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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Distribution | $ | 4,879 | $ | 5,135 | $ | 9,864 | $ | 10,298 | |||||||||||||||
| Advertising | 2,430 | 2,519 | 4,578 | 4,817 | |||||||||||||||||||
| Content | 2,109 | 2,446 | 4,667 | 5,400 | |||||||||||||||||||
| Other | 295 | 258 | 562 | 543 | |||||||||||||||||||
| Total revenues | 9,713 | 10,358 | 19,671 | 21,058 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Costs of revenues, excluding depreciation and amortization | 6,204 | 6,636 | 12,262 | 13,321 | |||||||||||||||||||
| Selling, general and administrative | 2,461 | 2,562 | 4,693 | 4,950 | |||||||||||||||||||
| Depreciation and amortization | 1,744 | 1,914 | 3,632 | 3,972 | |||||||||||||||||||
| Restructuring and other charges | 117 | 146 | 152 | 241 | |||||||||||||||||||
| Impairments and loss on dispositions | 9,395 | 6 | 9,407 | 37 | |||||||||||||||||||
| Total costs and expenses | 19,921 | 11,264 | 30,146 | 22,521 | |||||||||||||||||||
| Operating loss | (10,208) | (906) | (10,475) | (1,463) | |||||||||||||||||||
| Interest expense, net | (518) | (574) | (1,033) | (1,145) | |||||||||||||||||||
| Gain (loss) on extinguishment of debt | 542 | (5) | 567 | (5) | |||||||||||||||||||
| Loss from equity investees, net | (23) | (22) | (71) | (59) | |||||||||||||||||||
| Other income (expense), net | 172 | 27 | 158 | (46) | |||||||||||||||||||
| Loss before income taxes | (10,035) | (1,480) | (10,854) | (2,718) | |||||||||||||||||||
| Income tax benefit (expense) | 7 | 260 | (129) | 438 | |||||||||||||||||||
| Net loss | (10,028) | (1,220) | (10,983) | (2,280) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | (10) | (16) | (17) | (24) | |||||||||||||||||||
| Net loss (income) attributable to redeemable noncontrolling interests | 52 | (4) | 48 | (5) | |||||||||||||||||||
| Net loss available to Warner Bros. Discovery, Inc. | $ | (9,986) | $ | (1,240) | $ | (10,952) | $ | (2,309) | |||||||||||||||
| Net loss per share available to Warner Bros. Discovery, Inc. Series A common stockholders: | |||||||||||||||||||||||
| Basic | $ | (4.07) | $ | (0.51) | $ | (4.48) | $ | (0.95) | |||||||||||||||
| Diluted | $ | (4.07) | $ | (0.51) | $ | (4.48) | $ | (0.95) | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 2,451 | 2,437 | 2,447 | 2,434 | |||||||||||||||||||
| Diluted | 2,451 | 2,437 | 2,447 | 2,434 | |||||||||||||||||||
| 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Net loss | $ | (10,028) | $ | (1,220) | $ | (10,983) | $ | (2,280) | ||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||
| Currency translation, net of income tax benefit of $(9), $(5), $(2), and $(10) | 9 | 60 | (167) | 486 | ||||||||||||||||||||||
| Pension plan and SERP liability, net of income tax benefit of $— and $(3), $—, and $(6) | — | (4) | — | (13) | ||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||
| Change in net unrealized gains | 12 | 11 | 25 | 14 | ||||||||||||||||||||||
| Less: Reclassification adjustment for net gains included in net income | 2 | (4) | (7) | (6) | ||||||||||||||||||||||
| Net change, net of income tax benefit of $(4), $(6), $(4), and $(4) | 14 | 7 | 18 | 8 | ||||||||||||||||||||||
| Comprehensive loss | (10,005) | (1,157) | (11,132) | (1,799) | ||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (7) | (16) | (13) | (24) | ||||||||||||||||||||||
| Comprehensive loss (income) attributable to redeemable noncontrolling interests | 52 | (4) | 48 | (5) | ||||||||||||||||||||||
| Comprehensive loss attributable to Warner Bros. Discovery, Inc. | $ | (9,960) | $ | (1,177) | $ | (11,097) | $ | (1,828) | ||||||||||||||||||
| 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)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,613 | $ | 3,780 | |||||||
| Receivables, net | 6,166 | 6,047 | |||||||||
| Prepaid expenses and other current assets | 3,651 | 4,391 | |||||||||
| Total current assets | 13,430 | 14,218 | |||||||||
| Film and television content rights and games | 20,010 | 21,229 | |||||||||
| Property and equipment, net | 6,043 | 5,957 | |||||||||
| Goodwill | 25,740 | 34,969 | |||||||||
| Intangible assets, net | 35,157 | 38,285 | |||||||||
| Other noncurrent assets | 7,649 | 8,099 | |||||||||
| Total assets | $ | 108,029 | $ | 122,757 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,151 | $ | 1,260 | |||||||
| Accrued liabilities | 10,926 | 10,368 | |||||||||
| Deferred revenues | 2,022 | 1,924 | |||||||||
| Current portion of debt | 3,669 | 1,780 | |||||||||
| Total current liabilities | 17,768 | 15,332 | |||||||||
| Noncurrent portion of debt | 37,289 | 41,889 | |||||||||
| Deferred income taxes | 7,806 | 8,736 | |||||||||
| Other noncurrent liabilities | 9,751 | 10,328 | |||||||||
| Total liabilities | 72,614 | 76,285 | |||||||||
| Commitments and contingencies (See Note 15) | |||||||||||
| Redeemable noncontrolling interests | 118 | 165 | |||||||||
| Warner Bros. Discovery, Inc. stockholders’ equity: | |||||||||||
| Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,681 and 2,669 shares issued; and 2,451 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 | 55,332 | 55,112 | |||||||||
| Treasury stock, at cost: 230 and 230 shares | (8,244) | (8,244) | |||||||||
| Accumulated deficit | (11,880) | (928) | |||||||||
| Accumulated other comprehensive loss | (890) | (741) | |||||||||
| Total Warner Bros. Discovery, Inc. stockholders’ equity | 34,345 | 45,226 | |||||||||
| Noncontrolling interests | 952 | 1,081 | |||||||||
| Total equity | 35,297 | 46,307 | |||||||||
| Total liabilities and equity | $ | 108,029 | $ | 122,757 | |||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
| Net loss | $ | (10,983) | $ | (2,280) | |||||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | |||||||||||
