What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 227 added, 265 removed, 429 unchanged (53% of the section changed)

10 unchanged sentences

(See Note 3 and Note 4 to the accompanying consolidated financial statements.)

Discovery is a premier global media and entertainment company that combines the WarnerMedia Business’s premium entertainment, sports and news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, thus offering audiences a differentiated portfolio of content, brands and franchises across television, film, streaming and gaming.

Discovery is a premier global media and entertainment company that provides audiences with 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, HBO Max, Discovery Channel, discovery+, CNN, HGTV, Food Network, TNT, TBS, TLC, OWN, Warner Bros.

Motion Picture Group, Warner Bros.

Television Group, DC, HBO, HBO Max, Max, discovery+, CNN, Discovery Channel, HGTV, Food Network, TNT Sports, TBS, TLC, OWN, Warner Bros.

Games, Batman, Superman, Wonder Woman, Harry Potter, Looney Tunes, Hanna-Barbera, Game of Thrones, and The Lord of the Rings.

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In connection with the Merger, we have announced and taken actions to implement projects to achieve cost synergies for the Company.

We finalized the framework supporting our ongoing restructuring and transformation initiatives during 2022, which include, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs.

We expect that we will incur approximately $4.1 - $5.3 billion in pre-tax restructuring charges.

We finalized the framework supporting our ongoing restructuring and transformation initiatives during the year ended December 31, 2022, which includes, among other things, strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs.

We expect that we will incur approximately $4.1 - $5.3 billion in pre-tax restructuring charges, of which we have incurred $4.2 billion as of December 31, 2023.

Of the total expected pre-tax restructuring charges, we expect total cash expenditures to be $1.0 - $1.5 billion.

We incurred $3.8 billion of pre-tax restructuring charges during the year ended December 31, 2022.

We incurred $0.5 billion of pre-tax restructuring charges during the year ended December 31, 2023 related to this plan.

While our restructuring efforts are ongoing, the restructuring program is expected to be substantially completed by the end of 2024.

In connection with the Merger, we reevaluated and changed our segment presentation and reportable segments during 2022.

As of December 31, 2023, we classified our operations in three reportable segments:

• Studios, consisting primarily 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 principally of our domestic and international television networks;

• DTC, consisting primarily of our premium pay-TV and streaming services.

• 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 our networks/DTC services as well as third parties, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming.

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

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

Our segment presentation was 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 2022, we exited our operations in Russia and removed all of our channels and services from the market.

We do not expect these actions to have a material effect on our consolidated financial statements.

For further discussion of financial information for our segments and the geographical areas in which we do business, our content development activities, and revenues, see our business overview set forth in Item 1, “Business” and Note 23 to the consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Impact of COVID-19

We continue to closely monitor the ongoing impact of COVID-19 on all aspects of our business and geographies;

however, 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.

Certain key sources of revenue for the Studios segment, including theatrical revenues, original television productions, 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.

RESULTS OF OPERATIONS

The discussion below compares our actual and pro forma combined results, as if the Merger occurred on January 1, 2021, for the year ended December 31, 2022 to the year ended December 31, 2021.

Management believes reviewing our 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.

The discussion below compares our actual results for the year ended December 31, 2023 to our pro forma combined results for the year ended December 31, 2022, as if the Merger occurred on January 1, 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 Studios, Networks, DTC, Corporate, and inter-segment eliminations information is based on the historical operating results of the respective segments and include, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments.

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2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma Combined Actual (a)

Actual Actual Pro Forma

Adjustments Pro Forma Combined Actual Pro Forma Combined

(Actual) Combined

(Actual) Pro Forma

Distribution $ 20,237 $ 16,142 $ 4,339 $ 20,481 25 % (1) % — %

Advertising 8,700 8,524 1,412 9,936 2 % (12) % (13) %

Distribution 16,142 4,339 20,481 5,202 15,579 20,781 NM (1) % — %

Content 8,360 3,297 11,657 737 12,455 13,192 NM (12) % (9) %

Other 791 230 1,021 58 706 764 NM 34 % 36 %

Total revenues 33,817 9,278 43,095 12,191 33,135 45,326 NM (5) % (3) %

Costs of revenues, excluding depreciation and amortization 20,442 5,125 25,567 4,620 21,353 25,973 NM (2) % 1 %

Selling, general and administrative 9,678 1,745 11,423 4,016 8,987 13,003 NM (12) % (10) %

Depreciation and amortization 7,193 34 7,227 1,582 6,774 8,356 NM (14) % (13) %

Restructuring 3,757 (90) 3,667 32 90 122 NM NM NM

Impairment and loss (gain) on disposition and disposal groups 117 — 117 (71) 223 152 NM (23) % (23) %

Total costs and expenses 41,187 6,814 48,001 10,179 37,427 47,606 NM 1 % 3 %

Operating (loss) income (7,370) 2,464 (4,906) 2,012 (4,292) (2,280) NM NM NM

Content 11,203 8,360 3,297 11,657 34 % (4) % (4) %

Other 1,181 791 230 1,021 49 % 16 % 14 %

Total revenues 41,321 33,817 9,278 43,095 22 % (4) % (4) %

Costs of revenues, excluding depreciation and amortization 24,526 20,442 5,125 25,567 20 % (4) % (4) %

Selling, general and administrative 9,696 9,678 1,745 11,423 — % (15) % (15) %

Depreciation and amortization 7,985 7,193 34 7,227 11 % 10 % 10 %

Restructuring and other charges 585 3,757 (90) 3,667 (84) % (84) % (84) %

Impairment and loss on dispositions 77 117 — 117 (34) % (34) % (37) %

Total costs and expenses 42,869 41,187 6,814 48,001 4 % (11) % (11) %

Operating loss (1,548) (7,370) 2,464 (4,906) 79 % 68 % 70 %

Interest expense, net (2,221) (1,777) (515) (2,292)

Loss from equity investees, net (82) (160) (20) (180)

Other income, net 347 139 486 72 100 172

(Loss) income before income taxes (8,960) 2,068 (6,892) 1,433 (6,204) (4,771)

Income tax benefit (expense) 1,663 (56) 1,607 (236) 1,448 1,212

Net (loss) income (7,297) 2,012 (5,285) 1,197 (4,756) (3,559)

Other (expense) income, net (12) 347 139 486

Loss before income taxes (3,863) (8,960) 2,068 (6,892)

Income tax benefit 784 1,663 (56) 1,607

Net loss (3,079) (7,297) 2,012 (5,285)

Net income attributable to noncontrolling interests (38) (68) — (68)

Net income attributable to redeemable noncontrolling interests (9) (6) — (6)

Net (loss) income available to Warner Bros.

