filings.toolsItem 1. Unaudited Financial Statements.
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Item 1. Unaudited Financial Statements.
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Distribution | $ | 4,985 | $ | 5,163 | |||||||||||||||||||
| Advertising | 2,148 | 2,298 | |||||||||||||||||||||
| Content | 2,558 | 2,954 | |||||||||||||||||||||
| Other | 267 | 285 | |||||||||||||||||||||
| Total revenues | 9,958 | 10,700 | |||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Costs of revenues, excluding depreciation and amortization | 6,058 | 6,685 | |||||||||||||||||||||
| Selling, general and administrative | 2,232 | 2,388 | |||||||||||||||||||||
| Depreciation and amortization | 1,888 | 2,058 | |||||||||||||||||||||
| Restructuring and other charges | 35 | 95 | |||||||||||||||||||||
| Impairment and loss on dispositions | 12 | 31 | |||||||||||||||||||||
| Total costs and expenses | 10,225 | 11,257 | |||||||||||||||||||||
| Operating loss | (267) | (557) | |||||||||||||||||||||
| Interest expense, net | (515) | (571) | |||||||||||||||||||||
| Loss from equity investees, net | (48) | (37) | |||||||||||||||||||||
| Other income (expense), net | 11 | (73) | |||||||||||||||||||||
| Loss before income taxes | (819) | (1,238) | |||||||||||||||||||||
| Income tax (expense) benefit | (136) | 178 | |||||||||||||||||||||
| Net loss | (955) | (1,060) | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | (7) | (8) | |||||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | (4) | (1) | |||||||||||||||||||||
| Net loss available to Warner Bros. Discovery, Inc. | $ | (966) | $ | (1,069) | |||||||||||||||||||
| Net loss per share available to Warner Bros. Discovery, Inc. Series A common stockholders: | |||||||||||||||||||||||
| Basic | $ | (0.40) | $ | (0.44) | |||||||||||||||||||
| Diluted | $ | (0.40) | $ | (0.44) | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 2,443 | 2,432 | |||||||||||||||||||||
| Diluted | 2,443 | 2,432 | |||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited; in millions)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Net loss | $ | (955) | $ | (1,060) | ||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||
| Currency translation, net of income tax benefit of $7 and $(5) | (176) | 426 | ||||||||||||||||||||||||
| Pension plan and SERP liability, net of income tax benefit of $— and $(3) | — | (9) | ||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||
| Change in net unrealized gains | 13 | 3 | ||||||||||||||||||||||||
| Less: Reclassification adjustment for net gains included in net income | (9) | (2) | ||||||||||||||||||||||||
| Net change, net of income tax benefit of $— and $2 | 4 | 1 | ||||||||||||||||||||||||
| Comprehensive loss | (1,127) | (642) | ||||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (7) | (8) | ||||||||||||||||||||||||
| Comprehensive income attributable to redeemable noncontrolling interests | (4) | (1) | ||||||||||||||||||||||||
| Comprehensive loss attributable to Warner Bros. Discovery, Inc. | $ | (1,138) | $ | (651) | ||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,976 | $ | 3,780 | |||||||
| Receivables, net | 6,303 | 6,047 | |||||||||
| Prepaid expenses and other current assets | 4,623 | 4,391 | |||||||||
| Total current assets | 13,902 | 14,218 | |||||||||
| Film and television content rights and games | 20,439 | 21,229 | |||||||||
| Property and equipment, net | 5,937 | 5,957 | |||||||||
| Goodwill | 34,891 | 34,969 | |||||||||
| Intangible assets, net | 36,648 | 38,285 | |||||||||
| Other noncurrent assets | 8,002 | 8,099 | |||||||||
| Total assets | $ | 119,819 | $ | 122,757 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,245 | $ | 1,260 | |||||||
| Accrued liabilities | 10,288 | 10,368 | |||||||||
| Deferred revenues | 1,993 | 1,924 | |||||||||
| Current portion of debt | 3,430 | 1,780 | |||||||||
| Total current liabilities | 16,956 | 15,332 | |||||||||
| Noncurrent portion of debt | 39,148 | 41,889 | |||||||||
| Deferred income taxes | 8,303 | 8,736 | |||||||||
| Other noncurrent liabilities | 10,118 | 10,328 | |||||||||
| Total liabilities | 74,525 | 76,285 | |||||||||
| Commitments and contingencies (See Note 15) | |||||||||||
| Redeemable noncontrolling interests | 179 | 165 | |||||||||
| Warner Bros. Discovery, Inc. stockholders’ equity: | |||||||||||
| Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,679 and 2,669 shares issued; and 2,449 and 2,439 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 | 55,175 | 55,112 | |||||||||
| Treasury stock, at cost: 230 and 230 shares | (8,244) | (8,244) | |||||||||
| Accumulated deficit | (1,894) | (928) | |||||||||
| Accumulated other comprehensive loss | (913) | (741) | |||||||||
| Total Warner Bros. Discovery, Inc. stockholders’ equity | 44,151 | 45,226 | |||||||||
| Noncontrolling interests | 964 | 1,081 | |||||||||
| Total equity | 45,115 | 46,307 | |||||||||
| Total liabilities and equity | $ | 119,819 | $ | 122,757 | |||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in millions)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
| Net loss | $ | (955) | $ | (1,060) | |||||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | |||||||||||
| Content rights amortization and impairment | 3,827 | 4,723 | |||||||||
| Depreciation and amortization | 1,888 | 2,058 | |||||||||
| Deferred income taxes | (399) | (669) | |||||||||
| Share-based compensation expense | 101 | 111 | |||||||||
| Equity in losses of equity method investee companies and cash distributions | 58 | 62 | |||||||||
| Gain from derivative instruments, net | (43) | (23) | |||||||||
| Other, net | 7 | 97 | |||||||||
| Changes in operating assets and liabilities, net of acquisitions and dispositions: | |||||||||||
| Receivables, net | (304) | (486) | |||||||||
| Film and television content rights, games, and production payables, net | (2,778) | (4,051) | |||||||||
| Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities | (753) | (1,652) | |||||||||
| Foreign currency, prepaid expenses and other assets, net | (64) | 259 | |||||||||