| Content rights amortization and impairment | 7,747 | 9,361 | |||||||||
| Depreciation and amortization | 3,632 | 3,972 | |||||||||
| Deferred income taxes | (889) | (1,426) | |||||||||
| Share-based compensation expense | 260 | 248 | |||||||||
| Equity in losses of equity method investee companies and cash distributions | 83 | 112 | |||||||||
| Gain on sale of investments | (203) | — | |||||||||
| (Gain) loss on extinguishment of debt | (567) | 5 | |||||||||
| Impairments and loss on dispositions | 9,407 | 37 | |||||||||
| Gain from derivative instruments, net | (33) | (111) | |||||||||
| Other, net | 58 | 129 | |||||||||
| Changes in operating assets and liabilities, net of acquisitions and dispositions: | |||||||||||
| Receivables, net | (191) | (433) | |||||||||
| Film and television content rights, games, and production payables, net | (6,351) | (7,656) | |||||||||
| Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities | (132) | (859) | |||||||||
| Foreign currency, prepaid expenses and other assets, net | (25) | 284 | |||||||||
| Cash provided by operating activities | 1,813 | 1,383 | |||||||||
| Investing Activities | |||||||||||
| Purchases of property and equipment | (447) | (591) | |||||||||
| Proceeds from sales of investments | 324 | — | |||||||||
| Investments in and advances to equity investments | (68) | (45) | |||||||||
| Other investing activities, net | 54 | 69 | |||||||||
| Cash used in investing activities | (137) | (567) | |||||||||
| Financing Activities | |||||||||||
| Principal repayments of term loans | — | (2,600) | |||||||||
| Principal repayments of debt, including premiums and discounts to par value | (3,703) | (660) | |||||||||
| Borrowings from debt, net of discount and issuance costs | 1,617 | 1,500 | |||||||||
| Distributions to noncontrolling interests and redeemable noncontrolling interests | (161) | (269) | |||||||||
| Securitization receivables collected but not remitted | — | 405 | |||||||||
| Borrowings under commercial paper program and revolving credit facility | 11,605 | 2,599 | |||||||||
| Repayments under commercial paper program and revolving credit facility | (11,605) | (2,602) | |||||||||
| Other financing activities, net | (27) | (56) | |||||||||
| Cash used in financing activities | (2,274) | (1,683) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (104) | 14 | |||||||||
| Net change in cash, cash equivalents, and restricted cash | (702) | (853) | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 4,319 | 3,930 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 3,617 | $ | 3,077 | |||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENTS 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 | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests | — | — | — | — | (9,986) | — | (9,986) | 10 | (9,976) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 23 | 23 | (3) | 20 | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 151 | — | — | — | 151 | — | 151 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax settlements associated with share-based plans | — | — | (2) | — | — | — | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests | — | — | — | — | — | — | — | (19) | (19) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in connection with share-based plans | 2 | — | 6 | — | — | — | 6 | — | 6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest adjustments to redemption value | — | — | 2 | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2024 | 2,681 | $ | 27 | $ | 55,332 | $ | (8,244) | $ | (11,880) | $ | (890) | $ | 34,345 | $ | 952 | $ | 35,297 | |||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
WARNER BROS. DISCOVERY, INC.
CONSOLIDATED STATEMENTS 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 | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests | — | — | — | — | (1,240) | — | (1,240) | 16 | (1,224) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 63 | 63 | — | 63 | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 130 | — | — | — | 130 | — | 130 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax settlements associated with share-based plans | — | — | (7) | — | — | — | (7) | — | (7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests | — | — | — | — | — | — | — | (26) | (26) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in connection with share-based plans | 1 | — | 8 | — | — | — | 8 | — | 8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest adjustments to redemption value | — | — | — | — | 2 | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | 2,667 | $ | 27 | $ | 54,816 | $ | (8,244) | $ | (105) | $ | (1,042) | $ | 45,452 | $ | 1,027 | $ | 46,479 | |||||||||||||||||||||||||||||||||||||||
| 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
We perform fair value-based impairment tests of goodwill and intangible assets with indefinite lives on an annual basis, and between annual tests if an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value.
The Company continues to monitor its reporting units for triggers that could impact recoverability of goodwill. These potential triggers include, but are not limited to, the following:
-
the delta between market capitalization and book value;
-
uncertainty related to affiliate and sports rights renewals associated with the Company’s Networks and DTC reporting units;
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
-
declining levels of global GDP growth and continued softness in the U.S. linear advertising market associated with the Company’s Networks reporting unit;
-
content licensing trends in our Studios reporting unit; and
-
risks in executing the projected growth strategies of the Company’s DTC reporting unit.
