concluded that its other equity investments without readily determinable fair values had decreased $2 million and $73 million, respectively, 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 September 30, 2023, the Company had recorded cumulative impairments of $302 million for its equity investments without readily determinable fair values.

NOTE 9. DEBT

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

						Weighted-Average Interest Rate as of September 30, 2023						September 30, 2023						December 31, 2022
Term loans with maturities of 3 years or less						6.82		%				$	1,150					$	4,000
Floating rate senior notes with maturities of 5 years or less						7.00		%				40						500
Senior notes with maturities of 5 years or less						4.00		%				13,646						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												45,087						49,276
Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net												(287)						(277)
Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting												44,800						48,999
Current portion of debt												(1,302)						(365)
Noncurrent portion of debt												$	43,498					$	48,634

During the three months ended September 30, 2023, the Company’s wholly-owned subsidiaries, Warner Media, LLC (“WML”), Historic TW Inc. (“TWI”), Discovery Communications, LLC (“DCL”) and WMH, commenced cash tender offers to purchase for cash any and all of (i) WML’s outstanding 4.050% Senior Notes due 2023 and 3.550% Senior Notes due 2024, (ii) TWI’s outstanding 7.570% Senior Notes due 2024, (iii) DCL’s outstanding 3.800% Senior Notes due 2024, and (iv) WMH’s outstanding 3.528% Senior Notes due 2024 and 3.428% Senior Notes due 2024. The Company completed the tender offer in August 2023 by purchasing senior notes in the amount of $1.9 billion validly tendered and accepted for purchase pursuant to the offers. The Company also repaid $250 million of aggregate principal amount outstanding of its term loan prior to the due date of April 2025, repaid in full at maturity $178 million of aggregate principal amount outstanding of its senior notes due September 2023, and completed open market repurchases for $95 million of aggregate principal amount outstanding of its senior notes.

During the three months ended June 30, 2023, the Company commenced a tender offer to purchase for cash any and all of its outstanding Floating Rate Notes due in 2024. The Company completed the tender offer in June 2023, by purchasing Floating Rate Notes in the amount of $460 million validly tendered and accepted for purchase pursuant to the offer. The Company also repaid $1.1 billion of aggregate principal amount outstanding of its term loan prior to the due date of April 2025 and completed open market repurchases for $88 million of aggregate principal amount outstanding of its senior notes.

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 September 30, 2022, the Company repaid $2.5 billion of aggregate principal amount outstanding of its term loan prior to its due date of April 2025.

During the three months ended June 30, 2022, the Company repaid $3.5 billion of aggregate principal amount outstanding of its term loans prior to the due dates of October 2023 and April 2025. The Company also assumed $41.5 billion of senior notes (at par value) and term loans in connection with the Merger.

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.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of September 30, 2023, all senior notes are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc. (“Scripps Networks”), DCL (to the extent it is not the primary obligor on such senior notes), and WMH (to the extent it is not the primary obligor on such senior notes), except for $1.2 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 WMH, 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 September 30, 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 September 30, 2023, DCL and WMH were in compliance with all covenants and there were no events of default under the Credit Agreements.

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company is exposed to foreign currency exchange rate market risk 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, total return swaps and interest rate swaps, to hedge certain foreign currency, market value 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.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 September 30, 2023 and December 31, 2022. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2).

			September 30, 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			$	1,653					$	69					$	27					$	33					$	9					$	1,382					$	49					$	35					$	42					$	25
Cross-currency swaps			—						—						—						—						—						482						3						58						—						—
Net investment hedges: (a)
Cross-currency swaps			1,700						21						7						8						43						1,778						20						12						—						73
Fair value hedges:
Interest rate swaps			1,500						3						—						—						6						—						—						—						—						—
No hedging designation:
Foreign exchange			1,017						3						1						2						97						976						5						1						3						96
Cross-currency swaps			—						—						—						—						—						139						3						—						—						3
Interest rate swaps			6,000						66						14						—						—						—						—						—						—						—
Total return swaps			388						—						—						17						—						291						—						—						13						—
Total									$	162					$	49					$	60					$	155											$	80					$	106					$	58					$	197

(a) Excludes €164 million of euro-denominated notes ($174 million equivalent at December 31, 2022) designated as a net investment hedge and £400 million of sterling notes ($487 million equivalent at September 30, 2023) designated as a net investment hedge. (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 and fixed-to-fixed cross-currency swaps to mitigate foreign currency risk associated with its British Pound Sterling denominated debt. In April 2023, the Company unwound cross-currency swaps related to its Sterling debt and recognized a gain of $76 million as an adjustment to other comprehensive income. The Sterling debt was subsequently re-designated as a net investment hedge effective May 2023.