| Cash provided by (used in) operating activities | 585 | (631) | |||||||||
| Investing Activities | |||||||||||
| Purchases of property and equipment | (195) | (299) | |||||||||
| Investments in and advances to equity investments | (53) | (13) | |||||||||
| Other investing activities, net | 41 | 55 | |||||||||
| Cash used in investing activities | (207) | (257) | |||||||||
| Financing Activities | |||||||||||
| Principal repayments of term loans | — | (1,500) | |||||||||
| Principal repayments of debt, including premiums and discounts to par value | (1,047) | (106) | |||||||||
| Borrowings from debt, net of discount and issuance costs | — | 1,500 | |||||||||
| Distributions to noncontrolling interests and redeemable noncontrolling interests | (130) | (237) | |||||||||
| Borrowings under commercial paper program and revolving credit facility | 2,200 | 932 | |||||||||
| Repayments under commercial paper program and revolving credit facility | (2,200) | (933) | |||||||||
| Other financing activities, net | (60) | (88) | |||||||||
| Cash used in financing activities | (1,237) | (432) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (74) | 29 | |||||||||
| Net change in cash, cash equivalents, and restricted cash | (933) | (1,291) | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 4,319 | 3,930 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 3,386 | $ | 2,639 | |||||||
| 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 | Accumulated Deficit | Accumulated Other Comprehensive Loss | Warner Bros. Discovery, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | 2,669 | $ | 27 | $ | 55,112 | $ | (8,244) | $ | (928) | $ | (741) | $ | 45,226 | $ | 1,081 | $ | 46,307 | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests | — | — | — | — | (966) | — | (966) | 7 | (959) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (172) | (172) | (1) | (173) | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 108 | — | — | — | 108 | — | 108 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax settlements associated with share-based plans | — | — | (53) | — | — | — | (53) | — | (53) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests | — | — | — | — | — | — | — | (123) | (123) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in connection with share-based plans | 10 | — | 30 | — | — | — | 30 | — | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest adjustments to redemption value | — | — | (22) | — | — | — | (22) | — | (22) | |||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | 2,679 | $ | 27 | $ | 55,175 | $ | (8,244) | $ | (1,894) | $ | (913) | $ | 44,151 | $ | 964 | $ | 45,115 | |||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited; in millions)
| Warner Bros. Discovery, Inc. Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Warner Bros. Discovery, Inc. Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | 2,660 | $ | 27 | $ | 54,630 | $ | (8,244) | $ | 2,205 | $ | (1,523) | $ | 47,095 | $ | 1,254 | $ | 48,349 | |||||||||||||||||||||||||||||||||||||||
| Net (loss) 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 | |||||||||||||||||||||||||||||||||||||||
| 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 leading global media and entertainment company that creates and distributes a differentiated and complete portfolio of branded content across television, film, streaming and gaming. Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its iconic brands and products including: Discovery Channel, Max, discovery+, CNN, DC, TNT Sports, Eurosport, HBO, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Motion Picture Group, Warner Bros. Television Group, Warner Bros. Pictures Animation, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries in which a controlling interest is maintained, including variable interest entities (“VIE”) for which the Company is the primary beneficiary. Intercompany accounts and transactions between consolidated entities have been eliminated.
Unaudited Interim Financial Statements
These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 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.
Accounting and Reporting Pronouncements Not Yet Adopted
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance updating the disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact this guidance will have on its disclosures.
Income Taxes
In December 2023, the FASB issued guidance updating the disclosure requirements for income taxes, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is permitted. The Company is currently evaluating the impact this guidance will have on its disclosures.
NOTE 2. GOODWILL AND INTANGIBLE ASSETS
During the three months ended March 31, 2024, 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. As of October 1, 2023, the Studios reporting unit, which had headroom of 15%, and the Networks reporting unit, which had headroom of 5%, both had fair value in excess of carrying value of less than 20%. The Company will continue to monitor its reporting units for triggers that could impact recoverability of goodwill. These triggers include, but are not limited to, continued decline in the Company’s market capitalization; affiliate and sports rights renewals, including the NBA, associated with the Company’s Networks and DTC reporting units; declining levels of global GDP growth and soft advertising markets in the U.S. associated with the Company’s Networks reporting unit; content licensing trends in our Studios reporting unit; and execution risk associated with anticipated growth in the Company’s DTC reporting unit.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3. RESTRUCTURING AND OTHER CHARGES
In connection with the completion of its merger (the “Merger”) with the WarnerMedia business (the “WarnerMedia Business”) of AT&T Inc. on April 8, 2022, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company, which includes, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. While the Company’s restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024.
