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

Management’s discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. This section provides additional information regarding our businesses, current developments, results of operations, cash flows and financial condition. Additional context can also be found in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

INDUSTRY TRENDS

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, respectively, 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 strike ended on November 9, 2023, and a new collective bargaining agreement was ratified on December 5, 2023.

The strikes had a material impact on the operations and results of the Company in 2023, including a pause on certain theatrical and television productions. Effects included 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 2023 film slate, as well as the Company’s ability to produce, license, and deliver content. The Company experienced content delivery delays in the first quarter of 2024 due to the pause in television productions in 2023, but does not expect any material impacts for the remainder of 2024.

Other headwinds in the industry, such as continued pressures on linear distribution and soft linear advertising markets in the U.S., have had, and are expected to continue to have, a material impact on the operations and results of the Company, including a negative impact on the results of operations attributed to declines in linear advertising revenue. The increase of digital advertising available in the marketplace has also resulted in, and is expected to continue to result in, increased competition for advertising expenditures for both traditional linear networks and ad-supported tiers in streaming services.

We continue to closely monitor the ongoing impact of industry trends 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.

BUSINESS OVERVIEW

Warner Bros. Discovery 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.

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

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

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’s ongoing restructuring and transformation initiatives 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, this restructuring program is expected to be substantially completed by the end of 2024. We expect to incur up to $5.3 billion in pre-tax restructuring charges, of which we have incurred $4.3 billion as of March 31, 2024 related to this plan. Of the total expected pre-tax restructuring charges, we expect total cash expenditures to be $1.0 - $ 1.5 billion.

As of March 31, 2024, we classified our operations in three reportable segments:

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

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

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

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

RESULTS OF OPERATIONS

Foreign Exchange Impacting Comparability

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

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the “2024 Baseline Rate”), and the prior year amounts translated at the same 2024 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

Consolidated Results of Operations

The table below presents our consolidated results of operations (in millions).

						Three Months Ended March 31,
						2024						2023									% Change						% Change (ex-FX)
Revenues:
Distribution						$	4,985											$	5,163														(3)		%				(3)		%
Advertising						2,148												2,298															(7)		%				(7)		%
Content						2,558												2,954															(13)		%				(14)		%
Other						267												285															(6)		%				(9)		%
Total revenues						9,958												10,700															(7)		%				(7)		%
Costs of revenues, excluding depreciation and amortization						6,058												6,685															(9)		%				(9)		%
Selling, general and administrative						2,232												2,388															(7)		%				(6)		%
Depreciation and amortization						1,888												2,058															(8)		%				(9)		%
Restructuring and other charges						35												95															(63)		%				(64)		%
Impairment and loss on dispositions						12												31															(61)		%				(61)		%
Total costs and expenses						10,225												11,257															(9)		%				(9)		%
Operating loss						(267)												(557)															52		%				51		%
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)

NM - Not meaningful

Unless otherwise indicated, the discussion of percent changes below is on an ex-FX basis. The ex-FX percent changes of line items below operating loss in the table above are not included as the activity is principally in U.S. dollars.

Revenues

Distribution revenue decreased 3% for the three months ended March 31, 2024, primarily attributable to declines in Networks linear subscribers in the U.S. and continued DTC linear wholesale subscriber declines in the U.S., partially offset by increases in U.S. contractual affiliate rates.

Advertising revenue decreased 7% for the three months ended March 31, 2024, primarily attributable to audience declines in domestic general entertainment and news networks and soft linear advertising markets in the U.S., partially offset by higher Max U.S. engagement.

Content revenue decreased 14% for the three months ended March 31, 2024, primarily attributable to lower games revenue due to the performance of Suicide Squad: Kill the Justice League compared to Hogwarts Legacy in the prior year and lower TV licensing revenue, partially offset by higher theatrical film rental revenue due to the performance of Dune: Part Two.