Net loss available to Warner Bros.

Discovery, Inc.

$ (3,126) $ (7,371) $ 2,012 $ (5,359)

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

NM - Not meaningful

Unless otherwise indicated, the discussion through operating (loss) income below is on a pro-forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenues, and selling, general and administrative expenses are substantially attributable to the Merger.

The percent changes of line items below operating (loss) income in the table above are not included as the activity is principally in U.S.

Unless otherwise indicated, the discussion below through operating loss reflects the results for the year ended December 31, 2022 on a pro-forma combined basis, ex-FX, since the actual increases year over year for revenues, cost of revenues, and selling, general and administrative expenses 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.

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 reset 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 was flat in 2023, as declines in linear subscribers and DTC wholesale in the U.S.

were offset by higher U.S.

contractual affiliate rates, new DTC partnership launches, DTC price increases in the U.S., and inflationary impact in Argentina.

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.

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Advertising contracts generally have a term of one year or less.

Advertising revenue is dependent upon a number of factors, including 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, 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.

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We also generate revenue from the sale of advertising through our digital platforms on a stand-alone basis and as part of advertising packages with our television networks.

Advertising revenue decreased 4% in 2022, primarily attributable to declines in domestic general entertainment and news networks, partially offset by subscriber growth on our DTC ad-supported tiers and higher sports advertising in the U.S.

due to the NCAA Men's Final Four and Championship games airing on our networks and the addition of the NHL starting in the fourth quarter of 2021.

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.

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 was flat in 2022, primarily attributable to a decline in linear subscribers in the U.S.

and lower contractual affiliate rates in some European markets, as well as a decline in wholesale revenues primarily due to the expiration of HBO Max on Amazon Channels in September 2021, offset by global retail subscriber gains on DTC platforms.

HBO Max re-launched on Amazon Channels in December 2022.

Advertising revenue decreased 13% in 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, and the prior year broadcast of the NCAA March Madness Final Four and Championship, partially offset by higher Max U.S.

engagement and ad-lite subscriber growth.

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 decreased 9% in 2022, primarily attributable to lower TV licensing and home entertainment revenue, partially offset by higher theatrical film rental revenue and higher third-party licensing of HBO content.

Content revenue decreased 4% in 2023, primarily attributable to lower TV licensing revenue and the prior year broadcast of the Olympics in Europe, partially offset by higher games revenue due to the release of Hogwarts Legacy and higher theatrical film rental revenue due to the release of Barbie .

Other revenue primarily consists of studio production services and tours.

Other revenue increased 36% in 2022, primarily attributable to a full year of results for the Warner Bros.

Studio Tour London and Hollywood, as well as the Harry Potter flagship store in New York, which opened in June 2021, and services provided to the unconsolidated BT Sport joint venture.

Other revenue increased 14% in 2023, primarily attributable to the opening of Warner Bros.

Studio Tour Tokyo in June 2023, continued strong attendance at Warner Bros.

Studio Tour London and Hollywood, and services provided to the unconsolidated TNT Sports joint venture.

Costs of Revenues

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The costs of producing a content asset and bringing that asset to market consist of production costs, participation costs, and exploitation costs.

Costs of revenues increased 1% in 2022, primarily attributable to increased programming expenses on DTC platforms, higher theatrical product content expense, higher sports-related expense globally, and increased expense at CNN, partially offset by lower television product content expense and distribution fees.

Costs of revenues decreased 4% in 2023, primarily attributable to lower content expense at our Studios segment for television products and our DTC segment and lower sports networks content expense, due to the prior year broadcast of the Olympics in Europe and our exit from AT&T SportsNets, partially offset by higher games content 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 10% in 2022, primarily attributable to lower marketing expenses.

Selling, general and administrative expenses decreased 15% in 2023, primarily attributable to more efficient marketing-related spend and a reduction in personnel costs, partially offset by higher theatrical and games marketing expense.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets.

Depreciation and amortization decreased 13% in 2022, primarily attributable to a change in amortization method from the straight-line method to the sum of the months’ digits method for some of the WM assets acquired.

Restructuring

In connection with the Merger, the Company has announced and taken actions to implement projects to achieve cost synergies for the Company.

Restructuring was $3,694 million and $121 million in 2022 and 2021, respectively.

Restructuring in 2022 primarily related to strategic content programming assessments, organization restructuring, facility consolidation activities, and other contract termination costs.

Depreciation and amortization increased 10% in 2023, primarily attributable to intangible assets acquired during the Merger that are being amortized using the sum of the months’ digits method, which resulted in lower pro forma amortization in 2022.

Restructuring and Other Charges

In connection with the Merger, the Company has announced and has taken actions to implement projects to achieve cost synergies for the Company.

Restructuring and other charges decreased 84% in 2023, primarily attributable to lower content impairments and other content development costs and write-offs, contract terminations, facility consolidation activities, organizational restructuring, and other charges.

(See Note 6 to the accompanying consolidated financial statements.)

Impairment and Loss (Gain) on Dispositions and Disposals Groups

Impairment and loss (gain) on disposition and disposal groups was a $117 million and $152 million loss in 2022 and 2021, respectively.

Impairments and Loss on Dispositions

Impairments and loss on dispositions was a $77 million and $117 million loss in 2023 and 2022, respectively.

The loss in 2023 was primarily attributable to lease impairments and costs associated with our exit from AT&T SportsNets.

The loss in 2022 was 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 18 to the accompanying consolidated financial statements.) The gain in 2021 was primarily attributable to the sale of our Great American Country network, partially offset by the WM sale of Hello Sunshine.

(See Note 18 to the accompanying consolidated financial statements.)

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(See Note 10 to the accompanying consolidated financial statements.)