Restructuring and other charges by reportable segments and corporate and inter-segment eliminations were as follows (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Studios | $ | 11 | $ | 76 | ||||||||||||||||||||||
| Networks | 11 | 3 | ||||||||||||||||||||||||
| DTC | 2 | 9 | ||||||||||||||||||||||||
| Corporate and inter-segment eliminations | 11 | 7 | ||||||||||||||||||||||||
| Total restructuring and other charges | $ | 35 | $ | 95 |
During the three months ended March 31, 2024, restructuring and other charges were primarily related to organization restructuring costs. During the three months ended March 31, 2023, restructuring and other charges primarily included contract terminations and facility consolidation activities of $56 million, organization restructuring costs of $35 million, and other charges of $4 million.
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, 2023 | $ | 98 | $ | 202 | $ | 80 | $ | 80 | $ | 460 | ||||||||||||||||||||||||||||||||||
| Employee termination accruals, net | 10 | 11 | 6 | 10 | 37 | |||||||||||||||||||||||||||||||||||||||
| Other accruals | — | — | (3) | — | (3) | |||||||||||||||||||||||||||||||||||||||
| Cash paid | (47) | (51) | (27) | (50) | (175) | |||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | $ | 61 | $ | 162 | $ | 56 | $ | 40 | $ | 319 |
NOTE 4. REVENUES
The following table presents the Company’s revenues disaggregated by revenue source (in millions).
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Distribution | $ | 5 | $ | 2,797 | $ | 2,185 | $ | (2) | $ | 4,985 | |||||||||||||||||||
| Advertising | 4 | 1,987 | 175 | (18) | 2,148 | ||||||||||||||||||||||||
| Content | 2,623 | 264 | 99 | (428) | 2,558 | ||||||||||||||||||||||||
| Other | 189 | 77 | 1 | — | 267 | ||||||||||||||||||||||||
| Total | $ | 2,821 | $ | 5,125 | $ | 2,460 | $ | (448) | $ | 9,958 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution | $ | 3 | $ | 2,995 | $ | 2,165 | $ | — | $ | 5,163 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | 3 | 2,237 | 103 | (45) | 2,298 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content | 3,027 | 245 | 185 | (503) | 2,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 179 | 104 | 2 | — | 285 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,212 | $ | 5,581 | $ | 2,455 | $ | (548) | $ | 10,700 |
Contract Liabilities and Contract Assets
The following table presents contract liabilities on the consolidated balance sheets (in millions).
| Category | Balance Sheet Location | March 31, 2024 | December 31, 2023 | |||||||||||||||||
| Contract liabilities | Deferred revenues | $ | 1,993 | $ | 1,924 | |||||||||||||||
| Contract liabilities | Other noncurrent liabilities | 219 | 160 |
For the three months ended March 31, 2024 and 2023, respectively, revenues of $772 million and $856 million were recognized that were included in deferred revenues as of December 31, 2023 and December 31, 2022, respectively. Contract assets were not material as of March 31, 2024 and December 31, 2023.
Remaining Performance Obligations
As of March 31, 2024, $11,180 million of revenue is expected to be recognized from remaining performance obligations under our long-term contracts. The following table presents a summary of remaining performance obligations by contract type (in millions).
| Contract Type | March 31, 2024 | Duration | ||||||||||||
| Distribution - fixed price or minimum guarantee | $ | 3,260 | Through 2031 | |||||||||||
| Content licensing and sports sublicensing | 4,918 | Through 2030 | ||||||||||||
| Brand licensing | 2,215 | Through 2043 | ||||||||||||
| Advertising | 787 | Through 2027 | ||||||||||||
| Total | $ | 11,180 |
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 5. SALES OF RECEIVABLES
Revolving Receivables Program
During the second half of 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 outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,170 million as of March 31, 2024.
For the three months ended March 31, 2024 and 2023, the Company recognized $51 million and $33 million, respectively, in selling, general and administrative expenses, from the revolving receivables program in the consolidated statements of operations (net of non-designated derivatives in 2024). (See Note 9.)
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents a summary of receivables sold (in millions).
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Gross receivables sold/cash proceeds received | $ | 3,956 | $ | 2,779 | |||||||||||||||||||
| Collections reinvested under revolving agreement | (3,987) | (2,845) | |||||||||||||||||||||
| Net cash proceeds remitted (a) | $ | (31) | $ | (66) | |||||||||||||||||||
| Net receivables sold | $ | 3,914 | $ | 2,698 | |||||||||||||||||||
| Obligations recorded (Level 3) | $ | 153 | $ | 148 | |||||||||||||||||||
| (a) Includes the collection on receivables sold but not remitted of $30 million as of March 31, 2024. |
The following table presents a summary of the amounts transferred or pledged, which were held at the Company’s bankruptcy-remote consolidated subsidiary (in millions).
