UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34177

Warner Bros. Discovery, Inc.

(Exact name of registrant as specified in its charter)


Delaware									35-2333914
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

230 Park Avenue South									10003
New York, New York									(Zip Code)
(Address of principal executive offices)

(212) 548-5555

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered
Series A Common Stock	WBD	The Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Total number of shares outstanding of each class of the Registrant’s common stock as of October ~~21, 2022:~~25, 2023:


Series A Common Stock, par value $0.01 per share			~~2,428,396,015~~2,438,565,638

WARNER BROS. DISCOVERY, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Financial Statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenues:
Advertising $ 2,042 $ 1,453 $ 6,239 $ 4,496
Distribution 4,990 1,328 11,180 3,898
Content 2,531 352 4,918 564
Other 260 17 472 46
Total revenues 9,823 3,150 22,809 9,004
Costs and expenses:
Costs of revenues, excluding depreciation and amortization 5,627 1,529 13,488 3,553
Selling, general and administrative 2,589 944 7,167 2,947
Depreciation and amortization 2,233 341 5,024 1,043
Restructuring and other charges 1,521 7 2,559 29
Asset impairment and loss (gain) on disposition and disposal groups 43 — 47 (72)
Total costs and expenses 12,013 2,821 28,285 7,500
Operating (loss) income (2,190) 329 (5,476) 1,504
Interest expense, net (555) (159) (1,219) (479)
Loss from equity investees, net (78) (9) (135) (20)
Other (expense) income, net (28) 72 411 245
(Loss) income before income taxes (2,851) 233 (6,419) 1,250
Income tax benefit (expense) 566 (36) 1,201 (144)
Net (loss) income (2,285) 197 (5,218) 1,106
Net income attributable to noncontrolling interests (21) (32) (44) (116)
Net income attributable to redeemable noncontrolling interests (2) (9) (8) (22)
Net (loss) income available to Warner Bros. Discovery, Inc. $ (2,308) $ 156 $ (5,270) $ 968
Net (loss) income per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic $ (0.95) $ 0.24 $ (3.00) $ 1.47
Diluted $ (0.95) $ 0.24 $ (3.00) $ 1.46
Weighted average shares outstanding:
Basic 2,428 589 1,775 588
Diluted 2,428 663 1,775 665
The accompanying notes are an integral part of these consolidated financial statements.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Distribution	$	5,026	$	4,990	$	15,324	$	11,180
Advertising	1,796		2,042		6,613		6,239
Content	2,840		2,531		8,240		4,918
Other	317		260		860		472
Total revenues	9,979		9,823		31,037		22,809
Costs and expenses:
Costs of revenues, excluding depreciation and amortization	5,309		5,627		18,630		13,488
Selling, general and administrative	2,291		2,589		7,241		7,167
Depreciation and amortization	1,989		2,233		5,961		5,024
Restructuring and other charges	269		1,521		510		2,559
Impairments and loss on dispositions	24		43		61		47


Total costs and expenses	9,882		12,013		32,403		28,285
Operating income (loss)	97		(2,190)		(1,366)		(5,476)
Interest expense, net	(574)		(555)		(1,719)		(1,219)
Gain on extinguishment of debt	22		—		17		—
Loss from equity investees, net	(14)		(78)		(73)		(135)
Other (expense) income, net	(63)		(28)		(109)		411
Loss before income taxes	(532)		(2,851)		(3,250)		(6,419)
Income tax benefit	125		566		563		1,201
Net loss	(407)		(2,285)		(2,687)		(5,218)
Net income attributable to noncontrolling interests	(8)		(21)		(32)		(44)
Net income attributable to redeemable noncontrolling interests	(2)		(2)		(7)		(8)
Net loss available to Warner Bros. Discovery, Inc.	$	(417)	$	(2,308)	$	(2,726)	$	(5,270)
Net loss per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic	$	(0.17)	$	(0.95)	$	(1.12)	$	(3.00)
Diluted	$	(0.17)	$	(0.95)	$	(1.12)	$	(3.00)
Weighted average shares outstanding:
Basic	2,438		2,428		2,436		1,775
Diluted	2,438		2,428		2,436		1,775

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited; in millions)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net (loss) income		$	(2,285)	$	197	$	(5,218)	$	1,106
Other comprehensive (loss) income adjustments, net of tax:
Net loss										Net loss	$	(407)	$	(2,285)	$	(2,687)	$	(5,218)
Other comprehensive income (loss):										Other comprehensive income (loss):
Currency translation	Currency translation	(690)		(144)		(1,277)		(203)		Currency translation

Change in net unrealized gains (losses)										Change in net unrealized gains (losses)	(393)		(690)		93		(1,275)
Less: Reclassification adjustment for net (gains) losses included in net income										Less: Reclassification adjustment for net (gains) losses included in net income	—		—		—		(2)
Net change, net of income tax benefit (expense) of $(22), $(11), $(32) and $(50)										Net change, net of income tax benefit (expense) of $(22), $(11), $(32) and $(50)	(393)		(690)		93		(1,277)
Pension plan and SERP liability, net of income tax benefit (expense) of $(2), $0, $(8) and $0										Pension plan and SERP liability, net of income tax benefit (expense) of $(2), $0, $(8) and $0	(1)		—		(14)		—
Derivatives	Derivatives	24		12		(12)		137		Derivatives
Comprehensive (loss) income		(2,951)		65		(6,507)		1,040

Change in net unrealized gains (losses)										Change in net unrealized gains (losses)	15		28		29		9
Less: Reclassification adjustment for net (gains) losses included in net income										Less: Reclassification adjustment for net (gains) losses included in net income	(6)		(4)		(12)		(21)
Net change, net of income tax benefit (expense) of $3, $0, $(1) and $5										Net change, net of income tax benefit (expense) of $3, $0, $(1) and $5	9		24		17		(12)
Comprehensive loss										Comprehensive loss	(792)		(2,951)		(2,591)		(6,507)
Comprehensive income attributable to noncontrolling interests	Comprehensive income attributable to noncontrolling interests	(21)		(32)		(44)		(116)		Comprehensive income attributable to noncontrolling interests	(8)		(21)		(32)		(44)
Comprehensive income attributable to redeemable noncontrolling interests	Comprehensive income attributable to redeemable noncontrolling interests	(2)		(9)		(8)		(22)		Comprehensive income attributable to redeemable noncontrolling interests	(2)		(2)		(7)		(8)
Comprehensive (loss) income attributable to Warner Bros. Discovery, Inc.		$	(2,974)	$	24	$	(6,559)	$	902
Comprehensive loss attributable to Warner Bros. Discovery, Inc.										Comprehensive loss attributable to Warner Bros. Discovery, Inc.	$	(802)	$	(2,974)	$	(2,630)	$	(6,559)

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.									The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	2,422	$	3,905	Cash and cash equivalents	$	2,383	$	3,731
Receivables, net	Receivables, net	6,669		2,446		Receivables, net	6,312		6,380

Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,581		913		Prepaid expenses and other current assets	4,136		3,888
Total current assets	Total current assets	12,672		7,264		Total current assets	12,831		13,999
Film and television content rights and games, net		28,288		3,832
Film and television content rights and games						Film and television content rights and games	22,454		26,652
Property and equipment, net	Property and equipment, net	5,143		1,336		Property and equipment, net	5,810		5,301

Goodwill	Goodwill	34,450		12,912		Goodwill	34,727		34,438
Intangible assets, net	Intangible assets, net	46,744		6,317		Intangible assets, net	39,874		44,982

Other noncurrent assets	Other noncurrent assets	8,752		2,766		Other noncurrent assets	8,053		8,629
Total assets	Total assets	$	136,049	$	34,427	Total assets	$	123,749	$	134,001
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,534	$	412	Accounts payable	$	1,329	$	1,454
Accrued liabilities	Accrued liabilities	10,197		2,230		Accrued liabilities	10,040		11,504

Deferred revenues	Deferred revenues	1,688		478		Deferred revenues	1,917		1,694
Current portion of debt	Current portion of debt	1,257		339		Current portion of debt	1,302		365
Total current liabilities	Total current liabilities	14,676		3,459		Total current liabilities	14,588		15,017
Noncurrent portion of debt, net		48,612		14,420
Noncurrent portion of debt						Noncurrent portion of debt	43,498		48,634
Deferred income taxes	Deferred income taxes	12,317		1,225		Deferred income taxes	9,098		11,014
Other noncurrent liabilities	Other noncurrent liabilities	10,364		1,927		Other noncurrent liabilities	10,423		10,669
Total liabilities	Total liabilities	85,969		21,031		Total liabilities	77,607		85,334
Commitments and contingencies (See Note 19)
Commitments and contingencies (See Note 16)						Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests	Redeemable noncontrolling interests	318		363		Redeemable noncontrolling interests	281		318

Warner Bros. Discovery, Inc. stockholders’ equity:	Warner Bros. Discovery, Inc. stockholders’ equity:					Warner Bros. Discovery, Inc. stockholders’ equity:
Series A common stock: $0.01 par value; 10,800 and 0 shares authorized; 2,658 and 0 shares issued; and 2,428 and 0 shares outstanding		27		—
Preferred stock: $0.01 par value; 1,200 and 0 shares authorized, 0 shares issued and outstanding		—		—
Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,668 and 2,660 shares issued; and 2,438 and 2,430 shares outstanding						Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,668 and 2,660 shares issued; and 2,438 and 2,430 shares outstanding	27		27
Preferred stock: $0.01 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding						Preferred stock: $0.01 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding	—		—

Discovery Series A-1 convertible preferred stock: $0.01 par value; 0 and 8 shares authorized, issued and outstanding		—		—
Discovery Series C-1 convertible preferred stock: $0.01 par value; 0 and 6 shares authorized; 0 and 4 shares issued and outstanding		—		—
Discovery Series A common stock: $0.01 par value; 0 and 1,700 shares authorized; 0 and 170 shares issued; and 0 and 169 shares outstanding		—		2
Discovery Series B convertible common stock: $0.01 par value; 0 and 100 shares authorized; 0 and 7 shares issued and outstanding		—		—
Discovery Series C common stock: $0.01 par value; 0 and 2,000 shares authorized; 0 and 559 shares issued; and 0 and 330 shares outstanding		—		5

Additional paid-in capital	Additional paid-in capital	54,547		11,086		Additional paid-in capital	54,944		54,630
Treasury stock, at cost: 230 and 230 shares	Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)		Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)
Retained earnings		4,306		9,580
(Accumulated deficit) retained earnings						(Accumulated deficit) retained earnings	(526)		2,205
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,119)		(830)		Accumulated other comprehensive loss	(1,427)		(1,523)
Total Warner Bros. Discovery, Inc. stockholders’ equity	Total Warner Bros. Discovery, Inc. stockholders’ equity	48,517		11,599		Total Warner Bros. Discovery, Inc. stockholders’ equity	44,774		47,095
Noncontrolling interests	Noncontrolling interests	1,245		1,434		Noncontrolling interests	1,087		1,254
Total equity	Total equity	49,762		13,033		Total equity	45,861		48,349
Total liabilities and equity	Total liabilities and equity	$	136,049	$	34,427	Total liabilities and equity	$	123,749	$	134,001

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.					The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS

(unaudited; in millions)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Operating Activities	Operating Activities					Operating Activities
Net (loss) income		$	(5,218)	$	1,106
Adjustments to reconcile net income to cash provided by operating activities:
Net loss						Net loss	$	(2,687)	$	(5,218)
Adjustments to reconcile net income to cash (used in) provided by operating activities:						Adjustments to reconcile net income to cash (used in) provided by operating activities:
Content rights amortization and impairment	Content rights amortization and impairment	11,441		2,735		Content rights amortization and impairment	12,547		11,441
Depreciation and amortization	Depreciation and amortization	5,024		1,043		Depreciation and amortization	5,961		5,024
Deferred income taxes	Deferred income taxes	(2,105)		(502)		Deferred income taxes	(2,071)		(2,105)
Preferred stock conversion premium	Preferred stock conversion premium	789		—		Preferred stock conversion premium	—		789
Share-based compensation expense	Share-based compensation expense	317		134		Share-based compensation expense	391		317
Gain on disposition		45		(72)

Equity in losses of equity method investee companies and cash distributions	Equity in losses of equity method investee companies and cash distributions	178		57		Equity in losses of equity method investee companies and cash distributions	136		178
Gain on sale of investments	Gain on sale of investments	(144)		(20)		Gain on sale of investments	—		(144)

Gain from derivative instruments, net	Gain from derivative instruments, net	(479)		—		Gain from derivative instruments, net	(100)		(479)
Other, net	Other, net	142		(137)		Other, net	230		187
Changes in operating assets and liabilities, net of acquisitions and dispositions:	Changes in operating assets and liabilities, net of acquisitions and dispositions:					Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net	Receivables, net	(139)		44		Receivables, net	(33)		(139)
Film and television content rights, games and payables, net	Film and television content rights, games and payables, net	(8,612)		(2,578)		Film and television content rights, games and payables, net	(9,853)		(8,612)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(182)		124		Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(1,245)		(182)
Foreign currency, prepaid expenses and other assets, net	Foreign currency, prepaid expenses and other assets, net	401		(20)		Foreign currency, prepaid expenses and other assets, net	623		401
Cash provided by operating activities	Cash provided by operating activities	1,458		1,914		Cash provided by operating activities	3,899		1,458
Investing Activities	Investing Activities					Investing Activities
Purchases of property and equipment	Purchases of property and equipment	(623)		(273)		Purchases of property and equipment	(1,048)		(623)
Cash acquired from business acquisition and working capital settlement	Cash acquired from business acquisition and working capital settlement	3,609		—		Cash acquired from business acquisition and working capital settlement	—		3,609
Proceeds from sales and maturities of investments	Proceeds from sales and maturities of investments	162		498		Proceeds from sales and maturities of investments	—		162
Investments in and advances to equity investments	Investments in and advances to equity investments	(137)		(137)		Investments in and advances to equity investments	(91)		(137)
Proceeds from derivative instruments, net	Proceeds from derivative instruments, net	722		(102)		Proceeds from derivative instruments, net	38		722

Purchases of investments		—		(103)

Other investing activities, net	Other investing activities, net	9		87		Other investing activities, net	76		9
Cash provided by (used in) investing activities		3,742		(30)
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(1,025)		3,742
Financing Activities	Financing Activities					Financing Activities
Principal repayments of term loans	Principal repayments of term loans	(6,000)		—		Principal repayments of term loans	(2,850)		(6,000)
Principal repayments of debt, including premiums to par value		(327)		(574)
Principal repayments of debt, including premiums and discounts to par value						Principal repayments of debt, including premiums and discounts to par value	(2,818)		(327)
Borrowings from debt, net of discount and issuance costs						Borrowings from debt, net of discount and issuance costs	1,496		—
Distributions to noncontrolling interests and redeemable noncontrolling interests						Distributions to noncontrolling interests and redeemable noncontrolling interests	(282)		(286)

Distributions to noncontrolling interests and redeemable noncontrolling interests		(286)		(231)
Purchase of redeemable noncontrolling interests		—		(31)

Securitization receivables collected but not remitted	Securitization receivables collected but not remitted	236		—		Securitization receivables collected but not remitted	238		236
Borrowings under commercial paper program		885		—
Repayments under commercial paper program		(885)		—
Borrowings under commercial paper program and revolving credit facility						Borrowings under commercial paper program and revolving credit facility	4,298		885
Repayments under commercial paper program and revolving credit facility						Repayments under commercial paper program and revolving credit facility	(4,304)		(885)

Other financing activities, net	Other financing activities, net	(93)		25		Other financing activities, net	(86)		(93)
Cash used in financing activities	Cash used in financing activities	(6,470)		(811)		Cash used in financing activities	(4,308)		(6,470)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(122)		(69)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(66)		(122)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	(1,392)		1,004		Net change in cash, cash equivalents, and restricted cash	(1,500)		(1,392)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	3,905		2,122		Cash, cash equivalents, and restricted cash, beginning of period	3,930		3,905
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	2,513	$	3,126	Cash, cash equivalents, and restricted cash, end of period	$	2,430	$	2,513

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.					The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)


		Discovery, Inc. Preferred Stock			Discovery, Inc. Common Stock			Warner Bros. Discovery, Inc. Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss			Warner Bros. Discovery, Inc. Stockholders’ Equity			Noncontrolling Interests				Total Equity					Warner Bros. Discovery, Inc. Common Stock						Additional Paid-In Capital				Treasury Stock			Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Loss				Warner Bros. Discovery, Inc. Stockholders’ Equity			Noncontrolling Interests	Total Equity
		Shares	Par Value		Shares	Par Value		Shares	Par Value																							Shares			Par Value
December 31, 2021		12	$	—	736	$	7	—	$	—	$	11,086	$	(8,244)	$	9,580	$	(830)		$	11,599		$	1,434			$	13,033
December 31, 2022																			December 31, 2022			2,660			$	27				$	54,630		$	(8,244)		$	2,205			$	(1,523)						$	47,095			$	1,254		$	48,349

Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests		—	—		—	—		—	—		—		—		456		—			456			16				472
Other comprehensive loss		—	—		—	—		—	—		—		—		—		(117)			(117)			—				(117)
Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests																			Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests			—			—					—			—			(1,069)			—				(1,069)			8				(1,061)
Other comprehensive income																			Other comprehensive income			—			—					—			—			—			418				418			—				418
Share-based compensation																			Share-based compensation			—			—					101			—			—			—				101			—				101

Tax settlements associated with share-based plans																			Tax settlements associated with share-based plans			—			—					(53)			—			—			—				(53)			—				(53)
Dividends paid to noncontrolling interests																			Dividends paid to noncontrolling interests			—			—					—			—			—			—				—			(225)				(225)
Issuance of stock in connection with share-based plans																			Issuance of stock in connection with share-based plans			6			—					9			—			—			—				9			—				9
Redeemable noncontrolling interest adjustments to redemption value																			Redeemable noncontrolling interest adjustments to redemption value			—			—					—			—			(3)			—				(3)			—				(3)
Other adjustments to stockholders' equity																			Other adjustments to stockholders' equity			—			—					(2)			—			—			—				(2)			—				(2)
March 31, 2023																			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																			Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests			—			—					—			—			(1,240)			—				(1,240)			16				(1,224)
Other comprehensive income																			Other comprehensive income			—			—					—			—			—			63				63			—				63
Share-based compensation	Share-based compensation	—	—		—	—		—	—		53		—		—		—			53			—				53		Share-based compensation			—			—			130				—			—				—				130			—	130

Tax settlements associated with share-based plans	Tax settlements associated with share-based plans	—	—		—	—		—	—		(38)		—		—		—			(38)			—				(38)		Tax settlements associated with share-based plans			—			—			(7)				—			—				—				(7)			—	(7)
Dividends paid to noncontrolling interests	Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—			—			(192)				(192)		Dividends paid to noncontrolling interests			—			—			—				—			—				—				—			(26)	(26)
Issuance of stock in connection with share-based plans	Issuance of stock in connection with share-based plans	—	—		3	—		—	—		19		—		—		—			19			—				19		Issuance of stock in connection with share-based plans			1			—			8				—			—				—				8			—	8
Redeemable noncontrolling interest adjustments to redemption value	Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—	—		—		—		(3)		—			(3)			—				(3)		Redeemable noncontrolling interest adjustments to redemption value			—			—			—				—			2				—				2			—	2

March 31, 2022		12	$	—	739	$	7	—	$	—	$	11,120	$	(8,244)	$	10,033	$	(947)		$	11,969		$	1,258			$	13,227
June 30, 2023																			June 30, 2023			2,667			$	27				$	54,816		$	(8,244)		$	(105)		$	(1,042)			$	45,452		$	1,027			$	46,479

Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—	—		—		—		(3,418)		—			(3,418)			7				(3,411)		Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests			—			—			—				—			(417)				—				(417)			8	(409)
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—	—		—		—		—		(506)			(506)			—				(506)		Other comprehensive loss			—			—			—				—			—				(385)				(385)			—	(385)
Share-based compensation	Share-based compensation	—	—		—	—		—	—		143		—		—		—			143			—				143		Share-based compensation			—			—			126				—			—				—				126			—	126

Reclassification of redeemable noncontrolling interest to noncontrolling interest (See Note 14)																			Reclassification of redeemable noncontrolling interest to noncontrolling interest (See Note 14)			—			—					2			—			—			—				2			60				62

Conversion and issuance of common stock and noncontrolling interest in connection with the acquisition of the WarnerMedia Business		(12)	—		(739)	(7)		2,658	27		43,173		—		—		—			43,193			2				43,195

Tax settlements associated with share-based compensation																			Tax settlements associated with share-based compensation			—			—					(5)			—			—			—				(5)			—				(5)
Dividends paid to noncontrolling interests	Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—			—			(31)				(31)		Dividends paid to noncontrolling interests			—			—			—				—			—				—				—			(8)	(8)
Issuance of stock in connection with share-based plans	Issuance of stock in connection with share-based plans	—	—		—	—		—	—		3		—		—		—			3			—				3		Issuance of stock in connection with share-based plans			1			—			5				—			—				—				5			—	5
Redeemable noncontrolling interest adjustments to redemption value	Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—	—		—		—		(1)		—			(1)			—				(1)		Redeemable noncontrolling interest adjustments to redemption value			—			—			—				—			(4)				—				(4)			—	(4)

June 30, 2022		—	$	—	—	$	—	2,658	$	27	$	54,439	$	(8,244)	$	6,614	$	(1,453)		$	51,383		$	1,236			$	52,619

Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests		—	—		—	—		—	—		—		—		(2,308)		—			(2,308)			21				(2,287)
Other comprehensive loss		—	—		—	—		—	—		—		—		—		(666)			(666)			—				(666)
Share-based compensation		—	—		—	—		—	—		111		—		—		—			111			—				111

Tax settlements associated with share-based plans		—	—		—	—		—	—		(5)		—		—		—			(5)			—				(5)
Dividends paid to noncontrolling interests		—	—		—	—		—	—		—		—		—		—			—			(12)				(12)
Issuance of stock in connection with share-based plans		—	—		—	—		—	—		2		—		—		—			2			—				2

September 30, 2022		—	$	—	—	$	—	2,658	$	27	$	54,547	$	(8,244)	$	4,306	$	(2,119)		$	48,517		$	1,245			$	49,762
September 30, 2023																			September 30, 2023			2,668			$	27				$	54,944		$	(8,244)		$	(526)		$	(1,427)			$	44,774		$	1,087			$	45,861

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.																		The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)

Discovery, Inc.
Preferred Stock Discovery, Inc.
Common Stock Additional
Paid-In
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Loss Warner Bros. Discovery,
Inc.
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares Par Value Shares Par Value
December 31, 2020 13 $ — 717 $ 7 $ 10,809 $ (8,244) $ 8,543 $ (651) $ 10,464 $ 1,536 $ 12,000
Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests — — — — — — 140 — 140 46 186
Other comprehensive income — — — — — — — 70 70 — 70
Share-based compensation — — — — 32 — — — 32 — 32
Preferred stock conversion (1) — 11 — — — — — — — —
Tax settlements associated with share-based compensation — — — — (68) — — — (68) — (68)
Dividends paid to noncontrolling interest — — — — — — — — — (178) (178)
Issuance of stock in connection with share-based plans — — 8 — 186 — — — 186 — 186
Redeemable noncontrolling interest
adjustments to redemption value — — — — (8) — (1) — (9) — (9)
March 31, 2021 12 $ — 736 $ 7 $ 10,951 $ (8,244) $ 8,682 $ (581) $ 10,815 $ 1,404 $ 12,219
Net income available to Discovery, Inc. and attributable to noncontrolling interests — — — — — — 672 — 672 38 710
Other comprehensive loss — — — — — — — (4) (4) — (4)
Share-based compensation — — — — 41 — — — 41 — 41
Tax settlements associated with share-based plans — — — — (1) — — — (1) — (1)
Dividends paid to noncontrolling interests — — — — — — — — — (29) (29)
Issuance of stock in connection with share-based plans — — — — 9 — — — 9 — 9
Redeemable noncontrolling interest
adjustments to redemption value — — — — — — 6 — 6 — 6
June 30, 2021 12 $ — 736 $ 7 $ 11,000 $ (8,244) $ 9,360 $ (585) $ 11,538 $ 1,413 $ 12,951
Net income available to Discovery, Inc. and attributable to noncontrolling interests — — — — — — 156 — 156 32 188
Other comprehensive loss — — — — — — — (132) (132) — (132)
Share-based compensation — — — — 43 — — — 43 — 43
Tax settlements associated with share-based compensation — — — — (1) — — — (1) — (1)
Dividends paid to noncontrolling interests — — — — — — — — — (16) (16)
Issuance of stock in connection with share-based plans — — — — 1 — — — 1 — 1
Redeemable noncontrolling interest
adjustments to redemption value — — — — — — 6 — 6 — 6
September 30, 2021 12 $ — 736 $ 7 $ 11,043 $ (8,244) $ 9,522 $ (717) $ 11,611 $ 1,429 $ 13,040
The accompanying notes are an integral part of these consolidated financial statements.


	Discovery, Inc. Preferred Stock			Discovery, Inc. Common Stock			Warner Bros. Discovery, Inc. Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Warner Bros. Discovery, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Par Value		Shares	Par Value		Shares	Par Value
December 31, 2021	12	$	—	736	$	7	—	$	—	$	11,086	$	(8,244)	$	9,580	$	(830)	$	11,599	$	1,434	$	13,033


Net income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—	—		—		—		456		—		456		16		472
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(117)		(117)		—		(117)
Share-based compensation	—	—		—	—		—	—		53		—		—		—		53		—		53



Tax settlements associated with share-based plans	—	—		—	—		—	—		(38)		—		—		—		(38)		—		(38)
Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—		—		(192)		(192)
Issuance of stock in connection with share-based plans	—	—		3	—		—	—		19		—		—		—		19		—		19
Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—	—		—		—		(3)		—		(3)		—		(3)

March 31, 2022	12	$	—	739	$	7	—	$	—	$	11,120	$	(8,244)	$	10,033	$	(947)	$	11,969	$	1,258	$	13,227


Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—	—		—		—		(3,418)		—		(3,418)		7		(3,411)
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(506)		(506)		—		(506)
Share-based compensation	—	—		—	—		—	—		143		—		—		—		143		—		143


Conversion and issuance of common stock and noncontrolling interest in connection with the acquisition of the WarnerMedia Business	(12)	—		(739)	(7)		2,658	27		43,173		—		—		—		43,193		2		43,195

Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—		—		(31)		(31)
Issuance of stock in connection with share-based plans	—	—		—	—		—	—		3		—		—		—		3		—		3
Redeemable noncontrolling interest adjustments to redemption value	—	—		—	—		—	—		—		—		(1)		—		(1)		—		(1)

June 30, 2022	—	$	—	—	$	—	2,658	$	27	$	54,439	$	(8,244)	$	6,614	$	(1,453)	$	51,383	$	1,236	$	52,619


Net (loss) income available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—	—		—	—		—		—		(2,308)		—		(2,308)		21		(2,287)
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(666)		(666)		—		(666)
Share-based compensation	—	—		—	—		—	—		111		—		—		—		111		—		111



Tax settlements associated with share-based plans	—	—		—	—		—	—		(5)		—		—		—		(5)		—		(5)
Dividends paid to noncontrolling interests	—	—		—	—		—	—		—		—		—		—		—		(12)		(12)
Issuance of stock in connection with share-based plans	—	—		—	—		—	—		2		—		—		—		2		—		2


September 30, 2022	—	$	—	—	$	—	2,658	$	27	$	54,547	$	(8,244)	$	4,306	$	(2,119)	$	48,517	$	1,245	$	49,762

The accompanying notes are an integral part of these consolidated financial statements.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Warner Bros. Discovery, Inc. (“Warner Bros. Discovery”, “WBD”, the “Company”, “we”, “us” or “our”) is a ~~leading~~premier global media and entertainment company that ~~creates~~combines the WarnerMedia Business’s premium entertainment, sports and ~~distributes the world’s most~~news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, thus offering audiences a differentiated ~~and complete~~ portfolio of content, brands and ~~brands~~franchises across television, film, streaming and ~~streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its~~gaming. Some of our iconic brands and ~~products including:~~franchises include Warner Bros. Pictures Group, Warner Bros. Television Group, DC, HBO, Max, Discovery Channel, discovery+, CNN, ~~DC, Eurosport, HBO, HBO Max,~~ HGTV, Food Network, ~~OWN, Investigation Discovery, TLC, Magnolia Network,~~ TNT, TBS, ~~truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television,~~TLC, OWN, Warner Bros. Games, ~~New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV~~Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna-Barbera, Game of Thrones, and ~~others.~~The Lord of the Rings.