Other Income, net

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

Other (Expense) Income, net

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

Year Ended December 31,

Foreign currency (losses) gains, net $ (150) $ 93

Gains (losses) on derivative instruments, net 475 (33)

Gain on sale of investment with readily determinable fair value — 15

Foreign currency losses, net $ (173) $ (150)

Gains on derivative instruments, net 28 475

Change in the value of investments with readily determinable fair value 37 (105)

Change in fair value of equity investments without readily determinable fair value (142) (13)

Change in the value of equity investments without readily determinable fair value (73) (142)

Gain on sale of equity method investments — 195

Loss on extinguishment of debt — (10)

Other income, net 74 22

Total other income, net

Gain on extinguishment of debt 17 —

Interest income 179 67

Other (expense) income, net (27) 7

Total other (expense) income, net

The following table reconciles our effective income tax rate to the U.S.

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Preferred stock conversion premium charge — — % 166 (2) %

UK Finance Act legislative change — — % (155) (11) %

Noncontrolling interest adjustment (9) — % (17) — %

Other, net 82 (2) % 41 — %

Income tax (benefit) expense $ (1,663) 19 % $ 236 16 %

Income tax (benefit) expense was $(1,663) million and $236 million, and the Company’s effective tax rate was 19% and 16% for 2022 and 2021, respectively.

The decrease in the tax expense for the year ended December 31, 2022, was primarily attributable to a decrease in pre-tax book income, partially offset by an unfavorable tax adjustment related to the 2022 preferred stock conversion transaction expense that was not deductible for tax purposes (see Note 3), as well as the effect of foreign operations, including taxation and allocation of income and losses across multiple foreign jurisdictions.

The decrease for the year ended December 31, 2022 was further offset by a deferred tax benefit of $155 million recorded in 2021 resulting from the UK Finance Act 2021 enacted in June 2021.

Income tax benefit $ (784) 20 % $ (1,663) 19 %

Income tax benefit was $(784) million and $(1,663) million, and the Company’s effective tax rate was 20% and 19% for 2023 and 2022, respectively.

The decrease in tax benefit for the year ended December 31, 2023 was primarily attributable to a decrease in pre-tax book loss and the effect of foreign operations, including taxation and allocation of income and losses across various foreign jurisdictions.

These decreases were partially offset by a state uncertain tax benefit remeasurement following a multi-year tax audit agreement and a favorable state deferred tax adjustment recorded in the year ended December 31, 2023.

The decrease for the year ended December 31, 2023 was further offset by a one-time expense incurred in 2022 related to a preferred stock conversion transaction expense that was not deductible for tax purposes.

Segment Results of Operations – 2023 vs.

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The Company excludes employee share-based compensation, restructuring, certain impairment charges, gains and losses on business and asset dispositions, and transaction and integration costs from the calculation of Adjusted EBITDA due to their impact on comparability between periods.

Integration costs include transformative system implementations and integrations, such as Enterprise Resource Planning systems, and may take several years to complete.

The Company also excludes the depreciation of fixed assets and amortization of intangible assets, amortization of purchase accounting fair value step-up for content, and amortization of capitalized interest for content, as these amounts do not represent cash payments in the current reporting period.

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2023 2022 % Change

Studios $ 1,772 $ 14 NM

Studios $ 2,183 $ 1,772 23 %

Networks 9,063 8,725 4 %

DTC (1,596) (1,345) (19) %

Corporate (1,200) (385) NM

DTC 103 (1,596) NM

Corporate (1,242) (1,200) (4) %

Inter-segment eliminations 93 17 NM

Studios Segment

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

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

Year Ended December 31,

2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma

Combined Actual (a)

Actual Actual Pro Forma

Adjustments Pro Forma

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(Actual) Pro Forma

Advertising $ 15 $ 9 $ 24 $ — $ 123 $ 123 NM (80) % (80) %

Distribution 12 6 18 — 14 14 NM 29 % 29 %

Content 9,156 3,898 13,054 20 14,336 14,356 NM (9) % (7) %

Other 548 154 702 — 516 516 NM 36 % 36 %

Total revenues 9,731 4,067 13,798 20 14,989 15,009 NM (8) % (6) %

Costs of revenues, excluding depreciation and amortization 6,310 2,392 8,702 3 9,589 9,592 NM (9) % (7) %

Selling, general and administrative 1,649 698 2,347 3 2,769 2,772 NM (15) % (13) %

Adjusted EBITDA 1,772 977 2,749 14 2,631 2,645 NM 4 % 8 %

Distribution $ 17 $ 12 $ 6 $ 18 42 % (6) % (6) %

Advertising 15 15 9 24 — % (38) % (38) %

Content 11,358 9,156 3,898 13,054 24 % (13) % (13) %

Other 802 548 154 702 46 % 14 % 13 %

Total revenues 12,192 9,731 4,067 13,798 25 % (12) % (12) %

Costs of revenues, excluding depreciation and amortization 7,296 6,310 2,392 8,702 16 % (16) % (16) %

Selling, general and administrative 2,713 1,649 698 2,347 65 % 16 % 16 %

Adjusted EBITDA 2,183 1,772 977 2,749 23 % (21) % (21) %

Depreciation and amortization 667 501 39 540

Employee share-based compensation — 1 26 27

Restructuring 1,050 (38) 1,012 — 38 38

Restructuring and other charges 225 1,050 (38) 1,012

Transaction and integration costs 7 9 — 9

Inter-segment eliminations 5 — 5 — — —

Impairment and loss on disposition and disposal groups 30 — 30 — — —

Amortization of fair value step-up for content 995 1,370 (785) 585

Operating (loss) income $ (1,194) $ 1,735 $ 541 $ 14 $ 229 $ 243

(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 discussion below is 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 EBITDA are substantially attributable to the Merger.

Content revenue decreased 7% in 2022, primarily attributable to lower TV licensing and home entertainment revenue, partially offset by higher theatrical film rental revenue.

TV licensing revenue decreased mainly due to large television licensing deals in the prior year and the timing of initial telecast revenue, as the prior year benefited from the ramp up of TV production following COVID-related delays in 2020.

Home entertainment revenue was lower due to strong COVID-induced demand in the prior year and fewer new releases of theatrical products.

Theatrical film rental revenue was favorably impacted by improved performance of our theatrical slate and improved audience attendance at movie theaters.

Other revenue increased 36% in 2022, primarily attributable to a full year of results for the Warner Bros.