During the three months ended June 30, 2024, the Company performed goodwill and intangible assets impairment monitoring procedures for all of its reporting units and concluded the delta between market capitalization and book value, continued softness in the U.S. linear advertising market, and uncertainty related to affiliate and sports rights renewals, including the NBA (see Note 17), represented a triggering event in the second quarter of 2024 for the Networks reporting unit.
As a result, the Company elected to perform a quantitative impairment assessment for all of its reporting units in the second quarter of 2024. Based on the results of the quantitative impairment test, the Studios reporting unit had fair value in excess of carrying value of 19% and the DTC reporting unit had fair value in excess of carrying value of greater than 20%.
For the Networks reporting unit, fair value was determined using a Discounted Cash Flow (“DCF”) method. The key judgments and assumptions used in the DCF method to determine the fair value of the Networks reporting unit were as follows:
-
The expected future cash flows in terms of their amount and timing. These cash flows, utilized in the DCF analysis, are derived from the reporting unit’s budget and its strategic long-term plan, which reflect expectations based upon operating performance and assumptions consistent with those of a market participant with regards to affiliate revenue, sports rights, and continued softness in the U.S. linear advertising market.
-
Long-term growth rate of negative 3%.
-
A discount rate of 10.5%. This is reflective of the risks inherent in the future cash flows of the reporting unit and market conditions.
Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in the valuations.
The carrying value of the Networks reporting unit exceeded its fair value and the Company recorded a pre-tax, non-cash goodwill impairment charge of $9.1 billion in impairments and loss on dispositions on the consolidated statements of operations. The goodwill impairment charge does not have an impact on the calculation of the Company’s financial covenants under the Company's debt arrangements.
As of June 30, 2024, the carrying value of remaining goodwill assigned to the Networks reporting unit was $8.4 billion and the net assets of the reporting unit were approximately $25.6 billion. The Networks segment included accumulated impairments of $10.8 billion and $1.6 billion as of June 30, 2024 and December 31, 2023, respectively.
Fair Value Measurements
The determination of fair value of the Company’s reporting units represents a Level 3 fair value measurement in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. Changes in significant judgments and estimates could significantly impact the determined fair value of the reporting unit or the valuation of intangible assets. Changes to assumptions that would decrease the fair value of the reporting unit may result in corresponding increases to the impairment of goodwill at the reporting unit.
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 merger-related restructuring program is expected to be substantially completed by the end of 2024. During the three months ended June 30, 2024, the Company initiated an organizational and personnel restructuring plan and, during 2023, initiated a strategic realignment plan associated with its Warner Bros. Pictures Animation group.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Restructuring and other charges by reportable segments and corporate and inter-segment eliminations were as follows (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Studios | $ | 19 | $ | 10 | $ | 30 | $ | 86 | ||||||||||||||||||
| Networks | 42 | 110 | 53 | 113 | ||||||||||||||||||||||
| DTC | 15 | 18 | 17 | 27 | ||||||||||||||||||||||
| Corporate and inter-segment eliminations | 41 | 8 | 52 | 15 | ||||||||||||||||||||||
| Total restructuring and other charges | $ | 117 | $ | 146 | $ | 152 | $ | 241 |
During the three months ended June 30, 2024, restructuring and other charges were primarily related to organization restructuring costs. During the three months ended June 30, 2023, restructuring and other charges primarily included contract terminations and facility consolidation activities of $15 million, organization restructuring costs of $124 million, and other charges of $7 million. Facility consolidation impairment charges of $231 million were recorded in impairment and loss on dispositions in the consolidated statements of operations during the three months ended June 30, 2024. (See Note 13.)
During the six months ended June 30, 2024, restructuring and other charges were primarily related to organization restructuring costs. During the six months ended June 30, 2023, restructuring and other charges primarily included contract terminations and facility consolidation activities of $71 million, organization restructuring of $159 million, and other charges of $11 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 | 29 | 54 | 21 | 47 | 151 | |||||||||||||||||||||||||||||||||||||||
| Other accruals | — | (2) | (4) | 3 | (3) | |||||||||||||||||||||||||||||||||||||||
| Cash paid | (57) | (80) | (40) | (78) | (255) | |||||||||||||||||||||||||||||||||||||||
| June 30, 2024 | $ | 70 | $ | 174 | $ | 57 | $ | 52 | $ | 353 |
NOTE 4. REVENUES
The following tables present the Company’s revenues disaggregated by revenue source (in millions).
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Distribution | $ | 3 | $ | 2,675 | $ | 2,202 | $ | (1) | $ | 4,879 | |||||||||||||||||||
| Advertising | — | 2,214 | 240 | (24) | 2,430 | ||||||||||||||||||||||||
| Content | 2,237 | 299 | 123 | (550) | 2,109 | ||||||||||||||||||||||||
| Other | 209 | 84 | 3 | (1) | 295 | ||||||||||||||||||||||||
| Total | $ | 2,449 | $ | 5,272 | $ | 2,568 | $ | (576) | $ | 9,713 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution | $ | 3 | $ | 2,941 | $ | 2,192 | $ | (1) | $ | 5,135 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | 4 | 2,448 | 121 | (54) | 2,519 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content | 2,398 | 284 | 410 | (646) | 2,446 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 176 | 85 | 9 | (12) | 258 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,581 | $ | 5,758 | $ | 2,732 | $ | (713) | $ | 10,358 |
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Distribution | $ | 8 | $ | 5,472 | $ | 4,387 | $ | (3) | $ | 9,864 | |||||||||||||||||||
| Advertising | 4 | 4,201 | 415 | (42) | 4,578 | ||||||||||||||||||||||||
| Content | 4,860 | 563 | 222 | (978) | 4,667 | ||||||||||||||||||||||||
| Other | 398 | 161 | 4 | (1) | 562 | ||||||||||||||||||||||||
| Total | $ | 5,270 | $ | 10,397 | $ | 5,028 | $ | (1,024) | $ | 19,671 |
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Studios | Networks | DTC | Corporate and Inter-segment Eliminations | Total | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Distribution | $ | 6 | $ | 5,936 | $ | 4,357 | $ | (1) | $ | 10,298 | |||||||||||||||||||
| Advertising | 7 | 4,685 | 224 | (99) | 4,817 | ||||||||||||||||||||||||
| Content | 5,425 | 529 | 595 | (1,149) | 5,400 | ||||||||||||||||||||||||
| Other | 355 | 189 | 11 | (12) | 543 | ||||||||||||||||||||||||
| Total | $ | 5,793 | $ | 11,339 | $ | 5,187 | $ | (1,261) | $ | 21,058 |
Contract Liabilities and Contract Assets
The following table presents contract liabilities on the consolidated balance sheets (in millions).