| March 31, 2024 | December 31, 2023 | ||||||||||
| Gross receivables pledged as collateral | $ | 2,900 | $ | 3,088 | |||||||
| Restricted cash pledged as collateral | $ | 406 | $ | 500 | |||||||
| Balance sheet classification: | |||||||||||
| Receivables, net | $ | 2,660 | $ | 2,780 | |||||||
| Prepaid expenses and other current assets | $ | 406 | $ | 500 | |||||||
| Other noncurrent assets | $ | 240 | $ | 308 |
Accounts Receivable Factoring
No amounts were sold under the Company’s factoring arrangement for the three months ended March 31, 2024. Total trade accounts receivable sold under the Company’s factoring arrangement was $72 million for the three months ended March 31, 2023. The impact to the consolidated statements of operations was immaterial for the three months ended March 31, 2024 and 2023. This accounts receivable factoring agreement is separate and distinct from the revolving receivables program.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. CONTENT RIGHTS
For purposes of amortization and impairment, capitalized content costs are grouped based on their predominant monetization strategy: individually or as a group. Programming rights 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 tables below present the components of content rights (in millions).
| March 31, 2024 | ||||||||||||||||||||
| Predominantly Monetized Individually | Predominantly Monetized as a Group | Total | ||||||||||||||||||
| Theatrical film production costs: | ||||||||||||||||||||
| Released, less amortization | $ | 2,605 | $ | — | $ | 2,605 | ||||||||||||||
| Completed and not released | 554 | — | 554 | |||||||||||||||||
| In production and other | 976 | — | 976 | |||||||||||||||||
| Television production costs: | ||||||||||||||||||||
| Released, less amortization | 1,380 | 4,833 | 6,213 | |||||||||||||||||
| Completed and not released | 615 | 621 | 1,236 | |||||||||||||||||
| In production and other | 348 | 2,472 | 2,820 | |||||||||||||||||
| Total theatrical film and television production costs | $ | 6,478 | $ | 7,926 | $ | 14,404 | ||||||||||||||
| Licensed content and advances, net | 4,631 | |||||||||||||||||||
| Live programming and advances, net | 2,050 | |||||||||||||||||||
| Game development costs, less amortization | 497 | |||||||||||||||||||
| Total film and television content rights and games | 21,582 | |||||||||||||||||||
| Less: Current content rights and prepaid license fees, net | (1,143) | |||||||||||||||||||
| Total noncurrent film and television content rights and games | $ | 20,439 | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Predominantly Monetized Individually | Predominantly Monetized as a Group | Total | ||||||||||||||||||
| Theatrical film production costs: | ||||||||||||||||||||
| Released, less amortization | $ | 2,823 | $ | — | $ | 2,823 | ||||||||||||||
| Completed and not released | 107 | — | 107 | |||||||||||||||||
| In production and other | 1,300 | — | 1,300 | |||||||||||||||||
| Television production costs: | ||||||||||||||||||||
| Released, less amortization | 1,471 | 5,317 | 6,788 | |||||||||||||||||
| Completed and not released | 380 | 606 | 986 | |||||||||||||||||
| In production and other | 417 | 2,624 | 3,041 | |||||||||||||||||
| Total theatrical film and television production costs | $ | 6,498 | $ | 8,547 | $ | 15,045 | ||||||||||||||
| Licensed content and advances, net | 4,519 | |||||||||||||||||||
| Live programming and advances, net | 1,943 | |||||||||||||||||||
| Game development costs, less amortization | 565 | |||||||||||||||||||
| Total film and television content rights and games | 22,072 | |||||||||||||||||||
| Less: Current content rights and prepaid license fees, net | (843) | |||||||||||||||||||
| Total noncurrent film and television content rights and games | $ | 21,229 | ||||||||||||||||||
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Content amortization consisted of the following (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Predominantly monetized individually | $ | 922 | $ | 1,531 | ||||||||||||||||||||||
| Predominantly monetized as a group | 2,779 | 3,096 | ||||||||||||||||||||||||
| Total content amortization | $ | 3,701 | $ | 4,627 |
Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations. Content and game impairments were $126 million and $96 million, respectively, for the three months ended March 31, 2024 and 2023.
NOTE 7. INVESTMENTS
The Company’s equity investments consisted of the following, net of investments recorded in other noncurrent liabilities (in millions).
| Category | Balance Sheet Location | Ownership | March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Equity method investments: | ||||||||||||||||||||||||||
| The Chernin Group (TCG) 2.0-A, LP | Other noncurrent assets | 44% | $ | 226 | $ | 249 | ||||||||||||||||||||
| nC+ | Other noncurrent assets | 32% | 141 | 142 | ||||||||||||||||||||||
| TNT Sports | Other noncurrent assets | 50% | 101 | 102 | ||||||||||||||||||||||
| Other | Other noncurrent assets | 499 | 503 | |||||||||||||||||||||||
| Total equity method investments | 967 | 996 | ||||||||||||||||||||||||
| Investments with readily determinable fair values | Other noncurrent assets | 49 | 53 | |||||||||||||||||||||||
| Investments without readily determinable fair values | Other noncurrent assets(a) | 428 | 438 | |||||||||||||||||||||||
| Total investments | $ | 1,444 | $ | 1,487 | ||||||||||||||||||||||
(a) Investments without readily determinable fair values included $17 million as of March 31, 2024 and December 31, 2023, respectively that were included in prepaid expenses and other current assets.