Studio Tour London and Hollywood, as well as the Harry Potter flagship store in New York, which opened in June 2021.

Amortization of capitalized interest for content 46 — — —

Inter-segment eliminations 31 5 — 5

Impairments and loss on dispositions 1 30 — 30

Operating income (loss) $ 211 $ (1,194) $ 1,735 $ 541

The discussion below reflects the results for the year ended December 31, 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 EBITDA are substantially attributable to the Merger.

Content revenue decreased 13% in 2023, primarily attributable to lower TV licensing revenue, partially offset by higher games revenue due to the release of Hogwarts Legacy and higher theatrical film rental revenue due to the release of Barbie .

TV licensing revenue decreased due to the timing of TV production, including the impact of the WGA and SAG-AFTRA strikes, certain large TV licensing deals in the prior year, fewer series sold to our owned platforms, and fewer CW series.

Other revenue increased 13% in 2023, 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, partially offset by lower studio production services due to the impact of the WGA and SAG-AFTRA strikes.

Costs of Revenues

Costs of revenues decreased 7% in 2022, primarily attributable to lower television product content expense and distribution fees related to the aforementioned television licensing deals, partially offset by higher theatrical product content expense.

Costs of revenues decreased 16% in 2023, primarily attributable to lower television product content expense, including the impact of the WGA and SAG-AFTRA strikes, partially offset by higher content expense for games and theatrical products commensurate with higher revenues.

Selling, General and Administrative

Selling, general and administrative expenses decreased 13% in 2022, primarily attributable to lower marketing expense due to fewer theatrical releases in 2022.

Selling, general and administrative expenses increased 16% in 2023, primarily attributable to higher theatrical marketing expense due to the increased quantity of films released and higher games marketing expense to support the release of Hogwarts Legacy .

Adjusted EBITDA

Adjusted EBITDA increased 8% in 2022.

Adjusted EBITDA decreased 21% in 2023.

Networks Segment

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2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma

Combined Actual (a)

Actual Actual Pro Forma

Adjustments Pro Forma

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(Actual) Pro Forma

Distribution $ 11,521 $ 9,759 $ 2,183 $ 11,942 18 % (4) % (2) %

Advertising 8,342 8,224 1,380 9,604 1 % (13) % (13) %

Distribution 9,759 2,183 11,942 4,486 7,843 12,329 NM (3) % (1) %

Content 1,005 1,120 220 1,340 (10) % (25) % (24) %

Other 245 55 300 56 178 234 NM 28 % 35 %

Other 376 245 55 300 53 % 25 % 21 %

Total revenues 21,244 19,348 3,838 23,186 10 % (8) % (8) %

Costs of revenues, excluding depreciation and amortization 8,006 2,148 10,154 3,926 6,098 10,024 NM 1 % 4 %

Costs of revenues, excluding depreciation and amortization 9,342 8,006 2,148 10,154 17 % (8) % (7) %

Selling, general and administrative 2,839 2,617 364 2,981 8 % (5) % (4) %

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Employee share-based compensation — — 9 9

Restructuring 1,003 (5) 998 30 5 35

Restructuring and other charges 201 1,003 (5) 998

Transaction and integration costs 3 2 — 2

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Inter-segment eliminations 90 17 — 17

Impairment and loss (gain) on disposition and disposal groups 24 — 24 (72) (1) (73)

Impairments and loss on dispositions 13 24 — 24

Operating income $ 3,322 $ 2,919 $ 893 $ 3,812

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

Advertising revenue decreased 5% in 2022, primarily attributable to declines in domestic general entertainment and news networks, partially offset by higher sports advertising in the U.S.

due to the NCAA Men's Final Four and Championship games airing on our networks and the addition of the NHL starting in the fourth quarter of 2021.

Distribution revenue decreased 1% in 2022, primarily attributable to a decline in linear subscribers in the U.S.

and lower contractual affiliate rates in some European markets, partially offset by an increase in contractual affiliate rates in the U.S.

and certain Latin American markets and premium sports packages in Latin America.

Content revenue increased by 7% in 2022, primarily attributable to higher inter-segment licensing of content to DTC, partially offset by overall net lower sub-licensing revenue for the Winter Olympics in 2022 compared to the Summer Olympics in 2021.

Other revenue increased 35% in 2022, primarily attributable to services provided to the unconsolidated BT Sport joint venture.

Distribution revenue decreased 2% in 2023, primarily attributable to a decline in linear subscribers in the U.S., and to a lesser extent, lower sports related revenue due to our exit from AT&T SportsNets and the TNT Sports Chile shift to DTC, partially offset by higher U.S.

contractual affiliate rates and inflationary impact in Argentina.

Advertising revenue decreased 13% in 2023, primarily attributable to audience declines in domestic general entertainment and news networks, soft linear advertising markets in the U.S., and to a lesser extent, certain international markets, as well as the impact of broadcast of the NCAA March Madness Final Four and Championship in 2022.

Content revenue decreased by 24% in 2023, primarily attributable to lower international sports sublicensing due to the prior year broadcast of the Olympics in Europe, and lower third-party content licensing deals in the U.S., partially offset by higher inter-segment licensing of content to DTC.

Other revenue increased 21% in 2023, primarily attributable to services provided to the unconsolidated TNT Sports UK joint venture.

Costs of Revenues

Costs of revenues increased 4% in 2022, primarily attributable to higher sports-related expense globally, increased expense at CNN, and costs associated with providing services to the unconsolidated BT Sport joint venture, partially offset by lower content expense due to the previously announced restructuring program and lower international sports rights driven by the Winter Olympics in 2022 (as compared to the Summer Olympics in 2021).

Costs of revenues decreased 7% in 2023, primarily attributable to lower sports content expense, including the prior year broadcast of the Olympics in Europe and the NCAA March Madness Final Four and Championship and our exit from AT&T SportsNets, lower domestic general entertainment and news related expense, partially offset by unfavorable expenses from inflationary impact in Argentina and costs associated with the unconsolidated TNT Sports UK joint venture.

Selling, General and Administrative

Selling, general and administrative expenses decreased 5% in 2022, primarily attributable to lower personnel and marketing expenses.

Selling, general and administrative expenses decreased 4% in 2023, primarily attributable to lower marketing and personnel expenses.