| Category | Balance Sheet Location | June 30, 2024 | December 31, 2023 | |||||||||||||||||
| Contract liabilities | Deferred revenues | $ | 2,022 | $ | 1,924 | |||||||||||||||
| Contract liabilities | Other noncurrent liabilities | 215 | 160 |
For the six months ended June 30, 2024 and 2023, respectively, revenues of $1,046 million and $1,102 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 June 30, 2024 and December 31, 2023.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Remaining Performance Obligations
As of June 30, 2024, $11,456 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 | June 30, 2024 | Duration | ||||||||||||
| Distribution - fixed price or minimum guarantee | $ | 3,301 | Through 2031 | |||||||||||
| Content licensing and sports sublicensing | 5,421 | Through 2030 | ||||||||||||
| Brand licensing | 2,121 | Through 2043 | ||||||||||||
| Advertising | 613 | Through 2027 | ||||||||||||
| Total | $ | 11,456 |
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 three months ended June 30, 2024, the Company amended its revolving receivables program to reduce the facility limit to $5,200 million and extend the program to June 2025. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $5,068 million as of June 30, 2024.
The Company recognized $37 million and $88 million for the three and six months ended June 30, 2024, respectively, and $9 million and $42 million for the three and six months ended June 30, 2023, respectively, in selling, general and administrative expenses in the consolidated statements of operations from the revolving receivables program (net of non-designated derivatives). (See Note 9.)
The following table presents a summary of receivables sold (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Gross receivables sold/cash proceeds received | $ | 3,540 | $ | 3,637 | $ | 7,496 | $ | 6,416 | |||||||||||||||
| Collections reinvested under revolving agreement | (3,643) | (3,642) | (7,630) | (6,487) | |||||||||||||||||||
| Net cash proceeds remitted | $ | (103) | $ | (5) | $ | (134) | $ | (71) | |||||||||||||||
| Net receivables sold | $ | 3,529 | $ | 3,606 | $ | 7,443 | $ | 6,304 | |||||||||||||||
| Obligations recorded (Level 3) | $ | 86 | $ | 112 | $ | 239 | $ | 260 | |||||||||||||||
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).
| June 30, 2024 | December 31, 2023 | ||||||||||
| Gross receivables pledged as collateral | $ | 2,883 | $ | 3,088 | |||||||
| Restricted cash pledged as collateral | $ | — | $ | 500 | |||||||
| Balance sheet classification: | |||||||||||
| Receivables, net | $ | 2,567 | $ | 2,780 | |||||||
| Prepaid expenses and other current assets | $ | — | $ | 500 | |||||||
| Other noncurrent assets | $ | 316 | $ | 308 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Accounts Receivable Factoring
Total trade accounts receivable sold under the Company’s factoring arrangement was $57 million for the six months ended June 30, 2024. Total trade accounts receivable sold under the Company’s factoring arrangement was $72 million for the six months ended June 30, 2023. The impact to the consolidated statements of operations was immaterial for the three and six months ended June 30, 2024 and 2023. This accounts receivable factoring agreement is separate and distinct from the revolving receivables program.
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).