Equity Method Investments
Certain of the Company’s other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of March 31, 2024, 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 $689 million. The Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $669 million as of March 31, 2024 and $697 million as of December 31, 2023. VIE gains and losses are recorded in loss from equity investees, net on the consolidated statements of operations, and were not material for the three months ended March 31, 2024 and 2023.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 8. DEBT
The table below presents the components of outstanding debt (in millions).
| Weighted-Average Interest Rate as of March 31, 2024 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||||
| Floating rate senior notes with maturities of 5 years or less | — | % | $ | — | $ | 40 | |||||||||||||||||
| Senior notes with maturities of 5 years or less | 4.02 | % | 14,225 | 13,664 | |||||||||||||||||||
| Senior notes with maturities between 5 and 10 years | 4.33 | % | 7,107 | 8,607 | |||||||||||||||||||
| Senior notes with maturities greater than 10 years | 5.11 | % | 21,513 | 21,644 | |||||||||||||||||||
| Total debt | 42,845 | 43,955 | |||||||||||||||||||||
| Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net | (267) | (286) | |||||||||||||||||||||
| Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting | 42,578 | 43,669 | |||||||||||||||||||||
| Current portion of debt | (3,430) | (1,780) | |||||||||||||||||||||
| Noncurrent portion of debt | $ | 39,148 | $ | 41,889 |
During the three months ended March 31, 2024, the Company repaid in full at maturity $726 million of aggregate principal amount outstanding of its senior notes due February and March 2024 and completed open market repurchases for $364 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.
As of March 31, 2024, all senior notes are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc. (“Scripps Networks”), Discovery Communications, LLC (“DCL”) (to the extent it is not the primary obligor on such senior notes), and WarnerMedia Holdings, Inc. (“WMH”) (to the extent it is not the primary obligor on such senior notes), except for $1.1 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.
Revolving Credit Facility and Commercial Paper Programs
The Company has a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and has the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). The Company may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. The Company’s commercial paper program is supported by the Credit Facility. Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program. As of March 31, 2024 and December 31, 2023, the Company had no outstanding borrowings under its Credit Facility or its commercial paper program.
Credit Agreement Financial Covenants
The Revolving Credit Agreement includes financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 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 upon completion of the first full quarter following the first and second anniversaries of the closing, respectively. As of March 31, 2024, the Company was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.
NOTE 9. 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)
There were no amounts eligible to be offset under master netting agreements as of March 31, 2024 and December 31, 2023. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2). The following table summarizes the impact of derivative financial instruments on the Company’s consolidated balance sheets (in millions).
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 1,249 | $ | 24 | $ | 7 | $ | 34 | $ | 4 | $ | 1,484 | $ | 40 | $ | 8 | $ | 37 | $ | 8 | |||||||||||||||||||||||||||||||||||||||
| Net investment hedges: (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency swaps | 1,361 | 22 | 13 | 7 | 24 | 1,779 | 23 | 12 | 7 | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 1,500 | 9 | — | — | 7 | 1,500 | 7 | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| No hedging designation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | 1,089 | 25 | 4 | 4 | 96 | 1,058 | 1 | 1 | 1 | 83 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 3,250 | 23 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total return swaps | 420 | 10 | — | — | — | 395 | 19 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 113 | $ | 24 | $ | 45 | $ | 131 | $ | 90 | $ | 21 | $ | 45 | $ | 138 |
(a) Excludes £400 million and £402 million of sterling notes ($506 million and $513 million equivalent at March 31, 2024 and December 31, 2023, respectively) designated as a net investment hedge. (See Note 8.)
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. As production spend occurs or when rebate receivables are recognized, foreign forward exchange contracts designated as cash flow hedges are de-designated. Upon de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.
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 March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Gains (losses) recognized in accumulated other comprehensive loss: | ||||||||||||||||||||||||||
| Foreign exchange - derivative adjustments | $ | 16 | $ | 1 | ||||||||||||||||||||||
| Gains (losses) reclassified into income from accumulated other comprehensive loss: | ||||||||||||||||||||||||||
| Foreign exchange - distribution revenue | 2 | (1) | ||||||||||||||||||||||||
| Foreign exchange - costs of revenues | 11 | 2 | ||||||||||||||||||||||||
| Interest rate - interest expense, net | (1) | 1 | ||||||||||||||||||||||||
If current fair values of designated cash flow hedges as of March 31, 2024 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 31 years.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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 months ended March 31, 2024 and 2023.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Amount of gain (loss) recognized in AOCI | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | ||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | 25 | $ | 22 | Interest expense, net | $ | 6 | $ | 5 | |||||||||||||||||||||||
| Euro-denominated notes (foreign denominated debt) | — | 5 | N/A | — | — | |||||||||||||||||||||||||||
| Sterling notes (foreign denominated debt) | 4 | — | N/A | — | — | |||||||||||||||||||||||||||
| Total | $ | 29 | $ | 27 | $ | 6 | $ | 5 |
Fair Value Hedges
During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate. Changes in the fair value of the senior note and the interest rate swap are recorded in interest expense, net.