Other revenue decreased 9% for the three months ended March 31, 2024, primarily attributable to lower studio production services due to the impact of the WGA and SAG-AFTRA strikes and fewer services provided to the unconsolidated TNT Sports UK joint venture, partially offset by the opening of Warner Bros. Studio Tour Tokyo in June 2023.

Costs of Revenues

Costs of revenues decreased 9% for the three months ended March 31, 2024, primarily attributable to lower content expense related to the amortization of purchase accounting fair value step-up for content.

Selling, General and Administrative

Selling, general and administrative expenses decreased 6% for the three months ended March 31, 2024, primarily attributable to a reduction in personnel and overhead expenses at DTC and Networks, partially offset by higher theatrical marketing expense.

Depreciation and Amortization

Depreciation and amortization decreased 9% for the three months ended March 31, 2024, primarily attributable to intangible assets acquired during the Merger that are being amortized using the sum of the months’ digits method.

Restructuring and other charges

Restructuring and other charges decreased 64% for the three months ended March 31, 2024. Restructuring and other charges primarily includes contract terminations, facility consolidation activities, organizational restructuring, and other charges. (See Note 3 to the accompanying consolidated financial statements.)

Impairments and Loss on Dispositions

Impairment and loss on dispositions was $12 million for the three months ended March 31, 2024.

Interest Expense, net

Interest expense, net decreased $56 million for the three months ended March 31, 2024, primarily attributable to lower debt during the period. (See Note 8 and Note 9 to the accompanying consolidated financial statements.)

Loss From Equity Investees, net

Losses from our equity method investees were $48 million for the three months ended March 31, 2024. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 7 to the accompanying consolidated financial statements.)

Other Income (Expense), net

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

						Three Months Ended 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)

Income Tax Benefit

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 benefit 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.

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.

Segment Results of Operations

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

• employee share-based compensation;

• depreciation and amortization;

• restructuring and facility consolidation;

• certain impairment charges;

• gains and losses on business and asset dispositions;

• 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.

The table below presents our Adjusted EBITDA by segment (in millions).

						Three Months Ended March 31,
						2024						2023						% Change
Studios						$	184					$	607					(70)		%
Networks						$	2,119					$	2,293					(8)		%
DTC						$	86					$	50					72		%
Corporate						$	(346)					$	(355)					3		%
Inter-segment eliminations						$	59					$	16					NM

Studios Segment

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

						Three Months Ended March 31,
						2024						2023									% Change						% Change (ex-FX)
Revenues:
Distribution						$	5											$	3														67		%				67		%
Advertising						4												3															33		%				33		%
Content						2,623												3,027															(13)		%				(14)		%
Other						189												179															6		%				4		%
Total revenues						2,821												3,212															(12)		%				(13)		%
Costs of revenues, excluding depreciation and amortization						2,019												1,959															3		%				3		%
Selling, general and administrative						618												646															(4)		%				(5)		%
Adjusted EBITDA						184												607															(70)		%				(70)		%
Depreciation and amortization						186												172
Employee share-based compensation						(1)												—
Restructuring and other charges						11												76
Transaction and integration costs						1												2
Impairment and amortization of fair value step-up for content						(72)												442
Amortization of capitalized interest for content						17												—
Inter-segment eliminations						—												1
Operating income (loss)						$	42											$	(86)

Unless otherwise indicated, the discussion of percent changes below is on an ex-FX basis.

Revenues

Content revenue decreased 14% for the three months ended March 31, 2024, primarily attributable to lower games and TV licensing revenue, partially offset by higher theatrical film rental and home entertainment revenue. Games revenue decreased due to the performance of Suicide Squad: Kill the Justice League, which was released in the first quarter of 2024, compared to the prior year performance of Hogwarts Legacy. TV licensing revenue decreased due to lower episode deliveries as a result of the WGA and SAG-AFTRA strikes in the prior year, and the timing of licensing availabilities. Theatrical film rental revenue increased due to the performance of Dune: Part Two, released in the first quarter of 2024, as well as higher carryover from releases in the fourth quarter of 2023 compared to the fourth quarter of 2022. Home entertainment revenue increased due to the performance of Wonka and Aquaman and the Lost Kingdom.