| June 30, 2024 | ||||||||||||||||||||
| Predominantly Monetized Individually | Predominantly Monetized as a Group | Total | ||||||||||||||||||
| Theatrical film production costs: | ||||||||||||||||||||
| Released, less amortization | $ | 1,927 | $ | — | $ | 1,927 | ||||||||||||||
| Completed and not released | 425 | — | 425 | |||||||||||||||||
| In production and other | 1,380 | — | 1,380 | |||||||||||||||||
| Television production costs: | ||||||||||||||||||||
| Released, less amortization | 1,365 | 5,552 | 6,917 | |||||||||||||||||
| Completed and not released | 681 | 731 | 1,412 | |||||||||||||||||
| In production and other | 325 | 2,011 | 2,336 | |||||||||||||||||
| Total theatrical film and television production costs | $ | 6,103 | $ | 8,294 | $ | 14,397 | ||||||||||||||
| Licensed content and advances, net | 4,455 | |||||||||||||||||||
| Live programming and advances, net | 1,317 | |||||||||||||||||||
| Game development costs, less amortization | 515 | |||||||||||||||||||
| Total film and television content rights and games | 20,684 | |||||||||||||||||||
| Less: Current content rights and prepaid license fees, net | (674) | |||||||||||||||||||
| Total noncurrent film and television content rights and games | $ | 20,010 | ||||||||||||||||||
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| 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 | ||||||||||||||||||
Content amortization consisted of the following (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Predominantly monetized individually | $ | 754 | $ | 1,031 | $ | 1,676 | $ | 2,562 | ||||||||||||||||||
| Predominantly monetized as a group | 3,114 | 3,579 | 5,893 | 6,675 | ||||||||||||||||||||||
| Total content amortization | $ | 3,868 | $ | 4,610 | $ | 7,569 | $ | 9,237 |
Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations. Content impairments were $52 million and $178 million, respectively, for the three and six months ended June 30, 2024. For the three and six months ended June 30, 2023, content impairments were $28 million and $124 million, respectively.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 | June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Equity method investments: | ||||||||||||||||||||||||||
| The Chernin Group (TCG) 2.0-A, LP | Other noncurrent assets | 44% | $ | 218 | $ | 249 | ||||||||||||||||||||
| nC+ | Other noncurrent assets | 32% | 141 | 142 | ||||||||||||||||||||||
| TNT Sports | Other noncurrent assets | 50% | 100 | 102 | ||||||||||||||||||||||
| Other | Other noncurrent assets | 397 | 503 | |||||||||||||||||||||||
| Total equity method investments | 856 | 996 | ||||||||||||||||||||||||
| Investments with readily determinable fair values | Other noncurrent assets | 45 | 53 | |||||||||||||||||||||||
| Investments without readily determinable fair values | Other noncurrent assets(a) | 417 | 438 | |||||||||||||||||||||||
| Total investments | $ | 1,318 | $ | 1,487 | ||||||||||||||||||||||
(a) Investments without readily determinable fair values included $17 million as of June 30, 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 June 30, 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 $675 million. The Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $655 million as of June 30, 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. VIE losses were $11 million and $25 million for the three months ended June 30, 2024 and 2023, respectively, and $38 million and $53 million for six months ended June 30, 2024 and 2023, respectively.
In May 2024, the Company sold its 50% interest in All3Media, an equity method investment, for proceeds of $324 million and recorded a gain of $203 million in other income (expense), net in the consolidated statements of operations (in millions).
NOTE 8. DEBT
The table below presents the components of outstanding debt (in millions).
| Weighted-Average Interest Rate as of June 30, 2024 | June 30, 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 | 4.04 | % | 14,785 | 13,664 | |||||||||||||||||||
| Senior notes with maturities between 5 and 10 years | 4.37 | % | 7,902 | 8,607 | |||||||||||||||||||
| Senior notes with maturities greater than 10 years | 5.19 | % | 18,314 | 21,644 | |||||||||||||||||||
| Total debt | 41,001 | 43,955 | |||||||||||||||||||||
| Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net | (43) | (286) | |||||||||||||||||||||
| Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting | 40,958 | 43,669 | |||||||||||||||||||||
| Current portion of debt | (3,669) | (1,780) | |||||||||||||||||||||
| Noncurrent portion of debt | $ | 37,289 | $ | 41,889 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the three months ended June 30, 2024, the Company commenced a tender offer to purchase for cash up to $2.61 billion in 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 was funded using the aggregate net proceeds from debt financing transactions together with available cash on hand and other available sources of liquidity. The Company completed the tender offer in June 2024 by purchasing senior notes in the aggregate principal amount of $3,399 million validly tendered and accepted for purchase pursuant to the offer and recorded a gain on extinguishment of $542 million. The Company also repaid in full at maturity $48 million of aggregate principal amount outstanding of its senior notes due June 2024.
During the three months ended June 30, 2024, the Company issued €650 million of 4.302% fixed rate senior notes due January 2030 and €850 million of 4.693% fixed rate senior notes due May 2033, the proceeds of which were used to fund the tender offer. After December 2029 and February 2033, respectively, the senior notes are redeemable at par plus accrued and unpaid interest.
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 June 30, 2023, the Company commenced a tender offer to purchase for cash any and all of its outstanding Floating Rate Notes due in 2024. The Company completed the tender offer in June 2023, by purchasing Floating Rate Notes in the amount of $460 million validly tendered and accepted for purchase pursuant to the offer. The Company also repaid $1.1 billion of aggregate principal amount outstanding of its term loan prior to the due date of April 2025 and completed open market repurchases for $88 million of aggregate principal amount outstanding of its senior notes.
During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and unpaid interest. The proceeds were used to pay $1.5 billion of aggregate principal amount outstanding of the Company’s term loan prior to the due date of April 2025. The Company also repaid $106 million of aggregate principal amount outstanding of its senior notes due February 2023.
As of June 30, 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 $1.0 billion of senior notes of the legacy WarnerMedia Business assumed by the Company in connection with the Merger and $22 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 June 30, 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 June 30, 2024, the Company was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
There were no amounts eligible to be offset under master netting agreements as of June 30, 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).