Adjusted EBITDA

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2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma

Combined Actual (a)

Actual Actual Pro Forma

Adjustments Pro Forma

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(Actual) Pro Forma

Advertising $ 371 $ 36 $ 407 $ 131 $ 49 $ 180 NM NM NM

Distribution 6,371 2,150 8,521 716 7,722 8,438 NM 1 % 3 %

Content 522 230 752 11 622 633 NM 19 % 19 %

Other 10 3 13 2 12 14 NM (7) % — %

Total revenues 7,274 2,419 9,693 860 8,405 9,265 NM 5 % 6 %

Costs of revenues, excluding depreciation and amortization 6,211 1,977 8,188 691 6,166 6,857 NM 19 % 21 %

Distribution $ 8,703 $ 6,371 $ 2,150 $ 8,521 37 % 2 % 2 %

Advertising 548 371 36 407 48 % 35 % 35 %

Content 886 522 230 752 70 % 18 % 17 %

Other 17 10 3 13 70 % 31 % 31 %

Total revenues 10,154 7,274 2,419 9,693 40 % 5 % 5 %

Costs of revenues, excluding depreciation and amortization 7,623 6,211 1,977 8,188 23 % (7) % (7) %

Selling, general and administrative 2,428 2,659 909 3,568 (9) % (32) % (32) %

Adjusted EBITDA (1,596) (467) (2,063) (1,345) (520) (1,865) (19) % (11) % (11) %

Adjusted EBITDA 103 (1,596) (467) (2,063) NM NM NM

Depreciation and amortization 2,063 1,733 31 1,764

Employee share-based compensation — (1) — (1)

Restructuring 1,551 (3) 1,548 2 3 5

Restructuring and other charges 66 1,551 (3) 1,548

Transaction and integration costs 4 2 — 2

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Inter-segment eliminations 72 9 — 9

Impairment and loss on disposition and disposal groups 13 — 13 1 — 1

Impairments and loss on dispositions 3 13 — 13

Operating loss $ (2,565) $ (5,293) $ (443) $ (5,736)

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

As of December 31, 2022, we had 96.1 million DTC subscribers.

Advertising revenue increased $229 million in 2022, primarily attributable to subscriber growth on our DTC ad-supported tiers.

Distribution revenue increased 3% in 2022, primarily attributable to global retail subscriber gains, partially offset by a decline in wholesale revenues primarily due to the expiration of HBO Max on Amazon Channels in September 2021.

HBO Max re-launched on Amazon Channels in December 2022.

Content revenue increased 19% in 2022, primarily attributable to higher third-party licensing of HBO content.

2 We define a “DTC Subscription” as:

(i) a retail subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue, whether directly or through a third party, from a direct-to-consumer platform;

(ii) a wholesale subscription to discovery+, HBO, 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;

(iii) a wholesale subscription to discovery+, HBO or HBO Max for which we have recognized subscription revenue on a per subscriber 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.”

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

(i) individuals who subscribe to DTC products, other than discovery+, HBO and HBO Max, that may be offered by us or by certain joint venture partners or affiliated parties from time to time;

(ii) a limited number of international discovery+ subscribers that are part of non-strategic partnerships or short-term arrangements as may be identified by the Company from time to time;

(iii) domestic and international Cinemax subscribers, and international basic HBO subscribers;

and (iv) users on free trials except for those users on free trial that convert to a DTC Subscription within the first seven days of the next month as noted above.

As of December 31, 2023, we had 97.7 million DTC subscribers (as defined under Item 1.

Distribution revenue increased 2% in 2023, primarily attributable to new partnership launches, price increases in the U.S.

and most international markets, the launch of the Ultimate tier for Max in the U.S., and the TNT Sports Chile shift to DTC, partially offset by U.S.

wholesale declines.

Advertising revenue increased 35% in 2023, primarily attributable to higher Max U.S.

engagement and ad-lite subscriber growth.

Content revenue increased 17% in 2023, primarily attributable to a higher volume of licensing deals.

Costs of Revenues

Cost of revenues increased 21% in 2022, primarily attributable to increased programming expenses, which were moderated by the previously announced restructuring program.

Cost of revenues decreased 7% in 2023, primarily attributable to lower content expense and the shutdown of CNN+ in the prior year, partially offset by increased content licensing costs commensurate with higher content revenue.

Selling, General, and Administrative Expenses

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Adjusted EBITDA

Adjusted EBITDA decreased 11% in 2022.

Adjusted EBITDA increased $2,150 million in 2023.

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

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2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma

Combined Actual Pro Forma

Actual Actual Pro Forma

Adjustments Pro Forma

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(Actual) Pro Forma

Adjusted EBITDA $ (1,200) $ (353) $ (1,553) $ (385) $ (966) $ (1,351) NM (15) % (17) %

Adjusted EBITDA $ (1,242) $ (1,200) $ (353) $ (1,553) (4) % 20 % 20 %

Employee share-based compensation 488 410 (11) 399

Depreciation and amortization 294 272 (40) 232

Restructuring 195 (44) 151 — 44 44

Restructuring and other charges 95 195 (44) 151

Transaction and integration costs 148 1,182 (564) 618

Impairment and loss on disposition and disposal groups 50 — 50 — 224 224

Impairments and loss on dispositions 60 50 — 50

Facility consolidation costs 32 — — —

Amortization of fair value step-up for content (6) — — —

Inter-segment eliminations (193) (31) — (31)

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

Adjusted EBITDA decreased 17% for 2022, primarily attributable to increased securitization costs from higher interest rates, partially offset by lower personnel costs.

As reported transaction and integration costs for 2022 included the impact of the issuance of additional shares of WBD common stock to Advance/Newhouse Programming Partnership of $789 million upon the closing of the Merger.

(See Note 3 to the accompanying consolidated financial statements.)

Adjusted EBITDA improved 20% in 2023, primarily attributable to reductions to personnel costs, lower technology-related operating expenses, and lower securitization expense.