Merger with the WarnerMedia Business of AT&T

On April 8, 2022 (the “Closing Date”), Discovery, Inc. (“Discovery”) completed its merger (the “Merger”) with the WarnerMedia business (the “WarnerMedia Business”, “WM Business” or “WM”) of AT&T Inc. (“AT&T”) and changed its name to “Warner Bros. Discovery, Inc.”. On April 11, 2022, the Company’s shares started trading on the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol WBD.

The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery. (See Note 2 and Note ~~3).~~3.) Prior to the Merger, WarnerMedia Holdings, Inc. (“WMH”) distributed $40.5 billion to AT&T (subject to working capital and other adjustments) in a combination of cash, debt securities, and WM's retention of certain debt. Discovery transferred purchase consideration of $42.4 billion in equity to AT&T ~~shareholders.~~shareholders in the Merger. In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which resulted in the Company receiving a $1.2 billion payment from AT&T in the third quarter of ~~2022.~~2022 in lieu of adjusting the equity issued as purchase consideration in the Merger. AT&T shareholders received shares of WBD Series A common stock (“WBD common stock”) in the ~~distribution~~Merger representing 71% of the combined ~~company~~Company and the Company's pre-Merger shareholders continued to own 29% of the combined ~~company,~~Company, in each case on a fully diluted basis.

Discovery was deemed to be the accounting acquirer of the WM Business for accounting purposes under U.S. generally accepted accounting principles (“U.S. GAAP”); therefore, Discovery is considered ~~WBD’s~~the Company’s predecessor and the historical financial statements of Discovery prior to April 8, 2022, are reflected in this Quarterly Report on Form 10-Q as ~~WBD’s~~the Company’s historical financial statements. Accordingly, the financial results of ~~WBD~~the Company as of and for any periods prior to April 8, 2022 do not include the financial results of the WM Business and current ~~and future~~ results will not be comparable to historical results.

~~Segments~~Labor Disruption

~~In connection~~The Writers Guild of America (“WGA”) and Screen Actors Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) went on strike in May and July 2023 following the expiration of their respective collective bargaining agreements with the ~~Merger,~~Alliance of Motion Picture and Television Producers (“AMPTP”). The WGA strike ended on September 27, 2023, and a new collective bargaining agreement was ratified on October 9, 2023. The SAG-AFTRA remains on strike. As a result of the ~~Company reevaluated~~strikes, we have paused and ~~changed its segment presentation during the quarter ended June 30, 2022.Accordingly, beginning~~may continue to pause certain theatrical and television productions, which has resulted in ~~the quarter ended June 30, 2022,~~delayed production spending.

The strikes have had, and ~~for all periods presented, we~~ are ~~reporting results based~~expected to continue to have, a material impact on the ~~following segments:~~

~~Studios~~ ~~- Our Studios segment primarily consists~~operations and results of the Company. This includes a positive impact on cash flow from operations attributed to delayed production spend, and ~~release~~a negative impact on the results of ~~feature films for initial exhibition in theaters, production~~operations attributed to timing and ~~initial licensing~~performance of ~~television programs~~the remainder of the 2023 film slate, as well as the Company’s ability to ~~third parties~~produce, license, and our networks/direct-to-consumer (“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 digital content services.~~

~~Impact of COVID-19~~

~~The Company continues~~deliver content. We continue to closely monitor the ongoing impact ~~of COVID-19 on all aspects of its business and geographies, including~~to our business; however, the impact on its customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties. Certain key sources of revenue for the Studios segment, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The nature and~~ full ~~extent of COVID-19’s~~ effects on our operations and results ~~are not yet known and~~ will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future variants or surges of COVID-19, vaccine distribution and efficacy and other actions to contain the virus or treat its impact, among others. The consolidated financial statements reflect management’s estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.predicted.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries in which a controlling interest is maintained, including variable interest entities (“VIE”) for which the Company is the primary beneficiary. Intercompany accounts and transactions between consolidated entities have been eliminated.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Unaudited Interim Financial Statements

These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”).

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.

Significant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, estimated credit losses, content rights, leases, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, estimated defined benefit plan liabilities, and the determination of whether the Company should consolidate certain entities.

Summary of Significant Accounting Policies

There have been no changes to the Company's significant accounting policies described in the ~~2021~~2022 Form ~~10-K, other than updates to policies as a result of the Merger as described below.~~

~~Film and Television Content Rights~~

The Company groups its film and television content rights by monetization strategy. For films and television programs predominantly monetized individually, the amount of capitalized film and television production costs and the amount of participations and residuals to be recognized as expense in a particular period are determined using the individual film forecast method. Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s or television program’s revenues recognized for such period to the film’s or television program’s estimated remaining ultimate revenues (i.e., the total revenue to be received throughout a film’s or television program’s remaining life cycle).

The process of estimating ultimate revenues requires us to make a series of judgments related to future revenue-generating activities associated with a particular film. Prior to the theatrical release of a film, our estimates are based on factors such as the historical performance of similar films, the star power of the lead actors, the rating and genre of the film, pre-release market research (including test market screenings), international distribution plans and the expected number of theaters in which the film will be released. Subsequent to release, ultimate revenues are updated to reflect initial performance, which is often predictive of future performance. For a film or television program that is predominantly monetized on its own but also monetized with other films and/or programs (such as our DTC or linear services), we make a reasonable estimate of the value attributable to the film or program’s exploitation while monetized with other films/programs and expense such costs as the film or television program is exhibited. For theatrical films, the period over which ultimate revenues from all applicable sources and exhibition windows are estimated does not exceed 10 years from the date of the film’s initial release. For television programs, the ultimate period does not exceed 10 years from delivery of the first episode, or, if still in production, five years from delivery of the most recent episode, if later. For games, the ultimate period does not exceed two years from the date of the game’s initial release. Ultimates for produced content monetized on an individual basis are reviewed and updated (as applicable) on a quarterly basis; any adjustments are applied prospectively as of the beginning of the fiscal year of the change.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

For programs monetized as a group, including licensed programming, the Company’s film groups are generally aligned along the Company’s networks and digital content offerings, except for certain international territories wherein content assets are shared across the various networks in the territory and therefore, the territory is the film group. Amortization expense for each period is generally based on the revenue forecast model, which approximates the proportion that estimated distribution and advertising revenues for the current period represent in relation to the estimated remaining total lifetime revenues. Digital content and premium pay TV amortization for each period is recognized based on estimated viewing patterns as there are generally no direct revenues to associate to the individual content assets and therefore number of views is most representative of the use of the title. Licensed rights to film and television programming are typically amortized over the useful life of the program’s license period on a straight-line basis (or per-play basis, if greater, for certain programming on our ad-supported networks), or accelerated basis for licensed original programs.

Quarterly, the Company prepares analyses to support its content amortization expense. Critical assumptions used in determining content amortization for programming predominately monetized as a group include: (i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or viewership model based on the adequacy of historical data, (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model, and (iv) incorporating secondary streams. The Company then considers the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends. Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving the Company’s networks, the number of subscribers to its digital services, and program usage. Accordingly, the Company continually reviews its estimates and planned usage and revises its assumptions if necessary. Any material adjustments from the Company’s review of the amortization rates for assets in film groups are applied prospectively in the period of the change.

Unamortized film costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of a film (or television program) predominately monetized on its own, or a film group, may be less than its unamortized costs. In addition, a change in the predominant monetization strategy is considered a triggering event for impairment testing before a title is accounted for as part of a film group. If the carrying value of an individual feature film or television program, or film group, exceeds the estimated fair value, an impairment charge will be recorded in the amount of the difference. For content that is predominately monetized individually, we utilize estimates including ultimate revenues and additional costs to be incurred (including exploitation and participation costs), in order to determine whether the carrying value of a film or television program is impaired.

Game development costs are expensed as incurred before the applicable games reach technological feasibility, or for online hosted arrangements, before the preliminary project phase is complete and it is probable the project will be completed and the software will be used to perform the function intended. Upon release, the capitalized game development costs are amortized based on the proportion of the game’s revenues recognized for such period to the game’s total current and anticipated revenues. Unamortized capitalized game production and development costs are stated at the lower of cost, less accumulated amortization, or net realizable value and reported in “Film and television content rights and games, net” on the consolidated balance sheets.

~~Inventory~~

Inventory is comprised primarily of DVDs, Blu-ray Discs and game units and is stated at the lower of cost or net realizable value in prepaid expenses and other current assets on the consolidated balance sheets. Cost is determined using the average cost method for the majority of our inventory, with the remaining inventory valued using the standard cost method, which approximates average cost. Returned goods included in inventory are valued at estimated realizable value, but not in excess of cost. The Company periodically reviews its inventory for excess and obsolete inventory. The Company's inventory consisted of the following (in millions).

September 30, 2022 December 31, 2021
Raw materials $ 6 $ —
Work in process 6 —
Finished goods 137 1
Total inventory $ 149 $ 1

~~Defined Benefit Plan~~

The Company maintains a defined benefit pension plan covering certain employees. Defined benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

10-K.

Accounting and Reporting Pronouncements Adopted

~~LIBOR~~

In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company applied the relevant provisions of the guidance to hedge relationships that were subsequently terminated in the first quarter of 2022.

~~Convertible Instruments~~

In August 2020, the FASB issued guidance simplifying the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This guidance amends the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance. The Company adopted the guidance effective January 1, 2022, and there was no material impact on its consolidated financial statements.

~~Accounting and Reporting Pronouncements Not Adopted~~

~~Government Assistance~~

In November 2021, the FASB issued guidance requiring disclosure for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other guidance. The annual disclosures include terms and conditions, accounting treatment and impacted financial statement lines reflecting the impact of the transactions. The guidance is effective for annual periods beginning after December 15, 2021. While the guidance will not have an effect on the Company’s consolidated statement of operations or consolidated balance sheets, the Company is currently assessing the impact this guidance will have on its financial statement disclosures.

Supplier Finance Programs

In September 2022, the ~~FASB~~Financial Accounting Standards Board issued guidance updating the disclosure requirements for supplier finance program obligations. This guidance provides specific authoritative guidance for disclosure of supplier finance programs, including key terms of such programs, amounts outstanding, and where the obligations are presented in the statement of financial position. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods, except for the disclosure of roll forward information, which is effective for annual periods beginning after December 15, 2023. Certain components of this guidance must be applied retrospectively, while others may be applied prospectively. ~~Early adoption is permitted.~~ The Company ~~is currently evaluating~~adopted the ~~impact this~~ guidance ~~will have on its consolidated financial statements~~effective January 1, 2023 and ~~related disclosures.~~has provided the required disclosures in Note 14.

NOTE 2. EQUITY AND EARNINGS PER SHARE

Common Stock Issued in Connection with the WarnerMedia Merger

In connection with the Merger, each issued and outstanding share of Discovery Series A common stock, Discovery Series B convertible common stock, and Discovery Series C common stock, was reclassified and automatically converted into one share of WBD common stock, and each issued and outstanding share of Discovery Series A-1 convertible preferred stock (“Series A-1 Preferred Stock”) and Series C-1 convertible preferred stock was reclassified and automatically converted into 13.1135 and 19.3648 shares of WBD common stock, respectively.

The Merger required the consent of Advance/Newhouse Programming Partnership under Discovery's certificate of incorporation as the sole holder of the Series A-1 Preferred Stock. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A-1 Preferred Stock into common stock, it received an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock converted. The impact of the issuance of such additional shares of common stock was $789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the ~~Merger.~~Merger in the three months ended June 30, 2022.

On April 8, 2022, the Company issued 1.7 billion shares of WBD common stock as consideration paid for the acquisition of WM. (See Note ~~3).~~

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

3.)

Earnings Per Share

All share and per share amounts have been retrospectively adjusted to reflect the reclassification and automatic conversion into WBD common stock, except for Series A-1 Preferred Stock, which has not been recast because the conversion of Series A-1 Preferred Stock into WBD common stock in connection with the Merger was considered a discrete event and treated prospectively.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The table below sets forth the ~~Company's~~Company’s calculated earnings per ~~share.~~share (in millions). Earnings per share amounts may not recalculate due to rounding.

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net (loss) income $ (2,285) $ 197 $ (5,218) $ 1,106
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock — (17) (49) (104)
Net income attributable to noncontrolling interests (21) (32) (44) (116)
Net income attributable to redeemable noncontrolling interests (2) (9) (8) (22)
Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net (loss) income per share $ (2,308) $ 139 $ (5,319) $ 864
Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders $ — $ 17 $ — $ 104
Net (loss) income allocated to Warner Bros. Discovery, Inc. Series A common stockholders for diluted net (loss) income per share $ (2,308) $ 156 $ (5,319) $ 968
Denominator — weighted average:
Common shares outstanding — basic 2,428 589 1,775 588
Impact of assumed preferred stock conversion — 71 — 71
Dilutive effect of share-based awards — 3 — 6
Common shares outstanding — diluted 2,428 663 1,775 665

Basic net (loss) income per share allocated to common stockholders $ (0.95) $ 0.24 $ (3.00) $ 1.47
Diluted net (loss) income per share allocated to common stockholders $ (0.95) $ 0.24 $ (3.00) $ 1.46


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net loss	$	(407)	$	(2,285)	$	(2,687)	$	(5,218)
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock	—		—		—		(49)
Net income attributable to noncontrolling interests	(8)		(21)		(32)		(44)
Net income attributable to redeemable noncontrolling interests	(2)		(2)		(7)		(8)

Net loss allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net loss per share	$	(417)	$	(2,308)	$	(2,726)	$	(5,319)





Denominator — weighted average:
Common shares outstanding — basic and diluted	2,438		2,428		2,436		1,775




Basic net loss per share allocated to common stockholders	$	(0.17)	$	(0.95)	$	(1.12)	$	(3.00)
Diluted net loss per share allocated to common stockholders	$	(0.17)	$	(0.95)	$	(1.12)	$	(3.00)

The table below presents the details of share-based awards that were excluded from the calculation of diluted earnings per share (in millions).

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Anti-dilutive share-based awards 59 32 48 10


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

NOTE 3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

WarnerMedia

On April 8, 2022, the Company completed its Merger with the WarnerMedia Business of AT&T. The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro-rata distribution, and immediately thereafter, combined with Discovery. Discovery was deemed to be the accounting acquirer of WM.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Merger combined WM’s content library of popular and valuable intellectual property with Discovery’s global footprint, collection of local-language content and deep regional expertise across more than 220 countries and territories. The Company expects this broad, worldwide portfolio of brands, coupled with its DTC potential and the attractiveness of the combined assets, to result in increased market penetration globally. The Merger is also expected to create significant cost synergies for the Company.

Purchase Price

The following table summarizes the components of the aggregate purchase consideration paid to acquire WM (in millions).


Fair value of WBD common stock issued to AT&T shareholders (1)	$	42,309
~~Estimated fair~~Fair value of share-based compensation awards attributable to pre-combination services (2)	94
Settlement of preexisting relationships (3)	(27)
Purchase consideration	$	42,376

(1) The fair value of WBD common stock issued to AT&T shareholders represents approximately 1,732 million shares of ~~the Company’s~~WBD common stock multiplied by the closing share price for Discovery Series A common stock of $24.43 on ~~the~~ Nasdaq on the Closing Date. The number of shares of WBD common stock issued in the Merger was determined based on the number of fully diluted shares of Discovery, Inc. common stock immediately prior to the closing of the Merger, multiplied by the quotient of 71%/29%.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(2) This amount represents the value of AT&T restricted stock unit awards that were not vested and were replaced by WBD restricted stock unit awards with similar terms and conditions as the original AT&T awards. The conversion was based on the ratio of the volume-weighted average per share closing price of AT&T common stock on the ten trading days prior to the Closing Date and the volume-weighted average per share closing price of WBD common stock on the ten trading days following the Closing Date. The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger. ~~See Note 14 for additional information.~~

(3) The amount represents the effective settlement of outstanding payables and receivables between the Company and WM. No gain or loss was recognized upon settlement as amounts were determined to be reflective of fair market value.

Balances reflect rounding of dollar and share amounts to millions, which may result in differences for recalculated standalone amounts compared with the amounts presented above. In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which resulted in the Company receiving a $1.2 billion payment from AT&T in the third quarter of 2022.

~~Preliminary~~ Purchase Price Allocation

The Company applied the acquisition method of accounting to WM, whereby the excess of the fair value of the purchase price paid over the fair value of identifiable net assets acquired and liabilities assumed was allocated to goodwill. Goodwill reflects the assembled workforce of WM as well as revenue enhancements, cost savings and operating synergies that are expected to result from the Merger. The goodwill recorded as part of the Merger has been ~~provisionally~~ allocated to the Studios, Networks and DTC reportable segments in the amount of ~~$8,938~~$9,308 million, ~~$7,015~~$7,074 million and ~~$5,909~~$5,727 million, respectively, and is not deductible for tax purposes.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The purchase price allocation is preliminary and subject to change. The~~During the three months ended June 30, 2023, the Company ~~is still evaluating~~finalized the fair value of film and television library, intangible assets, and income taxes, in addition to ensuring all other assets and liabilities and contingencies have been identified and recorded. The Company has estimated the preliminary fair value of assets acquired and liabilities assumed based on information currently available and will continue to adjust those estimates as additional information pertaining to events or circumstances present at the Closing Date becomes available during the measurement period. The Company reflects measurementassumed. Measurement period adjustments were reflected in the period in which the adjustments ~~occur, and~~occurred. Adjustments recorded during the ~~Company will finalize its accounting for the Merger within one year of the Closing Date. The current period adjustments~~six months ended June 30, 2023 were $368 million, primarily related to ~~content,~~ taxes, ~~investments,~~ and ~~capitalized interest.~~were recorded in other noncurrent assets, deferred income taxes, and other noncurrent liabilities, with an offset to goodwill. The ~~cumulative impact on the consolidated statements of operations for these measurement period adjustments was $129 million for the three months ended September 30, 2022. The preliminary~~ allocation of the purchase price to the assets acquired and liabilities assumed, measurement period adjustments, and a reconciliation to total consideration transferred is presented in the table below (in millions).


		Preliminary April 8, 2022		Measurement Period Adjustments		Updated Preliminary April 8, 2022			Preliminary April 8, 2022		Measurement Period Adjustments		Final April 8, 2022
Cash	Cash	$	2,419	$	(10)	$	2,409	Cash	$	2,419	$	(10)	$	2,409
Accounts receivable	Accounts receivable	4,224		(1)		4,223		Accounts receivable	4,224		(60)		4,164
Other current assets	Other current assets	4,619		(217)		4,402		Other current assets	4,619		(133)		4,486
Film and television library		28,729		(294)		28,435
Film and television content rights and games								Film and television content rights and games	28,729		(344)		28,385
Property and equipment	Property and equipment	4,260		17		4,277		Property and equipment	4,260		13		4,273
Goodwill	Goodwill	21,513		349		21,862		Goodwill	21,513		596		22,109
Intangible assets	Intangible assets	44,889		—		44,889		Intangible assets	44,889		100		44,989
Other noncurrent assets	Other noncurrent assets	5,206		442		5,648		Other noncurrent assets	5,206		283		5,489
Current liabilities	Current liabilities	(10,544)		(14)		(10,558)		Current liabilities	(10,544)		12		(10,532)
Debt assumed	Debt assumed	(41,671)		(9)		(41,680)		Debt assumed	(41,671)		(9)		(41,680)
Deferred income taxes	Deferred income taxes	(13,264)		107		(13,157)		Deferred income taxes	(13,264)		492		(12,772)
Other noncurrent liabilities	Other noncurrent liabilities	(8,004)		(370)		(8,374)		Other noncurrent liabilities	(8,004)		(940)		(8,944)
Total consideration paid	Total consideration paid	$	42,376	$	—	$	42,376	Total consideration paid	$	42,376	$	—	$	42,376

The fair values of the assets acquired and liabilities assumed were determined using several valuation approaches including, but not limited to, various cost approaches and income approaches, such as relief from royalty, multi-period excess earnings, and with-or-without methods.

1613

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The fair values of the assets acquired, and liabilities assumed were preliminarily determined using the income, cost, and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market, such as discounted cash flow analyses, and thus represent a Level 3 measurement. Significant inputs used in the discounted cash flow analyses and other areas of judgment include (i) historical and projected financial information, (ii) discount rates used to present value future cash flows, (iii) royalty rates, (iv) number of renewals for affiliate contracts, (v) synergies, including cost savings, (vi) tax rates, (vii) economic useful life of assets, and (viii) attrition rates, as relevant, that market participants would consider when estimating fair values. The following are the preliminary fair value approaches followed:


~~Category~~						~~Valuation Method~~
~~Trade names~~						~~Relief from royalty method of the income approach~~
~~Film and TV content library~~						~~Multi-period excess earnings method of the income approach; net book value~~
~~Affiliate contracts~~						~~Multi-period excess earnings method of the income approach~~
~~Franchises~~						~~Multi-period excess earnings method of the income approach~~
~~Other intangible assets~~						~~Multi-period excess earnings method of the income approach~~
~~Licensed content~~						~~Net book value method~~
~~Licensed sports rights~~						~~Differential method, a form of the incremental income approach~~
~~Recovery rate for advertiser relationships~~						~~With-or-without method, a form of the income approach, recovery rate of 4 years~~
~~In-place advertising networks~~						~~With-or-without method, a form of the income approach~~
~~Subscriber relationships~~						~~Replacement cost method of the cost approach~~
~~Real estate, property and equipment~~						Cost approach or the income approach, which estimates the value of property based on the income it generates or the market approach, which determines values based on comparable assets purchased under similar conditions
~~Current and noncurrent debt assumed comprising existing debt of WM, the Term Loan, and the Notes~~						~~Quoted prices for identical or similar securities in active markets~~

The table below presents a summary of intangible assets acquired, exclusive of content assets, and the weighted average useful life of these assets.


		Fair Value		Weighted Average Useful Life in Years		Fair Value		Weighted Average Useful Life in Years
Trade names	Trade names	$	21,084	25	Trade names	$	21,084	34
Affiliate, advertising and subscriber relationships	Affiliate, advertising and subscriber relationships	14,700		6	Affiliate, advertising and subscriber relationships	14,800		6
Franchises	Franchises	7,900		35	Franchises	7,900		35
Other intangible assets	Other intangible assets	1,205			Other intangible assets	1,205
Total intangible assets acquired	Total intangible assets acquired	$	44,889		Total intangible assets acquired	$	44,989

The Company incurred ~~transaction-related~~acquisition-related costs of $31 million and $125 million for the three and nine months ended September 30, 2023, respectively, and $59 million and $340 million for the three and nine months ended September 30, 2022, respectively. These costs were associated with legal and professional services and integration activities and were recognized as operating expenses on the consolidated statement of operations. Additionally, the expense related to the issuance of additional shares of common stock in connection with the conversion of Advance/Newhouse ~~Programming's~~Programming’s Series A-1 Preferred Stock was $789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the Merger. (See Note 2.)

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

As a result of the Merger, ~~WM's~~WM’s assets, liabilities, and operations were included in the ~~Company's~~Company’s consolidated financial statements from the Closing Date. The following table presents WM revenue and earnings as reported within the consolidated financial statements (in millions).


									Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
		Three Months Ended June 30, 2022		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Revenues:	Revenues:							Revenues:
Distribution								Distribution	$	3,730	$	7,256
Advertising	Advertising	$	1,163	$	761	$	1,924	Advertising	761		1,924
Distribution		3,526		3,730		7,256
Content	Content	2,835		3,147		5,982		Content	3,147		5,982
Other	Other	208		245		453		Other	245		453
Total revenues	Total revenues	7,732		7,883		15,615		Total revenues	7,883		15,615
Inter-segment eliminations	Inter-segment eliminations	(840)		(699)		(1,539)		Inter-segment eliminations	(699)		(1,539)
Net revenues	Net revenues	$	6,892	$	7,184	$	14,076	Net revenues	$	7,184	$	14,076
Net loss available to Warner Bros. Discovery, Inc.	Net loss available to Warner Bros. Discovery, Inc.	$	(3,020)	$	(2,135)	$	(5,155)	Net loss available to Warner Bros. Discovery, Inc.	$	(2,135)	$	(5,155)

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information presents the combined results of the Company and WM as if the Merger had been completed on January 1, 2021. The unaudited pro forma combined financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the Merger had occurred on January 1, 2021, nor is it indicative of future results. The following table presents the ~~Company's~~Company’s pro forma combined revenues and net income (in millions).

Three Months Ended September 30, Nine Months Ended September 30,
2021 2022 2021
Revenues $ 10,980 $ 32,087 $ 32,913
Net loss available to Warner Bros. Discovery, Inc. (659) (4,132) (2,795)


	Nine Months Ended September 30, 2022

Revenues	$	32,087
Net loss available to Warner Bros. Discovery, Inc.	(3,951)

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The unaudited pro forma combined financial information includes, where applicable, adjustments for (i) additional costs of revenues from the fair value ~~step up~~step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments. These pro forma adjustments are based on available information as of the date hereof and upon assumptions that the Company believes are reasonable to reflect the impact of the Merger with WM on the ~~Company's~~Company’s historical financial information on a supplemental pro forma basis. Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business.

Dispositions

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

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

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

~~In June 2021, the Company completed the sale of its Great American Country network to Hicks Equity Partners for a sale price of $90~~ million ~~and recorded a gain of $76 million.~~

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~Goodwill~~

~~The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows (in millions).~~

U.S.
Networks International
Networks Studios Networks DTC Total
December 31, 2021 $ 10,813 $ 2,099 $ — $ — $ — $ 12,912
Segment recast (See Note 20) (10,813) (2,059) — 10,555 2,317 —
Acquisitions (See Note 3) — — 8,938 7,015 5,909 21,862
Foreign currency translation and other — (40) (16) (220) (48) (324)
September 30, 2022 $ — $ — $ 8,922 $ 17,350 $ 8,178 $ 34,450

The Networks segment included accumulated goodwill impairments of $1.6 billion as of September 30, 2022 and December 31, 2021. The Studios and DTC segments did not include any accumulated goodwill impairments as of September 30, 2022 and December 31, 2021.

~~Intangible Assets~~

~~Finite-lived intangible assets consisted of the following (in millions, except years).~~

Weighted
Average
Amortization
Period (Years) September 30, 2022 December 31, 2021
Gross Accumulated
Amortization Net Gross Accumulated
Amortization Net
Intangible assets subject to amortization:
Trademarks and trade names 32 $ 22,872 $ (1,246) $ 21,626 $ 1,716 $ (858) $ 858
Affiliate, advertising and subscriber relationships 8 23,927 (7,839) 16,088 9,433 (4,303) 5,130
Franchises 35 7,900 (108) 7,792 — — —
Character rights 14 995 (35) 960 — — —
Other 6 544 (266) 278 395 (227) 168
Total $ 56,238 $ (9,494) $ 46,744 $ 11,544 $ (5,388) $ 6,156

Amortization expense relating to finite-lived intangible assets was $1,937 million and $266 million for the three months ended September 30, 2022 and 2021, respectively, and $4,376 million and $814 million for the nine months ended September 30, 2022 and 2021, respectively.

~~Amortization expense relating to intangible assets subject to amortization for each of the next five years and thereafter is estimated to be as follows (in millions).~~

Remaining 2022 2023 2024 2025 2026 Thereafter
Amortization expense $ 1,845 $ 6,479 $ 4,967 $ 3,595 $ 2,592 $ 27,266

~~Indefinite-lived intangible assets not subject to amortization (in millions):~~

~~September 30, 2022~~

~~December 31, 2021~~

~~Trademarks~~

—

~~161~~

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Impairment Analysis~~

During the second quarter of 2022, the Company performed a qualitative goodwill impairment assessment for all reporting units in conjunction with the change in its segment presentation, and determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values; therefore, no quantitative goodwill impairment analysis was performed. Due to global macro-economic conditions, the Company will continue to monitor its reporting units for changes that could impact recoverability.

