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 June 30, 2023

OR

☐ 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 July 21, 2023:

Series A Common Stock, par value $0.01 per share 2,437,384,400 

WARNER BROS. DISCOVERY, INC.

FORM 10-Q

TABLE OF CONTENTS

	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.	33
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.	52
ITEM 4. Controls and Procedures.	52
PART II. OTHER INFORMATION.
ITEM 1. Legal Proceedings.	53
ITEM 1A. Risk Factors.	53
ITEM 6. Exhibits.	55
SIGNATURES.	56

3

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Distribution	$	5,135	$	4,838	$	10,298	$	6,190
Advertising	2,519		2,721		4,817		4,197
Content	2,446		2,064		5,400		2,387
Other	258		204		543		212
Total revenues	10,358		9,827		21,058		12,986
Costs and expenses:
Costs of revenues, excluding depreciation and amortization	6,636		6,625		13,321		7,861
Selling, general and administrative	2,562		3,538		4,950		4,578
Depreciation and amortization	1,914		2,266		3,972		2,791
Restructuring	146		1,033		241		1,038
Impairments and loss on dispositions	6		4		37		4
Total costs and expenses	11,264		13,466		22,521		16,272
Operating loss	(906)		(3,639)		(1,463)		(3,286)
Interest expense, net	(574)		(511)		(1,145)		(664)
Loss on extinguishment of debt	(5)		—		(5)		—
Loss from equity investees, net	(22)		(43)		(59)		(57)
Other income (expense), net	27		(51)		(46)		439
Loss before income taxes	(1,480)		(4,244)		(2,718)		(3,568)
Income tax benefit	260		836		438		635
Net loss	(1,220)		(3,408)		(2,280)		(2,933)
Net income attributable to noncontrolling interests	(16)		(7)		(24)		(23)
Net income attributable to redeemable noncontrolling interests	(4)		(3)		(5)		(6)
Net loss available to Warner Bros. Discovery, Inc.	$	(1,240)	$	(3,418)	$	(2,309)	$	(2,962)
Net loss per share allocated to Warner Bros. Discovery, Inc. Series A common stockholders:
Basic	$	(0.51)	$	(1.50)	$	(0.95)	$	(2.09)
Diluted	$	(0.51)	$	(1.50)	$	(0.95)	$	(2.09)
Weighted average shares outstanding:
Basic	2,437		2,286		2,434		1,443
Diluted	2,437		2,286		2,434		1,443
The accompanying notes are an integral part of these consolidated financial statements.

4

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited; in millions)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(1,220)	$	(3,408)	$	(2,280)	$	(2,933)
Other comprehensive income (loss):
Currency translation
Change in net unrealized gains (losses)	60		(488)		486		(585)
Less: reclassification adjustment for net (gains) losses included in net income	—		—		—		(2)
Net change, net of income tax benefit (expense) of $(5), $(25), $(10) and $(39)	60		(488)		486		(587)
Pension plan and SERP liability, net of income tax benefit (expense) of $(3), $—, $(6) and $—	(4)		—		(13)		—
Derivatives
Change in net unrealized gains (losses)	11		(7)		14		(19)
Less: reclassification adjustment for net (gains) losses included in net income	(4)		(11)		(6)		(17)
Net change, net of income tax benefit (expense) of $(6), $4, $(4) and $5	7		(18)		8		(36)
Comprehensive loss	(1,157)		(3,914)		(1,799)		(3,556)
Comprehensive income attributable to noncontrolling interests	(16)		(7)		(24)		(23)
Comprehensive income attributable to redeemable noncontrolling interests	(4)		(3)		(5)		(6)
Comprehensive loss attributable to Warner Bros. Discovery, Inc.	$	(1,177)	$	(3,924)	$	(1,828)	$	(3,585)
The accompanying notes are an integral part of these consolidated financial statements.

5

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)