Inter-segment Eliminations

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2023 2022 % Change

Actual Pro Forma

Adjustments Pro Forma

Combined Actual Pro Forma

Actual Actual Pro Forma

Adjustments Pro Forma

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(Actual) Pro Forma

Inter-segment revenue eliminations $ (2,566) $ (1,065) $ (3,631) $ — $ (3,219) $ (3,219) NM (13) % (13) %

Inter-segment expense eliminations (2,583) (1,038) (3,621) — (3,229) (3,229) NM (12) % (12) %

Inter-segment revenue eliminations $ (2,269) $ (2,566) $ (1,065) $ (3,631) 12 % 38 % 38 %

Inter-segment expense eliminations (2,362) (2,583) (1,038) (3,621) 9 % 35 % 35 %

Adjusted EBITDA 93 17 (27) (10) NM NM NM

Restructuring (42) — (42) — — —

Restructuring and other charges (2) (42) — (42)

Amortization of fair value step-up for content 451 583 — 583

Operating (loss) income $ (524) $ (27) $ (551) $ — $ 10 $ 10

Operating loss $ (356) $ (524) $ (27) $ (551)

Inter-segment revenue and expense eliminations primarily represent inter-segment content transactions and marketing and promotion activity between reportable segments.

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We also participate in a revolving receivables program and an accounts receivable factoring program described below.

During the year ended December 31, 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 Communication, LLC (“DCL”) entered into a multicurrency revolving credit agreement (the “Revolving Credit Agreement”), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended, among DCL, the Company, certain lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.

DCL 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 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.

We have a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and have the capacity to borrow up to $6.0 billion under the Revolving Credit Agreement (the “Credit Facility”).

We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions.

The Revolving Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants.

As of December 31, 2022, DCL was in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.

Additionally, the 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 reduced by any outstanding borrowings under the commercial paper program.

As of December 31, 2023, we were 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 year ended December 31, 2023, we borrowed and repaid $5,207 million and $5,214 million, respectively, under our Credit Facility and commercial paper program.

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

• Revolving Receivables Program

The Company has a revolving agreement to transfer up to $5.7 billion of certain receivables through its bankruptcy-remote subsidiary, Warner Bros.

We have a revolving agreement to transfer up to $5,500 million of certain receivables through our bankruptcy-remote subsidiary, Warner Bros.

Discovery Receivables Funding, LLC, to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred.

The Company services the sold receivables for the financial institution for a fee and pays fees to the financial institution in connection with this revolving agreement.

As customers pay their balances, the Company’s available capacity under this revolving agreement increases and typically the Company transfers additional receivables into the program.

In some cases, the Company may have collections that have not yet been remitted to the bank, resulting in a liability.

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 $5,200 million as of December 31, 2023.

• 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.

Total trade accounts receivable sold under the Company’s factoring arrangements was $477 million as of December 31, 2022.

We have a factoring agreement to sell certain of our non-U.S.

trade accounts receivable on a limited recourse basis to a third-party financial institution.

For the year ended December 31, 2023, total trade accounts receivable sold under our factoring arrangement was $383 million.

• Derivatives

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(See Note 13 to the accompanying consolidated financial statements.)

• Investments and Business Combinations

In addition to other investments, we completed the sale of our minority interests in Discovery Education and Golden Maple Limited (known as Tencent Video VIP) and received cash of $306 million during the year ended December 31, 2022.

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

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 Max and discovery+, principal and interest payments on our outstanding senior notes, funding for various equity method and other investments, and repurchases of our capital stock.

Our primary uses of cash include the creation and acquisition of new content, business acquisitions, income taxes, personnel costs, costs to develop and market our streaming service Max, 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, as well as certain sports rights.

Subsequent to the Merger, our contractual commitments to acquire content have increased significantly.

Additional information regarding contractual commitments to acquire content is 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.”

During the year ended December 31, 2022, we repaid $6.0 billion of aggregate principal amount outstanding of our term loans prior to the due dates of October 2023 and April 2025.

During the year ended December 31, 2022, we repaid in full at maturity $327 million of aggregate principal amount outstanding of our 2.375% Euro Denominated Senior Notes due March 2022 and issued notices for the redemption in full of all $192 million of aggregate principal amount outstanding of our 3.250% senior notes due in 2023 and all $796 million of aggregate principal amount outstanding of our 2.950% senior notes due 2023 (collectively the “2023 Notes”).

The 2023 Notes were redeemed in December 2022 for an aggregate redemption price of $988 million, plus accrued interest.

During 2022, we also assumed $41.5 billion of senior notes (at par value) and term loans in connection with the Merger.

During the year ended December 31, 2023, we repaid $4.0 billion of aggregate principal amount outstanding of our term loan prior to the due date of April 2025.

Floating Rate Notes

During the year ended December 31, 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.

During the year ended December 31, 2023, we purchased or repaid $2,420 million of aggregate principal amount outstanding of our senior notes due in 2023 and 2024.

In addition, we have $1,781 million of senior notes coming due in 2024.

• Capital Expenditures and Investments in Next Generation Initiatives

We effected capital expenditures of $987 million in 2022, including amounts capitalized to support our next generation platforms, such as HBO Max and discovery+.

In addition, we expect to continue to incur significant costs to develop and market our combined streaming service in the future.

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 purchases or exchanges will be dependent upon several factors, including our liquidity requirements, contractual restrictions, and general market conditions, as well as applicable regulatory, legal and accounting factors.

Whether or not we purchase or exchange any of our debt and the size and timing of any such purchases or exchanges will be determined at our discretion.

• Capital Expenditures

We effected capital expenditures of $1,316 million in 2023, including amounts capitalized to support Max.

In addition, we expect to continue to incur significant costs to develop and market Max.

• Investments and Business Combinations

Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value.

(See Note 10 to the accompanying consolidated financial statements.) We provide funding to our investees from time to time.

(See Note 10 to the accompanying consolidated financial statements.) We also provide funding to our investees from time to time.

We contributed $112 million and $168 million in 2023 and 2022, respectively, for investments in and advances to our investees.

We have and expect to continue to incur significant, one-time transaction and integration costs during the first year following the Merger.

(See Note 4 to the accompanying consolidated financial statements.)

We previously held a 35% interest in BluTV, an SVOD platform entity and content distributor in Turkey that was accounted for as an equity method investment.

In December 2023, we acquired the remaining 65% of BluTV for $50 million.

• Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we also had redeemable equity balances of $165 million at December 31, 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.

In 2022, GoldenTree exercised its put right requiring us to purchase GoldenTree’s noncontrolling interest.