NOTE 5.4. RESTRUCTURING AND OTHER CHARGES

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Studios	Studios	$	562	$	—	$	762	$	—	Studios	$	134	$	562	$	220	$	762
Networks	Networks	354		6		666		27		Networks	48		354		161		666
DTC	DTC	517		1		992		2		DTC	34		517		61		992
Corporate		93		—		162		—
Inter-segment eliminations		(5)		—		(23)		—
Corporate and inter-segment eliminations										Corporate and inter-segment eliminations	53		88		68		139

Total restructuring and other charges	Total restructuring and other charges	$	1,521	$	7	$	2,559	$	29	Total restructuring and other charges	$	269	$	1,521	$	510	$	2,559

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

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

~~Changes in restructuring and other liabilities recorded in accrued liabilities by major category and by reportable segment and corporate were as follows (in millions).~~

U.S. Networks International Networks Studios Networks DTC Corporate and Inter-Segment Eliminations Total
December 31, 2021 $ 4 $ 13 $ — $ — $ — $ 2 $ 19
Segment recast (See Note 20) (4) (13) — 15 — 2 —
Acquisitions (See Note 3) — — 40 — 14 55 109
Employee termination accruals, net — — 88 95 45 218 446
Cash paid — — (19) (15) (13) (48) (95)
September 30, 2022 $ — $ — $ 109 $ 95 $ 46 $ 229 $ 479

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~NOTE 6. REVENUES~~

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

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

Three Months Ended September 30, 2021
Studios Networks DTC Corporate and Inter-segment Eliminations Total
Revenues:
Advertising $ — $ 1,416 $ 37 $ — $ 1,453
Distribution — 1,118 210 — 1,328
Content 6 339 7 — 352
Other — 16 1 — 17
Total $ 6 $ 2,889 $ 255 $ — $ 3,150

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

Nine Months Ended September 30, 2021
Studios Networks DTC Corporate and Inter-segment Eliminations Total
Revenues:
Advertising $ — $ 4,409 $ 87 $ — $ 4,496
Distribution — 3,399 499 — 3,898
Content 13 541 10 — 564
Other — 44 2 — 46
Total $ 13 $ 8,393 $ 598 $ — $ 9,004

2115

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Reserves for Credit Losses~~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).

~~Reserves for accounts receivable reflect expected credit losses, which are estimated based on historical experience, as well as current and expected economic conditions and industry trends.~~


	Studios		Networks		DTC		Corporate and Inter-Segment Eliminations		Total
December 31, 2022	$	156	$	361	$	188	$	159	$	864


Contract termination accruals, net	41		15		2		16		74

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

NOTE 5. REVENUES

The ~~allowance for credit losses was $126 million at September 30, 2022 and $54 million at December 31, 2021. The increase was primarily attributable to~~following table presents the ~~acquisition of existing WM receivables in the Merger with WM. The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses.~~Company’s revenues disaggregated by revenue source (in millions).


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


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


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

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


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

Contract ~~Assets~~Liabilities and ~~Liabilities~~

A contract asset is recorded when revenue is recognized in advance of the Company's right to bill and receive consideration and that right is conditioned upon something other than the passage of time. A contract liability, such as deferred revenue, is recorded when the Company has recorded billings in conjunction with its contractual right or when cash is received in advance of the Company's performance.Contract Assets

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


Category	Category	Balance Sheet Location	September 30, 2022		December 31, 2021		Category	Balance Sheet Location	September 30, 2023		December 31, 2022
Contract assets		Prepaid expenses and other current assets	$	15	$	—
Contract assets		Other noncurrent assets	32		—

Contract liabilities	Contract liabilities	Deferred revenues	1,688		478		Contract liabilities	Deferred revenues	$	1,917	$	1,694
Contract liabilities	Contract liabilities	Other noncurrent liabilities	296		95		Contract liabilities	Other noncurrent liabilities	142		361

~~The change in deferred revenue for~~For the nine months ended September 30, 2023 and 2022, ~~primarily reflects an increase~~respectively, revenues of ~~$1,476~~$1,202 million ~~related to the Merger~~ and ~~cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by~~ $376 million ~~of revenues~~were recognized that were included in ~~the~~ deferred ~~revenue balance at~~revenues as of December 31, ~~2021. Revenue recognized for the nine months ended September 30, 2021 related to the deferred revenue balance at~~2022 and December 31, ~~2020 was $414 million.~~

~~Transaction Price Allocated to Remaining Performance Obligations~~

Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue. Accordingly, in these instances revenue is recognized based upon the royalties earned to date. However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year. The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees; by calculating one twelfth of annual license fees specified in its distribution contracts; or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $4.9 billion2021, respectively.Contract assets were not material as of September 30, ~~2022~~2023 and December 31, 2022.

Remaining Performance Obligations

As of September 30, 2023, $12,508 million of revenue is expected to be recognized ~~over the next seven years.~~

~~The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property. The transaction price allocated to~~from remaining performance obligations ~~on these contracts was $5.3 billion as~~under our long-term contracts. The following table presents a summary of ~~September 30, 2022 and is expected to be recognized over the next eight years.~~

~~The Company's brand licensing contracts are licenses of symbolic intellectual property. The transaction price allocated to~~ remaining performance obligations ~~on these contracts was $2.4 billion as of September 30, 2022 and is expected to be recognized over the next 21 years.~~by contract type (in millions).

The Company's advertising contracts are principally generated from the sale of advertising campaigns comprised of multiple commercial units. In contracts with guaranteed impressions, we have identified the overall advertising campaign as the performance obligation to be satisfied over time, and impressions delivered against the satisfaction of our guarantee as the measure of progress. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $569 million as of September 30, 2022 and is expected to be recognized over the next three years.

Contract Type

September 30, 2023

Duration

Distribution - fixed price or minimum guarantee

3,620

Through 2031

Content licensing and sports sublicensing

5,792

Through 2030

Brand licensing

2,279

Through 2043

Advertising

817

Through 2027

Total

12,508

The value of unsatisfied performance obligations disclosed above does not include: (i) contracts involving variable consideration for which revenues are recognized in accordance with the sales or usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as most advertising contracts; however for content licensing revenues, including revenues associated with the licensing of theatrical and television product for television and streaming services, the Company has included all contracts regardless of duration.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

NOTE 7.6. SALES OF RECEIVABLES

Revolving Receivables Program

The Company has a revolving agreement to transfer up to $5,700 million of certain receivables through its bankruptcy-remote subsidiary Warner Bros. Discovery Receivables Funding, LLC to various financial institutions on a recurring basis in exchange for cash equal toDuring the gross receivables transferred. The Company services sold receivables for a fee and pays fees to the financial institution in connection with this revolving agreement. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded or reduced from time to time. As customers pay their balances, the Company’s available capacity under this revolving agreement increases and typicallythree months ended September 30, 2023, the Company ~~transfers additional~~amended its revolving receivables ~~into~~program to reduce the ~~program. Our~~facility limit to $5,500 million and extend the program to August 2024. The Company’s bankruptcy-remote consolidated subsidiary held ~~$3,242~~$2,892 million of pledged receivables as of September 30, ~~2022~~2023 in connection with ~~this~~its revolving ~~agreement. The gross value of~~receivables program. For the ~~proceeds received results in derecognition of receivables~~three and the obligations assumed are recorded at fair value. The obligations assumed when proceeds are received relate to expected credit losses on sold receivables and estimated fee payments made on outstanding sold receivables already transferred. The obligations are subsequently adjusted for changes in estimated expected credit losses and interest rates, which are considered Level 3 fair value measurements since the inputs are unobservable. In some cases,nine months ended September 30, 2023, the Company ~~may have collections that have not yet been remitted to~~has recognized $36 million and $78 million, respectively,inselling, general and administrative expenses, net of non-designated derivatives from the ~~bank, resulting~~revolving receivables program in ~~a liability.~~the consolidated statements of operations. (See Note 10.) For the three and nine months ended September 30, 2022, the Company ~~has~~ recognized a $93 million and $134 million ~~net loss~~ in selling, general and administrative ~~expense from the revolving receivables program~~expenses in the consolidated statements of operations, respectively. The outstanding portfolio of receivables derecognized from our consolidated balance sheets was ~~$5,191~~$5,190 million as of September 30, ~~2022.~~2023.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
Gross receivables sold/cash proceeds received $ 3,283 $ 6,488
Collections reinvested under revolving agreement (3,792) (7,297)
Net cash proceeds received (a)
$ (509) $ (809)
Net receivables sold $ 3,272 $ 6,470
Obligations recorded $ 129 $ 227

~~(a)~~ ~~Includes the collections on receivables sold but not remitted of $236 million at period end.~~


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

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


	~~September 30, 2022~~
~~Gross receivables pledged as collateral~~	$	~~3,242~~

~~Balance sheet classification:~~

~~Receivables, net~~	$	~~3,041~~


~~Other noncurrent assets~~	$	~~201~~


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

Accounts Receivable Factoring

The Company has a factoring agreement to sell certain of its non-U.S. trade accounts receivable on a non-recourse basis to a third-party financial institution. The Company accounts for these transactions as sales in accordance with ASC 860, “Transfers and Servicing”, when its continuing involvement subsequent to the transfer is limited to providing certain servicing and collection actions on behalf of the purchaser of the designated trade accounts receivable. Proceeds from amounts factored are recorded as an increase to cash and cash equivalents and a reduction to receivables, net in the consolidated balance sheets. Cash received is also reflected as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the Company’s factoring ~~arrangements~~arrangement was ~~$38~~$72 million ~~as of~~for the nine months ended September 30, 2023. No amounts were sold under the Company’s factoring arrangement for the nine months ended September 30, 2022. The impact to the consolidated statements of operations was immaterial for the three and nine months ended September 30, 2023 and 2022. This accounts receivable factoring agreement is separate and distinct from the revolving receivables program.

2318

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 8.7. CONTENT RIGHTS

For purposes of amortization and impairment, capitalized content costs are grouped based on their predominant monetization strategy: individually or as a group. ~~Programming~~Beginning this quarter, programming rights ~~include internally developed and~~are presented as two separate captions: licensed content ~~predominately monetized as a group by our Networks~~ and ~~DTC segments.~~advances and live programming and advances. Live programming includes licensed sports rights and related advances. The table below presents the components of content rights (in millions).


		September 30, 2022								September 30, 2023
			Predominantly Monetized Individually		Predominantly Monetized as a Group		Total				Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:	Theatrical film production costs:								Theatrical film production costs:
Released, less amortization	Released, less amortization		$	3,196	$	—	$	3,196	Released, less amortization		$	2,867	$	—	$	2,867
Completed and not released	Completed and not released		588		—		588		Completed and not released		555		—		555
In production			1,875		—		1,875
Development and pre-production			96		—		96
In production and other									In production and other		1,188		—		1,188

Television production costs:	Television production costs:								Television production costs:
Released, less amortization	Released, less amortization		908		6,560		7,468		Released, less amortization		1,590		5,834		7,424
Completed and not released	Completed and not released		978		491		1,469		Completed and not released		354		720		1,074
In production			453		3,773		4,226
Development and pre-production			45		20		65
In production and other									In production and other		425		2,653		3,078
Total theatrical film and television production costs	Total theatrical film and television production costs		$	8,139	$	10,844	$	18,983	Total theatrical film and television production costs		$	6,979	$	9,207	$	16,186

Programming rights, less amortization							9,196
Licensed content and advances, net									Licensed content and advances, net						4,499
Live programming and advances, net									Live programming and advances, net						2,038
Game development costs, less amortization	Game development costs, less amortization						724		Game development costs, less amortization						630
Total film and television content rights and games	Total film and television content rights and games						28,903		Total film and television content rights and games						23,353
Less: Current content rights and prepaid license fees, net	Less: Current content rights and prepaid license fees, net						(615)		Less: Current content rights and prepaid license fees, net						(899)
Total noncurrent film and television content rights and games, net							$	28,288
Total noncurrent film and television content rights and games									Total noncurrent film and television content rights and games						$	22,454


	December 31, 2022
		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film production costs:
Released, less amortization		$	3,544	$	—	$	3,544
Completed and not released		507		—		507
In production and other		1,795		—		1,795

Television production costs:
Released, less amortization		2,200		6,143		8,343
Completed and not released		939		401		1,340
In production and other		457		3,386		3,843
Total theatrical film and television production costs		$	9,442	$	9,930	$	19,372
Licensed content and advances, net						4,961
Live programming and advances, net						2,214
Game development costs, less amortization						650
Total film and television content rights and games						27,197
Less: Current content rights and prepaid license fees, net						(545)
Total noncurrent film and television content rights and games						$	26,652

2419

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

December 31, 2021
Predominantly Monetized Individually Predominantly Monetized as a Group Total
Theatrical film production costs:
Released, less amortization $ — $ — $ —
Completed and not released — — —
In production — — —
Development and pre-production — — —
Television production costs:
Released, less amortization 9 2,432 2,441
Completed and not released — — —
In production — 770 770
Development and pre-production — 17 17
Total theatrical film and television production costs $ 9 $ 3,219 $ 3,228
Programming rights, less amortization 849
Game development costs, less amortization —
Total film and television content rights 4,077
Less: Current content rights and prepaid license fees, net (245)
Total noncurrent film and television content rights, net $ 3,832

Content ~~expense~~amortization consisted of the following (in millions).

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Monetized individually
Content amortization $ 1,357 $ 469 $ 3,534 $ 518
Content impairments 322 — 416 —
Total content expense monetized individually $ 1,679 $ 469 $ 3,950 $ 518
Monetized as a group
Content amortization $ 2,584 $ 748 $ 6,492 $ 2,214
Content impairments 587 2 999 3
Total content expense monetized as a group $ 3,171 $ 750 $ 7,491 $ 2,217
Total content expense $ 4,850 $ 1,219 $ 11,441 $ 2,735


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Predominately monetized individually	$	631	$	1,357	$	3,193	$	3,534





Predominately monetized as a group	2,364		2,584		9,039		6,492



Total content amortization	$	2,995	$	3,941	$	12,232	$	10,026

Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations. For the three and nine months ended September 30, 2023, total content impairments were $191 million and $315 million, respectively. Content impairments and other content development costs and write-offs of $112 million and $123 million, respectively, for the three and nine months ended September 30, 2023 were primarily due to the abandonment of certain films in connection with the third quarter 2023 strategic realignment plan associated with the WB Theatrical Animation group and are reflected in restructuring and other charges in the Studios segment. For the three and nine months ended September 30, 2022, total content impairments were $909 million and $1,415 million, respectively. Content impairments of $891 million and $1,392 million, respectively, and content development write-offs of $234 million and $563 million, respectively, for the three and nine months ended September 30, 2022 ~~of $234 million and $563 million, respectively,~~ were due to the abandonment of certain content categories in connection with the strategic realignment of content following the Merger and are reflected in restructuring and other charges in the Studios, Networks and DTC segments. ~~No content impairments were recorded as a component of restructuring and other charges for the three and nine months ended September 30, 2021.~~

Other content development costs not previously capitalized as content assets for the three and nine months ended September 30, 2022 were $220 million and $292 million, respectively, of which $143 million for the three and nine months ended September 30, 2022 was due to the abandonment of certain content categories in connection with the strategic realignment of content following the Merger and is reflected in restructuring and other charges in the Studios, Networks, and DTC segments.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

NOTE 9.8. INVESTMENTS

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


Category	Category	Balance Sheet Location	Ownership	September 30, 2022		December 31, 2021		Category	Balance Sheet Location	Ownership	September 30, 2023		December 31, 2022
Equity method investments:	Equity method investments:							Equity method investments:
The Chernin Group (TCG) 2.0-A, LP	The Chernin Group (TCG) 2.0-A, LP	Other noncurrent assets	44%	$	327	$	—	The Chernin Group (TCG) 2.0-A, LP	Other noncurrent assets	44%	$	274	$	313
nC+	nC+	Other noncurrent assets	32%	115		151		nC+	Other noncurrent assets	32%	125		135
TNT Sports								TNT Sports	Other noncurrent assets	50%	102		96
Other	Other	Other noncurrent assets		703		390		Other	Other noncurrent assets		470		518
Total equity method investments	Total equity method investments			1,145		541		Total equity method investments			971		1,062

Investments with readily determinable fair values	Investments with readily determinable fair values	Other noncurrent assets		36		80		Investments with readily determinable fair values	Other noncurrent assets		41		28
Investments with readily determinable fair values		Prepaid expenses and other current assets		—		40
Total investments with readily determinable fair values				36		120

Investments without readily determinable fair values	Investments without readily determinable fair values	Other noncurrent assets		635		496		Investments without readily determinable fair values	Other noncurrent assets(a)		434		498
Total investments	Total investments			$	1,816	$	1,157	Total investments			$	1,446	$	1,588

(a) Investments without readily determinable fair values included $17 million as of September 30, 2023 and $10 million as of December 31, 2022 that were included in prepaid expenses and other current assets.

Equity Method Investments

Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary or the entity is not a VIE and the Company does not have a controlling financial interest. In connection with the Merger, the Company acquired $807 million of equity method investments.Impairment losses are recorded in loss from equity investees, net on the consolidated statements of operations. Impairment losses for the three and nine months ended September 30, 2022 were not material.

During the three months ended September 30, 2022, the Company entered into an agreement with British Telecommunications Plc (“BT”) to form a 50:50 joint venture to create a new premium sports offering for the United Kingdom and Ireland, with each party directly contributing or sublicensing its respective operating business and related sports rights and distribution to the joint venture. The Company has determined the joint venture is a VIE, as the Company and BT have equal governance and voting rights and the Company’s 50% equity interest in the joint venture gives it the ability to exercise significant influence over the entity’s operating and financial policies; however, BT is the primary beneficiary given its disproportionate share of earnings compared to its voting rights during the first four years of the joint venture.Accordingly, the Company accounts for its investment in the joint venture as an equity method investment. Additionally, the Company has a call option to obtain the remaining 50% equity interest in September 2024 and September 2026, at the then fair market value plus the expected earnings that BT would have received in the two years following the call option.

Certain of the ~~Company's~~Company’s other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of September 30, ~~2022,~~2023, the Company’s maximum exposure for all of its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately ~~$867~~$767 million. The ~~Company's~~Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were ~~$827~~$708 million as of September 30, ~~2022~~2023 and ~~$126~~$720 million as of December 31, ~~2021.~~2022. VIE gains and losses are recorded in loss from equity investees, net on the consolidated statements of ~~operations,~~operations. VIE losses were $6 million and ~~were not material~~$59 million for the three and nine months ended September 30, 2023, respectively, and $15 million and $35 million for the three and nine months ended September 30, 2022, ~~and 2021.~~

~~Investments with Readily Determinable Fair Value~~

Investments in entities or other securities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other (expense) income, net on the consolidated statements of operations.respectively.

2620

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~The gains and losses related to~~Equity Investments Without Readily Determinable Fair Values Assessed Under the ~~Company's investments with readily determinable fair values for~~Measurement Alternative

During the three and nine months ended September 30, ~~2022 and 2021 are summarized in the table below (in millions).~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net (losses) gains recognized during the period on equity securities $ (9) $ (31) $ (70) $ 31
Less: Net gains recognized on equity securities sold — — — 16
Unrealized (losses) gains recognized during reporting period on equity securities still held at the reporting date $ (9) $ (31) $ (70) $ 15

~~Equity investments without readily determinable fair values assessed under the measurement alternative~~

~~Equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide~~2023, the Company ~~with control or significant influence and these investments do not have readily determinable fair values.~~

~~In connection with the Merger, the Company acquired$156 million in equity method investments without readily determinable fair values. During the nine months ended September 30, 2022, the Company did not invest in any material~~concluded that its other equity investments without readily determinable fair values had decreased $2 million and ~~concluded there were no indicators that a change~~$73 million, respectively, in fair value ~~had taken place.~~as a result of observable price changes in orderly transactions for the identical or similar investment of the same issuer. The decrease in fair value is recorded in other (expense) income, net on the consolidated statements of operations. (See Note 14.) As of September 30, ~~2022,~~2023, the Company had recorded cumulative ~~upward adjustments of $9 million and cumulative~~ impairments of ~~$88~~$302 millionfor its equity investments without readily determinable fair values.

NOTE ~~10.~~9. DEBT

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


		Weighted-Average Interest Rate as of September 30, 2022		September 30, 2022		December 31, 2021			Weighted-Average Interest Rate as of September 30, 2023		September 30, 2023		December 31, 2022
Term loans with maturities of 3 years or less	Term loans with maturities of 3 years or less	3.83	%	$	4,000	$	—	Term loans with maturities of 3 years or less	6.82	%	$	1,150	$	4,000
Floating rate senior notes with maturities of 5 years or less	Floating rate senior notes with maturities of 5 years or less	4.71	%	500		—		Floating rate senior notes with maturities of 5 years or less	7.00	%	40		500
Senior notes with maturities of 5 years or less	Senior notes with maturities of 5 years or less	3.62	%	13,627		4,314		Senior notes with maturities of 5 years or less	4.00	%	13,646		12,759
Senior notes with maturities between 5 and 10 years	Senior notes with maturities between 5 and 10 years	4.25	%	10,373		4,128		Senior notes with maturities between 5 and 10 years	4.28	%	8,607		10,373
Senior notes with maturities greater than 10 years	Senior notes with maturities greater than 10 years	5.11	%	21,644		6,745		Senior notes with maturities greater than 10 years	5.11	%	21,644		21,644
Total debt	Total debt			50,144		15,187		Total debt			45,087		49,276
Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net	Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net			(275)		(428)		Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net			(287)		(277)
Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting	Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting			49,869		14,759		Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting			44,800		48,999
Current portion of debt	Current portion of debt			(1,257)		(339)		Current portion of debt			(1,302)		(365)
Noncurrent portion of debt	Noncurrent portion of debt			$	48,612	$	14,420	Noncurrent portion of debt			$	43,498	$	48,634

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

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

During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. After March 2024, the senior notes are redeemable at par plus accrued and unpaid interest. The proceeds were used to pay $1.5 billion of aggregate principal amount outstanding of the Company’s term loan prior to the due date of April 2025. The Company also repaid $106 million of aggregate principal amount outstanding of its senior notes due February 2023.

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

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

During the three months ended March 31, 2022, the Company repaid in full at maturity $327 million aggregate principal amount outstanding of its 2.375% Euro Denominated Senior Notes due March 2022.

During the three months ended September 30, 2021, the Company redeemed in full $168 million aggregate principal amount outstanding of its 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of its 3.500% Senior Notes due June 2022. In the first quarter of 2021, the Company redeemed in full $335 million aggregate principal amount outstanding of its 4.375% Senior Notes due June 2021.

~~The redemptions during 2022 and 2021 resulted in an immaterial loss on extinguishment of debt.~~

2721

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of September 30, ~~2022,~~2023, all senior notes are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc. (“Scripps Networks”), ~~Discovery Communications, LLC (“DCL”)~~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 ~~$1.5~~$1.2 billion of senior notes of the legacy WarnerMedia Business assumed by the Company in connection with the Merger and $23 million of un-exchanged senior notes issued by Scripps Networks. Additionally, the term loans of ~~WarnerMedia Holdings, Inc.,~~WMH, made under the $10.0 billion term loan credit agreement (the “Term Loan Credit Agreement”), are fully and unconditionally guaranteed by the Company, Scripps Networks, and DCL.

Revolving Credit Facility and Commercial Paper Programs

~~In June 2021, DCL entered into~~The Company has a multicurrency revolving credit agreement (the “Revolving Credit Agreement”)~~, replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. Following the Merger, DCL~~ and has the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). The ~~Revolving Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. DCL~~Company may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. ~~Obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by the Company, Scripps Networks, and WarnerMedia Holdings, Inc.~~ The Credit Facility will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the lenders' consent. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants.

~~Additionally, the Company's~~Company’s commercial paper program is supported by the Credit Facility. ~~Under the commercial paper program, the Company 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.

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had no outstanding borrowings under ~~the~~its Credit Facility or ~~the~~its commercial paper program.

Credit Agreement Financial Covenants

The Revolving Credit Agreement and the Term Loan Credit Agreement (together, the “Credit Agreements”) include financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 5.75 to 1.00 following the closing of the Merger, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively. As of September 30, ~~2022,~~2023, DCL and ~~WarnerMedia Holdings, Inc.~~WMH were in compliance with all covenants and there were no events of default under the Credit Agreements.

~~NOTE 11. LEASES~~

The Company has operating and finance leases for transponders, office space, studio facilities, and other equipment. Our leases have remaining lease terms of up to 30 years, some of which include options to extend the leases for up to 10 years. Most leases are not cancelable prior to their expiration. In connection with the Merger, the Company acquired $2,493 million and $47 million of operating and finance lease right-of-use assets, respectively.

~~The components of lease cost were as follows (in millions):~~
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Operating lease cost $ 116 $ 25 $ 254 $ 78
Finance lease cost:
Amortization of right-of-use assets $ 21 $ 16 $ 58 $ 44
Interest on lease liabilities 2 2 6 6
Total finance lease cost $ 23 $ 18 $ 64 $ 50
Variable lease cost $ 43 $ 2 $ 50 $ 6
Total lease cost $ 182 $ 45 $ 368 $ 134

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Supplemental cash flow information related to leases was as follows (in millions):~~
Nine Months Ended September 30,
2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ (250) $ (86)
Operating cash flows from finance leases $ (11) $ (6)
Financing cash flows from finance leases $ (54) $ (49)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 428 $ 39
Finance leases $ 30 $ 87

~~Supplemental balance sheet information related to leases was as follows (in millions):~~
Category Location on
Balance Sheet September 30, 2022 December 31, 2021
Operating Leases
Operating lease right-of-use assets Other noncurrent assets $ 3,222 $ 535
Operating lease liabilities (current) Accrued liabilities $ 337 $ 62
Operating lease liabilities (noncurrent) Other noncurrent liabilities 3,003 567
Total operating lease liabilities $ 3,340 $ 629
Finance Leases
Finance lease right-of-use assets Property and equipment, net $ 246 $ 249
Finance lease liabilities (current) Accrued liabilities $ 81 $ 58
Finance lease liabilities (noncurrent) Other noncurrent liabilities 187 197
Total finance lease liabilities $ 268 $ 255

September 30, 2022 December 31, 2021
Weighted average remaining lease term (in years):
Operating leases 12 12
Finance leases 5 5
Weighted average discount rate:
Operating leases 4.10 % 2.94 %
Finance leases 3.19 % 3.57 %

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Maturities of lease liabilities as of September 30, 2022 were as follows (in millions):~~
Operating Leases Finance Leases
2022 (excluding the three quarters ended September 30, 2022) $ 173 $ 74
2023 450 70
2024 407 55
2025 354 34
2026 323 25
Thereafter 2,610 31
Total lease payments 4,317 289
Less: Imputed interest (977) (21)
Total $ 3,340 $ 268

As of September 30, 2022, the Company has additional leases that have not yet commenced with total minimum lease payments of $477 million, primarily related to facility leases. The remaining leases will commence between 2022 and 2023, have lease terms of 3 to 17 years, and include options to extend the terms for up to 10 additional years.

NOTE ~~12.~~10. DERIVATIVE FINANCIAL INSTRUMENTS

~~The~~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, ~~to modify its exposure to market risks from changes in~~primarily foreign currency ~~exchange rates~~forward contracts, fixed-to-fixed currency swaps, total return swaps and interest ~~rates.~~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.

~~Cash Flow Hedges~~

On January 1, 2022, the Company discontinued hedge accounting for certain forward starting interest rate swap contracts with a total notional value of $2 billion. The Company previously recognized a gain of $33 million in accumulated other comprehensive loss that will be amortized as an adjustment to interest expense, net over the respective terms of future issuances of debt. Subsequently, the Company unwound and settled the contracts and received cash of $122 million, including an $89 million realized gain for changes in fair market value between the dedesignation date and settlement date that was recognized in ~~other (expense) income, net~~ ~~in the consolidated statements of operations.~~

In connection with the Merger, the Company acquired two cash flow hedging programs to mitigate foreign currency risk including $922 million notional of production expense hedges and $776 million notional of production rebate hedges. These cash flow hedging programs are carried at fair market value using the spot method, with fair market value changes recorded in other comprehensive income until the production is released. Excluded components of the fair market value, including forward points, are included in current earnings.

During the three months ended September 30, 2022, the Company executed a fixed-to-fixed cross-currency swap with a total notional value of $435 million and an expiration date of 2024 to mitigate foreign currency risk associated with the Company’s British pound sterling (“GBP”) denominated debt, which was previously designated as a net investment hedge prior to the execution of this cash flow hedge.

~~Net Investment Hedges~~

During the three months ended March 31, 2022, the Company dedesignated, unwound, and settled certain fixed-to-fixed cross-currency swaps with a total notional value of $705 million associated with the Company's Euro functional subsidiaries. The Company recognized a realized gain of $10 million related to the excluded component of the hedge relationship in ~~other (expense) income, net~~ ~~in the consolidated statements of operations, and recognized a gain of $6 million in accumulated other comprehensive loss.~~

Also during the three months ended March 31, 2022, the Company executed cross currency swaps with a notional value of $664 million with expiration dates in 2025 to replace the aforementioned swaps that matured.