	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	3,027	$	3,731
Receivables, net	6,770		6,380
Prepaid expenses and other current assets	3,976		3,888
Total current assets	13,773		13,999
Film and television content rights and games	24,393		26,652
Property and equipment, net	5,473		5,301
Goodwill	34,911		34,438
Intangible assets, net	41,584		44,982
Other noncurrent assets	8,484		8,629
Total assets	$	128,618	$	134,001
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,689	$	1,454
Accrued liabilities	10,668		11,504
Deferred revenues	1,548		1,694
Current portion of debt	3,001		365
Total current liabilities	16,906		15,017
Noncurrent portion of debt	44,276		48,634
Deferred income taxes	9,718		11,014
Other noncurrent liabilities	10,933		10,669
Total liabilities	81,833		85,334
Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests	306		318
Warner Bros. Discovery, Inc. stockholders’ equity:
Series A common stock: $0.01 par value; 10,800 and 10,800 shares authorized; 2,667 and 2,660 shares issued; and 2,437 and 2,430 shares outstanding	27		27
Preferred stock: $0 par value; 1,200 and 1,200 shares authorized, 0 shares issued and outstanding	—		—
Additional paid-in capital	54,816		54,630
Treasury stock, at cost: 230 and 230 shares	(8,244)		(8,244)
(Accumulated deficit) retained earnings	(105)		2,205
Accumulated other comprehensive loss	(1,042)		(1,523)
Total Warner Bros. Discovery, Inc. stockholders’ equity	45,452		47,095
Noncontrolling interests	1,027		1,254
Total equity	46,479		48,349
Total liabilities and equity	$	128,618	$	134,001
The accompanying notes are an integral part of these consolidated financial statements.

6

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited; in millions)

	Six Months Ended June 30,
	2023		2022
Operating Activities
Net loss	$	(2,280)	$	(2,933)
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Content rights amortization and impairment	9,361		6,591
Depreciation and amortization	3,972		2,791
Deferred income taxes	(1,426)		(915)
Preferred stock conversion premium	—		789
Share-based compensation expense	248		210
Equity in losses of equity method investee companies and cash distributions	112		91
Gain on sale of investments	—		(132)
Gain from derivative instruments, net	(111)		(496)
Other, net	171		64
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net	(433)		(444)
Film and television content rights, games and payables, net	(7,656)		(4,653)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities	(859)		8
Foreign currency, prepaid expenses and other assets, net	284		363
Cash provided by operating activities	1,383		1,334
Investing Activities
Purchases of property and equipment	(591)		(307)
Cash acquired from business acquisition	—		2,419
Proceeds from sales and maturities of investments	—		139
Investments in and advances to equity investments	(45)		(109)
Proceeds from derivative instruments, net	23		720
Other investing activities, net	46		18
Cash (used in) provided by investing activities	(567)		2,880
Financing Activities
Principal repayments of term loans	(2,600)		(3,500)
Principal repayments of debt, including premiums to par value	(660)		(327)
Borrowings from debt, net of discount and issuance costs	1,500		—
Distributions to noncontrolling interests and redeemable noncontrolling interests	(269)		(264)
Securitization receivables collected but not remitted	405		—
Borrowings under commercial paper program and revolving credit facility	2,599		90
Repayments under commercial paper program and revolving credit facility	(2,602)		(90)
Other financing activities, net	(56)		(66)
Cash used in financing activities	(1,683)		(4,157)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	14		(66)
Net change in cash, cash equivalents, and restricted cash	(853)		(9)
Cash, cash equivalents, and restricted cash, beginning of period	3,930		3,905
Cash, cash equivalents, and restricted cash, end of period	$	3,077	$	3,896
The accompanying notes are an integral part of these consolidated financial statements.

7

WARNER BROS. DISCOVERY, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited; in millions)

	Warner Bros. Discovery, Inc. Common Stock			Additional Paid-In Capital		Treasury Stock		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Warner Bros. Discovery, Inc.  Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Par Value
December 31, 2022	2,660	$	27	$	54,630	$	(8,244)	$	2,205	$	(1,523)	$	47,095	$	1,254	$	48,349
Net loss available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—		—		(1,069)		—		(1,069)		8		(1,061)
Other comprehensive income	—	—		—		—		—		418		418		—		418
Share-based compensation	—	—		101		—		—		—		101		—		101
Tax settlements associated with share-based plans	—	—		(53)		—		—		—		(53)		—		(53)
Dividends paid to noncontrolling interests	—	—		—		—		—		—		—		(225)		(225)
Issuance of stock in connection with share-based plans	6	—		9		—		—		—		9		—		9
Redeemable noncontrolling interest adjustments to redemption value	—	—		—		—		(3)		—		(3)		—		(3)
Other adjustments to stockholders' equity	—	—		(2)		—		—		—		(2)		—		(2)
March 31, 2023	2,666	$	27	$	54,685	$	(8,244)	$	1,133	$	(1,105)	$	46,496	$	1,037	$	47,533
Net loss available to Warner Bros. Discovery, Inc. and attributable to noncontrolling interests	—	—		—		—		(1,240)		—		(1,240)		16		(1,224)
Other comprehensive income	—	—		—		—		—		63		63		—		63
Share-based compensation	—	—		130		—		—		—		130		—		130
Tax settlements associated with share-based plans	—	—		(7)		—		—		—		(7)		—		(7)
Dividends paid to noncontrolling interests	—	—		—		—		—		—		—		(26)		(26)
Issuance of stock in connection with share-based plans	1	—		8		—		—		—		8		—		8
Redeemable noncontrolling interest adjustments to redemption value	—	—		—		—		2		—		2		—		2
June 30, 2023	2,667	$	27	$	54,816	$	(8,244)	$	(105)	$	(1,042)	$	45,452	$	1,027	$	46,479
The accompanying notes are an integral part of these consolidated financial statements.