Other revenue increased 4% for the three months ended March 31, 2024, primarily attributable to the opening of Warner Bros. Studio Tour Tokyo in June 2023, partially offset by lower studio production services due to the impact of the WGA and SAG-AFTRA strikes.

Costs of Revenues

Costs of revenues increased 3% for the three months ended March 31, 2024, primarily attributable to higher theatrical product content expense commensurate with higher theatrical revenue, and to a lesser extent, higher games content expense due to the impairment of Suicide Squad: Kill the Justice League. These increases were partially offset by lower television product content expense commensurate with lower revenue, including the impact of the WGA and SAG-AFTRA strikes.

Selling, General and Administrative

Selling, general and administrative expenses decreased 5% for the three months ended March 31, 2024, primarily attributable to lower games marketing expense due to the release of Hogwarts Legacy in the prior year and lower bad debt expense, partially offset by higher theatrical marketing expense due to the nature of releases in the first quarter of 2024 compared to the first quarter of 2023.

Adjusted EBITDA

Adjusted EBITDA decreased 70% for the three months ended March 31, 2024.

Networks Segment

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

						Three Months Ended March 31,
						2024						2023									% Change						% Change (ex-FX)
Revenues:
Distribution						$	2,797											$	2,995														(7)		%				(6)		%
Advertising						1,987												2,237															(11)		%				(11)		%
Content						264												245															8		%				8		%
Other						77												104															(26)		%				(29)		%
Total revenues						5,125												5,581															(8)		%				(8)		%
Costs of revenues, excluding depreciation and amortization						2,372												2,594															(9)		%				(8)		%
Selling, general and administrative						634												694															(9)		%				(8)		%
Adjusted EBITDA						2,119												2,293															(8)		%				(8)		%
Depreciation and amortization						1,105												1,304
Restructuring and other charges						11												3
Transaction and integration costs						1												3
Impairment and amortization of fair value step-up for content						125												121
Inter-segment eliminations						—												(7)
Impairment and loss on dispositions						—												1
Operating income						$	877											$	868

Unless otherwise indicated, the discussion of percent changes below is on an ex-FX basis.

Revenues

Distribution revenue decreased 6% for the three months ended March 31, 2024, primarily attributable to a decline in linear subscribers in the U.S. and our exit from the AT&T SportsNet business, partially offset by increases in U.S. contractual affiliate rates and inflationary impacts in Argentina.

Advertising revenue decreased 11% for the three months ended March 31, 2024, primarily attributable to audience declines in domestic general entertainment and news networks and a soft linear advertising market in the U.S. In addition, the three months ended March 31, 2024 was unfavorably impacted by our exit from the AT&T SportsNet business.

Content revenue increased 8% for the three months ended March 31, 2024, primarily attributable to inter-segment content licensing to DTC.

Other revenue decreased 29% for the three months ended March 31, 2024, primarily attributable to fewer services provided to the unconsolidated TNT Sports UK joint venture.

Costs of Revenues

Costs of revenues decreased 8% for the three months ended March 31, 2024, primarily attributable to our exit from the AT&T SportsNet business, allocation of U.S. sports costs to DTC, and lower costs associated with the unconsolidated TNT Sports UK joint venture, partially offset by timing of domestic sports rights expense. In addition, the three months ended March 31, 2023, was favorably impacted by lower general entertainment content expense, partially offset by inflationary impacts in Argentina and higher election coverage expense.

Selling, General and Administrative

Selling, general and administrative expenses decreased 8% for the three months ended March 31, 2024, primarily attributable to lower personnel and overhead expenses.

Adjusted EBITDA

Adjusted EBITDA decreased 8% for the three months ended March 31, 2024.