~~During the three months ended June 30, 2022, the Company unwound and settled certain cross-currency swaps with a total notional value of $2 billion and recorded a gain of $78 million.~~

During the three months ended September 30, 2022, the Company executed a fixed-to-fixed cross-currency swap with a total notional value of $194 million and an expiration date of 2024 to mitigate foreign currency risk associated with the Company’s Euro functional subsidiaries.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Company previously designated its GBP-denominated debt as the hedging instrument in a net investment hedge of the variability in the value of its GBP-functional subsidiaries due to fluctuations in foreign currency exchange rates. During the three months ended September 30, 2022, the Company dedesignated the GBP-denominated debt net investment hedge. Contemporaneously, the Company entered into the aforementioned fixed-to-fixed cross-currency swap and designated it as the hedging instrument in a cash flow hedge of functional-currency equivalent cash flows associated with its GBP-denominated debt between the designation date and September 2024, the maturity date of the GBP-denominated debt.

In connection with the Merger, the Company also acquired $173 million of Euro denominated debt that is designated as the hedging instrument in a net investment hedge of the variability in the value of its Euro-functional subsidiaries with all foreign exchange spot changes accounted for as currency translation adjustments.

~~No Hedging Designation~~

During the three months ended March 31, 2022, the Company dedesignated, unwound and settled forward starting interest rate swap contracts with a total notional value of $5.0 billion, swaption collars with a total notional value of $2.5 billion, and purchase payer swaptions with a total notional value of $7.5 billion. The Company received cash of $474 million upon settlement, including $142 million in premiums paid at execution during 2021, resulting in a gain of $332 million that was recognized in other (expense) income, net in the consolidated statements of operations.

Also during the three months ended March 31, 2022, the Company executed and subsequently settled treasury locks with a total notional value of $14.5 billion. The Company received cash of $90 million upon settlement, resulting in a gain of $90 million that was recognized in other (expense) income, net in the consolidated statements of operations.

Finally, during the three months ended March 31, 2022, the Company unwound and settled a foreign exchange forward contract with a notional value of $375 million associated with the Company's Euro denominated debt that was paid in full at maturity. The Company recognized a loss of $48 million in other (expense) income, net in the consolidated statements of operations.

In connection with the Merger, the Company acquired $322 million of economic hedges to mitigate foreign currency risk for production expenses that are not designated for hedge accounting. The fair market value changes of these derivatives are expensed to other (expense) income, net.

The following table summarizes the impact of derivative financial instruments on the Company's consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements as of September 30, 2022 and December 31, 2021. The fair value of the Company's derivative financial instruments was determined using a market-based approach (Level 2).

September 30, 2022 December 31, 2021
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 $ 1,649 $ 42 $ 79 $ 82 $ 33 $ 777 $ 14 $ — $ 2 $ —
Interest rate swaps — — — — — 2,000 44 — 11 —
Cross-currency swaps 435 3 14 — — — — — — —
Net investment hedges: (a)
Cross-currency swaps 1,651 19 14 — 104 3,512 54 61 20 76
No hedging designation:
Foreign exchange 906 6 1 3 118 1,020 — — 34 66
Interest rate swaps — — — — — 15,000 126 28 9 5
Cross-currency swaps 139 3 9 — — 139 3 — — 5
Total $ 73 $ 117 $ 85 $ 255 $ 241 $ 89 $ 76 $ 152

~~(a)~~ ~~Excludes €164 million of euro-denominated notes ($160 million~~ ~~equivalent at~~ September 30, 2022) designated as net investment hedges and £400 million of sterling notes designated as net investment hedges at December 31, 2021 (dedesignated during the three months ended September 30, 2022). (See Note 10.)

3122

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the impact of derivative financial instruments on the Company’s consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements as of September 30, 2023 and December 31, 2022. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2).


	September 30, 2023										December 31, 2022
			Fair Value										Fair Value
	Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities		Notional		Prepaid expenses and other current assets		Other non- current assets		Accounts payable and accrued liabilities		Other non- current liabilities
Cash flow hedges:
Foreign exchange	$	1,653	$	69	$	27	$	33	$	9	$	1,382	$	49	$	35	$	42	$	25
Cross-currency swaps	—		—		—		—		—		482		3		58		—		—

Net investment hedges: (a)
Cross-currency swaps	1,700		21		7		8		43		1,778		20		12		—		73

Fair value hedges:
Interest rate swaps	1,500		3		—		—		6		—		—		—		—		—
No hedging designation:
Foreign exchange	1,017		3		1		2		97		976		5		1		3		96
Cross-currency swaps	—		—		—		—		—		139		3		—		—		3
Interest rate swaps	6,000		66		14		—		—		—		—		—		—		—
Total return swaps	388		—		—		17		—		291		—		—		13		—



Total			$	162	$	49	$	60	$	155			$	80	$	106	$	58	$	197

(a) Excludes €164 million of euro-denominated notes ($174 million equivalent at December 31, 2022) designated as a net investment hedge and £400 million of sterling notes ($487 million equivalent at September 30, 2023) designated as a net investment hedge. (See Note 9.)

Derivatives Designated for Hedge Accounting

Cash Flow Hedges

The Company uses foreign exchange forward contracts to mitigate the foreign currency risk related to revenues, production rebates and production expenses and fixed-to-fixed cross-currency swaps to mitigate foreign currency risk associated with its British Pound Sterling denominated debt. In April 2023, the Company unwound cross-currency swaps related to its Sterling debt and recognized a gain of $76 million as an adjustment to other comprehensive income. The Sterling debt was subsequently re-designated as a net investment hedge effective May 2023.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Gains (losses) recognized in accumulated other comprehensive loss:	Gains (losses) recognized in accumulated other comprehensive loss:									Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments	Foreign exchange - derivative adjustments	$	30	$	15	$	10	$	45	Foreign exchange - derivative adjustments	$	15	$	30	$	35	$	10
Interest rate - derivative adjustments		—		3		—		129

Gains (losses) reclassified into income from accumulated other comprehensive loss:	Gains (losses) reclassified into income from accumulated other comprehensive loss:									Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - distribution revenue										Foreign exchange - distribution revenue	(3)		(2)		(5)		—
Foreign exchange - advertising revenue	Foreign exchange - advertising revenue	—		1		1		1		Foreign exchange - advertising revenue	—		—		—		1
Foreign exchange - distribution revenue		(2)		2		—		1
Foreign exchange - costs of revenues	Foreign exchange - costs of revenues	8		—		27		—		Foreign exchange - costs of revenues	12		8		3		27
Foreign exchange - other (expense) income, net										Foreign exchange - other (expense) income, net	—		—		18		—
Interest rate - interest expense, net	Interest rate - interest expense, net	—		—		(1)		(1)		Interest rate - interest expense, net	(1)		—		—		(1)
Interest rate - other (expense) income, net										Interest rate - other (expense) income, net	1		—		1		—

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

If current fair values of designated cash flow hedges as of September 30, ~~2022~~2023 remained static over the next twelve months, the amount the Company would reclassify ~~$1 million of net deferred losses~~ from accumulated other comprehensive loss into income in the next twelve ~~months.~~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 3332 years.

Net Investment Hedges

The Company uses fixed-to-fixed cross currency swaps to mitigate foreign currency risk associated with the net assets of non-USD functional entities.

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

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

The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive ~~income (loss)~~loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.


		Three Months Ended September 30,																Three Months Ended September 30,
		Amount of gain (loss) recognized in AOCI				Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)		Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)										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)
		2022		2021			2022			2021						2023				2022							2023			2022
Cross currency swaps	Cross currency swaps	$	(63)	$	46		Interest expense, net			$	5			$	10		Cross currency swaps			$	5			$	(63)		Interest expense, net			$	7			$	5

Foreign exchange contracts		—		4		Other (expense) income, net		—				—

Euro-denominated notes (foreign denominated debt)	Euro-denominated notes (foreign denominated debt)	13		—		N/A		—				—		Euro-denominated notes (foreign denominated debt)				(2)				13				N/A		—				—
Sterling notes (foreign denominated debt)	Sterling notes (foreign denominated debt)	58		14		N/A		—				—		Sterling notes (foreign denominated debt)				17				58				N/A		—				—
Total	Total	$	8	$	64			$	5			$	10	Total				$	20			$	8					$	7			$	5


		Nine Months Ended September 30,																Nine Months Ended September 30,
		Amount of gain (loss) recognized in AOCI				Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)		Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)										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)
		2022		2021			2022			2021						2023				2022							2023			2022
Cross currency swaps	Cross currency swaps	$	8	$	93		Interest expense, net			$	27			$	31		Cross currency swaps			$	30			$	8		Interest expense, net			$	18			$	27

Foreign exchange contracts		—		4		Other (expense) income, net		—				—
Euro denominated notes (foreign denominated debt)		19		—		N/A		—				—

Euro-denominated notes (foreign denominated debt)														Euro-denominated notes (foreign denominated debt)				3				19				N/A		—				—
Sterling notes (foreign denominated debt)	Sterling notes (foreign denominated debt)	112		6		N/A		—				—		Sterling notes (foreign denominated debt)				11				112				N/A		—				—
Total	Total	$	139	$	103			$	27			$	31	Total				$	44			$	139					$	18			$	27

Fair Value Hedges

During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate. Changes in the fair value of the senior note and the interest rate swap are recorded in interest expense, net.

The following table presents fair value hedge adjustments to hedged borrowings (in millions).


	Carrying Amount of Hedged Borrowings				Cumulative Amount of Fair Value Hedging Adjustments Included in Hedged Borrowings
Balance Sheet Location	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022

Noncurrent portion of debt	$	1,497	$	—	$	(3)	$	—

3224

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents the pretax impact of derivatives designated as fair value hedges on income, including offsetting changes in fair value of the hedged items (in millions).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain (loss) on changes in fair value of hedged fixed rate debt (1)	$	4	$	—	$	3	$	—
(Loss) gain on changes in the fair value of derivative contracts (1)	(4)		—		(3)		—
Total in interest expense, net	$	—	$	—	$	—	$	—

(1) Accrued interest expense related to the hedged debt and derivative contracts is excluded from the amounts above and was not material as of September 30, 2023.

Derivatives Not Designated for Hedge Accounting

Prior to the Merger, the Company was exposed to interest rate risk associated with the expected issuance of debt related to the Merger. To mitigate this risk, the Company entered into interest rate swaps and subsequently unwound them prior to the Merger.

As part of the Merger, the Company acquired deferred compensation plans that have risk related to the fair value gains and losses on these investments and entered into total return swaps to mitigate this risk. The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses.

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

Forward contracts designated as cash flow hedges are de-designated as production spend occurs or when rebate receivables are recognized. After de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.

The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other (expense) income, net in the consolidated statements of operations (in millions).


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Interest rate swaps										Interest rate swaps	$	18	$	—	$	80	$	—
Total return swaps										Total return swaps	(19)		—		12		—
Total in selling, general and administrative expense										Total in selling, general and administrative expense	(1)		—		92		—
Interest rate swaps	Interest rate swaps	$	—	$	106	$	512	$	106	Interest rate swaps	(1)		—		(1)		512
Cross-currency swaps	Cross-currency swaps	5		2		12		8		Cross-currency swaps	—		5		1		12

Foreign exchange derivatives	Foreign exchange derivatives	(24)		(20)		(70)		(47)		Foreign exchange derivatives	(1)		(24)		1		(70)
Total in other (expense) income, net	Total in other (expense) income, net	$	(19)	$	88	$	454	$	67	Total in other (expense) income, net	(2)		(19)		1		454
Total										Total	$	(3)	$	(19)	$	93	$	454

NOTE ~~13.~~11. FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:


Level 1	–	Quoted prices for identical instruments in active markets.
Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3	–	Valuations derived from techniques in which one or more significant inputs are unobservable.

~~The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).~~
September 30, 2022
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ — $ 47 $ — $ 47
Equity securities:
Mutual funds Prepaid expenses and other current assets 13 — — 13
Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1
Mutual funds Other noncurrent assets 225 — — 225
Company-owned life insurance contracts Other noncurrent assets — 96 — 96
Total $ 238 $ 144 $ — $ 382
Liabilities
Deferred compensation plan Accrued liabilities $ 71 $ — $ — $ 71
Deferred compensation plan Other noncurrent liabilities 576 — — 576
Total $ 647 $ — $ — $ 647

3325

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

December 31, 2021
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ — $ 426 $ — $ 426
Equity securities:
Money market funds Cash and cash equivalents 425 — — 425
Mutual funds Prepaid expenses and other current assets 12 — — 12
Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1
Mutual funds Other noncurrent assets 215 — — 215
Company-owned life insurance contracts Other noncurrent assets — 32 — 32
Total $ 652 $ 459 $ — $ 1,111
Liabilities
Deferred compensation plan Accrued Liabilities $ 21 $ — $ — $ 21
Deferred compensation plan Other noncurrent liabilities 238 — — 238
Total $ 259 $ — $ — $ 259

~~Equity securities include money market funds, investments in mutual funds held in separate trusts, which are owned as part of the Company's supplemental retirement plans,~~The tables below present assets and ~~company-owned life insurance contracts. The~~liabilities measured at fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are recorded in other (expense) income, net and changes in the deferred compensation liability are recorded in selling, general and administrative expense. Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2)a recurring basis (in millions).


		September 30, 2023
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	99	$	—	$	99

Equity securities:
Money market fund	Cash and cash equivalents	4		—		—		4
Mutual funds	Prepaid expenses and other current assets	31		—		—		31
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		2		—		2
Mutual funds	Other noncurrent assets	229		—		—		229
Company-owned life insurance contracts	Other noncurrent assets	—		95		—		95



Total		$	264	$	196	$	—	$	460
Liabilities
Deferred compensation plan	Accrued liabilities	$	59	$	—	$	—	$	59
Deferred compensation plan	Other noncurrent liabilities	579		—		—		579
Total		$	638	$	—	$	—	$	638


		December 31, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	50	$	—	$	50

Equity securities:
Money market funds	Cash and cash equivalents	20		—		—		20

Mutual funds	Prepaid expenses and other current assets	14		—		—		14
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		1		—		1
Mutual funds	Other noncurrent assets	243		—		—		243
Company-owned life insurance contracts	Other noncurrent assets	—		94		—		94
Time deposits	Other noncurrent assets	—		8		—		8
Total		$	277	$	153	$	—	$	430
Liabilities
Deferred compensation plan	Accrued liabilities	$	73	$	—	$	—	$	73
Deferred compensation plan	Other noncurrent liabilities	590		—		—		590
Total		$	663	$	—	$	—	$	663

In addition to the financial instruments listed in the tables above, the Company ~~has~~holds other financial instruments, including cash deposits, accounts receivable, accounts payable, term loans, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The estimated fair value of the Company’s outstanding senior notes, including accrued interest, using quoted prices from over-the-counter markets, considered Level 2 inputs, was ~~$38.2~~$36.8 billion and ~~$17.2~~$38.0 billion as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The ~~Company's~~Company’s derivative financial instruments are discussed in Note ~~12,~~10, its investments with readily determinable fair value are discussed in Note 9,8, and the obligation for its revolving receivable program is discussed in Note 7.6.

3426

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE ~~14.~~12. SHARE-BASED COMPENSATION

The Company has various incentive plans under which ~~performance-based~~performance based restricted stock units (“PRSUs”), ~~service-based~~service based restricted stock units (“RSUs”), ~~stock options,~~ and stock ~~appreciation rights (“SARs”)~~options have been issued. In connection with the Merger, AT&T RSUs subject to time based vesting held by WM employees were replaced with WBD RSUs granted on comparable terms upon closing of the Merger, increasing RSU expense, grants and unrecognized compensation expense for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The table below presents the components of share-based compensation expense (in millions), which is recorded in selling, general and administrative expense in the consolidated statements of operations.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
PRSUs $ — $ (2) $ 2 $ 10
RSUs 91 29 257 80
Stock options 15 17 56 43
SARs 1 (5) 2 1
Total share-based compensation expense $ 107 $ 39 $ 317 $ 134
Tax benefit recognized $ 20 $ 6 $ 60 $ 21

The table below presents awards granted (in millions, except weighted-average grant price).
Nine Months Ended September 30, 2022
Awards Weighted-Average Grant Price
Awards granted:
PRSUs 0.4 $ 28.11
RSUs 32.3 $ 24.04
Stock options 0.4 $ 32.90


	Nine Months Ended September 30, 2023
	Awards	Weighted-Average Grant Price
Awards granted:
PRSUs	4.0	$	15.41
RSUs	28.5	$	14.89
Stock options	2.2	$	15.02

The table below presents unrecognized compensation cost related to non-vested share-based awards and the weighted-average amortization period over which these expenses will be recognized as of September 30, ~~2022~~2023 (in millions, except years).
Unrecognized Compensation Cost Weighted-Average Amortization Period
(years)
PRSUs $ 1 0.3
RSUs 591 2.4
Stock options 172 3.5
Total unrecognized compensation cost $ 764

Of the $591 million of unrecognized compensation cost related to RSUs, $38 million is related to cash-settled RSUs. Stock-settled RSUs are expected to be recognized over a weighted-average period of 2.2 years and cash-settled RSUs are expected to be recognized over a weighted-average period of 2.6 years.


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

Total unrecognized compensation cost	$	741

NOTE ~~15.~~13. INCOME TAXES

~~The income~~Income tax ~~balances as of~~benefit was $125 million and $563 million for the three and nine months ended September 30, ~~2022 are inclusive of the WM Business as a result of the Merger. Income~~2023, respectively, and income tax benefit was $566 million and $1,201 million for the three and nine months ended September 30, 2022, ~~respectively, and~~respectively. The decrease in income tax ~~expense was $36 million and $144 million~~benefit for the three and nine months ended September 30, ~~2021, respectively. The decrease in the three and nine months ended September 30, 2022~~2023 was primarily attributable to ~~a decrease~~an increase in pre-tax book ~~income, and to a smaller extent, an uncertain tax benefit remeasurement recorded in the three months ended September 30, 2022 as a result of a multi-year tax audit agreement. These decreases are~~income. The decrease was partially offset by an unfavorable tax adjustment related to the ~~2022~~ preferred stock conversion transaction expensediscussed in Note 2, which was not deductible for tax purposes, and the effect of foreign operations, which included taxation and allocation of income and losses among multiple foreign jurisdictions. The decrease recorded in the nine months ended September 30, 2022 ~~was further offset by a deferred tax benefit of $151 million recorded in~~associated with the ~~nine months ended September 30, 2021 as a result of the UK Finance Act 2021 that was enacted in June 2021.~~

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Merger.

Income tax benefit for the three and nine months ended September 30, ~~2022~~2023 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to the effect of foreign operations, changes in uncertain tax positions, and state and local income ~~taxes, and the non-tax deductible preferred stock conversion transaction expense discussed above.~~taxes.

On April 8, 2022, the Company completed its merger with the WM business. In connection with the merger, the Company entered into a tax matters agreement (“TMA”) with AT&T. Pursuant to the TMA, the Company is responsible for tax liabilities related to the periods prior to AT&T's ownership of the business (June 14, 2018), and AT&T is responsible for tax liabilities related to the period for which they owned the business (June 15, 2018 through April 8, 2022).~~The Company is fully indemnified by AT&T for any tax liabilities arising for the period June 15, 2018 through April 8, 2022.~~ As of September 30, 2022, the Company has recorded reserves for uncertain tax positions and the associated interest and penalties payable related to WM of $1,201 million and $260 million, respectively, through purchase accounting. Indemnification receivables of $381 million were also recorded through purchase accounting during the nine months ended September 30, 2022.

With respect to uncertain tax positions related to jurisdictions that have joint and several liability among members of the AT&T tax filing group during the AT&T ownership period, the Company recognizes only the amount they expect to pay to the taxing authorities after considering the contractual indemnification agreement with AT&T and AT&T’s ability to settle any disputed positions with the taxing authorities. As of September 30, 2022, the Company has not recorded any liabilities for uncertain tax positions or indemnification receivables related to matters that were attributable to jurisdictions that have joint and several liability among members of the AT&T filing group since AT&T was determined to be the primary obligor.

~~As of September 30, 2022~~2023 and December 31, ~~2021,~~2022, the ~~Company's~~Company’s reserves for uncertain tax positions totaled ~~$1,723~~$2,191 millionand ~~$420~~$1,929 million, respectively. The increase in the reserve for uncertain tax positions atas of September 30, ~~2022 is~~2023 was primarily attributable to tax reserves that were recorded in 2023 through purchase accounting related to the ~~Merger.~~Merger, partially offset by tax reserves released in 2023 upon audit resolutions. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the ~~Company's~~Company’s uncertain tax positions could decrease by as much as ~~$261~~$77 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had accrued ~~approximately $334~~$558 million and ~~$60~~$413 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The increase in the ~~accrual for~~ interest and penalties ~~payable at~~accrual as of September 30, ~~2022 is primarily attributable~~2023 includes interest and penalty accruals recorded in 2023 through purchase accounting related to the Merger. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In August 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“CAMT”) of 15% for corporations whose average annual adjusted financial statement income for any consecutive 3 tax year periods ending after December 31, 2021 and preceding the tax year exceeds $1 billion, and a 1% excise tax on stock repurchases made by publicly traded U.S. corporations. The effective date of these provisions is January 1, 2023. The Company will continue to monitor for additional guidance issued with respect to the IRA to determine whether there is a material impact to the Company’s financial statements.

~~NOTE 16. BENEFIT PLANS~~

The Company has a defined benefit pension plan that covers certain U.S.-based employees and a non-qualified unfunded Supplemental Executive Retirement Plan that provides defined pension benefits to eligible executives. In connection with the Merger, the Company also assumed four additional U.S. nonqualified pension plans that are noncontributory and unfunded and several non-U.S. pension plans. The four U.S. plans consist of the Time Warner Excess Benefit Plan (the “Excess plan”), the Retirement Accumulation Plan (“RAP”), the Supplemental Executive Retirement Plan (“SERP”) and the Wealth Accumulation Plan (“WAP”) (together, the “U.S. Nonqualified Plans”). The U.S. Nonqualified Plans were closed to new entrants during 2010. The Excess plan and RAP are both frozen to new benefit accruals. SERP and WAP only have retirees remaining. The pension formula for the Excess plan captured pay above compensation limits or benefit limits. RAP is a cash balance type formula and now provides only interest credits.

The Company also holds net assets and net liabilities on behalf of other U.S. and non-U.S. pension plans. The plan provisions vary by plan and by country. Some of these plans are unfunded and all are noncontributory.

~~Obligations and Funded Status~~

For all of the acquired defined benefit pension plans, the benefit obligation is the projected benefit obligation, the actuarial present value, as of our April 8, 2022 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefits to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees and their beneficiaries and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels, as applicable.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The unfunded status of the acquired U.S. Nonqualified Plans as of April 8, 2022 was a liability of $278 million. The unfunded status represents a pension benefit obligation of $278 million, with no plan assets. The funded status of the acquired non-U.S. pension plans as of April 8, 2022 was a net asset of $146 million. The funded status represents a pension benefit obligation of $659 million less the fair value of the plan assets of $805 million.

~~Total assets (liabilities) recognized for all acquired pension plans on our consolidated balance sheets were as follows (in millions).~~


	~~April 8, 2022~~
~~Plan assets, net~~	$	~~200~~
~~Current portion of employee benefit obligation~~	~~(27)~~
~~Noncurrent portion of employee benefit obligation~~	~~(305)~~
~~Net amount recognized~~	$	~~(132)~~

~~Net Periodic Pension Cost~~

The service cost component of net periodic pension cost is recorded in operating expenses in the consolidated statements of operations, while the remaining components are recorded in other (expense) income, net. Net periodic pension cost was not material for the three and nine months ended September 30, 2022 and 2021.

~~Assumptions~~

~~In determining the projected benefit obligation and the net pension and postretirement benefit cost for the acquired plans, the Company used the following significant weighted-average assumptions.~~

April 8, 2022
U.S. Nonqualified Plans Non-U.S. Pension Plans
Discount rate 3.89 % 2.51 %
Long-term rate of return on plan assets N/A 1.61 %
Rate of compensation increases N/A 5.82 %

NOTE ~~17.~~14. SUPPLEMENTAL DISCLOSURES

The following tables present supplemental information related to the consolidated financial statements (in millions).

~~Accrued Liabilities~~Other (Expense) Income, net

~~Accrued liabilities~~Other (expense) income, net, consisted of the following (in millions):.
September 30, 2022 December 31, 2021
Accrued participation and residuals $ 3,019 $ —
Accrued production 1,336 4
Content rights payable 1,004 772
Accrued payroll and related benefits 1,644 533
Other accrued liabilities 3,194 921
Total accrued expenses and other current liabilities $ 10,197 $ 2,230

~~Prepaid expenses and other current assets~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Foreign currency losses, net	$	(83)	$	(36)	$	(180)	$	(106)
(Losses) gains on derivative instruments, net	(2)		(19)		1		454

Change in the value of investments with readily determinable fair value	—		(16)		21		(106)
Gain on sale of equity method investments	—		8		—		141

Change in fair value of equity investments without readily determinable fair value	(2)		—		(73)		—

Interest income	43		20		128		39

Other (loss) income, net	(19)		15		(6)		(11)
Total other (expense) income, net	$	(63)	$	(28)	$	(109)	$	411

~~Prepaid expenses~~Supplemental Cash Flow Information


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

Cash, Cash Equivalents, and ~~other current~~Restricted Cash


	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	2,383	$	3,731
Restricted cash - recorded in prepaid expenses and other current assets (1)	47		199
Total cash, cash equivalents, and restricted cash	$	2,430	$	3,930

(1) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables and hedging programs. (See Note 6 and Note 10.)

Goodwill and Intangible Assets

During the nine months ended September 30, 2023, the Company performed goodwill and intangible assets ~~consisted~~impairment monitoring procedures for all of its reporting units and identified no indicators of impairment or triggering events. Due to declining levels of global GDP growth, disruption in the ~~following (in millions):~~
September 30, 2022 December 31, 2021
Production receivables $ 1,288 $ —
Other current assets 2,293 913
Total prepaid expenses and other current assets $ 3,581 $ 913

film and television industry, a weakening advertising market associated with the Company’s Networks reporting unit, and execution risk associated with anticipated growth in the Company’s DTC reporting unit, the Company will continue to monitor its reporting units for changes that could impact recoverability.

3728

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Other (Expense) Income, net~~
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Foreign currency (losses) gains, net $ (36) $ 26 $ (106) $ 73
(Losses) gains on derivative instruments, net (19) 88 454 67
Change in the value of investments with readily determinable fair value (16) (31) (106) 15
Gain on sale of equity method investments 8 — 141 4
Change in fair value of equity investments without readily determinable fair value — (7) — 74
Other income (expense), net 35 (4) 28 12
Total other (expense) income, net $ (28) $ 72 $ 411 $ 245

~~Supplemental Cash Flow Information~~
Nine Months Ended September 30,
2022 2021
Cash paid for taxes, net $ 859 $ 555
Cash paid for interest, net 1,305 515
Non-cash investing and financing activities:
Equity issued for the acquisition of WarnerMedia 42,309 —
Non-cash consideration related to the sale of The CW Network 126 —
Accrued consideration for the joint venture with BT 82 —
Accrued purchases of property and equipment 29 22
Assets acquired under finance lease and other arrangements 40 119

~~Cash, Cash Equivalents,~~During the three months ended September 30, 2023, the Company reassessed the useful lives and ~~Restricted Cash~~
September 30, 2022 December 31, 2021
Cash and cash equivalents $ 2,422 $ 3,905
Restricted cash - recorded in prepaid expenses and other current assets (1)
91 —
Total cash, cash equivalents, and restricted cash $ 2,513 $ 3,905
(1) Restricted cash primarily includes cash posted as collateral related to the Company’s hedging program. (See Note 12.)
amortization methods for its linear networks and HBO trademarks and trade names and concluded the pattern of amortization should be accelerated. Accordingly, the Company has changed the amortization method for these assets from the straight-line method to the sum-of-the-months’ digits method effective July 1, 2023. This change was considered a change in estimate, was accounted for prospectively, and resulted in incremental amortization expense of $171 million.

Assets Held for Sale

~~As of September 30,~~In 2022, the Company classified its Ranch Lot and Knoxville office building and land as assets held for sale. The Company reclassified ~~$216~~$209 million to prepaid expenses and other assets on the consolidated balance sheet ~~at September 30,~~during 2022 and stopped recording depreciation on the assets. ~~An immaterial write-down to~~The Knoxville office building and land was sold during the ~~estimated fair value, less costs to sell,~~three months ended March 31, 2023 and the Ranch Lot was ~~recorded~~sold during the three months ended September 30, ~~2022~~2023. The Burbank Studios Lot was purchased during the three months ended September 30, 2023 in exchange for the Ranch Lot and ~~included~~cash.