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

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments						$	15					$	30					$	35					$	10
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - distribution revenue						(3)						(2)						(5)						—
Foreign exchange - advertising revenue						—						—						—						1
Foreign exchange - costs of revenues						12						8						3						27
Foreign exchange - other (expense) income, net						—						—						18						—
Interest rate - interest expense, net						(1)						—						—						(1)
Interest rate - other (expense) income, net						1						—						1						—

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

If current fair values of designated cash flow hedges as of September 30, 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.

During the three months ended September 30, 2023, the Company settled its Euro denominated debt that was designated as the hedging instrument in a net investment hedge.

During the three months ended June 30, 2023, to mitigate the currency risk associated with the net assets of non-USD functional entities, the Company re-designated its Sterling denominated debt due in 2024 as a net investment hedge after the unwind of the cash flow hedge previously noted.

The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the three and nine months ended September 30, 2023 and 2022.

						Three Months Ended September 30,
						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						$	5					$	(63)					Interest expense, net						$	7					$	5
Euro-denominated notes (foreign denominated debt)						(2)						13						N/A						—						—
Sterling notes (foreign denominated debt)						17						58						N/A						—						—
Total						$	20					$	8											$	7					$	5

						Nine Months Ended September 30,
						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						$	30					$	8					Interest expense, net						$	18					$	27
Euro-denominated notes (foreign denominated debt)						3						19						N/A						—						—
Sterling notes (foreign denominated debt)						11						112						N/A						—						—
Total						$	44					$	139											$	18					$	27

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						September 30, 2023						December 31, 2022						September 30, 2023						December 31, 2022
Noncurrent portion of debt						$	1,497					$	—					$	(3)					$	—

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 September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Gain (loss) on changes in fair value of hedged fixed rate debt (1)						$	4					$	—					$	3					$	—
(Loss) gain on changes in the fair value of derivative contracts (1)						(4)						—						(3)						—
Total in interest expense, net						$	—					$	—					$	—					$	—
(1) Accrued interest expense related to the hedged debt and derivative contracts is excluded from the amounts above and was not material as of September 30, 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.

The Company is exposed to risk of secured overnight financing rate changes in connection with securitization interest paid on the receivables securitization program. To mitigate this risk, the Company entered into $6.0 billion notional of non-designated interest rate swaps. The gains and losses on these derivatives are recorded to selling, general and administrative expenses, offsetting securitization interest expense.

Forward contracts designated as cash flow hedges are de-designated as production spend occurs or when rebate receivables are recognized. 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 selling, general and administrative expense and other (expense) income, net in the consolidated statements of operations (in millions).

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Interest rate swaps						$	18					$	—					$	80					$	—
Total return swaps						(19)						—						12						—
Total in selling, general and administrative expense						(1)						—						92						—
Interest rate swaps						(1)						—						(1)						512
Cross-currency swaps						—						5						1						12
Foreign exchange derivatives						(1)						(24)						1						(70)
Total in other (expense) income, net						(2)						(19)						1						454
Total						$	(3)					$	(19)					$	93					$	454

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).

												September 30, 2023
Category						Balance Sheet Location						Level 1						Level 2						Level 3						Total
Assets
Cash equivalents:
Time deposits						Cash and cash equivalents						$	—					$	99					$	—					$	99
Equity securities:
Money market fund						Cash and cash equivalents						4						—						—						4
Mutual funds						Prepaid expenses and other current assets						31						—						—						31
Company-owned life insurance contracts						Prepaid expenses and other current assets						—						2						—						2
Mutual funds						Other noncurrent assets						229						—						—						229
Company-owned life insurance contracts						Other noncurrent assets						—						95						—						95
Total												$	264					$	196					$	—					$	460
Liabilities
Deferred compensation plan						Accrued liabilities						$	59					$	—					$	—					$	59
Deferred compensation plan						Other noncurrent liabilities						579						—						—						579
Total												$	638					$	—					$	—					$	638

												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 September 30, 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 $36.8 billion and $38.0 billion as of September 30, 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).

						Nine Months Ended September 30, 2023
						Awards						Weighted-Average Grant Price
Awards granted:
PRSUs						4.0						$	15.41
RSUs						28.5						$	14.89
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 September 30, 2023 (in millions, except years).