In 2023, we paid GoldenTree $49 million for the redemption of their noncontrolling interest.

(See Note 19 to the accompanying consolidated financial statements.) Distributions to noncontrolling interests and redeemable noncontrolling interests totaled $301 million and $300 million in 2023 and 2022, respectively.

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During 2023 and 2022, we made cash payments of $1,440 million and $1,027 million for income taxes and $2,237 million and $1,539 million for interest on our outstanding debt, respectively.

Cash required for interest payments has increased significantly as a result of the Merger.

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

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Cash provided by operating activities 7,477 4,304

Cash provided by (used in) investing activities 3,524 (56)

Cash (used in) provided by investing activities (1,259) 3,524

Cash used in financing activities (5,837) (7,742)

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Cash provided by operating activities was $7,477 million and $4,304 million in 2023 and 2022, respectively.

The increase in cash provided by operating activities was primarily attributable to an increase in net income, excluding non-cash items, and working capital initiatives, partially offset by other negative fluctuations in working capital activity.

The increase in cash provided by operating activities was primarily attributable to an increase in net income, excluding non-cash items, partially offset by a negative fluctuation in working capital activity.

Investing Activities

Cash provided by (used in) investing activities was $3,524 million and $(56) million in 2022 and 2021, respectively.

The increase in cash provided by investing activities was primarily attributable to proceeds received from cash acquired during the Merger and the post-closing working capital settlement process and cash received from the unwind and settlement of derivative instruments, partially offset by increased purchases of property and equipment and a reduction in cash received from the sales and maturities of investments during the year ended December 31, 2022.

Cash (used in) provided by investing activities was $(1,259) million and $3,524 million in 2023 and 2022, respectively.

The decrease in cash provided by investing activities was primarily attributable to cash acquired from the Merger in the prior year, less proceeds received from the unwind and settlement of derivative instruments and sale of investments, and increased purchases of property and equipment during the year ended December 31, 2023.

Financing Activities

Cash used in financing activities was $5,837 million and $7,742 million in 2023 and 2022, respectively.

The increase in cash used in financing activities was primarily attributable to principal repayments made on our term loans during the year ended December 31, 2022.

The decrease in cash used in financing activities was primarily attributable to less net debt activity during the year ended December 31, 2023.

Capital Resources

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Revolving credit facility and commercial paper program 6,000 — 6,000

Term loans 4,000 4,000 —

Senior notes (a)

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Total $ 53,735 $ 43,955 $ 9,780

(a) Interest on senior notes is paid annually or semi-annually.

(a) Interest on senior notes is paid annually, semi-annually, or quarterly.

Our senior notes outstanding as of December 31, 2023 had interest rates that ranged from 1.90% to 8.30% and will mature between 2024 and 2062.

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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 December 31, 2022, we held $3.1 billion of our $3.7 billion of cash and cash equivalents in our foreign subsidiaries.

The 2017 Tax Act features a participation exemption regime with current taxation of certain foreign income and imposes a mandatory repatriation toll tax on unremitted foreign earnings.

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Interest payments on our outstanding senior notes are projected based on their contractual interest rates and maturity dates.

Additionally, DCL's revolving credit facility allows DCL and certain designated foreign subsidiaries of DCL to borrow up to $6.0 billion, including a $150 million sublimit for the issuance of standby letters of credit.

DCL may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions.

Additionally, the 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.

Additionally, we have a multicurrency Revolving Credit Agreement and have the capacity to borrow up to $6.0 billion under the Credit Facility.

We may also request additional commitments up to $1.0 billion from the lenders upon the satisfaction of certain conditions.

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.

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Purchase Obligations

Content purchase obligations include commitments and liabilities associated with third-party producers and sports associations for content that airs on our television networks and DTC services.

Production and licensing contracts generally require:

purchase of a specified number of episodes;

payments during production or over the term of a 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.

Content purchase obligations include commitments associated with third-party producers and sports associations for content that airs on our television networks and DTC services.

Production and licensing contracts generally require the purchase of a specified number of episodes and payments during production or over the term of a 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.

If the content is ultimately never produced, our commitments expire without obligation.

The commitments exclude content liabilities recognized on the consolidated balance sheet.

We expect to enter into additional production contracts and content licenses to meet our future content needs.

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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.

Other purchase obligations also include future funding commitments to equity method investees.

Although the Company had funding commitments to equity method investees as of December 31, 2023, the Company may also provide uncommitted additional funding to its equity method investments in the future.

(See Note 10 to the accompanying consolidated financial statements.)

Content and other purchase obligations presented above exclude liabilities recognized on our consolidated balance sheets.

Finance Lease Obligations

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We obtain office space and equipment under multi-year lease arrangements.

Most operating leases are not cancelable prior to their expiration.

Most operating leases are not cancellable prior to their expiration.

Payments for operating leases represent the amounts due under the agreements assuming the agreements are not canceled prior to their expiration.

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Pension and Other Employee Obligations

We sponsor a qualified defined benefit pension plan (“Pension Plan”) that covers certain U.S.-based employees.

We also have a non-qualified Supplemental Executive Retirement Plan (“SERP”).

In connection with the Merger, the Company assumed four U.S.

nonqualified pension plans that are noncontributory and unfunded and several non-U.S.

pension plans (See Note 17 to the accompanying consolidated financial statements.)

Contractual commitments include payments to meet minimum funding requirements of our Pension Plan in 2023 and estimated benefit payments for our SERP that exceed plan assets.

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.

The Company participates in and/or sponsors a qualified defined benefit pension plan that covers certain U.S.

based employees and several U.S.

nonqualified defined benefit pension plans that are noncontributory (“Pension Plans”).

The Company’s Pension Plans consist of both funded and unfunded plans.

(See Note 17 to the accompanying consolidated financial statements.)

Contractual commitments include payments to meet minimum funding requirements of our Pension Plans in 2024 and estimated benefit payments.

Benefit payments have been estimated over a ten-year period.

While benefit payments under the Pension Plans are expected to continue beyond 2033, we believe it is not practicable to estimate payments beyond this period.

We are unable to reasonably predict the ultimate amount of any payments due to cash-settled share-based compensation awards.

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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.

Other contingent commitments primarily include contingent payments for post-production term advance obligations on a certain co-financing arrangement, 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.