Supplier Finance Programs

Consistent with customary industry practice, the Company generally pays certain content producers at or near the completion of the production cycle. In these arrangements, content producers may earn fees upon contractual milestones to be invoiced at or near completion of production. In these instances, the Company accrues the content in ~~loss (gain) on disposition and disposal groups~~progress in accordance with the contractual milestones. Certain of the Company’s content producers sell their related receivables to a bank intermediary who provides payments that coincide with these contractual production milestones upon confirmation with the Company of our obligation to the content producer. This confirmation does not involve a security interest in the ~~consolidated statements of operations.~~

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Other Comprehensive Income (Loss) Adjustments~~

~~The table below presents the tax effects related to each component of other comprehensive income (loss) and reclassifications made~~underlying content or otherwise result in the payable receiving seniority with respect to other payables of the Company. As of September 30, 2023 and December 31, 2022, the Company has confirmed $266 million and $273 million, respectively, of accrued content producer liabilities. These amounts were outstanding and unpaid by the Company and were recorded in accrued liabilities on the consolidated ~~statements~~balance sheets, given the principal purpose of ~~operations (in millions).~~
Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

Pretax
Tax benefit (expense)

Net-of-tax

Pretax
Tax benefit (expense)

Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency $ (684) $ 3 $ (681) $ (187) $ 1 $ (186)
Net investment hedges 5 (14) (9) 59 (17) 42
Total currency translation adjustments (679) (11) (690) (128) (16) (144)
Derivative adjustments:
Unrealized gains (losses) 30 (2) 28 18 (3) 15
Reclassifications from other comprehensive income to net income (6) 2 (4) (3) — (3)
Total derivative adjustments 24 — 24 15 (3) 12
Other comprehensive income (loss) adjustments $ (655) $ (11) $ (666) $ (113) $ (19) $ (132)
the arrangement is to allow producers access to funds prior to the typical payment due date and the arrangement does not significantly change the nature of the payables and does not significantly extend the payment terms beyond the industry norms. Invoices processed through the program are subject to a one-year maximum tenor. The Company does not incur any fees or expenses associated with the paying agent services, and this service may be terminated by the Company or the financial institution upon 30 days’ notice. At, or near, the production completion date (invoice due date), the Company pays the financial institution the stated amounts for confirmed producer invoices. These payments are reported as cash flows from operating activities.

Noncontrolling Interest

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Pretax Tax benefit (expense) Net-of-tax Pretax Tax benefit (expense) Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency $ (1,349) $ 5 $ (1,344) $ (296) $ 15 $ (281)
Net investment hedges 124 (55) 69 88 (10) 78
Reclassifications:
Loss on disposition (2) — (2) — — —
Total currency translation adjustments (1,227) (50) (1,277) (208) 5 (203)
Derivative adjustments:
Unrealized gains (losses) 10 (1) 9 174 (36) 138
Reclassifications from other comprehensive income to net income (27) 6 (21) (1) — (1)
Total derivative adjustments (17) 5 (12) 173 (36) 137
Other comprehensive income (loss) adjustments $ (1,244) $ (45) $ (1,289) $ (35) $ (31) $ (66)

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

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

Accumulated Other Comprehensive Loss

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

Three Months Ended September 30, 2021
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated
Other
Comprehensive Loss
Beginning balance $ (614) $ 44 $ (15) $ (585)
Other comprehensive income (loss) before reclassifications (144) 15 — (129)
Reclassifications from accumulated other comprehensive loss to net income — (3) — (3)
Other comprehensive income (loss) (144) 12 — (132)
Ending balance $ (758) $ 56 $ (15) $ (717)

Nine Months Ended September 30, 2022
Currency Translation Derivatives Pension Plan and SERP Liability Accumulated Other Comprehensive Loss
Beginning balance $ (845) $ 28 $ (13) $ (830)
Other comprehensive income (loss) before reclassifications (1,275) 9 — (1,266)
Reclassifications from accumulated other comprehensive loss to net income (2) (21) — (23)
Other comprehensive income (loss) (1,277) (12) — (1,289)
Ending balance $ (2,122) $ 16 $ (13) $ (2,119)


		Nine Months Ended September 30, 2021									Three Months Ended September 30, 2023
		Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss			Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	Beginning balance	$	(555)	$	(81)	$	(15)	$	(651)	Beginning balance	$	(1,012)	$	22	$	(52)	$	(1,042)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(203)		138		—		(65)		Other comprehensive income (loss) before reclassifications	(393)		15		(1)		(379)
Reclassifications from accumulated other comprehensive loss to net income	Reclassifications from accumulated other comprehensive loss to net income	—		(1)		—		(1)		Reclassifications from accumulated other comprehensive loss to net income	—		(6)		—		(6)
Other comprehensive income (loss)	Other comprehensive income (loss)	(203)		137		—		(66)		Other comprehensive income (loss)	(393)		9		(1)		(385)
Ending balance	Ending balance	$	(758)	$	56	$	(15)	$	(717)	Ending balance	$	(1,405)	$	31	$	(53)	$	(1,427)

4029

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


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


	Nine Months Ended September 30, 2023
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(1,498)	$	14	$	(39)	$	(1,523)
Other comprehensive income (loss) before reclassifications	93		29		(14)		108
Reclassifications from accumulated other comprehensive loss to net income	—		(12)		—		(12)
Other comprehensive income (loss)	93		17		(14)		96
Ending balance	$	(1,405)	$	31	$	(53)	$	(1,427)


	Nine Months Ended September 30, 2022
	Currency Translation		Derivatives		Pension Plan and SERP Liability		Accumulated Other Comprehensive Loss
Beginning balance	$	(845)	$	28	$	(13)	$	(830)
Other comprehensive income (loss) before reclassifications	(1,275)		9		—		(1,266)
Reclassifications from accumulated other comprehensive loss to net income	(2)		(21)		—		(23)
Other comprehensive income (loss)	(1,277)		(12)		—		(1,289)
Ending balance	$	(2,122)	$	16	$	(13)	$	(2,119)

NOTE ~~18.~~15. RELATED PARTY TRANSACTIONS

In the normal course of business, the Company enters into transactions with related parties. Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation (“Liberty Broadband”) and their subsidiaries ~~and equity method investees~~ (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 ~~49%~~48% of the aggregate voting power with respect to the election of directors of Liberty Global and Liberty Broadband, respectively. The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements. Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees, or minority partners of consolidated subsidiaries.

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The table below presents a summary of the transactions with related parties (in millions).


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues and service charges:	Revenues and service charges:									Revenues and service charges:
Liberty Group	Liberty Group	$	549	$	167	$	1,242	$	507	Liberty Group	$	469	$	549	$	1,443	$	1,242
Equity method investees	Equity method investees	111		57		348		181		Equity method investees	161		111		560		348
Other	Other	48		23		237		74		Other	63		48		157		237
Total revenues and service charges	Total revenues and service charges	$	708	$	247	$	1,827	$	762	Total revenues and service charges	$	693	$	708	$	2,160	$	1,827
Expenses	Expenses	$	(72)	$	(62)	$	(314)	$	(176)	Expenses	$	79	$	72	$	271	$	314
Distributions to noncontrolling interests and redeemable noncontrolling interests	Distributions to noncontrolling interests and redeemable noncontrolling interests	$	(22)	$	(18)	$	(286)	$	(231)	Distributions to noncontrolling interests and redeemable noncontrolling interests	$	13	$	22	$	282	$	286

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

September 30, 2022 December 31, 2021
Receivables $ 625 $ 172
Payables $ 25 $ 23

~~In September 2022, the Company sold 75% of its interest in The CW Network to Nexstar, a related party, and recorded an immaterial gain not included in the table above. (See Note 3.)~~


	September 30, 2023		December 31, 2022
Receivables	$	346	$	338
Payables	$	21	$	38

NOTE ~~19.~~16. COMMITMENTS AND CONTINGENCIES

~~Commitments~~

In the normal course of business, the Company enters into various commitments, which primarily include programming, film licensing, talent arrangements and other agreements, operating and finance leases (see Note 11), arrangements to purchase various goods and services, long-term debt (see Note 10) and future funding commitments to equity method investees (see Note 9) (in millions).

Long-Term Debt
Year Ending December 31, Content Other Purchase Obligations Pension and Other Employee Obligations Principal Interest Total
2022 (remaining three months) $ 2,527 $ 1,053 $ 163 $ — $ 210 $ 3,953
2023 7,084 1,256 497 1,335 2,223 12,395
2024 5,220 640 265 4,220 2,135 12,480
2025 3,862 316 129 7,147 1,855 13,309
2026 2,591 122 79 790 1,728 5,310
Thereafter 10,433 130 235 36,652 27,486 74,936
Total $ 31,717 $ 3,517 $ 1,368 $ 50,144 $ 35,637 $ 122,383

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Content purchase obligations include commitments and liabilities associated with third-party producers and sports associations for content that airs on our television networks. Production contracts generally require purchase of a specified number of episodes, and/or payments over the term of the license, and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place. The commitments disclosed above exclude content liabilities recognized on the consolidated balance sheets.

Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. Significant purchase obligations include transmission services, television rating services, marketing commitments and research, equipment purchases, and information technology and other services. Some of these contracts do not require the purchase of fixed or minimum quantities and generally may be terminated with a 30-day to 60-day advance notice without penalty, and are not included in the table above past the 30-day to 60-day advance notice period. The commitments disclosed above exclude liabilities recognized on the consolidated balance sheets.

Other purchase obligations also include future funding commitments to equity method investees. Although the Company had funding commitments to equity method investees as of September 30, 2022, the Company may also provide uncommitted additional funding to its equity method investments in the future. (See Note 9.)

Pension and other employee obligations include payments to meet minimum funding requirements of our pension plans in 2022, estimated benefit payments for our SERP that exceed plan assets, and employment agreements primarily with creative talent for the WM broadcast networks. Payments for the SERP have been estimated over a ten-year period. While benefit payments under these plans are expected to continue beyond 2031, we believe it is not practicable to estimate payments beyond this period. (See Note 16.)

~~Six Flags Guarantee~~

In connection with WM’s former investment in the Six Flags (as defined below) theme parks located in Georgia and Texas (collectively, the “Parks”), in 1997, certain subsidiaries of the Company agreed to guarantee (the “Six Flags Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships, including, annual payments made to the Parks or to the limited partners and additional obligations at the end of the respective terms for the Partnerships in 2027 and 2028 (the “Guaranteed Obligations”). The aggregate gross undiscounted estimated future cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are $544 million. To date, no payments have been made by us pursuant to the Six Flags Guarantee.

Six Flags Entertainment Corporation (formerly known as Six Flags, Inc. and Premier Parks Inc.) (“Six Flags”), which has the controlling interest in the Parks, has agreed, pursuant to a subordinated indemnity agreement (the “Subordinated Indemnity Agreement”), to guarantee the performance of the Guaranteed Obligations when due and to indemnify the Company, among others, if the Six Flags Guarantee is called upon. If Six Flags defaults on its indemnification obligations, we have the right to acquire control of the managing partner of the Parks. Six Flags’ obligations to us are further secured by its interest in all limited partnership units held by Six Flags.

Based on our evaluation of the current facts and circumstances surrounding the Guaranteed Obligations and the Subordinated Indemnity Agreement, the Company is unable to predict the loss, if any, that may be incurred under the Guaranteed Obligations, and no liability for the arrangements has been recognized as of September 30, 2022. Because of the specific circumstances surrounding the arrangements, and the fact that no active or observable market exists for this type of financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and related Subordinated Indemnity Agreement.

~~Contingencies~~

~~Other Contingent Commitments~~

Other contingent commitments primarily include contingent payments for post-production term advance obligations on certain co-financing arrangements, as well as operating lease commitment guarantees, letters of credit, bank guarantees and surety bonds, which generally support performance and payments for a wide range of global contingent and firm obligations, including insurance, litigation appeals, real estate leases and other operational needs.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The Company's other contingent commitments at September 30, 2022 were $258 million, with $252 million estimated due in 2026. For other contingent commitments where payment obligations are outside our control, the timing of amounts represents the earliest period in which the payment could be requested. For the remaining other contingent commitments, the timing of amounts presented represents when the maximum contingent commitment will expire but does not mean that we expect to incur an obligation to make any payments within that time period. In addition, these amounts do not reflect the effects of any indemnification rights we might possess.

Put Rights

The Company has granted put rights to non-controlling interest holders in certain consolidated ~~subsidiaries.~~subsidiaries, but the Company is unable to reasonably predict the ultimate amount or timing of any payment.

In 2022, GoldenTree exercised its irrevocable put right for MotorTrend Group LLC (“MTG”), and the Company will be required to purchase GoldenTree’s 32.5% noncontrolling interest. Subsequent to September 30, 2023, the process of determining fair market value based on the procedures required under the joint venture agreement was finalized. The Company expects to complete its purchase of GoldenTree’s 32.5% interest during the fourth quarter of 2023.

Legal Matters

From time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including claims related to employees, stockholders, vendors, other business partners or ~~patent issues.~~intellectual property. However, a determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgment about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on the Company's future consolidated financial position, future results of operations or cash flows.

NOTE ~~20.~~17. REPORTABLE SEGMENTS

The Company’s operating segments are determined based on: (i) financial information reviewed by its chief operating decision maker, the Chief Executive Officer (“CEO”), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions. In connection with the Merger, the Company reevaluated and changed its segment presentation and reportable segments during the quarter ended June 30, 2022. As of June 30, 2022, we classified our operations in three reportable segments: Studios, primarily consisting 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, consisting primarily of our domestic and international television networks; and DTC, consisting primarily of our premium pay TV and digital content services. Goodwill was reallocated to the new segments based on relative fair value. Prior periods have been recast to conform to the current period presentation.

The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level. Inter-segment transactions primarily include advertising and content licenses. The Company records inter-segment transactions of content licenses at the gross amount. ~~Prior year amounts have been recast to reflect the current presentation.~~ The Company does not report assets by segment because it is not used to allocate resources or evaluate segment performance.

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

•employee share-based compensation;

•depreciation and amortization;

•restructuring and facility ~~consolidation, and other charges;~~consolidation;

•certain impairment charges;

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

•gains and losses on business and asset dispositions;

•certain inter-segment eliminations;

•third-party transaction and integration costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and

•other items impacting comparability.

~~WARNER BROS. DISCOVERY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

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, ~~and other charges,~~ certain impairment charges, gains and losses on business and asset dispositions, and transaction and integration costs from the calculation of Adjusted EBITDA due to their impact on comparability between periods. Integration costs include transformative system implementations and integrations, such as Enterprise Resource Planning systems, and may take several years to complete. The Company also excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted EBITDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with U.S. GAAP.

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

Revenues
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Studios $ 3,088 $ 6 $ 5,889 $ 13
Networks 5,214 2,889 13,829 8,393
DTC 2,317 255 4,823 598
Corporate (11) — 2 —
Inter-segment eliminations (785) — (1,734) —
Total revenues $ 9,823 $ 3,150 $ 22,809 $ 9,004


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

Adjusted EBITDA
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Studios $ 762 $ 4 $ 1,004 $ 8
Networks 2,630 1,093 6,247 4,040
DTC (634) (276) (1,379) (1,095)
Corporate (340) (95) (749) (273)
Inter-segment eliminations 6 — (8) —
Adjusted EBITDA $ 2,424 $ 726 $ 5,115 $ 2,680


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

4432

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Reconciliation of Net ~~(Loss) Income~~Loss available to Warner Bros. Discovery, Inc. to Adjusted EBITDA
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net (loss) income available to Warner Bros. Discovery, Inc. $ (2,308) $ 156 $ (5,270) $ 968
Net income attributable to redeemable noncontrolling interests 2 9 8 22
Net income attributable to noncontrolling interests 21 32 44 116
Income tax (benefit) expense (566) 36 (1,201) 144
(Loss) income before income taxes (2,851) 233 (6,419) 1,250
Other expense (income), net 28 (72) (411) (245)
Loss from equity investees, net 78 9 135 20
Interest expense, net 555 159 1,219 479
Operating (loss) income (2,190) 329 (5,476) 1,504
Asset impairment and loss (gain) on disposition and disposal groups 43 — 47 (72)
Restructuring and other charges 1,521 7 2,559 29
Depreciation and amortization 2,233 341 5,024 1,043
Employee share-based compensation 113 36 317 124
Transaction and integration costs 59 13 1,129 52
Amortization of fair value step-up for content 645 — 1,515 —
Adjusted EBITDA $ 2,424 $ 726 $ 5,115 $ 2,680


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

Adjusted EBITDA	$	2,969	$	2,424	$	7,729	$	5,115

NOTE ~~21.~~18. SUBSEQUENT EVENTS

In October ~~2022,~~2023, the Company ~~sold~~repaid $600 million of aggregate principal amount outstanding of its ~~49% stake in Golden Maple Limited (known as Tencent Video VIP) for proceeds of $143 million and recorded a gain of $55 million.~~

In connection with the MotorTrend Group, LLC joint venture between the Company and GoldenTree (“GT”), GT acquired a put right that requires the Company to either purchase GT’s 32.5% noncontrolling interest in the joint venture at fair value or participate in an initial public offering for the joint venture. In October 2022, GT exercised its put right and will require the Company to purchase GT’s 32.5% noncontrolling interest at fair value, which cannot be estimated at this time.term loan due April 2025.

4533

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, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”).

~~BUSINESS OVERVIEW~~INDUSTRY TRENDS

~~On April 8, 2022, Discovery, Inc., a global media company that provides content across multiple distribution platforms including linear, free-to-air~~The WGA and ~~broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements~~SAG-AFTRA went on strike in May and ~~direct-to-consumer (“DTC”) subscription products, completed its merger (the “Merger”)~~July 2023 following the expiration of their respective collective bargaining agreements with the ~~WarnerMedia business (the “WarnerMedia Business”~~AMPTP. The WGA strike ended on September 27, 2023, and a new collective bargaining agreement was ratified on October 9, 2023. The SAG-AFTRA remains on strike. As a result of the strikes, we have paused and may continue to pause certain theatrical and television productions, which has resulted in delayed production spending.

The strikes, together with other headwinds in the industry, such as continued pressures on linear distribution and soft advertising markets in the U.S., ~~“WM Business”, or “WM”)~~have had, and are expected to continue to have, a material impact on the operations and results of ~~AT&T Inc. (“AT&T”)~~the Company. This includes a positive impact on cash flow from operations attributed to delayed production spend, and ~~changed its name from “Discovery, Inc.”~~a negative impact on the results of operations attributed to ~~“Warner Bros. Discovery, Inc.” (“Warner Bros. Discovery”, “WBD”,~~timing and performance of the ~~“Company”, “we”, “us”, or “our”). On April 11, 2022,~~remainder of the 2023 film slate, as well as the Company’s ~~shares started trading~~ability to produce, license, and deliver content, and declines in linear advertising revenue attributed to secular trends and soft advertising markets in the U.S.

We continue to closely monitor the ongoing impact to our business; however, the full effects on ~~the Nasdaq Global Select Market (the “Nasdaq”) under the trading symbol WBD. (See Note 2~~our operations and ~~Note 3 to the accompanying consolidated financial statements.)~~results will depend on future developments, which are highly uncertain and cannot be predicted.

BUSINESS OVERVIEW

Warner Bros. Discovery is a ~~leading~~premier global media and entertainment company that ~~creates~~combines the WarnerMedia Business’s premium entertainment, sports and ~~distributes~~news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, thus offering audiences a differentiated portfolio of content, brands and franchises across television, film, streaming and gaming. Some of our iconic brands and franchises include Warner Bros. Pictures Group, Warner Bros. Television Group, DC, HBO, Max, Discovery Channel, discovery+, CNN, HGTV, Food Network, TNT, TBS, TLC, OWN, Warner Bros. Games, Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna-Barbera, Game of Thrones, and The Lord of the ~~world’s~~Rings.

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

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

In May 2023, we launched Max, our enhanced streaming service. Max combines HBO Max and discovery+ content to create a unique and complete ~~portfolio~~viewing experience for consumers by combining our unrivaled breadth and superior quality of content and brands ~~across television, film~~with iconic franchises and streaming. Available in more than 220 countries and territories and 50 languages, Warner Bros. Discovery inspires, informs and entertains audiences worldwide through its iconic brands and products including: Discovery Channel,strong product experience. discovery+, CNN, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, OWN, Investigation Discovery, TLC, Magnolia Network, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, Warner Bros. Pictures, Warner Bros. Television, Warner Bros. Games, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, Discovery en Español, Hogar de HGTV and others. will continue to be available to consumers.

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company. The Company finalized the framework supporting its ongoing restructuring and transformation initiatives during the ~~three months~~year ended ~~September 30,~~December 31, 2022, which ~~will include,~~includes, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. The Company expects that it will incur approximately $3.2 - $4.3 billion in pre-tax restructuring charges. Of the total expected pre-tax restructuring charges, the Company expects total cash expenditures will be $1.0 - $1.5 billion. The Company incurred $1.5 billion and $2.6 billion of pre-tax restructuring charges for the three and nine months ended September 30, 2022, respectively. While the Company’s restructuring efforts are ongoing, ~~including the strategic analysis of content programming, the~~this restructuring program is expected to be substantially completed by the end of 2024. We expect to incur approximately $4.1 - $5.3 billion in pre-tax restructuring charges, of which we have incurred $4.1 billion as of September 30, 2023. Of the total expected pre-tax restructuring charges, we expect total cash expenditures to be $1.0 - $ 1.5 billion.

~~In connection with the Merger, the Company reevaluated and changed its segment presentation and reportable segments for the quarter ending June 30, 2022.~~

As of ~~June~~September 30, ~~2022,~~2023, we classified our operations in three reportable segments:

~~Studios,~~• ~~consisting~~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;~~gaming.

~~Networks,~~• ~~consisting principally~~Networks - Our Networks segment primarily consists of our domestic and international television ~~networks; and~~networks.

•DTC - ~~consisting~~Our DTC segment primarily consists of our premium ~~pay TV~~pay-TV and ~~digital content~~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. ~~Prior periods have been recast to conform to the current period presentation.~~

During the three months ended March 31, 2022, we exited our operations in Russia and removed all of our channels and services from the market. We do not expect these actions will have a material effect on our consolidated financial statements.

~~Impact of COVID-19~~

We continue to closely monitor the ongoing impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties. Certain key sources of revenue for the Studios segment, including theatrical revenues, television production, studio operations and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

The nature and full extent of COVID-19’s effects on our operations and results are not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future variants or surges of COVID-19, vaccine distribution and efficacy and other actions to contain the virus or treat its impact, among others. Our consolidated financial statements reflect management’s estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

4735

RESULTS OF OPERATIONS

The discussion below compares our actual ~~and~~results for the three months ended September 30, 2023 to the three months ended September 30, 2022, as well as our actual results for the nine months ended September 30, 2023 to our pro forma combined results for the nine months ended September 30, 2022, as if the Merger occurred on January 1, ~~2021, for the three and nine months ended September 30, 2022 to the three and nine months ended September 30,~~ 2021. Management believes reviewing our pro forma combined operating results in addition to actual operating results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. Our ~~combined~~ Studios, Networks, DTC, Corporate, and inter-segment eliminations ~~pro forma~~ information is based on the historical operating results of the respective segments and ~~includes adjustments in accordance with Article 11 of Regulation S-X to illustrate the effects of the Merger as if it had occurred on January 1, 2021. The unaudited pro forma combined results~~ include, where applicable, adjustments for (i) additional costs of revenues from the fair value ~~step up~~step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) ~~adjustments for~~ transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and ~~(vi) adjustments to eliminate intercompany activity.~~(viii) associated tax-related impacts of adjustments.

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

Actual amounts for the three and nine months ended September 30, 2022 include results of operations for Discovery for the entire period and WM for the period subsequent to the completion of the Merger on April 8, 2022.

Foreign Exchange Impacting Comparability

In addition to the Merger, the impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis (“ex-FX”), in addition to results reported in accordance with U.S. ~~generally accepted accounting principles (“U.S. GAAP”)~~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 ~~“2022~~“2023 Baseline Rate”), and the prior year amounts translated at the same ~~2022~~2023 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

4836

Consolidated Results of Operations

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


		Three Months Ended September 30,																			Three Months Ended September 30,
		2022						2021						% Change							2023		2022			% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual			Actual		ex-FX
Revenues:	Revenues:																			Revenues:
Distribution																				Distribution	$	5,026		$	4,990		1	%	1	%
Advertising	Advertising	$	2,042	$	—	$	2,042	$	1,453	$	890	$	2,343	41	%	(13)	%	(10)	%	Advertising	1,796			2,042			(12)	%	(13)	%
Distribution		4,990		—		4,990		1,328		3,985		5,313		NM		(6)	%	(4)	%
Content	Content	2,531		—		2,531		352		2,756		3,108		NM		(19)	%	(15)	%	Content	2,840			2,531			12	%	11	%
Other	Other	260		—		260		17		199		216		NM		20	%	24	%	Other	317			260			22	%	17	%
Total revenues	Total revenues	9,823		—		9,823		3,150		7,830		10,980		NM		(11)	%	(8)	%	Total revenues	9,979			9,823			2	%	1	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	5,627		(132)		5,495		1,529		4,437		5,966		NM		(8)	%	(4)	%	Costs of revenues, excluding depreciation and amortization	5,309			5,627			(6)	%	(6)	%
Selling, general and administrative	Selling, general and administrative	2,589		—		2,589		944		2,047		2,991		NM		(13)	%	(11)	%	Selling, general and administrative	2,291			2,589			(12)	%	(12)	%
Depreciation and amortization	Depreciation and amortization	2,233		(475)		1,758		341		1,653		1,994		NM		(12)	%	(11)	%	Depreciation and amortization	1,989			2,233			(11)	%	(12)	%
Restructuring and other charges																				Restructuring and other charges	269			1,521			(82)	%	(82)	%
Impairments and loss on dispositions																				Impairments and loss on dispositions	24			43			(44)	%	(47)	%

Restructuring and other charges		1,521		—		1,521		7		—		7		NM
Asset impairment and loss (gain) on disposition and disposal groups		43		—		43		—		(223)		(223)		NM
Total costs and expenses	Total costs and expenses	12,013		(607)		11,406		2,821		7,914		10,735		NM		6	%	9	%	Total costs and expenses	9,882			12,013			(18)	%	(18)	%
Operating (loss) income		(2,190)		607		(1,583)		329		(84)		245		NM
Operating income (loss)																				Operating income (loss)	97			(2,190)			NM		NM
Interest expense, net	Interest expense, net	(555)						(159)						NM						Interest expense, net	(574)			(555)

Gain on extinguishment of debt																				Gain on extinguishment of debt	22			—
Loss from equity investees, net	Loss from equity investees, net	(78)						(9)						NM						Loss from equity investees, net	(14)			(78)
Other (expense) income, net		(28)						72						NM
(Loss) income before income taxes		(2,851)						233						NM
Income tax benefit (expense)		566						(36)						NM
Net (loss) income		(2,285)						197						NM
Other expense, net																				Other expense, net	(63)			(28)
Loss before income taxes																				Loss before income taxes	(532)			(2,851)
Income tax benefit																				Income tax benefit	125			566
Net loss																				Net loss	(407)			(2,285)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(21)						(32)						(34)	%					Net income attributable to noncontrolling interests	(8)			(21)
Net income attributable to redeemable noncontrolling interests	Net income attributable to redeemable noncontrolling interests	(2)						(9)						(78)	%					Net income attributable to redeemable noncontrolling interests	(2)			(2)
Net (loss) income available to Warner Bros. Discovery, Inc.		$	(2,308)					$	156					NM

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.
Net loss available to Warner Bros. Discovery, Inc.																				Net loss available to Warner Bros. Discovery, Inc.	$	(417)		$	(2,308)


	Nine Months Ended September 30,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	15,324		$	11,180	$	4,339	$	15,519		37	%	(1)	%	—	%
Advertising	6,613			6,239		1,412		7,651			6	%	(14)	%	(13)	%
Content	8,240			4,918		3,297		8,215			68	%	—	%	1	%
Other	860			472		230		702			82	%	23	%	20	%
Total revenues	31,037			22,809		9,278		32,087			36	%	(3)	%	(3)	%
Costs of revenues, excluding depreciation and amortization	18,630			13,488		5,553		19,041			38	%	(2)	%	(2)	%
Selling, general and administrative	7,241			7,167		1,745		8,912			1	%	(19)	%	(19)	%
Depreciation and amortization	5,961			5,024		532		5,556			19	%	7	%	7	%
Restructuring and other charges	510			2,559		(90)		2,469			(80)	%	(79)	%	(79)	%
Impairments and loss on dispositions	61			47		—		47			30	%	30	%	21	%

Total costs and expenses	32,403			28,285		7,740		36,025			15	%	(10)	%	(10)	%
Operating loss	(1,366)			(5,476)		1,538		(3,938)			75	%	65	%	67	%
Interest expense, net	(1,719)			(1,219)		(512)		(1,731)
Gain on extinguishment of debt	17			—		—		—
Loss from equity investees, net	(73)			(135)		(20)		(155)
Other (expense) income, net	(109)			411		139		550
Loss before income taxes	(3,250)			(6,419)		1,145		(5,274)
Income tax benefit	563			1,201		174		1,375
Net loss	(2,687)			(5,218)		1,319		(3,899)
Net income attributable to noncontrolling interests	(32)			(44)		—		(44)
Net income attributable to redeemable noncontrolling interests	(7)			(8)		—		(8)
Net loss available to Warner Bros. Discovery, Inc.	$	(2,726)		$	(5,270)	$	1,319	$	(3,951)

NM - Not meaningful

Nine Months Ended September 30,
2022 2021 % Change
Actual Pro Forma
Adjustments Pro Forma
Combined
Actual (a)
Pro Forma
Adjustments Pro Forma
Combined Actual Pro Forma Combined
(Actual) Pro Forma
Combined
(ex-FX)
Revenues:
Advertising $ 6,239 $ 1,412 $ 7,651 $ 4,496 $ 3,332 $ 7,828 39 % (2) % — %
Distribution 11,180 4,339 15,519 3,898 11,767 15,665 NM (1) % 1 %
Content 4,918 3,297 8,215 564 8,321 8,885 NM (8) % (5) %
Other 472 230 702 46 489 535 NM 31 % 33 %
Total revenues 22,809 9,278 32,087 9,004 23,909 32,913 NM (3) % — %
Costs of revenues, excluding depreciation and amortization 13,488 5,869 19,357 3,553 15,349 18,902 NM 2 % 5 %
Selling, general and administrative 7,167 1,733 8,900 2,947 6,551 9,498 NM (6) % (5) %
Depreciation and amortization 5,024 512 5,536 1,043 5,175 6,218 NM (11) % (10) %
Restructuring and other charges 2,559 (90) 2,469 29 91 120 NM NM NM
Asset impairment and loss (gain) on disposition and disposal groups 47 — 47 (72) (223) (295) NM NM NM
Total costs and expenses 28,285 8,024 36,309 7,500 26,943 34,443 NM 5 % 7 %
Operating (loss) income (5,476) 1,254 (4,222) 1,504 (3,034) (1,530) NM NM NM
Interest expense, net (1,219) (479) NM
Loss from equity investees, net (135) (20) NM
Other income (expense), net 411 245 68 %
(Loss) Income before income taxes (6,419) 1,250 NM
Income tax benefit (expense) 1,201 (144) NM
Net (loss) income (5,218) 1,106 NM
Net income attributable to noncontrolling interests (44) (116) (62) %
Net income attributable to redeemable noncontrolling interests (8) (22) (64) %
Net (loss) income available to Warner Bros. Discovery, Inc. $ (5,270) $ 968 NM
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

~~The~~Unless otherwise indicated, the discussion below through operating ~~income below is~~loss reflects results for the nine months ended September 30, 2022 on a ~~pro forma~~pro-forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of ~~revenue,~~revenues, and selling, general and administrative expenses ~~and adjusted EBITDA~~ are substantially attributable to the Merger. The 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 revenues are generated from fees charged to network distributors, which include cable, DTH satellite, telecommunications and digital service providers, and DTC subscribers. The largest component of distribution revenue is comprised of linear distribution rights to our networks from cable, DTH satellite and telecommunication service providers. We have contracts with distributors representing most cable and satellite service providers around the world, including the largest operators in the U.S. and major international distributors. Distribution revenues are largely dependent on the rates negotiated in the agreements, the number of subscribers that receive our networks, the number of platforms covered in the distribution agreement, and the market demand for the content that we provide. From time to time, renewals of multi-year carriage agreements include significant year one market adjustments to re-set subscriber rates, which then increase at rates lower than the initial increase in the following years. In some cases, we have provided distributors launch incentives, in the form of cash payments or free periods, to carry our networks.