| June 30, 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 | $ | 1,472 | $ | 35 | $ | 3 | $ | 23 | $ | 3 | $ | 1,484 | $ | 40 | $ | 8 | $ | 37 | $ | 8 | |||||||||||||||||||||||||||||||||||||||
| Net investment hedges: (a) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency swaps | 1,686 | 30 | 18 | 4 | 21 | 1,779 | 23 | 12 | 7 | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 1,500 | 5 | — | — | 4 | 1,500 | 7 | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| No hedging designation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange | 1,097 | 21 | 3 | 5 | 102 | 1,058 | 1 | 1 | 1 | 83 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 3,000 | 28 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total return swaps | 439 | 5 | — | — | — | 395 | 19 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 124 | $ | 24 | $ | 32 | $ | 130 | $ | 90 | $ | 21 | $ | 45 | $ | 138 |
(a) Excludes £145 million and £402 million of sterling notes ($183 million and $513 million equivalent at June 30, 2024 and December 31, 2023, respectively), and €1,500 million of euro notes ($1,608 million equivalent at June 30, 2024) 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. 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 and same period 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, and in May 2024, the Company de-designated £255 million of the Sterling debt.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive loss (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Gains (losses) recognized in accumulated other comprehensive loss: | ||||||||||||||||||||||||||
| Foreign exchange - derivative adjustments | $ | 15 | $ | 19 | $ | 31 | $ | 20 | ||||||||||||||||||
| Gains (losses) reclassified into income from accumulated other comprehensive loss: | ||||||||||||||||||||||||||
| Foreign exchange - distribution revenue | 1 | (1) | 3 | (2) | ||||||||||||||||||||||
| Foreign exchange - costs of revenues | (4) | (11) | 7 | (9) | ||||||||||||||||||||||
| Foreign exchange - other income (expense), net | — | 18 | — | 18 | ||||||||||||||||||||||
| Interest rate - interest expense, net | (1) | — | (2) | 1 | ||||||||||||||||||||||
| Interest rate - gain (loss) on extinguishment of debt | (4) | — | (4) | — | ||||||||||||||||||||||
| Interest rate - other income (expense), net | 5 | — | 5 | — |
If current fair values of designated cash flow hedges as of June 30, 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.
Net Investment Hedges
The Company uses fixed-to-fixed cross currency swaps to mitigate foreign currency risk associated with the net assets of non-USD functional entities.
During the three months ended June 30, 2024, to mitigate the currency risk associated with the net assets of non-USD functional entities, the Company designated its Euro denominated debt issued in May 2024 as a net investment hedge (See Note 8) and designated an additional €300 million of fixed-to-fixed cross currency swaps as a net investment hedge. During the three months ended June 30, 2023, to mitigate the currency risk associated with the net assets of non-USD functional entities, the Company re-designated its Sterling denominated debt due in 2024 as a net investment hedge after the unwind of the cash flow hedge previously noted.
The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the three and six months ended June 30, 2024 and 2023.
| Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
| Amount of gain (loss) recognized in AOCI | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | ||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | 14 | $ | 3 | Interest expense, net | $ | 6 | $ | 6 | |||||||||||||||||||||||
| Euro-denominated notes (foreign denominated debt) | 21 | — | N/A | — | — | |||||||||||||||||||||||||||
| Sterling notes (foreign denominated debt) | — | (6) | N/A | — | — | |||||||||||||||||||||||||||
| Total | $ | 35 | $ | (3) | $ | 6 | $ | 6 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
| Amount of gain (loss) recognized in AOCI | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | ||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | 39 | $ | 25 | Interest expense, net | $ | 12 | $ | 11 | |||||||||||||||||||||||
| Euro-denominated notes (foreign denominated debt) | 21 | 5 | N/A | — | — | |||||||||||||||||||||||||||
| Sterling notes (foreign denominated debt) | 4 | (6) | N/A | — | — | |||||||||||||||||||||||||||
| Total | $ | 64 | $ | 24 | $ | 12 | $ | 11 |
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 | June 30, 2024 | December 31, 2023 | June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Noncurrent portion of debt | $ | 1,501 | $ | 1,502 | $ | 1 | $ | 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Gain (loss) on changes in fair value of hedged fixed rate debt (1) | $ | 1 | $ | 11 | $ | 1 | $ | (1) | ||||||||||||||||||
| (Loss) gain on changes in the fair value of derivative contracts (1) | (1) | (11) | (1) | 1 | ||||||||||||||||||||||
| 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 $27 million as of June 30, 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Interest rate swaps | $ | 7 | $ | 62 | $ | 28 | $ | 62 | ||||||||||||||||||
| Total return swaps | 1 | 13 | 20 | 31 | ||||||||||||||||||||||
| Total in selling, general and administrative expense | 8 | 75 | 48 | 93 | ||||||||||||||||||||||
| Interest rate swaps | (5) | — | (3) | — | ||||||||||||||||||||||
| Cross-currency swaps | — | 1 | — | 1 | ||||||||||||||||||||||
| Foreign exchange derivatives | (17) | (1) | (25) | 2 | ||||||||||||||||||||||
| Total in other income (expense), net | (22) | — | (28) | 3 | ||||||||||||||||||||||
| Total | $ | (14) | $ | 75 | $ | 20 | $ | 96 |
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).
| June 30, 2024 | ||||||||||||||||||||||||||||||||
| Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||||||||
| Time deposits | Cash and cash equivalents | $ | — | $ | 412 | $ | — | $ | 412 | |||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Money market fund | Cash and cash equivalents | 35 | — | — | 35 | |||||||||||||||||||||||||||
| Mutual funds | Prepaid expenses and other current assets | 18 | — | — | 18 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Prepaid expenses and other current assets | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Mutual funds | Other noncurrent assets | 216 | — | — | 216 | |||||||||||||||||||||||||||
| Company-owned life insurance contracts | Other noncurrent assets | — | 101 | — | 101 | |||||||||||||||||||||||||||
| Total | $ | 269 | $ | 514 | $ | — | $ | 783 | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Deferred compensation plan | Accrued liabilities | $ | 63 | $ | — | $ | — | $ | 63 | |||||||||||||||||||||||
| Deferred compensation plan | Other noncurrent liabilities | 635 | — | — | 635 | |||||||||||||||||||||||||||
| Total | $ | 698 | $ | — | $ | — | $ | 698 |
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 June 30, 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 $36.4 billion and $40.5 billion as of June 30, 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).
| Six Months Ended June 30, 2024 | ||||||||||||||
| Awards | Weighted-Average Grant Price | |||||||||||||
| Awards granted: | ||||||||||||||
| PRSUs | 6.1 | $ | 8.66 | |||||||||||
| RSUs | 53.2 | $ | 8.68 | |||||||||||
| 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 June 30, 2024 (in millions, except years).