						Unrecognized Compensation Cost						Weighted-Average Amortization Period (years)
PRSUs						$	37					1.6
RSUs						576						2.1
Stock options						128						2.7
Total unrecognized compensation cost						$	741

NOTE 13. INCOME TAXES

Income tax benefit was $125 million and $563 million for the three and nine months ended September 30, 2023, respectively, and income tax benefit was $566 million and $1,201 million for the three and nine months ended September 30, 2022, respectively. The decrease in income tax benefit for the three and nine months ended September 30, 2023 was primarily attributable to an increase in pre-tax book income. The decrease was partially offset by an unfavorable tax adjustment related to the preferred stock conversion transaction expense recorded in the nine months ended September 30, 2022 associated with the Merger.

Income tax benefit for the three and nine months ended September 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.

As of September 30, 2023 and December 31, 2022, the Company’s reserves for uncertain tax positions totaled $2,191 million and $1,929 million, respectively. The increase in the reserve for uncertain tax positions as of September 30, 2023 was primarily attributable to tax reserves that were recorded in 2023 through purchase accounting related to the Merger, partially offset by tax reserves released in 2023 upon audit resolutions. 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 $77 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.

As of September 30, 2023 and December 31, 2022, the Company had accrued $558 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 September 30, 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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Foreign currency losses, net			$	(83)					$	(36)					$	(180)					$	(106)
(Losses) gains on derivative instruments, net			(2)						(19)						1						454
Change in the value of investments with readily determinable fair value			—						(16)						21						(106)
Gain on sale of equity method investments			—						8						—						141
Change in fair value of equity investments without readily determinable fair value			(2)						—						(73)						—
Interest income			43						20						128						39
Other (loss) income, net			(19)						15						(6)						(11)
Total other (expense) income, net			$	(63)					$	(28)					$	(109)					$	411

Supplemental Cash Flow Information

						Nine Months Ended September 30,
						2023						2022
Cash paid for taxes, net						$	1,191					$	859
Cash paid for interest, net						2,065						1,305
Non-cash investing and financing activities:
Non-cash consideration related to the sale of the Ranch Lot						175						—
Non-cash consideration related to the purchase of the Burbank Studios Lot						175						—
Equity issued for the acquisition of WarnerMedia						—						42,309
Non-cash consideration related to the sale of The CW Network						—						126
Accrued consideration for the joint venture with BT						—						82
Non-cash consideration transferred related to transaction agreements with JCOM						68						—
Non-cash consideration paid related to transaction agreements with JCOM						2						—
Accrued purchases of property and equipment						33						29
Assets acquired under finance lease and other arrangements						94						40

Cash, Cash Equivalents, and Restricted Cash

																		September 30, 2023						December 31, 2022
Cash and cash equivalents																		$	2,383					$	3,731
Restricted cash - recorded in prepaid expenses and other current assets (1)																		47						199
Total cash, cash equivalents, and restricted cash																		$	2,430					$	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 and Intangible Assets

During the nine months ended September 30, 2023, the Company performed goodwill and intangible assets 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, disruption in the film and television industry, 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.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

During the three months ended September 30, 2023, the Company reassessed the useful lives and amortization methods for its linear networks and HBO trademarks and trade names and concluded the pattern of amortization should be accelerated. Accordingly, the Company has changed the amortization method for these assets from the straight-line method to the sum-of-the-months’ digits method effective July 1, 2023. This change was considered a change in estimate, was accounted for prospectively, and resulted in incremental amortization expense of $171 million.

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 and the Ranch Lot was sold during the three months ended September 30, 2023. The Burbank Studios Lot was purchased during the three months ended September 30, 2023 in exchange for the Ranch Lot and cash.

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 September 30, 2023 and December 31, 2022, the Company has confirmed $266 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.

Noncontrolling Interest

In August 2023, the Company and JCOM Co., Ltd. (“JCOM”) executed a series of transaction agreements to which the Company and JCOM each contributed to Discovery Japan, Inc. (“JVCo”), an existing 80/20 joint venture between the Company and JCOM, certain rights, liabilities, or rights via license agreements in exchange for new common shares of JVCo, resulting in the Company and JCOM owning 51% and 49% of JVCo, respectively. Retaining controlling financial interest subsequent to the transaction, the Company continues to consolidate the joint venture. As the terms of the agreement no longer incorporate JCOM’s option to put its noncontrolling interest to the Company, JCOM’s noncontrolling interest was reclassified from redeemable noncontrolling interest to noncontrolling interest outside of stockholders’ equity on the Company’s consolidated balance sheet.