Distribution revenue increased 1% and was flat for the three and nine months ended September 30, 2023, respectively. The increase for the three months ended September 30, 2023 was primarily attributable to new DTC partnership launches and higher U.S. contractual affiliate rates, partially offset by declines in linear subscribers in the U.S. For the nine months ended September 30, 2023, declines in linear subscribers in the U.S. were offset by higher U.S. contractual affiliate rates and new DTC partnership launches.

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

Advertising revenue decreased ~~10% and was flat~~13% for the three and nine months ended September 30, ~~2022, respectively. The decrease for the three months ended September 30, 2022 was~~2023, primarily attributable to audience declines in domestic general entertainment and news ~~and sports~~networks, soft advertising markets in the U.S., and ~~the prior year Olympics in Europe at Networks,~~to a lesser extent, certain international markets, partially offset by Max U.S. ad-lite subscriber growth ~~on our DTC ad-supported tiers. For~~and higher engagement. Additionally, the nine months ended September 30, 2023 was unfavorably impacted by the prior year broadcast of the NCAA March Madness Final Four and Championship in 2022 ~~subscriber growth on our DTC ad-supported tiers was~~and, to a lesser extent, the prior year broadcast of the Olympics in Europe, partially offset by ~~lower news and general entertainment~~the broadcast of the Stanley Cup Finals in the ~~U.S.~~current year.

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

Content revenue ~~consists principally of fees from affiliates for distributing our linear networks~~increased 11% and ~~DTC subscription services.~~

~~Distribution revenue decreased 4% and increased~~ 1% for the three and nine months ended September 30, ~~2022,~~2023, respectively. The ~~decrease~~increase for the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~a decline in wholesale revenues primarily~~higher theatrical film rental revenue due to the ~~Amazon Channels expiration in September 2021, a decline in linear subscribers in~~release of Barbie and higher games revenue due to the ~~U.S.,~~ current year releases of Mortal Kombat 1 and ~~lower contractual affiliate rates in some European markets,~~Hogwarts Legacy, partially offset by ~~global retail subscriber gains on our DTC platforms, higher contractual affiliate rates in the U.S. and premium sports packages in Latin America.~~lower TV licensing revenue. The increase for the nine months ended September 30, ~~2022~~2023 was primarily attributable to ~~global retail subscriber gains on our DTC platforms, an increase in contractual affiliate rates in~~higher games revenue due to the ~~U.S.,~~release of Hogwarts Legacy and ~~premium sports packages in Latin America,~~higher theatrical film rental revenue due to the release of Barbie, partially offset by ~~a decline~~lower TV licensing revenue, the prior year broadcast of the Olympics in ~~wholesale revenues primarily due to the Amazon Channels expiration in September 2021.~~

~~Content revenue consists primarily of licensing feature films for initial theatrical exhibition, licensing television programs for initial television broadcast or streaming,~~Europe, and licensing of sports rights; additionally, film and television content is licensed through distribution channels including international free-to-air, basic and premium pay television, television syndication, and further streaming services. Content revenue also includes home entertainment ~~sales~~revenue.

Other revenue primarily consists of studio production services and ~~rentals of film~~tours.

Other revenue increased 17% and television products (physical and digital, including premium video-on-demand, transactional video-on-demand and electronic sell-through), interactive entertainment sales (physical and digital) across various platforms, and consumer products and themed experience licensing.

~~Content revenue decreased 15% and 5%~~20% for the three and nine months ended September 30, 2022, respectively. The decrease for the three months ended September 30, 2022 was primarily attributable to third party licensing of sports rights internationally, mainly related to Olympic sports rights to broadcast networks throughout Europe in 2021 and lower home entertainment and TV licensing revenues. The decrease for the nine months ended September 30, 2022 was primarily attributable to the proportion of inter-segment licensing increasing as a percentage of total content revenue.

~~Other revenue increased 24% and 33% for the three and nine months ended September 30, 2022,~~2023, respectively, primarily attributable to services provided to the ~~reopening~~unconsolidated TNT Sports joint venture, the opening of Warner Bros. Studio Tour Tokyo in June 2023, and continued strong attendance at Warner Bros. Studio Tour London and ~~Warner Bros. Studio Tour~~ Hollywood. ~~In addition, the nine months ended September 30, 2022 was favorably impacted by the opening of the Harry Potter flagship store in New York in June 2021.~~

Costs of Revenues

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

~~Cost~~Costs of revenues decreased 4%6% and ~~increased 5%~~2% for the three and nine months ended September 30, ~~2022,~~2023, respectively. The decrease for the three months ended September 30, ~~2022~~2023 was primarily attributable to lower ~~sports rights related to the broadcast of the Olympics in Europe in 2021~~content expense at Studios (for television products), DTC, and ~~lower~~Networks, partially offset by higher content expense for theatrical and television products, partially offset by increased DTC programming expenses and the impact of measurement period adjustments to the fair value of content assets acquired during the Merger. (See Note 3 to the accompanying consolidated financial statements.)games products. The ~~increase~~decrease for the nine months ended September 30, ~~2022~~2023 was primarily attributable to ~~increased~~lower content expense at Studios (for television products) and DTC, ~~programming expenses,~~ the impact of measurement period adjustments to the fair value of content assets acquired during the Merger, higher sports rights in the U.S., and increased expenses at CNN, partially offset by lower sports rights related to theprior year broadcast of the Olympics in Europe, and the NCAA March Madness Final Four and Championship in ~~2021 and lower~~2022, partially offset by higher games content ~~expense for television product due to lower television production revenues.~~expense.

Selling, General and Administrative

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

Selling, general and administrative expenses decreased ~~11%~~12% and 5%19% for the three and nine months ended September 30, ~~2022,~~2023, respectively, primarily attributable to ~~lower~~more efficient marketing-related spend and a reduction in personnel costs, partially offset by higher theatrical and games marketing ~~and personnel expenses.~~expense.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization decreased ~~11%~~12% and ~~10%, respectively,~~increased 7% for the three and nine months ended September 30, 2023, respectively. The decrease for the three months ended September 30, 2023 was primarily attributable to ~~a change in amortization method from~~intangible assets acquired during the ~~straight-line method to~~Merger that are being amortized using the sum of the ~~years'~~months’ digits method. The increase for the nine months ended September 30, 2023 was primarily attributable to intangible assets acquired during the Merger that are being amortized using the sum of the months’ digits method, ~~for some of~~which resulted in lower pro forma amortization in the ~~WM assets acquired.~~nine months ended September 30, 2022.

Restructuring and ~~Other Charges~~other charges

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company. Restructuring and other charges ~~increased $1,540~~were primarily attributable to contract terminations, facility consolidation activities, organizational restructuring, and other charges and decreased 82% and 79% for the three and nine months ended September 30, 2023, respectively. (See Note 4 to the accompanying consolidated financial statements.)

Impairments and Loss on Dispositions

Impairments and loss on dispositions was $24 million and ~~$2,376~~$61 million for the three and nine months ended September 30, 2022, respectively, primarily attributable to strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs. (See Note 5 to the accompanying consolidated financial statements.)

~~Asset Impairment and Loss (Gain) on Dispositions and Disposals Groups~~

As reported asset impairment and loss (gain) on disposition and disposal groups was a $43 million loss for the three months ended September 30, 2022 and a $47 million loss for the nine months ended September 30, 2022, primarily attributable to the write-down to the estimated fair value, less costs to sell, of the Ranch Lot and Knoxville office building and land in connection with the classification as assets held for sale. (See Note 17 to the accompanying consolidated financial statements.)

As reported asset impairment and loss (gain) on disposition and disposal groups was a $72 million gain for the nine months ended September 30, 2021, primarily attributable to the sale of our Great American Country network. (See Note 3 to the accompanying consolidated financial statements.)

2023, respectively.

Interest Expense, net

~~As reported~~Actual interest expense, net increased ~~$396~~$19 million and ~~$740~~$500 million for the three and nine months ended September 30, ~~2022, respectively,~~2023, respectively. The increase for nine months ended September 30, 2023 was primarily attributable to debt assumed as a result of the Merger. (See Note 109 and Note 1210 to the accompanying consolidated financial statements.)

Loss From Equity Investees, net

~~We reported~~Actual losses from our equity method investees ~~of $78~~were $14 million and~~$135~~ $73 million for the three and nine months ended September 30, ~~2022, respectively, as compared to losses of $9 million and $20 million for the three and nine months ended September 30, 2021,~~2023, respectively. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 98 to the accompanying consolidated financial statements.)

Other (Expense) Income, net

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022

Foreign currency (losses) gains, net		$	(36)	$	26	$	(106)	$	73
Foreign currency losses, net										Foreign currency losses, net	$	(83)	$	(36)	$	(180)	$	(106)
(Losses) gains on derivative instruments, net	(Losses) gains on derivative instruments, net	(19)		88		454		67		(Losses) gains on derivative instruments, net	(2)		(19)		1		454

Change in the value of investments with readily determinable fair value	Change in the value of investments with readily determinable fair value	(16)		(31)		(106)		15		Change in the value of investments with readily determinable fair value	—		(16)		21		(106)
Gain on sale of equity method investments	Gain on sale of equity method investments	8		—		141		4		Gain on sale of equity method investments	—		8		—		141
Change in fair value of equity investments without readily determinable fair value	Change in fair value of equity investments without readily determinable fair value	—		(7)		—		74		Change in fair value of equity investments without readily determinable fair value	(2)		—		(73)		—

Interest income										Interest income	43		20		128		39

Other income (expense), net		35		(4)		28		12
Other (loss) income, net										Other (loss) income, net	(19)		15		(6)		(11)
Total other (expense) income, net	Total other (expense) income, net	$	(28)	$	72	$	411	$	245	Total other (expense) income, net	$	(63)	$	(28)	$	(109)	$	411

Income Tax Benefit ~~(Expense)~~

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, and other charges;~~consolidation;

•certain impairment charges;

•gains and losses on business and asset dispositions;

•certain inter-segment eliminations;

•third-party transaction and integration costs;

•amortization of purchase accounting fair value step-up for content;

•amortization of capitalized interest for content; and

•other items impacting comparability.

The table below presents our ~~reconciliation of consolidated net income available to Warner Bros. Discovery, Inc. to Adjusted EBITDA and~~ Adjusted EBITDA by segment (in millions).

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Net (loss) income available to Warner Bros. Discovery, Inc. $ (2,308) $ 156 NM $ (5,270) $ 968 NM
Net income attributable to redeemable noncontrolling interests 2 9 (78) % 8 22 (64) %
Net income attributable to noncontrolling interests 21 32 (34) % 44 116 (62) %
Income tax (benefit) expense (566) 36 NM (1,201) 144 NM
(Loss) income before income taxes (2,851) 233 NM (6,419) 1,250 NM
Other expense (income), net 28 (72) NM (411) (245) 68 %
Loss from equity investees, net 78 9 NM 135 20 NM
Interest expense, net 555 159 NM 1,219 479 NM
Operating (loss) income (2,190) 329 NM (5,476) 1,504 NM
Asset impairment and loss (gain) on disposition and disposal groups 43 — NM 47 (72) NM
Restructuring and other charges 1,521 7 NM 2,559 29 NM
Depreciation and amortization 2,233 341 NM 5,024 1,043 NM
Employee share-based compensation 113 36 NM 317 124 NM
Transaction and integration costs 59 13 NM 1,129 52 NM
Amortization of fair value step-up for content 645 — NM 1,515 — NM
Adjusted EBITDA $ 2,424 $ 726 NM $ 5,115 $ 2,680 91 %
Studios $ 762 $ 4 NM $ 1,004 $ 8 NM
Networks 2,630 1,093 NM 6,247 4,040 55 %
DTC (634) (276) NM (1,379) (1,095) 26 %
Corporate (340) (95) NM (749) (273) NM
Inter-segment eliminations 6 — NM (8) — NM
Adjusted EBITDA $ 2,424 $ 726 NM $ 5,115 $ 2,680 91 %


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change









Studios	$	727	$	762	(5)	%	$	1,640	$	1,004	63	%
Networks	$	2,396	$	2,630	(9)	%	$	6,855	$	6,247	10	%
DTC	$	111	$	(634)	NM		$	158	$	(1,379)	NM
Corporate	$	(328)	$	(340)	4	%	$	(928)	$	(749)	(24)	%
Inter-segment eliminations	$	63	$	6	NM		$	4	$	(8)	NM

~~The table below presents the calculation of Adjusted EBITDA (in millions).~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Revenues:
Studios $ 3,088 $ 6 NM $ 5,889 $ 13 NM
Networks 5,214 2,889 80 % 13,829 8,393 65 %
DTC 2,317 255 NM 4,823 598 NM
Corporate (11) — NM 2 — NM
Inter-segment eliminations (785) — NM (1,734) — NM
Total revenues 9,823 3,150 NM 22,809 9,004 NM
Costs of revenues, excluding depreciation and amortization 4,982 1,529 NM 11,973 3,553 NM
Selling, general and administrative (a)
2,417 895 NM 5,721 2,771 NM
Adjusted EBITDA $ 2,424 $ 726 NM $ 5,115 $ 2,680 91 %
(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.

5441

Studios Segment

The following tables present, for our ~~Studio~~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 September 30,																		Three Months Ended September 30,
		2022						2021						% Change						2023		2022			% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual			Actual		ex-FX
Revenues:	Revenues:																		Revenues:
Distribution																			Distribution	$	13		$	4		NM		NM
Advertising	Advertising	$	8	$	—	$	8	$	—	$	35	$	35	NM	(77)	%	(77)	%	Advertising	4			8			(50)	%	(50)	%
Distribution		4		—		4		—		2		2		NM
Content	Content	2,884		—		2,884		6		3,167		3,173		NM	(9)	%	(6)	%	Content	3,000			2,884			4	%	3	%
Other	Other	192		—		192		—		143		143		NM	34	%	34	%	Other	209			192			9	%	5	%
Total revenues	Total revenues	3,088		—		3,088		6		3,347		3,353		NM	(8)	%	(5)	%	Total revenues	3,226			3,088			4	%	3	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	1,756		—		1,756		—		2,050		2,050		NM	(14)	%	(11)	%	Costs of revenues, excluding depreciation and amortization	1,794			1,756			2	%	1	%
Selling, general and administrative	Selling, general and administrative	570		—		570		2		745		747		NM	(24)	%	(21)	%	Selling, general and administrative	705			570			24	%	21	%
Adjusted EBITDA	Adjusted EBITDA	762		—		762		4		552		556		NM	37	%	43	%	Adjusted EBITDA	727			762			(5)	%	(6)	%
Depreciation and amortization	Depreciation and amortization	174		(38)		136		—		173		173							Depreciation and amortization	143			174
Employee share-based compensation	Employee share-based compensation	1		—		1		—		12		12							Employee share-based compensation	—			1

Restructuring and other charges	Restructuring and other charges	562		—		562		—		—		—							Restructuring and other charges	134			562
Transaction and integration costs	Transaction and integration costs	1		—		1		—		—		—							Transaction and integration costs	1			1

Asset impairment and loss (gain) on disposition and disposal groups		15		—		15		—		—		—
Amortization of fair value step-up for content	Amortization of fair value step-up for content	271		(35)		236		—		361		361							Amortization of fair value step-up for content	173			271
Operating (loss) income		$	(262)	$	73	$	(189)	$	4	$	6	$	10
Amortization of capitalized interest for content																			Amortization of capitalized interest for content	12			—

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.
Impairments and loss on dispositions																			Impairments and loss on dispositions	—			15
Operating income (loss)																			Operating income (loss)	$	264		$	(262)

Nine Months Ended September 30,
2022 2021 % Change
Actual Pro Forma
Adjustments Pro Forma
Combined
Actual (a)
Pro Forma
Adjustments Pro Forma
Combined Actual Pro Forma Combined
(Actual) Pro Forma
Combined
(ex-FX)
Revenues:
Advertising $ 18 $ 9 $ 27 $ — $ 83 $ 83 NM (67) % (67) %
Distribution 8 6 14 — 10 10 NM 40 % 40 %
Content 5,525 3,898 9,423 13 9,426 9,439 NM — % 2 %
Other 338 154 492 — 328 328 NM 50 % 50 %
Total revenues 5,889 4,067 9,956 13 9,847 9,860 NM 1 % 4 %
Costs of revenues, excluding depreciation and amortization 3,763 2,392 6,155 2 6,384 6,386 NM (4) % (2) %
Selling, general and administrative 1,122 698 1,820 3 2,046 2,049 NM (11) % (9) %
Adjusted EBITDA 1,004 977 1,981 8 1,417 1,425 NM 39 % 45 %
Depreciation and amortization 332 77 409 — 518 518
Employee share-based compensation 1 26 27 — 73 73
Restructuring and other charges 762 (38) 724 — 38 38
Transaction and integration costs 1 — 1 — — —
Asset impairment and loss (gain) on disposition and disposal groups 15 — 15 — — —
Amortization of fair value step-up for content 834 (78) 756 — 1,199 1,199
Operating (loss) income $ (941) $ 990 $ 49 $ 8 $ (411) $ (403)
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


	Nine Months Ended September 30,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	19		$	8	$	6	$	14		NM		36	%	36	%
Advertising	11			18		9		27			(39)	%	(59)	%	(59)	%
Content	8,425			5,525		3,898		9,423			52	%	(11)	%	(10)	%
Other	564			338		154		492			67	%	15	%	13	%
Total revenues	9,019			5,889		4,067		9,956			53	%	(9)	%	(9)	%
Costs of revenues, excluding depreciation and amortization	5,398			3,763		2,392		6,155			43	%	(12)	%	(12)	%
Selling, general and administrative	1,981			1,122		698		1,820			77	%	9	%	9	%
Adjusted EBITDA	1,640			1,004		977		1,981			63	%	(17)	%	(17)	%
Depreciation and amortization	458			332		77		409
Employee share-based compensation	—			1		26		27

Restructuring and other charges	220			762		(38)		724
Transaction and integration costs	5			1		—		1

Amortization of fair value step-up for content	886			834		(382)		452
Amortization of capitalized interest for content	34			—		—		—
Inter-segment eliminations	1			—		—		—
Impairments and loss on dispositions	(1)			15		—		15
Operating income (loss)	$	37		$	(941)	$	1,294	$	353

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

Revenues

Content revenue increased 3% and decreased ~~6% and increased 2%~~10% for the three and nine months ended September 30, 2022, respectively. The decrease for the three months ended September 30, 2022 was primarily attributable to lower home entertainment and TV licensing revenues. Home entertainment revenue across theatrical and television products was lower due to strong COVID-induced demand in the prior year, as well as fewer new releases of theatrical products. The decrease in TV licensing revenue was primarily due to fewer new release availabilities of theatrical product.

~~The increase for the nine months ended September 30, 2022 was primarily attributable to higher theatrical film rental revenue and higher games revenue with the release of~~ ~~LEGO Star Wars: The Skywalker Saga, partially offset by lower home entertainment and TV licensing revenue. Theatrical performance was favorably impacted by the performance of~~ ~~The Batman~~, which was released in the first quarter of 2022, as well as improved audience attendance at movie theaters. Home entertainment revenue across theatrical and television products was lower due to strong COVID-induced demand in the prior year. The decrease in TV licensing revenue was primarily due to lower TV production revenue, partially offset by favorable timing and mix of television availabilities.

~~Other revenue increased 34% and 50% for the three and nine months ended September 30, 2022,~~2023, respectively. The increase for the three months ended September 30, ~~2022~~2023 was primarily attributable to higher theatrical film rental revenue due to the ~~reopening~~release of ~~Warner Bros. Studio Tour London~~Barbie and ~~Warner Bros. Studio Tour Hollywood. In addition,~~higher games revenue due to the current year releases of Mortal Kombat 1 and Hogwarts Legacy, partially offset by lower TV licensing revenue due to certain large TV licensing deals in the prior year and the impact of the WGA and SAG-AFTRA strikes.

The decrease for the nine months ended September 30, ~~2022~~2023 was ~~favorably impacted~~primarily attributable to lower TV licensing and home entertainment revenue, partially offset by higher games revenue due to the ~~opening~~release of Hogwarts Legacy and higher theatrical film rental revenue due to the release of Barbie. TV licensing revenue decreased due to certain large TV licensing deals in the prior year, the timing of TV production, including the impact of the ~~Harry Potter flagship store in New York in June 2021.~~WGA and SAG-AFTRA strikes, fewer series sold to our owned platforms, fewer CW series, and the mix of theatrical availabilities. Home entertainment revenue decreased due to fewer new releases of theatrical products.

~~Costs of Revenues~~

~~Costs of revenues decreased 11%~~Other revenue increased 5% and 2%13% for the three and nine months ended September 30, ~~2022,~~2023, respectively. The ~~decrease~~increase for the three and nine months ended September 30, 2023 was primarily attributable to the opening of Warner Bros. Studio Tour Tokyo in June 2023 and continued strong attendance at Warner Bros Studio Tour London and Hollywood. In addition, the three months ended September 30, 2023 was unfavorably impacted by lower studio production services due to the impact of the WGA and SAG-AFTRA strikes.

Costs of Revenues

Costs of revenues increased 1% and decreased 12% for the three and nine months ended September 30, 2023, respectively. The increase for the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~lower~~higher content expense for theatrical and games products commensurate with higher revenues, partially offset by lower television ~~products.~~product content expense, including the impact of the WGA and SAG-AFTRA strikes. The decrease for the nine months ended September 30, ~~2022~~2023 was primarily attributable to lower television product content expense, ~~for television product due to lower television production revenues,~~including the impact of the WGA and SAG-AFTRA strikes, partially offset by higher content expense ~~associated with new~~for games and theatrical ~~releases.~~products commensurate with higher revenues.

Selling, General and Administrative

Selling, general and administrative expenses ~~decreased~~increased 21% and 9% for the three and nine months ended September 30, ~~2022,~~2023, respectively. The ~~decrease~~increase for the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~lower~~higher theatrical marketing ~~expenses~~expense due to ~~fewer theatrical releases.~~the increased quantity of films released. The ~~decrease~~increase for the nine months ended September 30, ~~2022,~~2023 was primarily attributable to ~~lower~~higher theatrical marketing ~~expenses~~expense due to ~~fewer theatrical releases, partially offset by~~the increased quantity of films released and higher ~~bad debt expense.~~games marketing expense to support the release of Hogwarts Legacy.

Adjusted EBITDA

Adjusted EBITDA ~~increased 43%~~decreased 6% and ~~45%~~17% for the three and nine months ended September 30, ~~2022,~~2023, respectively.