The following table presents fair value hedge adjustments to hedged borrowings (in millions).
| Carrying Amount of Hedged Borrowings | Cumulative Amount of Fair Value Hedging Adjustments Included in Hedged Borrowings | |||||||||||||||||||||||||
| Balance Sheet Location | March 31, 2024 | December 31, 2023 | March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Noncurrent portion of debt | $ | 1,502 | $ | 1,502 | $ | 2 | $ | 2 |
The following table presents the pretax impact of derivatives designated as fair value hedges on income, including offsetting changes in fair value of the hedged items (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Gain (loss) on changes in fair value of hedged fixed rate debt (1) | $ | — | $ | (12) | ||||||||||||||||||||||
| (Loss) gain on changes in the fair value of derivative contracts (1) | — | 12 | ||||||||||||||||||||||||
| 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 March 31, 2024. |
Derivatives Not Designated for Hedge Accounting
The Company has 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 $3.0 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.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other income (expense), net in the consolidated statements of operations (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Interest rate swaps | $ | 21 | $ | — | ||||||||||||||||||||||
| Total return swaps | 19 | 18 | ||||||||||||||||||||||||
| Total in selling, general and administrative expense | 40 | 18 | ||||||||||||||||||||||||
| Interest rate swaps | 2 | — | ||||||||||||||||||||||||
| Foreign exchange derivatives | (8) | 3 | ||||||||||||||||||||||||
| Total in other income (expense), net | (6) | 3 | ||||||||||||||||||||||||
| Total | $ | 34 | $ | 21 |
NOTE 10. FAIR VALUE MEASUREMENTS
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:
| Level 1 | – | Quoted prices for identical instruments in active markets. | ||||||
| Level 2 | – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. | ||||||
| Level 3 | – | Valuations derived from techniques in which one or more significant inputs are unobservable. |
The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).
| March 31, 2024 | ||||||||||||||||||||||||||||||||
| Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||||||||
| Time deposits | Cash and cash equivalents | $ | — | $ | 102 | $ | — | $ | 102 | |||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Money market fund | Cash and cash equivalents | 1 | — | — | 1 | |||||||||||||||||||||||||||
| Mutual funds | Prepaid expenses and other current assets | 44 | — | — | 44 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Prepaid expenses and other current assets | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Mutual funds | Other noncurrent assets | 234 | — | — | 234 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Other noncurrent assets | — | 100 | — | 100 | |||||||||||||||||||||||||||
| Total | $ | 279 | $ | 203 | $ | — | $ | 482 | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Deferred compensation plan | Accrued liabilities | $ | 67 | $ | — | $ | — | $ | 67 | |||||||||||||||||||||||
| Deferred compensation plan | Other noncurrent liabilities | 652 | — | — | 652 | |||||||||||||||||||||||||||
| Total | $ | 719 | $ | — | $ | — | $ | 719 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||||||||
| Time deposits | Cash and cash equivalents | $ | — | $ | 105 | $ | — | $ | 105 | |||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Money market funds | Cash and cash equivalents | 1 | — | — | 1 | |||||||||||||||||||||||||||
| Mutual funds | Prepaid expenses and other current assets | 42 | — | — | 42 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Prepaid expenses and other current assets | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Mutual funds | Other noncurrent assets | 233 | — | — | 233 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Other noncurrent assets | — | 97 | — | 97 | |||||||||||||||||||||||||||
| Total | $ | 276 | $ | 203 | $ | — | $ | 479 | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Deferred compensation plan | Accrued liabilities | $ | 67 | $ | — | $ | — | $ | 67 | |||||||||||||||||||||||
| Deferred compensation plan | Other noncurrent liabilities | 614 | — | — | 614 | |||||||||||||||||||||||||||
| Total | $ | 681 | $ | — | $ | — | $ | 681 | ||||||||||||||||||||||||
In addition to the financial instruments listed in the tables above, the Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of March 31, 2024 and December 31, 2023. 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 $38.3 billion and $40.5 billion as of March 31, 2024 and December 31, 2023, respectively.
The Company’s derivative financial instruments are discussed in Note 9, its investments with readily determinable fair value are discussed in Note 7, and the obligation for its revolving receivable program is discussed in Note 5.
NOTE 11. SHARE-BASED COMPENSATION
The Company has various incentive plans under which performance based restricted stock units (“PRSUs”), service based restricted stock units (“RSUs”), and stock options have been issued. The table below presents awards granted (in millions, except weighted-average grant price).
| Three Months Ended March 31, 2024 | ||||||||||||||
| Awards | Weighted-Average Grant Price | |||||||||||||
| Awards granted: | ||||||||||||||
| PRSUs | 6.1 | $ | 8.66 | |||||||||||
| RSUs | 51.9 | $ | 8.70 | |||||||||||
| Stock options | 4.1 | $ | 8.67 | |||||||||||
The table below presents unrecognized compensation cost related to non-vested share-based awards and the weighted-average amortization period over which these expenses will be recognized as of March 31, 2024 (in millions, except years).
| Unrecognized Compensation Cost | Weighted-Average Amortization Period (years) | |||||||||||||
| PRSUs | $ | 101 | 2.0 | |||||||||||
| RSUs | 834 | 2.1 | ||||||||||||
| Stock options | 120 | 2.5 | ||||||||||||
| Total unrecognized compensation cost | $ | 1,055 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 12. INCOME TAXES
Income tax (expense) benefit was $(136) million and $178 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in income tax benefit for the three months ended March 31, 2024 was primarily attributable to an increase in pre-tax book income and the tax attribute carryforwards in jurisdictions for which no tax benefit can be recognized.