DTC Segment

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

						Three Months Ended March 31,
						2024						2023									% Change						% Change (ex-FX)
Revenues:
Distribution						$	2,185											$	2,165														1		%				1		%
Advertising						175												103															70		%				70		%
Content						99												185															(46)		%				(46)		%
Other						1												2															(50)		%				(50)		%
Total revenues						2,460												2,455															—		%				—		%
Costs of revenues, excluding depreciation and amortization						1,895												1,815															4		%				5		%
Selling, general and administrative						479												590															(19)		%				(19)		%
Adjusted EBITDA						86												50															72		%				59		%
Depreciation and amortization						515												506
Restructuring and other charges						2												9
Facility consolidation costs						2												—
Impairment and amortization of fair value step-up for content						102												134
Inter-segment eliminations						—												2
Impairment and loss on dispositions						5												5
Operating loss						$	(540)											$	(606)

Unless otherwise indicated, the discussion of percent changes below is on an ex-FX basis.

Revenues

As of March 31, 2024, we had 99.6 million DTC subscribers.1

Distribution revenue increased 1% for the three months ended March 31, 2024, primarily attributable to price increases in the U.S. and certain international markets and international subscriber growth, partially offset by lower subscribers in the U.S. due to continued linear wholesale subscriber declines.

Advertising revenue increased 70% for the three months ended March 31, 2024, primarily attributable to higher Max U.S. engagement, the B/R Sports on Max launch in October 2023, and ad-lite subscriber growth.

Content revenue decreased 46% for the three months ended March 31, 2024, primarily attributable to lower volume of international licensing deals.

Costs of Revenues

Costs of revenues increased 5% for the three months ended March 31, 2024, primarily attributable to the allocation of U.S. sports rights costs to DTC, partially offset by lower content expense and decreased content licensing costs commensurate with lower content revenue.

1 Direct-to-Consumer subscriber - We define a “Core DTC Subscription” as:

(i) a retail subscription to discovery+, HBO, HBO Max, Max, or a Premium Sports Product (defined below) for which we have recognized subscription revenue, whether directly or through a third party, from a direct-to-consumer platform; (ii) a wholesale subscription to discovery+, HBO, HBO Max, Max, or a Premium Sports Product for which we have recognized subscription revenue from a fixed-fee arrangement with a third party and where the individual user has activated their subscription; (iii) a wholesale subscription to discovery+, HBO, HBO Max, Max, or a Premium Sports Product for which we have recognized subscription revenue on a per subscriber basis; (iv) a retail or wholesale subscription to an independently-branded, regional product sold on a stand-alone basis that includes discovery+, HBO, HBO Max, Max, and/or a Premium Sports Product, for which we have recognized subscription revenue (as per (i)-(iii) above); and (v) users on free trials who convert to a subscription for which we have recognized subscription revenue within the first seven days of the calendar month immediately following the month in which their free trial expires.

The Company defines a “Premium Sports Product” as a strategically prioritized, sports-focused product sold on a stand-alone basis and made available directly to consumers. The current “independently-branded, regional products” referred to in (iv) above consist of TVN/Player and BluTV. We may refer to the aggregate number of DTC Subscriptions as “subscribers”.

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

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 19% for the three months ended March 31, 2024, primarily attributable to lower personnel and overhead expenses.

Adjusted EBITDA

Adjusted EBITDA increased 59% for the three months ended March 31, 2024.

Corporate

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

						Three Months Ended March 31,
						2024						2023									% Change						% Change (ex-FX)
Adjusted EBITDA						$	(346)											$	(355)														3		%				2		%
Depreciation and amortization						82												76
Employee share-based compensation						100												106
Restructuring and other charges						11												7
Transaction and integration costs						79												42
Inter-segment eliminations						—												4
Impairment and loss on dispositions						7												25
Operating loss						$	(625)											$	(615)

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

Adjusted EBITDA improved 2% for the three months ended March 31, 2024, primarily attributable to reductions to personnel costs and technology-related operating expenses, partially offset by higher securitization expense.