5643

Networks Segment

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


		Three Months Ended September 30,																			Three Months Ended September 30,
		2022						2021						% Change							2023		2022			% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual			Actual		ex-FX
Revenues:	Revenues:																			Revenues:
Distribution																				Distribution	$	2,833		$	2,924		(3)	%	(2)	%
Advertising	Advertising	$	1,944	$	—	$	1,944	$	1,416	$	852	$	2,268	37	%	(14)	%	(11)	%	Advertising	1,709			1,944			(12)	%	(13)	%
Distribution		2,924		—		2,924		1,118		1,947		3,065		NM		(5)	%	(2)	%
Content	Content	277		—		277		339		117		456		(18)	%	(39)	%	(37)	%	Content	215			277			(22)	%	(22)	%
Other	Other	69		—		69		16		65		81		NM		(15)	%	(6)	%	Other	111			69			61	%	51	%
Total revenues	Total revenues	5,214		—		5,214		2,889		2,981		5,870		80	%	(11)	%	(8)	%	Total revenues	4,868			5,214			(7)	%	(7)	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	1,906		—		1,906		1,349		1,043		2,392		41	%	(20)	%	(16)	%	Costs of revenues, excluding depreciation and amortization	1,800			1,906			(6)	%	(6)	%
Selling, general and administrative	Selling, general and administrative	678		—		678		447		319		766		52	%	(11)	%	(8)	%	Selling, general and administrative	672			678			(1)	%	(1)	%
Adjusted EBITDA	Adjusted EBITDA	2,630		—		2,630		1,093		1,619		2,712		NM		(3)	%	(2)	%	Adjusted EBITDA	2,396			2,630			(9)	%	(9)	%
Depreciation and amortization	Depreciation and amortization	1,424		(291)		1,133		260		1,009		1,269								Depreciation and amortization	1,202			1,424
Employee share-based compensation		—		—		—		—		11		11

Restructuring and other charges	Restructuring and other charges	354		—		354		6		1		7								Restructuring and other charges	48			354
Transaction and integration costs	Transaction and integration costs	1		—		1		—		—		—								Transaction and integration costs	(8)			1

Amortization of fair value step-up for content	Amortization of fair value step-up for content	2		—		2		—		1		1								Amortization of fair value step-up for content	—			2

Inter-segment eliminations	Inter-segment eliminations	30		—		30		—		—		—								Inter-segment eliminations	(10)			30

Impairments and loss on dispositions																				Impairments and loss on dispositions	11			—
Operating income	Operating income	$	819	$	291	$	1,110	$	827	$	597	$	1,424							Operating income	$	1,153		$	819

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

Nine Months Ended September 30,
2022 2021 % Change
Actual Pro Forma
Adjustments Pro Forma
Combined
Actual (a)
Pro Forma
Adjustments Pro Forma
Combined Actual Pro Forma Combined
(Actual) Pro Forma
Combined
(ex-FX)
Revenues:
Advertising $ 5,998 $ 1,380 $ 7,378 $ 4,409 $ 3,301 $ 7,710 36 % (4) % (2) %
Distribution 6,885 2,183 9,068 3,399 5,915 9,314 NM (3) % (1) %
Content 813 220 1,033 541 441 982 50 % 5 % 7 %
Other 133 55 188 44 145 189 NM (1) % 3 %
Total revenues 13,829 3,838 17,667 8,393 9,802 18,195 65 % (3) % (1) %
Costs of revenues, excluding depreciation and amortization 5,728 2,160 7,888 3,040 4,590 7,630 88 % 3 % 6 %
Selling, general and administrative 1,854 352 2,206 1,313 983 2,296 41 % (4) % (1) %
Adjusted EBITDA 6,247 1,326 7,573 4,040 4,229 8,269 55 % (8) % (8) %
Depreciation and amortization 3,311 303 3,614 794 3,182 3,976
Employee share-based compensation — 9 9 — 28 28
Restructuring and other charges 666 (5) 661 27 6 33
Transaction and integration costs 1 — 1 4 — 4
Amortization of fair value step-up for content 3 419 422 — 402 402
Inter-segment eliminations 28 — 28 — — —
Asset impairment and loss (gain) on disposition and disposal groups — — — (72) — (72)
Operating income $ 2,238 $ 600 $ 2,838 $ 3,287 $ 611 $ 3,898
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


	Nine Months Ended September 30,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	8,769		$	6,885	$	2,183	$	9,068		27	%	(3)	%	(2)	%
Advertising	6,394			5,998		1,380		7,378			7	%	(13)	%	(13)	%
Content	744			813		220		1,033			(8)	%	(28)	%	(26)	%
Other	300			133		55		188			NM		60	%	54	%
Total revenues	16,207			13,829		3,838		17,667			17	%	(8)	%	(7)	%
Costs of revenues, excluding depreciation and amortization	7,243			5,728		2,148		7,876			26	%	(8)	%	(7)	%
Selling, general and administrative	2,109			1,854		364		2,218			14	%	(5)	%	(4)	%
Adjusted EBITDA	6,855			6,247		1,326		7,573			10	%	(9)	%	(9)	%
Depreciation and amortization	3,768			3,311		307		3,618
Employee share-based compensation	—			—		9		9
Restructuring and other charges	161			666		(5)		661
Transaction and integration costs	3			1		—		1

Amortization of fair value step-up for content	400			3		419		422

Inter-segment eliminations	5			28		—		28
Impairments and loss on dispositions	16			—		—		—
Operating income	$	2,502		$	2,238	$	596	$	2,834

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

Revenues

~~Advertising~~Distribution revenue decreased ~~11%and~~ 2%for the three and nine months ended September 30, 2023, primarily attributable to a decline in linear subscribers in the U.S., partially offset by higher U.S. contractual affiliate rates.

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

Content revenue decreased 22% and 26% for the three and nine months ended September 30, 2023, respectively. The decrease for the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~declines from general entertainment, news, and sports~~the timing of third-party content licensing deals in the U.S. and ~~the prior year Olympics in Europe.~~lower international sports sublicensing, partially offset by inter-segment content licensing to DTC. The decrease for the nine months ended September 30, ~~2022~~2023 was primarily ~~attributable~~attributed to the prior year broadcast of the Olympics in Europe, lower ~~news~~international sports sublicensing, and, ~~general entertainment~~to a lesser extent, timing of third-party content licensing deals in the U.S., partially offset by inter-segment licensing of content to DTC.

Other revenue increased ~~sports advertising in the U.S. due to the NCAA Men’s Final Four in 2022, addition of the NHL in the fourth quarter of 2021,~~51% and ~~a more normalized NBA playoff schedule.~~

~~Distribution revenue decreased 2% and 1%~~54% for the three and nine months ended September 30, ~~2022,~~2023, respectively, primarily attributable to ~~a decline in linear subscribers in~~services provided to the ~~U.S.~~unconsolidated TNT Sports joint venture.

Costs of Revenues

Costs of revenues decreased 6% and ~~lower contractual affiliate rates in some European markets, partially offset by an increase in contractual affiliate rates in the U.S. and premium sports packages in Latin America.~~

~~Content revenue decreased 37% and increased~~ 7%for the three and nine months ended September 30, ~~2022, respectively. The decrease for the three months ended September 30, 2022 was~~2023, respectively, primarily attributable to ~~third party licensing of~~lower international and regional sports ~~rights internationally, mainly~~networks content expense, and lower domestic general entertainment related ~~to Olympic sports rights to broadcast networks throughout Europe in 2021,~~expense, partially offset by higher ~~inter-segment licensing of content to DTC. The increase for~~costs associated with the unconsolidated TNT Sports joint venture. In addition, the nine months ended September 30, ~~2022~~2023 was ~~primarily attributable to higher inter-segment licensing of content to DTC, partially offset~~favorably impacted by ~~overall net lower sub-licensing revenue for~~ the ~~Winter Olympics in 2022 compared to the Summer Olympics in 2021.~~

~~Other revenue decreased 6% and increased 3% for the three and nine months ended September 30, 2022, respectively.~~

~~Costs of Revenues~~

Cost of revenues decreased 16% and increased 6% for the three and nine months ended September 30, 2022, respectively. The decrease for the three months ended September 30, 2022 was primarily attributable to lower sports rights related to theprior year broadcast of the Olympics in Europe and the NCAA March Madness Final Four and Championship in ~~2021 and lower content expense in the U.S. The increase for the nine months ended September 30,~~ 2022, ~~was primarily attributable to higher sports rights in the U.S. and increased expense at CNN,~~ partially offset by ~~lower~~higher domestic sports ~~rights~~ related ~~to the broadcast of the Olympics in Europe in 2021.~~expense.

Selling, General and Administrative

Selling, general and administrative expenses decreased 8%1% and 1%4% for the three and nine months ended September 30, ~~2022, respectively. The decrease for the three months ended September 30, 2022 was~~2023, respectively, primarily attributable to lower ~~personnel~~marketing and ~~marketing expenses. The decrease for the nine months ended September 30, 2022 was primarily attributable to lower~~ personnel ~~costs, partially offset by higher marketing~~ expenses.

Adjusted EBITDA

Adjusted EBITDA decreased ~~2% and 8%~~9% for the three and nine months ended September 30, ~~2022, respectively.~~2023.

DTC Segment

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

Three Months Ended September 30,
2022 2021 % Change
Actual Pro Forma
Adjustments Pro Forma
Combined
Actual (a)
Pro Forma
Adjustments Pro Forma
Combined Actual Pro Forma Combined
(Actual) Pro Forma
Combined
(ex-FX)
Revenues:
Advertising $ 106 $ — $ 106 $ 37 $ 17 $ 54 NM 96 % NM
Distribution 2,062 — 2,062 210 2,036 2,246 NM (8) % (6) %
Content 145 — 145 7 187 194 NM (25) % (25) %
Other 4 — 4 1 2 3 NM 33 % 33 %
Total revenues 2,317 — 2,317 255 2,242 2,497 NM (7) % (6) %
Costs of revenues, excluding depreciation and amortization 2,118 — 2,118 178 1,590 1,768 NM 20 % 22 %
Selling, general and administrative 833 — 833 353 685 1,038 NM (20) % (18) %
Adjusted EBITDA (634) — (634) (276) (33) (309) NM NM NM
Depreciation and amortization 543 (117) 426 58 425 483
Employee share-based compensation (1) — (1) — 6 6
Restructuring and other charges 517 — 517 1 (1) —
Amortization of fair value step-up for content 191 (97) 94 — 73 73
Inter-segment eliminations (10) — (10) — — —
Operating loss $ (1,874) $ 214 $ (1,660) $ (335) $ (536) $ (871)
(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.


		Nine Months Ended September 30,																			Three Months Ended September 30,
		2022						2021						% Change							2023		2022			% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual (a)		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual			Actual		ex-FX
Revenues:	Revenues:																			Revenues:
Distribution																				Distribution	$	2,179		$	2,062		6	%	5	%
Advertising	Advertising	$	248	$	36	$	284	$	87	$	23	$	110	NM						Advertising	138			106			30	%	29	%
Distribution		4,287		2,150		6,437		499		5,842		6,341		NM		2	%	3	%
Content	Content	279		230		509		10		432		442		NM		15	%	15	%	Content	120			145			(17)	%	(17)	%
Other	Other	9		3		12		2		10		12		NM		—	%	—	%	Other	1			4			(75)	%	(75)	%
Total revenues	Total revenues	4,823		2,419		7,242		598		6,307		6,905		NM		5	%	6	%	Total revenues	2,438			2,317			5	%	5	%
Costs of revenues, excluding depreciation and amortization	Costs of revenues, excluding depreciation and amortization	4,200		1,977		6,177		513		4,406		4,919		NM		26	%	27	%	Costs of revenues, excluding depreciation and amortization	1,874			2,118			(12)	%	(12)	%
Selling, general and administrative	Selling, general and administrative	2,002		909		2,911		1,180		1,943		3,123		70	%	(7)	%	(6)	%	Selling, general and administrative	453			833			(46)	%	(46)	%
Adjusted EBITDA	Adjusted EBITDA	(1,379)		(467)		(1,846)		(1,095)		(42)		(1,137)		(26)	%	(62)	%	(65)	%	Adjusted EBITDA	111			(634)			NM		NM
Depreciation and amortization	Depreciation and amortization	1,193		150		1,343		179		1,335		1,514								Depreciation and amortization	590			543
Employee share-based compensation	Employee share-based compensation	(1)		—		(1)		—		14		14								Employee share-based compensation	—			(1)

Restructuring and other charges	Restructuring and other charges	992		(3)		989		2		3		5								Restructuring and other charges	34			517
Transaction and integration costs	Transaction and integration costs	1		—		1		—		—		—								Transaction and integration costs	1			—

Amortization of fair value step-up for content	Amortization of fair value step-up for content	256		(21)		235		—		220		220								Amortization of fair value step-up for content	111			191

Asset impairment and loss (gain) on disposition and disposal groups		4		—		4		—		—		—
Inter-segment eliminations																				Inter-segment eliminations	8			(10)
Impairments and loss on dispositions																				Impairments and loss on dispositions	3			—
Operating loss	Operating loss	$	(3,824)	$	(593)	$	(4,417)	$	(1,276)	$	(1,614)	$	(2,890)							Operating loss	$	(636)		$	(1,874)

(a) Prior year actual results have been recast to conform to the current period presentation as a result of the Merger and segment recast.

5945


	Nine Months Ended September 30,
	2023		2022							% Change
	Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)
Revenues:
Distribution	$	6,536		$	4,287	$	2,150	$	6,437		52	%	2	%	2	%
Advertising	362			248		36		284			46	%	27	%	28	%
Content	715			279		230		509			NM		40	%	40	%
Other	12			9		3		12			33	%	—	%	—	%
Total revenues	7,625			4,823		2,419		7,242			58	%	5	%	6	%
Costs of revenues, excluding depreciation and amortization	5,640			4,200		1,977		6,177			34	%	(9)	%	(8)	%
Selling, general and administrative	1,827			2,002		909		2,911			(9)	%	(37)	%	(37)	%
Adjusted EBITDA	158			(1,379)		(467)		(1,846)			NM		NM		NM
Depreciation and amortization	1,520			1,193		163		1,356
Employee share-based compensation	—			(1)		—		(1)

Restructuring and other charges	61			992		(3)		989
Transaction and integration costs	2			1		—		1

Amortization of fair value step-up for content	349			256		(21)		235

Inter-segment eliminations	10			—		—		—
Impairments and loss on dispositions	4			4		—		4
Operating loss	$	(1,788)		$	(3,824)	$	(606)	$	(4,430)

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

Revenues

As of September 30, ~~2022,~~2023, we had ~~94.9~~95.1 million ~~core~~ DTC subscribers.1

~~Advertising~~Distribution revenue increased ~~$53 million~~5% and ~~$176 million~~2% for the three and nine months ended September 30, ~~2022,~~2023, respectively, primarily attributable to ~~subscriber growth on our DTC ad-supported tiers.~~new partnership launches, price increases in the U.S. and certain international markets, the launch of the Ultimate tier in the U.S., and favorable mix shifts from wholesale to higher revenue channels.

~~Distribution~~Advertising revenue ~~decreased 6%~~increased 29% and 28% for the three ~~months ended September 30, 2022~~ and ~~increased 3% for the~~ nine months ended September 30, ~~2022.~~2023, respectively, primarily attributable to Max U.S. ad-lite subscriber growth and higher engagement.

Content revenue decreased 17% and increased 40% for the three and nine months ended September 30, 2023, respectively. The decrease for the three months ended September 30, ~~2022~~2023 was primarily attributable to ~~a decline in wholesale revenues primarily due to the Amazon Channels expiration~~higher third-party licensing for HBO content in September ~~2021, partially offset by global retail subscriber gains.~~2022. The increase for the nine months ended September 30, ~~2022~~2023 was primarily attributable to ~~global retail subscriber gains, partially offset by a decline in wholesale revenues primarily due to~~ the ~~Amazon Channels expiration in September 2021.~~

~~Content revenue decreased~~25% for the three months ended September 30, 2022 and increased 15% for the nine months ended September 30, 2022. The decrease for the three months ended September 30, 2022 was primarily attributable to third partytiming of certain licensing ~~of HBO content in September 2021. The increase for the nine months ended September 30, 2022 was primarily attributable to higher third party licensing of HBO content.~~deals.

Costs of Revenues

Costs of revenues ~~increased 22%~~decreased 12% and ~~27%~~8% for the three and nine months ended September 30, ~~2022,~~2023, respectively, primarily attributable to ~~increased programming expenses and~~lower content expense. Additionally, the ~~impact of measurement period adjustments to the fair value of content assets acquired during the Merger. (See Note 3 to the accompanying consolidated financial statements.)~~

~~Selling, General, and Administrative Expenses~~

~~Selling, general and administrative expenses decreased 18% and 6% for the three and~~ nine months ended September 30, ~~2022, respectively, primarily attributable to more efficient marketing-related spend.~~

~~Adjusted EBITDA~~

~~Adjusted EBITDA decreased $335 million and $733 million for~~2023 was unfavorably impacted by increased content licensing costs commensurate with higher content revenue, partially offset by the ~~three and nine months ended September 30, 2022, respectively.~~shutdown of CNN+ in the prior year.

1 We define a “DTC Subscription” as:

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

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

The reported number of “subscribers” included herein and the definition of “DTC Subscription” as used herein excludes:

a) (i) individuals who subscribe to DTC products, other than discovery+, HBO, HBO Max, and ~~HBO~~ Max, that may be offered by us or by certain joint venture partners or affiliated parties from time to time; b)(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; c)(iii) domestic and international Cinemax subscribers, and international basic HBO subscribers; and d)(iv) users on free ~~trials.~~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.

6046

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 46% and 37% for the three and nine months ended September 30, 2023, respectively, primarily attributable to more efficient marketing-related spend.

Adjusted EBITDA

Adjusted EBITDA increased $738 million and $1,996 million for the three and nine months ended September 30, 2023, respectively.

Corporate

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


		Three Months Ended September 30,																		Three Months Ended September 30,
		2022						2021						% Change						2023		2022			% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual			Actual		ex-FX

Adjusted EBITDA	Adjusted EBITDA	$	(340)	$	—	$	(340)	$	(95)	$	(231)	$	(326)	NM	(4)	%	(7)	%	Adjusted EBITDA	$	(328)		$	(340)		4	%	4	%
Depreciation and amortization																			Depreciation and amortization	54			92
Employee share-based compensation	Employee share-based compensation	113		—		113		36		21		57							Employee share-based compensation	140			113
Depreciation and amortization		92		(29)		63		23		46		69
Restructuring and other charges	Restructuring and other charges	93		—		93		—		—		—							Restructuring and other charges	53			93
Transaction and integration costs	Transaction and integration costs	57		—		57		13		111		124							Transaction and integration costs	37			57
Asset impairment and loss (gain) on disposition and disposal groups		28		—		28		—		(223)		(223)

Facility consolidation costs																			Facility consolidation costs	14			—
Amortization of fair value step-up for content																			Amortization of fair value step-up for content	1			—

Inter-segment eliminations	Inter-segment eliminations	(20)		—		(20)		—		—		—							Inter-segment eliminations	2			(20)
Impairments and loss on dispositions																			Impairments and loss on dispositions	10			28
Operating loss	Operating loss	$	(703)	$	29	$	(674)	$	(167)	$	(186)	$	(353)						Operating loss	$	(639)		$	(703)


		Nine Months Ended September 30,																		Nine Months Ended September 30,
		2022						2021						% Change						2023		2022							% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)

Adjusted EBITDA	Adjusted EBITDA	$	(749)	$	(353)	$	(1,102)	$	(273)	$	(672)	$	(945)	NM	(17)	%	(19)	%	Adjusted EBITDA	$	(928)		$	(749)	$	(353)	$	(1,102)		(24)	%	16	%	16	%
Depreciation and amortization																			Depreciation and amortization	215			188		(15)		173
Employee share-based compensation	Employee share-based compensation	317		(11)		306		124		159		283							Employee share-based compensation	381			317		(11)		306
Depreciation and amortization		188		(18)		170		70		140		210
Restructuring and other charges	Restructuring and other charges	162		(44)		118		—		44		44							Restructuring and other charges	70			162		(44)		118
Transaction and integration costs	Transaction and integration costs	1,126		(564)		562		48		901		949							Transaction and integration costs	115			1,126		(564)		562
Asset impairment and loss (gain) on disposition and disposal groups		28		—		28		—		(223)		(223)

Facility consolidation costs																			Facility consolidation costs	37			—		—		—
Amortization of fair value step-up for content																			Amortization of fair value step-up for content	(7)			—		—		—

Inter-segment eliminations	Inter-segment eliminations	(28)		—		(28)		—		—		—							Inter-segment eliminations	(16)			(28)		—		(28)
Impairments and loss on dispositions																			Impairments and loss on dispositions	42			28		—		28
Operating loss	Operating loss	$	(2,542)	$	284	$	(2,258)	$	(515)	$	(1,693)	$	(2,208)						Operating loss	$	(1,765)		$	(2,542)	$	281	$	(2,261)

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.~~

Selling, general and administrative expense was $358 million and $234 million for the three months ended September 30, 2022 and 2021, respectively, and $1,091 million and $692 million for the nine months ended September 30, 2022 and 2021, respectively. Adjusted EBITDA decreased 7% and 19% for the three and nine months ended September 30, 2022, respectively. The decreases were primarily attributable to increased securitization costs from higher interest rates, partially offset by lower personnel costs.

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

Adjusted EBITDA improved 4% and 16% for the three and nine months ended September 30, 2023, respectively,primarily attributable to reductions to personnel costs and technology-related operating expenses and lower securitization expense, partially offset by higher deferred compensation expense.

Inter-segment Eliminations

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


		Three Months Ended September 30,
		2022							2021						% Change						Three Months Ended September 30,
		Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			2023		2022			% Change
																					Actual			Actual			Actual		ex-FX
Inter-segment revenue eliminations	Inter-segment revenue eliminations	$	(785)	$	—	$	(785)		$	—	$	(751)	$	(751)	NM	(5)	%	(5)	%	Inter-segment revenue eliminations	$	(551)		$	(785)		30	%	30	%
Inter-segment expense eliminations	Inter-segment expense eliminations	(791)		—		(791)			—		(786)		(786)		NM	(1)	%	(1)	%	Inter-segment expense eliminations	(614)			(791)			22	%	22	%
Adjusted EBITDA	Adjusted EBITDA	6		—		6		—	—		35		35		NM	(83)	%	(83)	%	Adjusted EBITDA	63			6			NM		NM

Restructuring and other charges	Restructuring and other charges	(5)		—		(5)			—		—		—							Restructuring and other charges	—			(5)

Amortization of fair value step-up for content	Amortization of fair value step-up for content	181		—		181			—		—		—							Amortization of fair value step-up for content	108			181

Operating income (loss)		$	(170)	$	—	$	(170)		$	—	$	35	$	35

Operating loss																				Operating loss	$	(45)		$	(170)


		Nine Months Ended September 30,																			Nine Months Ended September 30,
		2022							2021						% Change						2023		2022							% Change
		Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Adjustments		Pro Forma Combined		Actual	Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)			Actual			Actual		Pro Forma Adjustments		Pro Forma Combined			Actual		Pro Forma Combined (Actual)		Pro Forma Combined (ex-FX)

Inter-segment revenue eliminations	Inter-segment revenue eliminations	$	(1,734)	$	(1,065)	$	(2,799)		$	—	$	(2,074)	$	(2,074)	NM	(35)	%	(35)	%	Inter-segment revenue eliminations	$	(1,811)		$	(1,734)	$	(1,065)	$	(2,799)		(4)	%	35	%	35	%
Inter-segment expense eliminations	Inter-segment expense eliminations	(1,726)		(1,038)		(2,764)			—		(2,147)		(2,147)		NM	(29)	%	(29)	%	Inter-segment expense eliminations	(1,815)			(1,726)		(1,038)		(2,764)			(5)	%	34	%	34	%
Adjusted EBITDA	Adjusted EBITDA	(8)		(27)		(35)		—	—		73		73		NM					Adjusted EBITDA	4			(8)		(27)		(35)			NM

Restructuring and other charges	Restructuring and other charges	(23)		—		(23)			—		—		—							Restructuring and other charges	(2)			(23)		—		(23)

Amortization of fair value step-up for content	Amortization of fair value step-up for content	422		—		422			—		—		—							Amortization of fair value step-up for content	358			422		—		422

Operating income (loss)		$	(407)	$	(27)	$	(434)		$	—	$	73	$	73

Operating loss																				Operating loss	$	(352)		$	(407)	$	(27)	$	(434)

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.

6248

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Sources of Cash

Historically, we have generated a significant amount of cash from operations. During the nine months ended September 30, ~~2022,~~2023, we funded our working capital needs primarily through cash flows from operations. As of September 30, ~~2022,~~2023, we had $2.4 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. ~~As of September 30, 2022, we also~~We have a $6.0 billion revolving credit facility and a ~~$1.5 billion~~ commercial paper program as described below. ~~In connection with the Merger, we incurred~~We also participate in a ~~substantial amount of additional third-party indebtedness, which has significantly increased our future financial commitments, including aggregate interest payments.~~revolving receivables program and an accounts receivable factoring program described below.

•Debt

Senior Notes

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

Revolving Credit Facility and Commercial Paper

~~In June 2021, Discovery Communications, LLC (“DCL”) entered into~~We have a multicurrency revolving credit agreement (the “Revolving Credit Agreement”)~~, replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. DCL has~~ and have the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”). ~~The Revolving Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. DCL~~We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions. Obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc. (“Scripps Networks”), and WarnerMedia Holdings, Inc. The Credit Facility will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the lenders’ consent. The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of September 30, ~~2022,~~2023, DCL was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.

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

During the nine months ended September 30, ~~2022,~~2023, we borrowed and repaid ~~$885~~$4,298 million and $4,304 million, respectively, under our Credit Facility and commercial paper program. As of September 30, ~~2022 and December 31, 2021, the Company~~2023, we had no outstanding borrowings under the Credit Facility or the commercial paper program.

•Revolving Receivables Program

We have a revolving agreement to transfer up to $5,500 millionof 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 $5,190 millionas of September 30, 2023.

•Accounts Receivable Factoring

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

•Derivatives

We received investing proceeds of ~~$722~~$38 million during the nine months ended September 30, ~~2022~~2023 from the unwind and settlement of derivative instruments. (See Note 1210 to the accompanying consolidated financial statements.)

•~~Investments and Business Combinations~~

~~During the nine months ended September 30, 2022, we completed the sale of our minority interest in Discovery Education and other investments and received cash of $162 million.~~

~~In addition, we acquired $3.6 billion of cash in connection with the Merger and the post-closing working capital settlement process.~~

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 ~~HBO~~our enhanced streaming service Max, ~~and discovery+,~~ principal and interest payments on our outstanding senior notes and term loan, funding for various equity method and other investments, and repurchases of our capital stock.

•Content Acquisition

We plan to continue to invest significantly in the creation and acquisition of new ~~content. Subsequent to the Merger, contractual~~content, as well as certain sports rights. Contractual commitments to acquire content have ~~increased significantly compared to our commitments~~not materially changed as set forth in “Material Cash Requirements from Known Contractual and Other Obligations” in Item 7, ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K. ~~(See Note 19~~However, our spending to acquire content may be lower than we initially anticipated due to temporary pauses of certain theatrical and television productions as a result of the ~~accompanying consolidated financial statements.)~~

recently concluded WGA strike and the ongoing SAG-AFTRA strike.

•Debt

Term Loan

During the nine months ended September 30, ~~2022, the Company~~2023, we repaid $~~6.0 billion~~2,850 million of aggregate principal amount outstanding of ~~its~~our term ~~loans~~loan prior to the due ~~dates~~date of ~~October 2023 and~~ April 2025.

Floating Rate Notes

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

Senior Notes

During the nine months ended September 30, ~~2022,~~2023, we repurchased or repaid ~~in full at maturity $327~~$2,378 million of aggregate principal amount outstanding of our ~~2.375% Euro Denominated Senior Notes~~senior notes due ~~March 2022.~~in 2023 and 2024. In addition, we have ~~$106 million, $796 million, $192 million, and $159~~$42 million of senior notes coming due in ~~February, March, April,~~December 2023, and ~~September 2023, respectively.~~

In anticipation of the Merger, WarnerMedia Holdings, Inc., formerly a wholly owned subsidiary of AT&T, entered into a $10.0 billion term loan credit agreement (the “Term Loan Credit Agreement”) and issued $30.0 billion aggregate principal amount of senior unsecured notes. The proceeds were used to fund the cash payments to AT&T and to otherwise fund the Merger and pay fees and expenses. Upon completion of the Merger, AT&T was released from all obligations and the debt was unconditionally guaranteed on a senior unsecured basis by WBD and each wholly owned domestic subsidiary of WBD that is a borrower or considered a subsidiary guarantor under the Term Loan Credit Agreement or the Revolving Credit Agreement, and will rank equally with all of the Company’s other unsecured senior debt.

~~On a consolidated basis, we also assumed~~ an additional ~~$1.5 billion~~$1,261 million of senior notes ~~(at par value) issued by~~coming due through September 30, 2024.

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

•Capital Expenditures and Investments in Next Generation Initiatives

We effected capital expenditures of ~~$623~~$1,048 million during the nine months ended September 30, ~~2022,~~2023, including amounts capitalized to support ~~our next generation platforms, such as HBO Max and discovery+.~~Max. In addition, we expect to continue to incur significant costs to develop and market ~~HBO Max and discovery+ streaming products in the future.~~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 98 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time. During the nine months ended September 30, ~~2022,~~2023, we contributed ~~$137~~$91 million for investments in and advances to our investees.

~~We expect to incur significant, one-time transaction and integration costs during the first year following the Merger. (See Note 3 to the accompanying consolidated financial statements.)~~

•Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we ~~have~~had redeemable equity balances of ~~$318~~$281 million at September 30, ~~2022,~~2023, which may require the use of cash in the event holders of noncontrolling interests put their interests to us. In 2022, GoldenTree exercised its put right and we are required to purchase GoldenTree’s noncontrolling interest. (See Note 16 to the accompanying consolidated financial statements.) Distributions to noncontrolling interests and redeemable noncontrolling interests totaled ~~$286~~$282 million and ~~$231~~$286 million for the nine months ended September 30, 2023 and 2022, ~~and 2021,~~ respectively.

•~~Common Stock Repurchases~~

Historically, we have funded our stock repurchases through a combination of cash on hand, cash generated by operations, and the issuance of debt. In February 2020, our Board of Directors authorized additional stock repurchases of up to $2.0 billion upon completion of our existing $1.0 billion repurchase authorization announced in May 2019. Under the new stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors. During the nine months ended September 30, 2022, we did not repurchase any of our common stock.