Income tax expense for the three months ended March 31, 2024 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the effect of foreign operations, changes in uncertain tax positions, and state and local income taxes.
As of March 31, 2024 and December 31, 2023, the Company’s reserves for uncertain tax positions totaled $2,150 million and $2,147 million, respectively. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company’s uncertain tax positions could decrease by as much as $88 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.
As of March 31, 2024 and December 31, 2023, the Company had accrued $616 million and $571 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
The Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two Global Anti-Base Erosion (“GloBE”) model rules, issued under the OECD Inclusive Framework on Base Erosion and Profit Shifting, introduce a global minimum tax of 15% applicable to multinational enterprise groups with consolidated financial statement revenue in excess of €750 million. Numerous foreign jurisdictions have already enacted tax legislation based on the GloBE rules, with some effective as early as January 1, 2024. As of March 31, 2024, we recognized a nominal income tax expense for Pillar Two GloBE minimum tax. The Company is continuously monitoring the evolving application of this legislation and assessing its potential impact on our future tax liability.
NOTE 13. SUPPLEMENTAL DISCLOSURES
The following tables present supplemental information related to the consolidated financial statements (in millions).
Other Income (Expense), net
Other income (expense), net, consisted of the following (in millions).
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Foreign currency losses, net | $ | (137) | $ | (93) | |||||||||||||||||||
| (Losses) gains on derivative instruments, net | (6) | 3 | |||||||||||||||||||||
| Change in the value of investments with readily determinable fair value | (1) | 29 | |||||||||||||||||||||
| Change in fair value of equity investments without readily determinable fair value | (14) | (68) | |||||||||||||||||||||
| Gain on extinguishment of debt | 25 | — | |||||||||||||||||||||
| Interest income | 60 | 45 | |||||||||||||||||||||
| Indemnification receivable accrual | 90 | 5 | |||||||||||||||||||||
| Other (loss) income, net | (6) | 6 | |||||||||||||||||||||
| Total other income (expense), net | $ | 11 | $ | (73) |
Supplemental Cash Flow Information
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Cash paid for taxes, net | $ | 118 | $ | 312 | ||||||||||
| Cash paid for interest, net | 867 | 920 | ||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||
| Accrued purchases of property and equipment | 28 | 33 | ||||||||||||
| Assets acquired under finance lease and other arrangements | 111 | 29 | ||||||||||||
| Settlement of PRSU awards | 31 | 8 | ||||||||||||
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Cash, Cash Equivalents, and Restricted Cash
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,976 | $ | 3,780 | ||||||||||||||||||||||
| Restricted cash - recorded in prepaid expenses and other current assets (1) | 410 | 539 | ||||||||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 3,386 | $ | 4,319 | ||||||||||||||||||||||
| (1) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables and hedging programs. (See Note 5 and Note 9.) | ||||||||||||||||||||||||||
Earnings Per Share
The table below presents a reconciliation of net loss available to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted earnings per share (in millions).
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss | $ | (955) | $ | (1,060) | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (7) | (8) | |||||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | (4) | (1) | |||||||||||||||||||||
| Redeemable noncontrolling interest adjustments of carrying value to redemption value (redemption value does not equal fair value) | (4) | — | |||||||||||||||||||||
| Net loss available to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted earnings per share | $ | (970) | $ | (1,069) | |||||||||||||||||||
The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Anti-dilutive share-based awards | 74 | 62 | ||||||||||||||||||||||||
Supplier Finance Programs
As of March 31, 2024 and December 31, 2023, the Company has confirmed $337 million and $338 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.
Accumulated Other Comprehensive Loss
The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||
| Currency Translation | Derivatives | Pension Plan and SERP Liability | Accumulated Other Comprehensive Loss | ||||||||||||||||||||
| Beginning balance | $ | (699) | $ | 18 | $ | (60) | $ | (741) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | (176) | 13 | — | (163) | |||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | (9) | — | (9) | |||||||||||||||||||
| Other comprehensive income (loss) | (176) | 4 | — | (172) | |||||||||||||||||||
| Ending balance | $ | (875) | $ | 22 | $ | (60) | $ | (913) |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Currency Translation | Derivatives | Pension Plan and SERP Liability | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||
| Beginning balance | $ | (1,498) | $ | 14 | $ | (39) | $ | (1,523) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 426 | 3 | (9) | 420 | |||||||||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | (2) | — | (2) | |||||||||||||||||||||||||
| Other comprehensive income (loss) | 426 | 1 | (9) | 418 | |||||||||||||||||||||||||
| Ending balance | $ | (1,072) | $ | 15 | $ | (48) | $ | (1,105) |
NOTE 14. 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.
The table below presents a summary of the transactions with related parties (in millions).