| Unrecognized Compensation Cost | Weighted-Average Amortization Period (years) | |||||||||||||
| PRSUs | $ | 81 | 1.7 | |||||||||||
| RSUs | 696 | 1.9 | ||||||||||||
| Stock options | 106 | 2.3 | ||||||||||||
| Total unrecognized compensation cost | $ | 883 |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 12. INCOME TAXES
Income tax benefit was $7 million and $260 million for the three months ended June 30, 2024 and 2023, respectively, and income tax (expense) benefit was $(129) million and $438 million for the six months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024, the Company recorded a non-cash goodwill impairment charge of $9.1 billion, the majority of which was not deductible for tax purposes. (See Note 2.) The increase in income tax expense for the three and six months ended June 30, 2024 compared to the same periods in 2023 was primarily attributable to an increase in pre-tax book income excluding the non-cash goodwill impairment charge, the effect of foreign operations, including the tax attribute carryforwards in jurisdictions for which no tax benefit can be recognized, and an increase in uncertain tax positions, primarily attributable to a one-time favorable audit resolution reserve release included in the 2023 income tax benefit for the three and six months ended June 30, 2023.
Income tax expense for the three and six months ended June 30, 2024 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the non-deductible goodwill impairment charge and the effect of foreign operations.
As of June 30, 2024 and December 31, 2023, the Company’s reserves for uncertain tax positions totaled $2,366 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 $91 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.
As of June 30, 2024 and December 31, 2023, the Company had accrued $652 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 June 30, 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Foreign currency losses, net | $ | (54) | $ | (4) | $ | (191) | $ | (97) | |||||||||||||||
| (Losses) gains on derivative instruments, net | (17) | — | (23) | 3 | |||||||||||||||||||
| Change in the value of investments with readily determinable fair value | (1) | (8) | (2) | 21 | |||||||||||||||||||
| Gain on sale of equity method investments | 203 | — | 203 | — | |||||||||||||||||||
| Change in fair value of equity investments without readily determinable fair value | (13) | (3) | (27) | (71) | |||||||||||||||||||
| Interest income | 63 | 40 | 123 | 85 | |||||||||||||||||||
| Indemnification receivable accrual | 6 | — | 96 | 5 | |||||||||||||||||||
| Other (loss) income, net | (15) | 2 | (21) | 8 | |||||||||||||||||||
| Total other income (expense), net | $ | 172 | $ | 27 | $ | 158 | $ | (46) |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Cash Flow Information
| Six Months Ended June 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Cash paid for taxes, net | $ | 484 | $ | 830 | ||||||||||
| Cash paid for interest, net | 1,061 | 1,137 | ||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||
| Accrued purchases of property and equipment | 38 | 72 | ||||||||||||
| Assets acquired under finance lease and other arrangements | 224 | 72 | ||||||||||||
| Assets held for sale | — | 25 | ||||||||||||
| Settlement of PRSU awards | 40 | 13 | ||||||||||||
Cash, Cash Equivalents, and Restricted Cash
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,613 | $ | 3,780 | ||||||||||||||||||||||
| Restricted cash - recorded in prepaid expenses and other current assets (1) | 4 | 539 | ||||||||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 3,617 | $ | 4,319 | ||||||||||||||||||||||
| (1) Restricted cash at December 31, 2023 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss | $ | (10,028) | $ | (1,220) | $ | (10,983) | $ | (2,280) | |||||||||||||||
| Less: | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (10) | (16) | (17) | (24) | |||||||||||||||||||
| Net income attributable to redeemable noncontrolling interests | 52 | (4) | 48 | (5) | |||||||||||||||||||
| 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 | $ | (9,986) | $ | (1,240) | $ | (10,956) | $ | (2,309) | |||||||||||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Anti-dilutive share-based awards | 106 | 73 | 73 | 67 | ||||||||||||||||||||||
Supplier Finance Programs
As of June 30, 2024 and December 31, 2023, the Company has confirmed $384 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.
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Leases
In May 2024, the Company subleased two separate portions of its Hudson Yards, New York office. As a result of executing the subleases, recoverability tests were performed and the Company recorded a combined right-of-use (“ROU”) asset impairment charge of $231 million. The ROU asset impairment charge was recorded in impairment and loss on dispositions in the consolidated statements of operations.
Other than the item disclosed above, no other material changes have occurred to the Company’s lease portfolio for the periods presented. Refer to the Company’s 2023 Form 10-K for more information on the Company’s leases.