Inter-segment Eliminations

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

						Three Months Ended March 31,
						2024						2023
Inter-segment revenue eliminations						$	(449)											$	(548)
Inter-segment expense eliminations						(508)												(564)
Adjusted EBITDA						59												16
Impairment and amortization of fair value step-up for content						80												134
Operating loss						$	(21)											$	(118)

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Sources of Cash

Historically, we have generated a significant amount of cash from operations. During the three months ended March 31, 2024, we funded our working capital needs primarily through cash flows from operations. As of March 31, 2024, we had $3.0 billion of cash and cash equivalents on hand. We are a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock and preferred stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured. We have a $6.0 billion revolving credit facility and a commercial paper program described below. We also participate in a revolving receivables program and an accounts receivable factoring program described below.

*•*Debt

Revolving Credit Facility and Commercial Paper

We have a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and have the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of March 31, 2024, the Company was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.

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

During the three months ended March 31, 2024, we borrowed and repaid $2,200 million under our Credit Facility and commercial paper program. As of March 31, 2024, we had no outstanding borrowings under the Credit Facility or the commercial paper program.

*•*Revolving Receivables Program

We have a revolving agreement to transfer up to $5,500 million of certain receivables through our bankruptcy-remote subsidiary, Warner Bros. Discovery Receivables Funding, LLC, to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. We service the sold receivables for the financial institution for a fee and pay fees to the financial institution in connection with this revolving agreement. As customers pay their balances, our available capacity under this revolving agreement increases and typically we transfer additional receivables into the program. In some cases, we may have collections that have not yet been remitted to the bank, resulting in a liability. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,170 million as of March 31, 2024.

*•*Accounts Receivable Factoring

We have a factoring agreement to sell certain of our non-U.S. trade accounts receivable on a limited recourse basis to a third-party financial institution. No amounts were sold under the Company’s factoring arrangement for the three months ended March 31, 2024.

Uses of Cash

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

• Content Acquisition

We plan to continue to invest significantly in the creation and acquisition of new content, as well as certain sports rights. Contractual commitments to acquire content have not materially changed as set forth in “Material Cash Requirements from Known Contractual and Other Obligations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K.

*•*Debt

Floating Rate Notes

During the three months ended March 31, 2024, we repaid $40 million of aggregate principal amount of our floating rate notes due March 2024.

Senior Notes

During the three months ended March 31, 2024, we repurchased or repaid $1,050 million of aggregate principal amount outstanding of our senior notes. In addition, we have $48 million of senior notes coming due in June 2024, and an additional $3,383 million of senior notes coming due through March 31, 2025.

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

*•*Capital Expenditures

We effected capital expenditures of $195 million during the three months ended March 31, 2024, including amounts capitalized to support Max. In addition, we expect to continue to incur significant costs to develop and market Max.

*•*Investments and Business Combinations

Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value. (See Note 7 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time. During the three months ended March 31, 2024, we contributed $53 million for investments in and advances to our investees.

*•*Redeemable Noncontrolling Interest and Noncontrolling Interest

We had redeemable equity balances of $179 million at March 31, 2024, which may require the use of cash in the event holders of noncontrolling interests put their interests to us. Distributions to noncontrolling interests and redeemable noncontrolling interests totaled $130 million and $237 million for the three months ended March 31, 2024 and 2023, respectively.

*•*Income Taxes and Interest

We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the three months ended March 31, 2024, we made cash payments of $118 million and $867 million for income taxes and interest on our outstanding debt, respectively.

Cash Flows

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

						Three Months Ended March 31,
						2024						2023
Cash, cash equivalents, and restricted cash, beginning of period						$	4,319					$	3,930
Cash provided by (used in) operating activities						585						(631)
Cash used in investing activities						(207)						(257)
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, end of period						$	3,386					$	2,639

Operating Activities

Cash provided by (used in) operating activities was $585 million and $(631) million during the three months ended March 31, 2024 and 2023, respectively. The increase in cash provided by operating activities was primarily attributable to net income, excluding non-cash items and an improvement in working capital activity.