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Revenues and service charges: | ||||||||||||||||||||||||||
| Liberty Group | $ | 445 | $ | 518 | ||||||||||||||||||||||
| Equity method investees | 146 | 175 | ||||||||||||||||||||||||
| Other | 62 | 47 | ||||||||||||||||||||||||
| Total revenues and service charges | $ | 653 | $ | 740 | ||||||||||||||||||||||
| Expenses | $ | 77 | $ | 99 | ||||||||||||||||||||||
| Distributions to noncontrolling interests and redeemable noncontrolling interests | $ | 130 | $ | 237 | ||||||||||||||||||||||
The table below presents receivables due from and payables due to related parties (in millions).
| March 31, 2024 | December 31, 2023 | |||||||||||||
| Receivables | $ | 513 | $ | 363 | ||||||||||
| Payables | $ | 14 | $ | 18 |
NOTE 15. 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.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, government regulations, or intellectual property, as well as disputes and matters involving counterparties to contractual agreements, such as disputes arising out of definitive agreements entered into in connection with the Merger. A determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgment about future events. In connection with a contract dispute arising out of definitive agreements entered into in connection with the Merger, the Company established an immaterial accrual in the first quarter of 2024. At this time, the Company is not able to estimate the reasonably possible range of loss or any loss in excess of the accrual associated with such matter. There can be no assurance that any settlement of such dispute will be reached and, if a settlement is reached, what the total dollar amount will be of any such settlement.
The Company may not currently be able to estimate the reasonably possible loss or range of loss for certain matters until developments in such matters have provided sufficient information to support an assessment of such loss. In the absence of sufficient information to support an assessment of the reasonably possible loss or range of loss, no accrual for such contingencies is made and no loss or range of loss is disclosed. 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 currently 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 16. 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;
-
gains and losses on business and asset dispositions;
-
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. 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. We prospectively updated certain corporate allocations at the beginning of 2024. The impact to prior periods was immaterial.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The tables below present summarized financial information for each of the Company’s reportable segments, corporate, and inter-segment eliminations (in millions).
Revenues
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Studios | $ | 2,821 | $ | 3,212 | ||||||||||||||||||||||
| Networks | 5,125 | 5,581 | ||||||||||||||||||||||||
| DTC | 2,460 | 2,455 | ||||||||||||||||||||||||
| Corporate | 1 | — | ||||||||||||||||||||||||
| Inter-segment eliminations | (449) | (548) | ||||||||||||||||||||||||
| Total revenues | $ | 9,958 | $ | 10,700 |
Adjusted EBITDA
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Studios | $ | 184 | $ | 607 | ||||||||||||||||||||||
| Networks | 2,119 | 2,293 | ||||||||||||||||||||||||
| DTC | 86 | 50 | ||||||||||||||||||||||||
| Corporate | (346) | (355) | ||||||||||||||||||||||||
| Inter-segment eliminations | 59 | 16 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2,102 | $ | 2,611 |
Reconciliation of Net Loss available to Warner Bros. Discovery, Inc. to Adjusted EBITDA
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Net loss available to Warner Bros. Discovery, Inc. | $ | (966) | $ | (1,069) | ||||||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | 4 | 1 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 7 | 8 | ||||||||||||||||||||||||
| Income tax expense (benefit) | 136 | (178) | ||||||||||||||||||||||||
| Loss before income taxes | (819) | (1,238) | ||||||||||||||||||||||||
| Other (income) expense, net | (11) | 73 | ||||||||||||||||||||||||
| Loss from equity investees, net | 48 | 37 | ||||||||||||||||||||||||
| Interest expense, net | 515 | 571 | ||||||||||||||||||||||||
| Operating loss | (267) | (557) | ||||||||||||||||||||||||
| Depreciation and amortization | 1,888 | 2,058 | ||||||||||||||||||||||||
| Employee share-based compensation | 99 | 106 | ||||||||||||||||||||||||
| Restructuring and other charges | 35 | 95 | ||||||||||||||||||||||||
| Transaction and integration costs | 81 | 47 | ||||||||||||||||||||||||
| Facility consolidation costs | 2 | — | ||||||||||||||||||||||||
| Impairment and amortization of fair value step-up for content | 235 | 831 | ||||||||||||||||||||||||
| Amortization of capitalized interest for content | 17 | — | ||||||||||||||||||||||||
| Impairments and loss on dispositions | 12 | 31 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2,102 | $ | 2,611 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 17. SUBSEQUENT EVENTS
On May 9, 2024, the Company announced a cash tender offer to purchase for cash up to $1.75 billion aggregate purchase price (excluding accrued and unpaid interest) of (i) DCL’s outstanding 3.900% Senior Notes due 2024, 4.000% Senior Notes due 2055, 4.650% Senior Notes due 2050, 4.950% Senior Notes due 2042, 4.875% Senior Notes due 2043, 5.200% Senior Notes due 2047, and 5.300% Senior Notes due 2049, (ii) Scripps Networks’ outstanding 3.900% Senior Notes due 2024, (iii) the legacy WarnerMedia Business’s outstanding 4.650% Senior Notes due 2044, 4.850% Senior Notes due 2045, 4.900% Senior Notes due 2042, and 5.350% Senior Notes due 2043, and (iv) WMH’s outstanding 5.050% Senior Notes due 2042, which it expects to fund using the aggregate net proceeds from one or more debt financing transactions together with available cash on hand and other available sources of liquidity.
Consistent with past practice, the Company used its commercial paper program and credit facility to manage working capital. As of May 9, 2024, the Company had approximately $850 million outstanding of commercial paper, which is expected to be repaid within the current quarter.
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