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 September 30, 2023
			Currency Translation						Derivatives						Pension Plan and SERP Liability						Accumulated Other Comprehensive Loss
Beginning balance			$	(1,012)					$	22					$	(52)					$	(1,042)
Other comprehensive income (loss) before reclassifications			(393)						15						(1)						(379)
Reclassifications from accumulated other comprehensive loss to net income			—						(6)						—						(6)
Other comprehensive income (loss)			(393)						9						(1)						(385)
Ending balance			$	(1,405)					$	31					$	(53)					$	(1,427)

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

			Three Months Ended September 30, 2022
			Currency Translation												Derivatives						Pension Plan and SERP Liability						Accumulated Other Comprehensive Loss
Beginning balance			$	(1,432)											$	(8)					$	(13)					$	(1,453)
Other comprehensive income (loss) before reclassifications			(690)												28						—						(662)
Reclassifications from accumulated other comprehensive loss to net income			—												(4)						—						(4)
Other comprehensive income (loss)			(690)												24						—						(666)
Ending balance			$	(2,122)											$	16					$	(13)					$	(2,119)

			Nine Months Ended September 30, 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			93						29						(14)						108
Reclassifications from accumulated other comprehensive loss to net income			—						(12)						—						(12)
Other comprehensive income (loss)			93						17						(14)						96
Ending balance			$	(1,405)					$	31					$	(53)					$	(1,427)

			Nine Months Ended September 30, 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			(1,275)						9						—						(1,266)
Reclassifications from accumulated other comprehensive loss to net income			(2)						(21)						—						(23)
Other comprehensive income (loss)			(1,277)						(12)						—						(1,289)
Ending balance			$	(2,122)					$	16					$	(13)					$	(2,119)

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 September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Revenues and service charges:
Liberty Group						$	469					$	549					$	1,443					$	1,242
Equity method investees						161						111						560						348
Other						63						48						157						237
Total revenues and service charges						$	693					$	708					$	2,160					$	1,827
Expenses						$	79					$	72					$	271					$	314
Distributions to noncontrolling interests and redeemable noncontrolling interests						$	13					$	22					$	282					$	286

The table below presents receivables due from and payables due to related parties (in millions).

						September 30, 2023						December 31, 2022
Receivables						$	346					$	338
Payables						$	21					$	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. Subsequent to September 30, 2023, the process of determining fair market value based on the procedures required under the joint venture agreement was finalized. The Company expects to complete its purchase of GoldenTree’s 32.5% interest during the fourth quarter of 2023.

Legal Matters

From time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including claims related to employees, 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.

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. 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;

• depreciation and amortization;

• restructuring and facility consolidation;

• certain impairment charges;

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

• 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 tables below present summarized financial information for each of the Company’s reportable segments and inter-segment eliminations (in millions).

Revenues

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Studios						$	3,226					$	3,088					$	9,019					$	5,889
Networks						4,868						5,214						16,207						13,829
DTC						2,438						2,317						7,625						4,823
Corporate						(2)						(11)						(3)						2
Inter-segment eliminations						(551)						(785)						(1,811)						(1,734)
Total revenues						$	9,979					$	9,823					$	31,037					$	22,809

Adjusted EBITDA

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Studios						$	727					$	762					$	1,640					$	1,004
Networks						2,396						2,630						6,855						6,247
DTC						111						(634)						158						(1,379)
Corporate						(328)						(340)						(928)						(749)
Inter-segment eliminations						63						6						4						(8)
Adjusted EBITDA						$	2,969					$	2,424					$	7,729					$	5,115

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Reconciliation of Net Loss available to Warner Bros. Discovery, Inc. to Adjusted EBITDA

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Net loss available to Warner Bros. Discovery, Inc.						$	(417)					$	(2,308)					$	(2,726)					$	(5,270)
Net income attributable to redeemable noncontrolling interests						2						2						7						8
Net income attributable to noncontrolling interests						8						21						32						44
Income tax benefit						(125)						(566)						(563)						(1,201)
Loss before income taxes						(532)						(2,851)						(3,250)						(6,419)
Other expense (income), net						63						28						109						(411)
Loss from equity investees, net						14						78						73						135
Gain on extinguishment of debt						(22)						—						(17)						—
Interest expense, net						574						555						1,719						1,219
Operating income (loss)						97						(2,190)						(1,366)						(5,476)
Depreciation and amortization						1,989						2,233						5,961						5,024
Employee share-based compensation						140						113						381						317
Restructuring and other charges						269						1,521						510						2,559
Transaction and integration costs						31						59						125						1,129
Facility consolidation costs						14						—						37						—
Amortization of fair value step-up for content						393						645						1,986						1,515
Amortization of capitalized interest for content						12						—						34						—
Impairments and loss on dispositions						24						43						61						47
Adjusted EBITDA						$	2,969					$	2,424					$	7,729					$	5,115

NOTE 18. SUBSEQUENT EVENTS

In October 2023, the Company repaid $600 million of aggregate principal amount outstanding of its term loan due April 2025.