8

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

9

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 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. 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 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.) Prior to the Merger, WarnerMedia Holdings, Inc. 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 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 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 Merger representing 71% of the combined Company and the Company's pre-Merger shareholders continued to own 29% of the combined 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 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 the Company’s historical financial statements. Accordingly, the financial results of 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 results will not be comparable to historical results.

Labor Disruption

The Writers Guild of America and Screen Actors Guild-American Federation of Television and Radio Artists went on strike in May and July 2023, respectively. There were no material impacts to our business during the three months ended June 30, 2023 as a result of the strikes. We continue to closely monitor the ongoing impact to our business; however, the effects on our operations and results are not yet known and will depend on future developments, which are highly uncertain and cannot be 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.

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, 2022 (the “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.

10

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Summary of Significant Accounting Policies

There have been no changes to the Company's significant accounting policies described in the 2022 Form 10-K.

Accounting and Reporting Pronouncements Adopted

Supplier Finance Programs

In September 2022, the 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. The Company adopted the guidance effective January 1, 2023 and 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 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.)

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.

11

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss	$	(1,220)	$	(3,408)	$	(2,280)	$	(2,933)
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock	—		—		—		(49)
Net income attributable to noncontrolling interests	(16)		(7)		(24)		(23)
Net income attributable to redeemable noncontrolling interests	(4)		(3)		(5)		(6)
Net loss allocated to Warner Bros. Discovery, Inc. Series A common stockholders for basic and diluted net loss per share	$	(1,240)	$	(3,418)	$	(2,309)	$	(3,011)
Denominator — weighted average:
Common shares outstanding — basic and diluted	2,437		2,286		2,434		1,443
Basic net loss per share allocated to common stockholders	$	(0.51)	$	(1.50)	$	(0.95)	$	(2.09)
Diluted net loss per share allocated to common stockholders	$	(0.51)	$	(1.50)	$	(0.95)	$	(2.09)

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Anti-dilutive share-based awards	73	57	67	45

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.

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
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 WBD common stock multiplied by the closing share price for Discovery Series A common stock of $24.43 on 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%.

(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

12

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

(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.

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 allocated to the Studios, Networks and DTC reportable segments in the amount of $9,308 million, $7,074 million and $5,727 million, respectively, and is not deductible for tax purposes.

During the three months ended June 30, 2023, the Company finalized the fair value of assets acquired and liabilities assumed. Measurement period adjustments were reflected in the period in which the adjustments occurred. Adjustments recorded during the three and six months ended June 30, 2023 were $220 million and $368 million, respectively, primarily related to taxes, and were recorded in other noncurrent assets, deferred income taxes and other noncurrent liabilities, with an offset to goodwill. The 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		Final April 8, 2022
Cash	$	2,419	$	(10)	$	2,409
Accounts receivable	4,224		(60)		4,164
Other current assets	4,619		(133)		4,486
Film and television content rights and games	28,729		(344)		28,385
Property and equipment	4,260		13		4,273
Goodwill	21,513		596		22,109
Intangible assets	44,889		100		44,989
Other noncurrent assets	5,206		283		5,489
Current liabilities	(10,544)		12		(10,532)
Debt assumed	(41,671)		(9)		(41,680)
Deferred income taxes	(13,264)		492		(12,772)
Other noncurrent liabilities	(8,004)		(940)		(8,944)
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.

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
Trade names	$	21,084	34
Affiliate, advertising and subscriber relationships	14,800		6
Franchises	7,900		35
Other intangible assets	1,205
Total intangible assets acquired	$	44,989

13

WARNER BROS. DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company incurred acquisition-related costs of $47 million and $94 million for the three and six months ended June 30, 2023, respectively, and $194 million and $281 million for the three and six months ended June 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 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.)

As a result of the Merger, WM’s assets, liabilities, and operations were included in the 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).