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 June 30, 2024 | |||||||||||||||||||||||
| Currency Translation | Derivatives | Pension Plan and SERP Liability | Accumulated Other Comprehensive Loss | ||||||||||||||||||||
| Beginning balance | $ | (875) | $ | 22 | $ | (60) | $ | (913) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | 9 | 12 | — | 21 | |||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | 2 | — | 2 | |||||||||||||||||||
| Other comprehensive income (loss) | 9 | 14 | — | 23 | |||||||||||||||||||
| Ending balance | $ | (866) | $ | 36 | $ | (60) | $ | (890) |
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Currency Translation | Derivatives | Pension Plan and SERP Liability | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||
| Beginning balance | $ | (1,072) | $ | 15 | $ | (48) | $ | (1,105) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 60 | 11 | (4) | 67 | |||||||||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | (4) | — | (4) | |||||||||||||||||||||||||
| Other comprehensive income (loss) | 60 | 7 | (4) | 63 | |||||||||||||||||||||||||
| Ending balance | $ | (1,012) | $ | 22 | $ | (52) | $ | (1,042) |
| Six Months Ended June 30, 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 | (167) | 25 | — | (142) | |||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | (7) | — | (7) | |||||||||||||||||||
| Other comprehensive income (loss) | (167) | 18 | — | (149) | |||||||||||||||||||
| Ending balance | $ | (866) | $ | 36 | $ | (60) | $ | (890) |
WARNER BROS. DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||
| Currency Translation | Derivatives | Pension Plan and SERP Liability | Accumulated Other Comprehensive Loss | ||||||||||||||||||||
| Beginning balance | $ | (1,498) | $ | 14 | $ | (39) | $ | (1,523) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | 486 | 14 | (13) | 487 | |||||||||||||||||||
| Reclassifications from accumulated other comprehensive loss to net income | — | (6) | — | (6) | |||||||||||||||||||
| Other comprehensive income (loss) | 486 | 8 | (13) | 481 | |||||||||||||||||||
| Ending balance | $ | (1,012) | $ | 22 | $ | (52) | $ | (1,042) |
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Revenues and service charges: | ||||||||||||||||||||||||||
| Liberty Group | $ | 34 | $ | 456 | $ | 479 | $ | 974 | ||||||||||||||||||
| Equity method investees | 154 | 118 | 300 | 293 | ||||||||||||||||||||||
| Other | 51 | 47 | 113 | 94 | ||||||||||||||||||||||
| Total revenues and service charges | $ | 239 | $ | 621 | $ | 892 | $ | 1,361 | ||||||||||||||||||
| Expenses | $ | 83 | $ | 93 | $ | 160 | $ | 192 | ||||||||||||||||||
| Distributions to noncontrolling interests and redeemable noncontrolling interests | $ | 31 | $ | 32 | $ | 161 | $ | 269 | ||||||||||||||||||
The table below presents receivables due from and payables due to related parties (in millions).
| June 30, 2024 | December 31, 2023 | |||||||||||||
| Receivables | $ | 223 | $ | 363 | ||||||||||
| Payables | $ | 20 | $ | 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 market value. 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:
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employee share-based compensation;
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depreciation and amortization;
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restructuring and facility consolidation;
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certain impairment charges;
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gains and losses on business and asset dispositions;
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third-party transaction and integration costs;
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amortization of purchase accounting fair value step-up for content;
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amortization of capitalized interest for content; and
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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 (which is included in consolidated costs of revenues), 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Studios | $ | 2,449 | $ | 2,581 | $ | 5,270 | $ | 5,793 | ||||||||||||||||||
| Networks | 5,272 | 5,758 | 10,397 | 11,339 | ||||||||||||||||||||||
| DTC | 2,568 | 2,732 | 5,028 | 5,187 | ||||||||||||||||||||||
| Corporate | 1 | (1) | 2 | (1) | ||||||||||||||||||||||
| Inter-segment eliminations | (577) | (712) | (1,026) | (1,260) | ||||||||||||||||||||||
| Total revenues | $ | 9,713 | $ | 10,358 | $ | 19,671 | $ | 21,058 |
Reconciliation of segment adjusted EBITDA to loss before income taxes:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Studios | $ | 210 | $ | 306 | $ | 394 | $ | 913 | ||||||||||||||||||
| Networks | 1,998 | 2,166 | 4,117 | 4,459 | ||||||||||||||||||||||
| DTC | (107) | (3) | (21) | 47 | ||||||||||||||||||||||
| Segment Adjusted EBITDA | 2,101 | 2,469 | 4,490 | 5,419 | ||||||||||||||||||||||
| Depreciation and amortization | 1,744 | 1,914 | 3,632 | 3,972 | ||||||||||||||||||||||
| Employee share-based compensation | 156 | 135 | 255 | 241 | ||||||||||||||||||||||
| Restructuring and other charges | 117 | 146 | 152 | 241 | ||||||||||||||||||||||
| Transaction and integration costs | 51 | 47 | 132 | 94 | ||||||||||||||||||||||
| Facility consolidation costs | 5 | 23 | 7 | 23 | ||||||||||||||||||||||
| Impairment and amortization of fair value step-up for content | 522 | 762 | 757 | 1,593 | ||||||||||||||||||||||
| Amortization of capitalized interest for content | 13 | 22 | 30 | 22 | ||||||||||||||||||||||
| Impairments and loss on dispositions | 9,395 | 6 | 9,407 | 37 | ||||||||||||||||||||||
| Corporate | 285 | 245 | 631 | 600 | ||||||||||||||||||||||
| Inter-segment eliminations | 21 | 75 | (38) | 59 | ||||||||||||||||||||||
| Other (income) expense, net | (172) | (27) | (158) | 46 | ||||||||||||||||||||||
| Loss from equity investees, net | 23 | 22 | 71 | 59 | ||||||||||||||||||||||
| (Gain) loss on extinguishment of debt | (542) | 5 | (567) | 5 | ||||||||||||||||||||||
| Interest expense, net | 518 | 574 | 1,033 | 1,145 | ||||||||||||||||||||||
| Loss before income taxes | $ | (10,035) | $ | (1,480) | $ | (10,854) | $ | (2,718) | ||||||||||||||||||
NOTE 17. SUBSEQUENT EVENTS
As of August 7, 2024, the NBA has not renewed its existing license agreement with the Company to distribute NBA games, which will expire at the end of the 2024-2025 NBA season. In July 2024, the Company exercised its contractual right under the license agreement to match any third-party offer to distribute NBA games received by the NBA and made an offer that was subsequently rejected by the NBA. On July 26, 2024, the Company filed a complaint against the NBA in the Supreme Court of the State of New York to enforce its contractual rights under the license agreement.
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