•Income Taxes and Interest

We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the nine months ended September 30, ~~2022,~~2023, we made cash payments of ~~$859~~$1,191 million and ~~$1,305~~$2,065 million for income taxes and interest on our outstanding debt, respectively. ~~We expect cash~~Cash required for interest payments ~~to increase~~has increased significantly as a result of the Merger.

6450

Cash Flows

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


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2022		2021			2023		2022
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	$	3,905	$	2,122	Cash, cash equivalents, and restricted cash, beginning of period	$	3,930	$	3,905
Cash provided by operating activities	Cash provided by operating activities	1,458		1,914		Cash provided by operating activities	3,899		1,458
Cash provided by (used in) investing activities		3,742		(30)
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(1,025)		3,742
Cash used in financing activities	Cash used in financing activities	(6,470)		(811)		Cash used in financing activities	(4,308)		(6,470)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(122)		(69)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(66)		(122)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	(1,392)		1,004		Net change in cash, cash equivalents, and restricted cash	(1,500)		(1,392)
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	2,513	$	3,126	Cash, cash equivalents, and restricted cash, end of period	$	2,430	$	2,513

Operating Activities

Cash provided by operating activities was ~~$1,458~~$3,899 million and ~~$1,914~~$1,458 million during the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~decrease~~increase in cash provided by operating activities was primarily attributable to ~~a negative fluctuation in working capital activity, partially offset~~ an increase in net income, excluding non-cash ~~items.~~items, partially offset by a negative fluctuation in working capital activity.

Investing Activities

Cash (used in) provided by ~~(used in)~~ investing activities was ~~$3,742~~$(1,025) million and ~~$30~~$3,742 million during the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in cash provided by investing activities was primarily attributable to ~~proceeds received from~~ cash acquired ~~during~~from the Merger ~~and~~in the ~~post-closing working capital settlement process and~~prior year, less proceeds received from the unwind and settlement of derivative instruments ~~partially offset by a reduction in cash received from the~~and sales ~~and maturities~~ of investments, and increased purchases of property and equipment during the nine months ended September 30, ~~2022.~~2023.

Financing Activities

Cash used in financing activities was ~~$6,470~~$4,308 million and ~~$811~~$6,470 million during the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease in cash used in financing activities was primarily attributable to principal repayments made on our term loans and senior notes and an increase in distributions to noncontrolling interests and redeemable noncontrolling interests, partially offset by securitization receivables collected but not remittedless net debt activity during the nine months ended September 30, ~~2022.~~2023.

Capital Resources

As of September 30, ~~2022,~~2023, capital resources were comprised of the following (in millions).


		September 30, 2022						September 30, 2023
		Total Capacity		Outstanding Indebtedness		Unused Capacity				Total Capacity		Outstanding Indebtedness		Unused Capacity
Cash and cash equivalents	Cash and cash equivalents	$	2,422	$	—	$	2,422		Cash and cash equivalents	$	2,383	$	—	$	2,383
Revolving credit facility and commercial paper program	Revolving credit facility and commercial paper program	6,000		—		6,000			Revolving credit facility and commercial paper program	6,000		—		6,000
Term loans	Term loans	4,000		4,000		—			Term loans	1,150		1,150		—
Senior notes (a)	Senior notes (a)	46,144		46,144		—			Senior notes (a)	43,937		43,937		—
Total	Total	$	58,566	$	50,144	$	8,422		Total	$	53,470	$	45,087	$	8,383

(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of September 30, 2022 had interest rates that ranged from 1.90% to 9.15% and will mature between 2023 and 2062.
(a) Interest on the senior notes is paid annually, semi-annually, or quarterly. Our senior notes outstanding as of September 30, 2023 had interest rates that ranged from 1.90% to 8.30% and will mature between 2023 and 2062.									(a) Interest on the senior notes is paid annually, semi-annually, or quarterly. Our senior notes outstanding as of September 30, 2023 had interest rates that ranged from 1.90% to 8.30% and will mature between 2023 and 2062.

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

~~As of September 30, 2022, we held $2.2 billion of our $2.4 billion of cash and cash equivalents in our foreign subsidiaries.~~ The 2017 Tax ~~Cuts and Jobs~~ Act ~~of 2017~~ 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 ~~are~~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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, all of the Company’s outstanding ~~$14.6~~$13.5 billion registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, Scripps Networks, and ~~WarnerMedia Holdings, Inc.~~WMH. As of September 30, ~~2022,~~2023, the Company also has outstanding ~~$30.0~~$29.3 billion of senior notes issued by ~~WarnerMedia Holdings, Inc.~~WMH and guaranteed by the Company, Scripps and DCL; ~~$1.5~~$1.2 billion of senior notes issued by the legacy WarnerMedia Business (not guaranteed); and approximately $23 million of un-exchanged senior notes issued by Scripps Networks (not guaranteed). (See Note 109 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 ~~100%~~wholly owned by the Company.

The tables below present the summarized financial information as combined for Warner Bros. Discovery, Inc. (the “Parent”), Scripps Networks, DCL, and ~~WarnerMedia Holdings, Inc.~~WMH (collectively, the “Obligors”). All guarantees of DCL and ~~WarnerMedia Holdings, Inc.'s~~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 ~~WarnerMedia Holdings, Inc.,~~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, ~~WarnerMedia Holdings, Inc.~~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). The summarized balance sheet information as of December 31, 2021 does not include information with respect to WarnerMedia Holdings, Inc., as WarnerMedia Holdings, Inc. was a wholly-owned subsidiary of AT&T with ~~de minimis~~ assets and no operating activities for the year ended December 31, 2021. The summarized income statement information for the nine months ended September 30, 2022 includes information with respect to WarnerMedia Holdings, Inc. beginning subsequent to the close of the Merger.


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Current assets	Current assets	$	1,594	$	4,452	Current assets	$	755	$	1,949
Non-guarantor intercompany trade receivables, net	Non-guarantor intercompany trade receivables, net	161		85		Non-guarantor intercompany trade receivables, net	308		112
Noncurrent assets	Noncurrent assets	5,880		5,969		Noncurrent assets	5,672		5,785
Current liabilities	Current liabilities	1,635		1,018		Current liabilities	1,900		1,095
Noncurrent liabilities	Noncurrent liabilities	48,694		15,778		Noncurrent liabilities	43,706		48,839

Nine Months Ended September 30, ~~2022~~2023

Revenues

~~1,603~~1,456

Operating income

~~(623)~~247

Net income

~~(1,102)~~(986)

Net income available to Warner Bros. Discovery, Inc.

~~(1,108)~~(991)

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. ~~Subsequent to the Merger, total contractual~~Contractual commitments ~~particularly in respect of long-term debt and content purchase obligations,~~ have ~~increased significantly compared to our commitments~~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 ~~2021~~2022 Form 10-K. ~~(See Note 10 and Note 19 to the accompanying consolidated financial statements.)~~

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 1815 to the accompanying consolidated financial statements.)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~Except for updates to accounting policies as a result of the Merger described in Note 1 to the accompanying consolidated financial statements, our~~Our critical accounting policies and estimates have not changed since December 31, ~~2021.~~2022. For a discussion of each of our critical accounting estimates listed below, including information and analysis of estimates and assumptions involved in their application, see “Critical Accounting Policies and Estimates” included in Item 7, ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K:

•Uncertain tax positions;

•Goodwill and intangible assets;

•Content rights;

•Consolidation; and

•Revenue recognition

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

We adopted certain new accounting and reporting standards during the nine months ended September 30, ~~2022.~~2023. (See Note 1 to the accompanying consolidated financial statements.)

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

•potential unknown liabilities, adverse consequences or unforeseen increased expenses associated with the ~~effects of~~WarnerMedia Business or our ~~recently completed acquisition of~~efforts to integrate the WarnerMedia Business;

•~~changes~~inherent uncertainties involved in the ~~distribution~~estimates and ~~viewing~~assumptions used in the preparation of television programming, including the continuing expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, personal tablets and user-generated content and their impact on television advertising revenue;financial forecasts;

•~~continued consolidation~~our level of ~~distribution customers~~debt, including the significant indebtedness incurred in connection with the acquisition of the WarnerMedia Business, and ~~production studios;~~our future compliance with debt covenants;

•~~a failure to secure affiliate~~more intense competitive pressure from existing or ~~distribution agreements or~~new competitors in the ~~renewal of such agreements or other wholesale subscription or bundled service arrangements on less favorable terms;~~industries in which we operate;

•~~rapid technological changes;~~

•~~the inability~~reduced spending on domestic and foreign television advertising, due to macroeconomic trends, industry trends or unexpected reductions in our number of ~~advertisers or affiliates to remit payment to us in a timely manner or at all;~~

•~~general economic and business conditions, including the impact of the ongoing COVID-19 pandemic;~~subscribers;

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

•~~spending on domestic and foreign television advertising;~~

•~~disagreements with our distributors or other business partners over contract interpretation;~~

•fluctuations in foreign currency exchange rates, political unrest and regulatory changes in international markets, including any proposed or adopted regulatory changes that impact the operations of our international media properties and/or modify the terms under which we offer our services and operate in international markets;

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

•~~the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate;~~

•~~uncertainties regarding the financial performance of~~negative publicity or damage to our ~~investments in unconsolidated entities;~~

•our ability to complete, integrate, maintain and obtain the anticipated benefits and synergies from our proposed business combinations and acquisitions, including our recently completed acquisition of the WarnerMedia Business, on a timely basisbrands, reputation or ~~at all;~~talent;

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

•realizing direct-to-consumer subscriber ~~goals, including through the activation of subscriptions by subscribers receiving access through bundled services or other wholesale subscription arrangements;~~goals;

•~~future financial performance,~~general economic and business conditions, including ~~availability, terms,~~the impact of the ongoing COVID-19 pandemic, fluctuations in foreign currency exchange rates, and ~~deployment of capital;~~

•~~inherent uncertainties involved~~political unrest in the ~~estimates and assumptions used~~international markets in ~~the preparation of financial forecasts;~~

•~~the ability of suppliers and vendors to deliver products, equipment, software, and services;~~

•~~the outcome of any pending or threatened or potential litigation, including any litigation that has been or may be instituted against usrelating to our recently completed acquisition of the WarnerMedia Business;~~

•~~availability of qualified personnel and recruiting, motivating and retaining talent;~~which we operate;

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

•disagreements with our distributors or other business partners;

•continued consolidation of distribution customers and production studios;

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

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

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

•~~changes in income taxes due to regulatory changes or changes in our corporate structure;~~

•~~changes in the nature of key strategic relationships with partners, distributors and equity method investee partners;~~

•~~competitor responses to our products and services and the products and services of the entities in which we have interests;~~

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

•~~threatened terrorist attacks and military action, including the intensification or expansion of the conflict in Ukraine;~~

•~~service disruptions or the failure of communications satellites or transmitter facilities;~~

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

•changes in existing U.S. and foreign laws and regulations, as well as possible private rights of action, regarding intellectual property rights protection and privacy, personal data protection and user consent;

•potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the Federal Communications Commission could negatively impact our WarnerMedia Business’s ability to deliver pay-TV network feeds of our domestic pay-TV programming networks to our affiliates, and, in some cases, to produce high-value news and entertainment programming on location;

•~~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;~~

•~~reduced access to capital markets or significant increases in costs to borrow, including as a result of higher interest rates and perceived, potential or actual inflation; and~~

•~~a reduction of advertising revenue associated with unexpected reductions in the number of subscribers.~~proceedings.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill orand other intangibles. Additionally, many of these risks are ~~currently~~ amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. ~~For additional risk~~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 ~~refer~~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 ~~2021~~2022 Form 10-K, Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Q1 10-Q”), and Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Q2 10-Q”).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.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about our existing market risk are set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the ~~2021~~2022 Form 10-K. Our exposures to market risk have not changed materially since December 31, ~~2021.~~2022.

ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2022.~~2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, ~~2022,~~2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

On April 8, 2022, Discovery completed its merger with WM. (See Note 3 to the accompanying consolidated financial statements). We are currently integrating policies, processes, people, technology and operations for the combined company. Management will continue to evaluate our internal control over financial reporting as we execute integration activities. During the three months ended September 30, ~~2022, except as noted above,~~2023, there were no changes in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6954

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

InFrom 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 ~~we experience routine claims and legal proceedings. It is~~partners or intellectual property. However, a determination as to the ~~opinion of our management, based on information available at this time, that none~~amount of the ~~current claims~~accrual required for such contingencies is highly subjective and ~~proceedings~~requires judgments about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on our consolidated financial position, future results of operations, or cash flows. ~~(See Note 19 to the accompanying consolidated financial statements.)~~

Between September 23, 2022 and October 24, 2022, two purported class action lawsuits (Collinsville Police Pension Board v. Discovery, Inc., et al., Case No. 1:~~22-cv-08171 and~~22-cv-08171; Todorovski v. Discovery, Inc., et al., Case No. 1:22-cv-09125) were filed in the United States District Court for the Southern District of New York. The complaints ~~name~~named Warner Bros. Discovery, Inc., Discovery, Inc., David Zaslav, and Gunnar Wiedenfels as defendants. The complaints generally ~~allege~~alleged that the defendants made false and misleading statements in SEC filings and in certain public statements relating to the Merger, in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as ~~amended. The complaints seek~~amended, and sought damages and other relief. On November 4, 2022, the court consolidated the Collinsville and Todorovski complaints under case number 1:22-CV-8171, and on December 12, 2022, the court appointed lead plaintiffs and lead counsel. On February 15, 2023, the lead plaintiffs filed an amended complaint adding Advance/Newhouse Partnership and Advance/Newhouse Programming Partnership (collectively, “Advance/Newhouse”), Steven A. Miron, Robert J. Miron, and Steven O. Newhouse as defendants. The amended complaint continues to assert violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, and seeks damages and other relief. On April 7, 2023, defendants moved to dismiss the amended complaint. The Company intends to vigorously defend these litigations.

On December 2, 2022, a purported class action and derivative lawsuit (Monroe County Employees’ Retirement System, Plumbers Local Union No. 519 Pension Trust Fund, and Davant Scarborough v. David M. Zaslav, et al., Case No. 2022-1115-JTL) was filed in the Delaware Court of Chancery (the “Monroe County Action”). The Monroe County Action named certain of the Company’s directors and officers, Advance/Newhouse and AT&T as defendants. The Monroe County Action generally alleged that former directors and officers of Discovery and Advance/Newhouse breached their fiduciary duties in connection with the Merger, and that AT&T aided and abetted these alleged breaches of fiduciary duties. The Monroe County Action sought damages and other relief.

Also on December 2, 2022, a separate purported class action lawsuit (Bricklayers Pension Fund of Western Pennsylvania v. Advance/Newhouse Partnership, Case No. 2022-1114-JTL) was filed in the Delaware Court of Chancery (the “Bricklayers Action”). The complaint in the Bricklayers Action names Advance/Newhouse and certain of the Company’s current and former directors as defendants and generally alleges that former directors of Discovery and Advance/Newhouse breached their fiduciary duties in connection with the Merger, and that Advance/Newhouse aided and abetted these alleged breaches of fiduciary duties. The Bricklayers Action seeks damages and other relief.

On January 11, 2023, the Delaware Court of Chancery consolidated the Monroe County Action and the Bricklayers Action under the caption In re Warner Bros. Discovery, Inc. Stockholders Litigation, Consolidated Case No. 2022-1114-JTL. On March 9, 2023, the court appointed the plaintiffs which filed the Bricklayers Action lead plaintiffs in the consolidated action. On April 5, 2023, the court approved a stipulated briefing schedule, and the remaining defendants in the case (Advance/Newhouse, Robert Miron, Steven Miron, and Susan Swain) responded to the complaint originally filed in the Bricklayers Action on May 31, 2023.

ITEM 1A. Risk Factors

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, and cash flows as set forth under Part I, Item 1A “Risk Factors” of the Company’s ~~2021~~2022 Form 10-K. Certain of the risks described in our 2022 Form 10-K ~~Part II, Item 1A "Risk Factors” of the Company’s Q1~~and Q2 Form 10-Q are amended and ~~Part II, Item 1A “Risk Factors” of the Company’s Q2 Form 10-Q.~~

restated as set forth below. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position, and cash flows.

7055

Risks Related to Our Business and Industry

Our businesses may be subject to labor disruption.

We and some of our suppliers and business partners retain the services of writers, directors, actors, announcers, athletes, technicians, trade employees and others involved in the development and production of our television programs, feature films and interactive entertainment (e.g., games) who are covered by collective bargaining agreements. If negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the affected unions could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns, work stoppages, or the possibility of such actions, including the recently concluded WGA strike and ongoing SAG-AFTRA strike and potential strikes by other unions involved in development and production, have resulted in, and could in the future result in, delays in the production of, or the release of, our television programs, feature films, and interactive entertainment. For example, the recently concluded WGA strike and ongoing SAG-AFTRA strike have caused, and are expected to continue to cause, delays in the production of our television programs and feature films and in the release of certain programming. The impact of these strike-related delays and the ongoing SAG-AFTRA strike in general could continue to be felt even after the SAG-AFTRA strike is resolved.

If our industry experiences prolonged strikes, work slowdowns or work stoppages, we may be unable to produce, distribute or license programming, feature films, and interactive entertainment, which could result in reduced revenue and have a material adverse effect on our business, financial condition and results of operations. For example, the recently concluded WGA strike and ongoing SAG-AFTRA strike have had, and are expected to continue to have, a material impact on the operations and results of the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview—Industry Trends.” In addition, the pausing and restarting of productions may result in incremental costs, delay the completion and release of some of our content (films, television programs, and licensed programs) and could cause an impairment of our investment in film, television programs, or licensed program rights if the incremental costs are significant or we are unable to efficiently complete the production of the film, television show or program or decide to abandon the production.

We could also enter into new collective bargaining agreements or renew collective bargaining agreements on less favorable terms and incur higher costs as a result of prolonged strikes, work slowdowns, or work stoppages. Many of the collective bargaining agreements that cover individuals providing services to the Company are industry-wide agreements, and we may lack practical control over the negotiations and terms of these agreements. Union or labor disputes or player lock-outs relating to certain professional sports leagues may preclude us from producing and telecasting scheduled games or events and could negatively impact our promotional and marketing opportunities. Depending on their duration, union or labor disputes or player lock-outs could have a material adverse effect on our business, financial condition and results of operations.

ITEM 5. Other Information

Disclosure of Trading Arrangements

Item 408(a) of Regulation S-K requires the Company to disclose whether any director or officer of the Company has adopted or terminated (i) any trading arrangement that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c); and/or (ii) any written trading arrangement that meets the requirements of a “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K. During the quarter ended September 30, 2023, the following activity occurred requiring disclosure under Item 408(a) of Regulation S-K:

Bruce Campbell, Chief Revenue and Strategy Officer, adopted a new Rule 10b5-1 trading arrangement on September 11, 2023. This trading arrangement has a termination date of March 3, 2025. Under the trading arrangement, up to an aggregate of 202,962 shares of common stock issuable upon the exercise of options expiring on March 1, 2025, are available to be sold by the broker upon reaching pricing targets defined in the trading arrangement.

Gunnar Wiedenfels, Chief Financial Officer, adopted a new Rule 10b5-1 trading arrangement on September 12, 2023. This trading arrangement has a termination date of March 3, 2025. Under the trading arrangement, up to (i) 100,000 shares of common stock, (ii) 40,001 shares of common stock issuable upon the exercise of options expiring on May 22, 2024, and (iii) 50,741 shares of common stock issuable upon the exercise of options expiring on March 1, 2025, for an aggregate of 190,742 shares of common stock, are available to be sold by the broker upon reaching pricing targets defined in the trading arrangement.

ITEM 6. Exhibits.


Exhibit No.						Description





























10.1						First Amendment ~~No. 1~~ to Credit Agreement, dated as of August 2, 2022, by and among WarnerMedia Holdings, Inc., Warner Bros. Discovery, Inc., Discovery Communications, LLC, Scripps Networks Interactive, Inc., certain lenders party thereto and JPMorgan Chase Bank, N.A., as agent (incorporated by reference to Exhibit 10.7 to the Form 10-Q filed on August 5, 2022).

~~10.2~~						Amendment No. 2 to Credit Agreement, dated as of August 2, 2022, by and among Discovery Communications, LLC, Warner Bros. Discovery, Inc., Scripps Networks Interactive, Inc., WarnerMedia Holdings, Inc., certain lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.6 to the Form 10-Q filed on August 5 ~~, 2022).~~

~~10.3~~						~~Joinder Agreement, dated as of July 5, 2022, by the various entities party thereto (incorporated by reference to Exhibit 10.12 to the Form 10-Q filed on August~~ 5 , 2022).*

~~10.4~~						Third Amended and Restated Receivables Purchase Agreement, dated as of July 5, 2022, by and among Warner Bros. Discovery Receivables Funding, LLC, the persons from time to time party thereto, PNC Bank, National Association, Turner Broadcasting System, Inc. and PNC Capital Markets LLC (incorporated by reference to Exhibit 10.15 to the Form 10-Q filed on August 5 , 2022).*

~~10.5~~						Fourth Amended and Restated Receivables Purchase Agreement, dated as of August ~~30, 2022,~~11, 2023, by and among Warner Bros. Discovery Receivables Funding, LLC, the persons from time to time party thereto, PNC Bank, National Association, Turner Broadcasting System, Inc. and PNC Capital Markets LLC (filed herewith).*

~~10.6~~						Employment Agreement, dated as of July 9, 2022, by and between Bruce Campbell and Discovery Communications, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 14, 2022).* †

~~10.7~~						Employment Agreement, dated as of July 11, 2022, by and between Gunnar Wiedenfels and Discovery Communications, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 14, 2022).* †

~~10.8~~						~~Aircraft Time Sharing Agreement, dated as of August 1, 2022, by and between David Zaslav and Warner Media, LLC (filed herewith).†~~

~~10.9~~						~~Employment Agreement, dated as of August 2, 2022, by and between JB Perrette and Discovery Communications, LLC (filed herewith).†~~

~~10.10~~						~~Employment Agreement, dated as of August 26, 2022, by and between David Leavy and Discovery Communications, LLC (filed herewith).†~~

22						Table of Senior Notes, Issuer and Guarantors ~~(incorporated~~(incorporated by reference to Exhibit 22 to the Form 10-Q filed on August 3, 2023 5 ~~, 2022).~~)

31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


101.SCH						Inline XBRL Taxonomy Extension Schema Document (filed herewith)♦†

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)♦†

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)♦†

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)♦†

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)♦†

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Exhibits, schedules and annexes have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be supplementally provided to the SEC upon request.

†~~Indicates management contract or compensatory plan, contract or arrangement.~~

♦Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, (v) Consolidated ~~Statement~~Statements of Equity for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, and (vi) Notes to Consolidated Financial Statements.

7257

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WARNER BROS. DISCOVERY, INC.

(Registrant)

Date: November ~~3, 2022~~8, 2023

By:

/s/ David M. Zaslav

David M. Zaslav

President and Chief Executive Officer

Date: November ~~3, 2022~~8, 2023

By:

/s/ Gunnar Wiedenfels

Gunnar Wiedenfels

Chief Financial Officer

7358



			Page

PART I. FINANCIAL INFORMATION.

ITEM 1. Unaudited Financial Statements.

Consolidated Statements of Operations.			4

Consolidated Statements of Comprehensive (Loss) Income.			5

Consolidated Balance Sheets.			6

Consolidated Statements of Cash Flows.			7

Consolidated Statements of Equity.			8

Notes to Consolidated Financial Statements.			10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			4634

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.			6954

ITEM 4. Controls and Procedures.			6954

PART II. OTHER INFORMATION.

ITEM 1. Legal Proceedings.			7055

ITEM 1A. Risk Factors.			7055





ITEM 5. Other Information			56

ITEM 6. Exhibits.			7157

SIGNATURES.			7358


	September 30, 2022		December 31, 2021
Raw materials	$	6	$	—
Work in process	6		—
Finished goods	137		1
Total inventory	$	149	$	1


	U.S. Networks		International Networks		Studios		Networks		DTC		Total





December 31, 2021	$	10,813	$	2,099	$	—	$	—	$	—	$	12,912
Segment recast (See Note 20)	(10,813)		(2,059)		—		10,555		2,317		—
Acquisitions (See Note 3)	—		—		8,938		7,015		5,909		21,862



Foreign currency translation and other	—		(40)		(16)		(220)		(48)		(324)
September 30, 2022	$	—	$	—	$	8,922	$	17,350	$	8,178	$	34,450


	Remaining 2022		2023		2024		2025		2026		Thereafter
Amortization expense	$	1,845	$	6,479	$	4,967	$	3,595	$	2,592	$	27,266


	U.S. Networks		International Networks		Studios		Networks		DTC		Corporate and Inter-Segment Eliminations		Total
December 31, 2021	$	4	$	13	$	—	$	—	$	—	$	2	$	19
Segment recast (See Note 20)	(4)		(13)		—		15		—		2		—
Acquisitions (See Note 3)	—		—		40		—		14		55		109

Employee termination accruals, net	—		—		88		95		45		218		446

Cash paid	—		—		(19)		(15)		(13)		(48)		(95)
September 30, 2022	$	—	$	—	$	109	$	95	$	46	$	229	$	479


	Three Months Ended September 30, 2021
	Studios		Networks		DTC		Corporate and Inter-segment Eliminations		Total
Revenues:
Advertising	$	—	$	1,416	$	37	$	—	$	1,453
Distribution	—		1,118		210		—		1,328
Content	6		339		7		—		352
Other	—		16		1		—		17
Total	$	6	$	2,889	$	255	$	—	$	3,150


Category	Location on Balance Sheet	September 30, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	Other noncurrent assets	$	3,222	$	535

Operating lease liabilities (current)	Accrued liabilities	$	337	$	62
Operating lease liabilities (noncurrent)	Other noncurrent liabilities	3,003		567
Total operating lease liabilities		$	3,340	$	629

Finance Leases
Finance lease right-of-use assets	Property and equipment, net	$	246	$	249

Finance lease liabilities (current)	Accrued liabilities	$	81	$	58
Finance lease liabilities (noncurrent)	Other noncurrent liabilities	187		197
Total finance lease liabilities		$	268	$	255


	September 30, 2022		December 31, 2021
Weighted average remaining lease term (in years):
Operating leases	12		12
Finance leases	5		5

Weighted average discount rate:
Operating leases	4.10	%	2.94	%
Finance leases	3.19	%	3.57	%


	Operating Leases		Finance Leases
2022 (excluding the three quarters ended September 30, 2022)	$	173	$	74
2023	450		70
2024	407		55
2025	354		34
2026	323		25
Thereafter	2,610		31
Total lease payments	4,317		289
Less: Imputed interest	(977)		(21)
Total	$	3,340	$	268


	April 8, 2022
		U.S. Nonqualified Plans		Non-U.S. Pension Plans
Discount rate		3.89	%	2.51	%
Long-term rate of return on plan assets		N/A		1.61	%
Rate of compensation increases		N/A		5.82	%


	September 30, 2022		December 31, 2021
Accrued participation and residuals	$	3,019	$	—
Accrued production	1,336		4
Content rights payable	1,004		772
Accrued payroll and related benefits	1,644		533
Other accrued liabilities	3,194		921
Total accrued expenses and other current liabilities	$	10,197	$	2,230


	September 30, 2022		December 31, 2021
Production receivables	$	1,288	$	—
Other current assets	2,293		913
Total prepaid expenses and other current assets	$	3,581	$	913


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	Pretax		Tax benefit (expense)		Net-of-tax		Pretax		Tax benefit (expense)		Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency	$	(684)	$	3	$	(681)	$	(187)	$	1	$	(186)
Net investment hedges	5		(14)		(9)		59		(17)		42


Total currency translation adjustments	(679)		(11)		(690)		(128)		(16)		(144)

Derivative adjustments:
Unrealized gains (losses)	30		(2)		28		18		(3)		15
Reclassifications from other comprehensive income to net income	(6)		2		(4)		(3)		—		(3)
Total derivative adjustments	24		—		24		15		(3)		12
Other comprehensive income (loss) adjustments	$	(655)	$	(11)	$	(666)	$	(113)	$	(19)	$	(132)


							Long-Term Debt
Year Ending December 31,	Content		Other Purchase Obligations		Pension and Other Employee Obligations		Principal		Interest		Total
2022 (remaining three months)	$	2,527	$	1,053	$	163	$	—	$	210	$	3,953
2023	7,084		1,256		497		1,335		2,223		12,395
2024	5,220		640		265		4,220		2,135		12,480
2025	3,862		316		129		7,147		1,855		13,309
2026	2,591		122		79		790		1,728		5,310
Thereafter	10,433		130		235		36,652		27,486		74,936
Total	$	31,717	$	3,517	$	1,368	$	50,144	$	35,637	$	122,383