Investing Activities

Cash used in investing activities was $207 million and $257 million during the three months ended March 31, 2024 and 2023, respectively. The decrease in cash used in investing activities was primarily attributable to fewer purchases of property and equipment, partially offset by increased investments in and advances to equity investments during the three months ended March 31, 2024.

Financing Activities

Cash used in financing activities was $1,237 million and $432 million during the three months ended March 31, 2024 and 2023, respectively. The increase in cash used in financing activities was primarily attributable to increased principal repayments of debt, partially offset by lower distributions to noncontrolling interests and redeemable noncontrolling interests during the three months ended March 31, 2024.

Capital Resources

As of March 31, 2024, capital resources were comprised of the following (in millions).

						March 31, 2024
						Total Capacity												Outstanding Indebtedness						Unused Capacity
Cash and cash equivalents						$	2,976											$	—					$	2,976
Revolving credit facility and commercial paper program						6,000												—						6,000
Senior notes (a)						42,845												42,845						—
Total						$	51,821											$	42,845					$	8,976
(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of March 31, 2024 had interest rates that ranged from 1.90% to 8.30% and will mature between 2024 and 2062.

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

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

Summarized Guarantor Financial Information

Basis of Presentation

As of March 31, 2024 and December 31, 2023, the Company had outstanding senior notes issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, Scripps Networks, and WMH; senior notes issued by WMH and guaranteed by the Company, Scripps Networks, and DCL; senior notes issued by the legacy WarnerMedia Business (not guaranteed); and senior notes issued by Scripps Networks (not guaranteed). (See Note 8 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned subsidiary of the Company. Scripps Networks is also wholly owned by the Company.

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

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

Summarized Financial Information

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

						March 31, 2024						December 31, 2023
Current assets						$	743					$	1,539
Non-guarantor intercompany trade receivables, net						523						336
Noncurrent assets						5,705						5,709
Current liabilities						4,142						2,847
Noncurrent liabilities						39,419						42,157

						Three Months Ended March 31, 2024
Revenues						$	474
Operating income						48
Net income						(332)
Net income available to Warner Bros. Discovery, Inc.						(334)

MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS

In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. Contractual commitments have not materially changed as set forth in “Material Cash Requirements from Known Contractual and Other Obligations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K.

RELATED PARTY TRANSACTIONS

In the ordinary course of business, we enter into transactions with related parties, primarily the Liberty Group and our equity method investees. (See Note 14 to the accompanying consolidated financial statements.)

CRITICAL ACCOUNTING ESTIMATES

Our critical accounting estimates have not changed since December 31, 2023. For a discussion of each of our critical accounting estimates, including information and analysis of estimates and assumptions involved in their application, see “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K.

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

No new accounting and reporting standards were adopted during the three months ended March 31, 2024. (See Note 1 to the accompanying consolidated financial statements.)

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

• realizing direct-to-consumer subscriber goals;

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

• the possibility or duration of an industry-wide strike, such as the strikes of the WGA and SAG-AFTRA in 2023, player lock-outs or other job action affecting a major entertainment industry union, athletes or others involved in the development and production of our sports programming, television programming, feature films and interactive entertainment (e.g., games) who are covered by collective bargaining agreements;

• disagreements with our distributors or other business partners;

• continued consolidation of distribution customers and production studios;

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

• adverse outcomes of legal proceedings or disputes related to our acquisition of the WarnerMedia Business;

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

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

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

• threatened or actual cyber-attacks and cybersecurity breaches;

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

• general economic and business conditions, fluctuations in foreign currency exchange rates, global events such as pandemics, and political unrest in the international markets in which we operate.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill and other intangibles. Management’s expectations and assumptions, and the continued validity of any forward-looking statements we make, cannot be foreseen with certainty and are subject to change due to a broad range of factors affecting the U.S. and global economies and regulatory environments, factors specific to Warner Bros. Discovery, and other factors described under Part I, Item 1A, “Risk Factors,” in our 2023 Form 10-K. These forward-looking statements and such risks, uncertainties, and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions, or circumstances on which any such statement is based.