The Company’s other contingent commitments at December 31, 2023 were $395 million, with $367 million estimated to be due in 2024.

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Basis of Presentation

As of December 31, 2022 and December 31, 2021, all of the Company’s outstanding $13.8 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.

As of December 31, 2022, the Company also has outstanding $30.0 billion of senior notes issued by WarnerMedia Holdings, Inc.

and guaranteed by the Company, Scripps and DCL;

$1.5 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).

As of December 31, 2023, the Company has outstanding senior notes issued by DCL, a wholly owned subsidiary of the Company, and guaranteed by the Company, Scripps Networks Interactive, Inc.

(“Scripps Networks”), and WMH;

senior notes issued by WMH and guaranteed by the Company, Scripps Networks, and DCL;

senior notes issued by the legacy WarnerMedia Business (not guaranteed);

and senior notes issued by Scripps Networks (not guaranteed).

(See Note 11 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S.

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Discovery, Inc.

(the “Parent”), Scripps Networks, DCL, and WarnerMedia Holdings, Inc.

(collectively, the “Obligors”).

All guarantees of DCL and WarnerMedia Holdings, Inc.'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., 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.

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.

(the “Parent”), Scripps Networks, DCL, and WMH (collectively, the “Obligors”).

All guarantees of DCL and WMH’s senior notes (the “Note Guarantees”) are full and unconditional, joint and several and unsecured, and cover all payment obligations arising under the senior notes.

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

Summarized Financial Information

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

The summarized balance sheet information as of December 31, 2022 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, 2022.

The summarized income statement information for the year ended December 31, 2022 includes information with respect to WarnerMedia Holdings, Inc.

beginning subsequent to the close of the Merger.

December 31, 2023

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Revenues $ 1,940

Operating loss (574)

Operating income 307

Net loss (1,436)

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The quantitative impairment test requires significant judgment in determining the fair value of the reporting units.

We determine the fair value of our reporting units by using a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method and the market multiple approach, which incorporates the use of EBITDA multiples based on market data.

For the DCF method, we use projections specific to the reporting unit, as well as those based on general economic conditions, which require the use of significant estimates and assumptions.

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2023 Impairment Analysis

As of October 1, 2022, we performed a quantitative goodwill impairment assessment for all reporting units consistent with our accounting policy.

The estimated fair value of each reporting unit exceeded its carrying value by at least 20% and, therefore, no impairment was recorded.

Due to declining levels of global GDP growth and execution risk associated with anticipated growth in the Company’s DTC reporting unit, which is the DTC segment, the Company will continue to monitor its reporting units for changes that could impact recoverability.

As of October 1, 2023, the Company performed a quantitative goodwill impairment assessment for all reporting units.

The estimated fair value of each reporting unit exceeded its carrying value and, therefore, no impairment was recorded.

The Studios reporting unit, which had headroom of 15%, and the Networks reporting unit, which had headroom of 5%, both had fair value in excess of carrying value of less than 20%.

During our annual impairment testing, we evaluated the sensitivity of our most critical assumption, the discount rate, and determined that a 50 basis point increase in the discount rate selected would not have impacted the test results.

Additionally, the Company could reduce the terminal growth rate by 100 basis points, and the fair value of the reporting units would still exceed their carrying value.

The fair values of the reporting units were determined using a combination of DCF and market valuation methodologies.

Due to declining levels of global GDP growth, soft advertising markets in the U.S.

associated with the Company’s Networks reporting unit, content licensing trends in our Studios reporting unit, and execution risk associated with anticipated growth in the Company’s DTC reporting unit, the Company will continue to monitor its reporting units for changes that could impact recoverability.

Content Rights

We capitalize the costs to produce or acquire feature films and television programs, and we amortize costs and test for impairment based on whether the content is predominately monetized individually, or as a group.

For films and television programs predominantly monetized individually, the amount of capitalized film and television production costs amortized and the amount of participations and residuals to be recognized as expense in a particular period are determined using the individual film forecast method.

We capitalize the costs to produce or acquire feature films and television programs, and we amortize costs and test for impairment based on whether the content is predominantly monetized individually, or as a group.

For films and television programs predominantly monetized individually, the amount of capitalized film and television production costs (net of incentives) amortized 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).

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For television programs that are monetized on an individual basis, ultimate revenues are estimated based on factors including the performance of similar programs in each applicable market, firm commitments in hand from customers that license the program in the future, and the popularity of the program in its initial markets.

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, based on relative market rates, and expense such costs as the film or television program is exhibited.

For a film or television program that is predominantly monetized on its own but also monetized with other films and/or programs (such as on 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, based on relative market rates, and expense such costs as the film or television program is exhibited.

Ultimates for content monetized on an individual basis are reviewed and updated (as applicable) on a quarterly basis;

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For programs monetized as a group, including licensed programming, amortization expense for network programs is generally based on projected usage, generally resulting in an accelerated or straight-line amortization pattern.

Adjustments to projected usage are applied prospectively in the period of the change.

Adjustments for projected usage are applied prospectively in the period of the change.

Streaming and premium pay-TV content amortization is based on estimated viewing patterns, as there are generally limited to no direct revenues to associate to the individual content assets for premium pay-TV.

As such, number of views is most representative of the use of the title.

Judgment is required to determine the useful lives and amortization patterns of our content assets that are predominately monetized as a group.

Judgment is required to determine the useful lives and amortization patterns of our content assets that are predominantly monetized as a group.

Critical assumptions include:

(i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or historical 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 revenue streams.

(i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or historical viewership model based on the adequacy of historical data, and (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model.

We then consider the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends.

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For arrangements that include multiple titles and/or staggered availabilities across geographical regions, the availability of each title and/or each region is considered a separate performance obligation, and the fixed fee is allocated to each title/region based on comparable market rates and recognized as revenue when the title is available for use by the licensee.

Our games sometimes include digital offerings such as in-game purchases or other online features.

In these cases, we determine the timing of satisfaction of our performance obligations based on the nature of the deliverable (e.g., whether the type of in-game purchase can be consumed by the player right away (“consumable good”, or used by the player over time “durable good”)), and if recognized over time, we estimate the duration of consumer game play based on available game play, historical, or market data.

See Item 1A, “Risk Factors” for details on significant risks that could impact our ability to successfully grow our cash flows.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis