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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-22 · 215 added, 257 removed, 354 unchanged (57% of the section changed)

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Management’s discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes.

A discussion of our results of operations and liquidity for fiscal 2019 compared to fiscal 2018 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on February 27, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at ir.corporate.discovery.com.

This section provides additional information regarding our businesses, current developments, results of operations, cash flows, financial condition, contractual commitments, critical accounting policies, and estimates that require significant judgment and thus have the most significant potential impact on our consolidated financial statements.

This discussion and analysis is intended to better allow investors to view the company from management's perspective.

This section provides an analysis of our financial results for the fiscal year ended December 31, 2021 compared to the fiscal year ended December 31, 2020.

A discussion of our result of operations and liquidity for the fiscal year ended December 31, 2020 compared to the fiscal year ended December 31, 2019 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed on February 22, 2021, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at ir.corporate.discovery.com.

The information contained on our website is not part of this Annual Report on Form 10-K and is not incorporated by reference herein.

BUSINESS OVERVIEW

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We aim to invest in high-quality content for our networks and brands with the objective of building viewership, optimizing distribution revenue, capturing advertising revenue, and creating or repositioning branded channels and business to sustain long-term growth and occupy a desired content niche with strong consumer appeal.

Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks.

Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks and discovery+.

In addition to growing distribution and advertising revenues for our branded networks, we have extended content distribution across new platforms, including brand-aligned websites, online streaming, mobile devices, VOD, and broadband channels, which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue.

Audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators, DTH satellite operators, telecommunication service providers, and other content distributors who deliver our content to their customers.

Our goal is to reach consumers wherever and whenever they are consuming content, as well as reaching new audiences including broadband only, cord cutters and cord nevers, while continuing to serve our linear network subscribers.

Audience ratings, audience engagement and channel packaging are key drivers in generating advertising revenue and creating demand on the part of cable television operators, DTH satellite operators, telecommunication service providers, and other content distributors who deliver our content to their customers.

Although we utilize certain brands and content globally, we classify our operations in two reportable segments:

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Impact of COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic.

COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain.

Restrictions on social and commercial activity in an effort to contain the virus have had, and are expected to continue to have, a significant adverse impact upon many sectors of the U.S.

and global economy, including the media industry.

On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic.

COVID-19 has continued to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain.

We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.

Beginning in the second quarter of 2020, demand for our advertising products and services decreased due to economic disruptions from limitations on social and commercial activity.

These economic disruptions and the resulting effect on the Company slightly eased during the second half of 2020, but the pandemic continued to impact demand through the end of 2020 and this decreased demand is expected to continue into 2021.

These economic disruptions and the resulting effect on us eased

during the second half of 2020.

The pandemic did not have a significant impact on demand during fiscal year 2021.

Many of our third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and, as a result, we have incurred additional costs to comply with various governmental regulations and implement certain safety measures for our employees, talent, and partners.

Additionally, certain sporting events that we have rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which were postponed to 2021.

The postponement of the 2020 Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.

In response to the impact of the pandemic, we employed and continue to employ innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air.

We continue to pursue a number of cost savings initiatives which began during the third and fourth quarters of 2020 and believe will offset a portion of anticipated revenue losses and deferrals, through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align our expense structure to ongoing changes within the industry.

We also implemented remote work arrangements effective mid-March 2020 and, to date, these arrangements have not materially affected our ability to operate our business.

In addition, we implemented several measures to preserve sufficient liquidity in the near term.

During March 2020, we drew down $500 million under our $2.5 billion revolving credit facility to increase our cash position and maximize flexibility in light of the current uncertainty surrounding the impact of COVID-19.

In addition, in April 2020, we entered into an amendment to our revolving credit facility, which increased flexibility under our financial covenants and issued $1.0 billion aggregate principal amount of senior notes due May 2030 and $1.0 billion aggregate principal amount of Senior Notes due May 2050.

The proceeds from the notes were used to fund a tender offer for $1.5 billion of certain Senior Notes with maturities ranging from 2021 through 2023 and to repay the $500 million outstanding under our revolving credit facility.

In light of the impact of COVID-19, we assessed goodwill, other intangibles, deferred tax assets, programming assets, and accounts receivable for recoverability based upon latest estimates and judgments with respect to expected future operating results, ultimate usage of content and latest expectations with respect to expected credit losses.

We recorded goodwill and other intangible assets impairment charges of $124 million for our Asia-Pacific reporting unit during 2020.

Adjustments to reflect increased expected credit losses were not material.

Further, hedged transactions were assessed and we have concluded such transactions remain probable of occurrence.

Due to significant uncertainty surrounding the impact of COVID-19, management’s judgments could change in the future.

The effects of the pandemic may have further negative impacts on our financial position, results of operations, and cash flows.

However, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably and fully estimated at this time.

The nature and extent of COVID-19’s effects on our operations and results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others.

In response to the impact of the pandemic, we employed innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air.

We pursued a number of cost savings initiatives, which began during the third quarter of 2020 through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align our expense structure to ongoing changes within the industry.

The full extent of COVID-19’s effects on our operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others.

We will continue to monitor COVID-19 and its impact on our business results and financial condition.

Our consolidated financial statements reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

The consolidated financial statements set forth in this Annual Report on Form 10-K reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

Actual results may differ significantly from these estimates and assumptions.

In the United States, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020, and the Consolidated Appropriations Act, 2021 was enacted on December 27, 2020.

As of December 31, 2020, we do not expect the CARES Act or the Consolidated Appropriations Act, 2021 to have a material effect on our financial position and results of operations.

We continue to monitor other relief measures taken by the U.S.

and other governments around the world.

RESULTS OF OPERATIONS

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Distribution 5,409 4,866 11 % 11 %

Other 222 265 (16) % (17) %

Other 567 222 NM NM

Total revenues 12,191 10,671 14 % 14 %

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Depreciation and amortization 1,582 1,359 16 % 15 %

Impairment of goodwill and other intangible assets 124 155 (20) % (21) %

Restructuring and other charges 91 26 NM NM

Impairment of goodwill and other intangible assets — 124 NM NM

Restructuring and other charges 32 91 (65) % (64) %

Gain on disposition (71) — NM NM

Total costs and expenses 10,179 8,156 25 % 23 %

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Interest expense, net (633) (648) (2) %

Loss on extinguishment of debt (76) (28) NM

Loss from equity investees, net (105) (2) NM

Other income (expense), net 42 (8) NM

Loss on extinguishment of debt (10) (76) (87) %

Loss from equity investees, net (18) (105) (83) %

Other income, net 82 42 95 %

Income before income taxes 1,433 1,728 (17) %

Income tax expense (373) (81) NM

Income tax expense (236) (373) (37) %

Net income 1,197 1,355 (12) %

Net income attributable to noncontrolling interests (138) (124) 11 %

Net income attributable to redeemable noncontrolling interests (12) (16) (25) %

Net income attributable to redeemable noncontrolling interests (53) (12) NM

Net income available to Discovery, Inc.

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

Advertising revenue decreased 8% in 2020.

Excluding the impact of foreign currency fluctuations, advertising revenue decreased 7%.

The decrease was primarily attributable to a decline in demand stemming from the COVID-19 pandemic at both U.S.

and International Networks.

Distribution revenue consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from SVOD content licensing and other emerging forms of digital distribution.

Advertising revenue increased 11% in 2021.

Excluding the impact of foreign currency fluctuations, advertising revenue increased 10%.

The increase was primarily attributable to improved overall performance at International Networks as advertising markets recovered from the COVID-19 pandemic, as well as the broadcast of the Summer Olympics throughout Europe in the third quarter of 2021.

Distribution revenue consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from SVOD content licensing, DTC subscription services, and other emerging forms of digital distribution.

The largest component of distribution revenue is comprised of linear distribution services for rights to our networks from cable, DTH satellite and telecommunication service providers.

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These digital distribution revenues are impacted by the quantity, as well as the quality, of the content we provide.

As reported and excluding the impact of foreign currency fluctuations, distribution revenue increased 1% in 2020 primarily attributable to changes in contractual affiliate rates at U.S.

As reported and excluding the impact of foreign currency fluctuations, distribution revenue increased 11% in 2021 primarily attributable to the growth of discovery+ at both U.S.

Networks and International Networks.

Other revenue decreased 16% in 2020.

Excluding the impact of foreign currency fluctuations, other revenue decreased 17%.

Other revenue increased $345 million in 2021.

Excluding the impact of foreign currency fluctuations, other revenue increased $354 million in 2021.

Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to sublicensing of Olympics sports rights to broadcast networks throughout Europe.

Costs of Revenues

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

As reported and excluding the impact of foreign currency fluctuations, costs of revenues increased 1% in 2020 primarily attributable to increases in content amortization from investments to support our next generation initiatives at U.S.

Costs of revenues increased 20% in 2021.

Excluding the impact of foreign currency fluctuations, costs of revenues increased 18%.

The increase was primarily attributable to the Olympics and to a lesser extent, European sporting events and leagues

returning to a more normalized schedule, and higher content investment related to discovery+ at U.S.

Networks and International Networks.

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 2% in 2020.

Excluding the impact of foreign currency fluctuations, selling, general and administrative decreased 1%.

The decrease was primarily attributable to a reduction in travel costs as a result of COVID-19 and lower marketing-related expenses, partially offset by an increase in personnel costs to support our next generation platforms, including discovery+.

Selling, general and administrative expenses increased 48% in 2021.

Excluding the impact of foreign currency fluctuations, selling, general and administrative increased 46%.

The increase was primarily attributable to higher marketing related expenses to drive the growth of discovery+ at U.S.

Networks and International Networks.

Depreciation and Amortization

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

As reported and excluding the impact of foreign currency fluctuations, depreciation and amortization increased 1% in 2020.

The increase was primarily attributable to an increase in capital expenditures.

Depreciation and amortization increased 16% in 2021.

Excluding the impact of foreign currency fluctuations, depreciation and amortization increased 15%.

The increase was primarily attributable to a change in amortization method from the straight-line method to the sum of the years digits method effective October 1, 2021 for acquired customer relationships, and to a lesser extent, assets placed in service related to the launch of discovery+.

Impairment of Goodwill and Other Intangible Assets

Impairment of goodwill and other intangible assets was $124 million and $155 million in 2020 and 2019.

There was no impairment of goodwill and other intangible assets in 2021 compared to $124 million in 2020.

(See Note 7 to the accompanying consolidated financial statements.)

Restructuring and Other Charges

Restructuring and other charges were $91 million and $26 million in 2020 and 2019.

Restructuring and other charges primarily include employee termination costs and other cost reduction efforts.

Restructuring and other charges were $32 million and $91 million in 2021 and 2020, respectively.

Restructuring and other charges primarily include employee relocation and termination costs.

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

Gain on Disposition

Gain on disposition was $71 million for 2021, and was primarily attributable to the sale of our Great American Country network.

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

Interest Expense, net

Interest expense decreased 2% in 2021.

The decrease was primarily attributable to a lower average debt balance in 2020, a more favorable interest rate profile on our outstanding senior notes, and incremental interest income related to the change in fair value of our cross-currency swaps.

(See Note 8 and Note 10 to the accompanying consolidated financial statements.)

Loss on Extinguishment of Debt

Losses on extinguishment of debt were $10 million and $76 million in 2021 and 2020, respectively.

In 2020, we repurchased $1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes.

The repurchase resulted in a loss on extinguishment of debt of $76 million.

The loss included $67 million of net premiums to par value and $9 million of other charges.

(See Note 8 to the accompanying consolidated financial statements.)

Loss from Equity Investees, net

We reported losses from our equity method investees of $105 million in 2020 compared to losses of $2 million in 2019.

We reported losses from our equity method investees of $18 million and $105 million in 2021 and 2020, respectively.

The changes are attributable to the Company's share of earnings and losses from its equity investees.

Other Income (Expense), net

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

Other Income, net

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

Year Ended December 31,

Foreign currency (losses) gains, net $ (115) $ 17

Foreign currency gains (losses), net $ 93 $ (115)

(Losses) gains on derivative instruments, net (33) 29

Interest income 18 10

Gain on sale of investment with readily determinable fair value 15 101

Gains (losses) on derivatives not designated as hedges 29 (52)

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

Change in the value of investments with readily determinable fair value (6) 28

Expenses from debt modification — (11)

Interest income 10 22

Gain on sale of equity method investments 2 13

Remeasurement gain on previously held equity interest — 14

Other (expense) income, net (2) 4

Total other income (expense), net $ 42 $ (8)

Other income, net 8 —

Other income, net $ 82 $ 42

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

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Effect of foreign operations 25 2 % 58 3 %

UK Finance Act legislative change (155) (11) % (51) (3) %

Noncontrolling interest adjustment (40) (3) % (29) (2) %

Change in uncertain tax positions 12 1 % 17 1 %

Impairment of goodwill — — % 25 2 %

Deferred tax adjustment — — % (22) (1) %

Non-deductible compensation 17 1 % 22 1 %

Change in uncertain tax positions 17 1 % 3 — %

Legal entity restructuring, deferred tax impact — — % (445) (19) %

Renewable energy investments tax credits — — % (1) — %

Other, net (15) (1) % $ 22 1 %

Income tax expense $ 236 16 % $ 373 22 %

Income tax expense was $373 million and $81 million, and o ur effective tax rate was 22% and 4% for 2020 and 2019.

The increase in income tax expense in 2020 was primarily attributable to the discrete, one-time, non-cash deferred tax benefit of $445 million from legal entity restructurings that was recorded in 2019.

Additionally, the increase in income tax expense in 2020 was attributable to an increase in provision for uncertain tax positions and an increase in the effect of foreign operations.

Those increases were partially offset by a decrease in pre-tax book income, a tax benefit from a favorable multi-year state resolution, and a favorable deferred tax adjustment in the U.S.

that was recorded in 2020.

Income tax expense was $236 million and $373 million, and the Company's effective tax rate was 16% and 22% for 2021 and 2020, respectively.

The decrease in income tax expense for the year ended December 31, 2021 was primarily attributable to a decrease in pre-tax book income and an increase in the deferred tax benefit from the UK Finance Act 2021 that was enacted in June 2021.

Those decreases were partially offset by an increase in the state and local income tax expense recorded in 2021.

Segment Results of Operations – 2021 vs.

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Adjusted OIBDA is defined as operating income excluding:

(i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction costs directly related to the acquisition and integration of Scripps Networks and other transactions, and (viii) other items impacting comparability, such as the non-cash settlement of a withholding tax claim.

(i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction and integration costs, and (viii) other items impacting comparability.

We use this measure to assess the operating results and performance of our segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment.

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$ 1,006 $ 1,219 (17) %

Net income attributable to redeemable noncontrolling interests 12 16 (25) %

Net income attributable to redeemable noncontrolling interests 53 12 NM

Net income attributable to noncontrolling interests 138 124 11 %

Income tax expense 373 81 NM

Income tax expense 236 373 (37) %

Income before income taxes 1,433 1,728 (17) %

Other (income) expense, net (42) 8 NM

Loss from equity investees, net 105 2 NM

Loss on extinguishment of debt 76 28 NM

Other (income) expense, net (82) (42) 95 %

Loss from equity investees, net 18 105 (83) %

Loss on extinguishment of debt 10 76 (87) %

Interest expense, net 633 648 (2) %

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Depreciation and amortization 1,582 1,359 16 %

Impairment of goodwill and other intangible assets 124 155 (20) %

Impairment of goodwill and other intangible assets — 124 NM

Employee share-based compensation 167 99 69 %

Restructuring and other charges 91 26 NM

Transaction and integration costs 6 26 (77) %

Loss on asset disposition 2 — NM

Settlement of a withholding tax claim — (29) NM

Restructuring and other charges 32 91 (65) %

Transaction and integration costs 95 6 NM

(Gain) loss on disposition (71) 2 NM

Adjusted OIBDA $ 3,817 $ 4,196 (9) %

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International Networks 4,539 3,713 22 %

Corporate, inter-segment eliminations, and other 9 11 (18) %

Corporate, inter-segment eliminations, and other (10) 9 NM

Total revenue 12,191 10,671 14 %

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Adjusted OIBDA $ 3,817 $ 4,196 (9) %

(a) Selling, general and administrative expenses exclude employee share-based compensation, third-party transaction and integration costs related to the acquisition of Scripps Networks and other transactions, and for 2019, exclude the settlement of a withholding tax claim.

(a) Selling, general and administrative expenses exclude employee share-based compensation and third-party transaction and integration costs.

The table below presents, for our U.S.

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Distribution 3,297 2,852 16 %

Other 85 108 (21) %

Other 177 85 NM

Total revenues 7,662 6,949 10 %

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Adjusted OIBDA 3,940 3,975 (1) %

Employee share-based compensation 1 —

Gain on disposition (77) —

Depreciation and amortization 1,065 899

Restructuring and other charges 4 41

Transactions and integration costs 1 —

Inter-segment eliminations 20 4

Operating income $ 2,926 $ 3,031

Advertising revenue decreased 5% in 2020 primarily attributable to softer demand stemming from the COVID-19 pandemic, secular declines in the pay-TV ecosystem and, to a lesser extent, lower overall ratings and a decline in inventory, partially offset by increases in pricing and the continued monetization of content offerings on our next generation platforms (such as our GO suite of TVE applications and DTC subscription products).

Distribution revenue increased 4% in 2020 primarily attributable to increases in contractual affiliate rates and certain non-recurring items, partially offset by a decline in linear subscribers.

Excluding these non-recurring items, distribution revenue increased 3% in 2020.

Advertising revenue increased 4% in 2021 and was primarily attributable to higher pricing, the continued monetization of content offerings on our next generation initiatives, and higher inventory, partially offset by lower overall ratings and secular declines in the pay-TV ecosystem.

Distribution revenue increased 16% in 2021 and was primarily attributable to growth of discovery+ and an increase in contractual affiliate rates, partially offset by a decline in linear subscribers, and certain prior year nonrecurring items.

Excluding these nonrecurring items, distribution revenue increased 17% in 2021.

Total portfolio subscribers at December 31, 2021 were 8% lower than at December 31, 2020, while subscribers to our fully distributed networks were 4% lower than the prior year.

Other revenue decreased $23 million in 2020.

Excluding the impact of the sale of our Great American Country linear network, total subscribers to our linear networks at December 31, 2021 were 5% lower than at December 31, 2020.

Other revenue increased $92 million in 2021 and was primarily attributable to a nonrecurring item.

Costs of Revenues

Costs of revenues increased 2% in 2020 primarily attributable to increases in content amortization from investments to support our next generation initiatives, partially offset by a reduction in production projects as a result of COVID-19 and a non-recurring reserve release established in purchase accounting.

Content expense was $1.6 billion and $1.5 billion in 2020 and 2019.

Costs of revenues were flat in 2021, primarily attributable to our content investment in discovery+, a nonrecurring, non-cash item in 2020, and third-party app store fees, offset by more efficient content spend on our linear networks.

Content expense was $1.6 billion in 2021 and 2020.

Selling, General and Administrative

Selling, general and administrative expenses decreased 4% in 2020 primarily attributable to a reduction in travel costs as a result of COVID-19 and lower marketing-related expenses, partially offset by an increase in personnel costs to support our next generation platforms, including discovery+.

Selling, general and administrative expenses increased 66% in 2021 and was primarily attributable to higher marketing-related expenses to drive the growth of discovery+.

Adjusted OIBDA

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Distribution 2,112 2,014 5 % 4 %

Other 128 146 (12) % (15) %

Other 400 128 NM NM

Total revenues 4,539 3,713 22 % 20 %

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Inter-segment eliminations (15) 1

Settlement of a withholding tax claim — (29)

Loss on disposition 6 —

Operating income $ 79 $ 191

Advertising revenue decreased 13% in 2020.

Excluding the impact of foreign currency fluctuations, advertising revenue decreased 12%.

The decreases were attributable to a decline in demand stemming from the COVID-19 pandemic and the discontinuation of pay-TV distribution with certain European operators.

Distribution revenue decreased 4% in 2020.

Excluding the impact of foreign currency fluctuations, distribution revenue decreased 3%.

The decreases were primarily attributable to lower contractual affiliate rates, the discontinuation of pay-TV distribution with certain European operators, and a disruption in the number of sporting events in Europe due to COVID-19, partially offset by higher next generation revenues due to subscriber growth.

Other revenue decreased $18 million in 2020.

Excluding the impact of foreign currency fluctuations, other revenue decreased $22 million.

Advertising revenue increased 29% in 2021.

Excluding the impact of foreign currency fluctuations, advertising revenue increased 25%.

The increases were attributable to improved overall performance as advertising markets recovered from the COVID-19 pandemic, as well as the broadcast of the Summer Olympics throughout Europe in the third quarter of 2021.

Distribution revenue increased 5% in 2021.

Excluding the impact of foreign currency fluctuations, distribution revenue increased 4%.

The increases were primarily attributable to higher next generation revenues due to growth of discovery+, partially offset by lower contractual affiliate rates in some European markets.

Other revenue increased $272 million in 2021.

Excluding the impact of foreign currency fluctuations, other revenue increased $281 million.

The increases were primarily attributable to sublicensing of Olympics sports rights to broadcast networks throughout Europe.

Costs of Revenues

As reported and excluding the impact of foreign currency fluctuations, costs of revenues decreased 1% in 2020.

The decreases were primarily attributable to a reduction in the number of sporting events in Europe due to COVID-19.

Content expense, excluding the impact of foreign currency fluctuations, was $1.3 billion for 2020 and 2019.

Costs of revenues increased 39% in 2021.

Excluding the impact of foreign currency fluctuations, costs of revenues increased 35%.

The increases were primarily attributable to the Olympics and to a lesser extent, European sporting events and leagues returning to a more normalized schedule, and higher content investment related to discovery+.

Content expense, excluding the impact of foreign currency fluctuations, was $2.0 billion for 2021 and $1.4 billion 2020.

Selling, General and Administrative

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Excluding the impact of foreign currency fluctuations, selling, general, and administrative expenses increased 24%.

The increases were primarily attributable to higher personnel costs to support our next generation platforms, partially offset by a reduction in travel costs as a result of COVID-19.

The increases were primarily attributable to higher marketing-related expenses to drive the growth of discovery+ and the Olympics, as well as personnel costs to support our next generation platforms.

Adjusted OIBDA

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Corporate, Inter-segment Eliminations, and Other

The following table presents our unallocated corporate amounts including certain operating expenses, and Adjusted OIBDA (in millions).

The following table presents our unallocated corporate amounts including certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating loss (in millions).

Year Ended December 31,

2021 2020 % Change

Revenues $ 9 $ 11 (18) %

Revenues $ (10) $ 9 NM

Costs of revenues, excluding depreciation and amortization (5) 13 NM

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Depreciation and amortization 123 86

Restructuring and other charges 21 (9)

Transaction and integration costs 90 2

Restructuring and other charges 2 21

Loss on asset disposition — 2

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Operating loss $ (993) $ (707)

Corporate operations primarily consist of executive management, administrative support services, substantially all of our share-based compensation and transaction and integration costs related to the acquisition of Scripps Networks and other transactions.

Corporate operations primarily consist of executive management, administrative support services, substantially all of our share-based compensation and third-party transaction and integration costs.

LIQUIDITY AND CAPITAL RESOURCES

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We also have a $2.5 billion revolving credit facility and commercial paper program described below.

Beginning in February 2020, the COVID-19 pandemic began adversely affecting the availability of borrowings in the commercial paper market.

In addition, during the year ended December 31, 2020, we implemented several measures that we believed would preserve sufficient liquidity in the near term in response to the impact of COVID-19, as discussed further below.

2020 Senior Notes Activity

During 2020, we commenced five separate private offers to exchange (the “Exchange Offers”) any and all of Discovery Communications, LLC's ("DCL"), our wholly-owned subsidiary, outstanding 5.000% Senior Notes due 2037, 6.350% Senior Notes due 2040, 4.950% Senior Notes due 2042, 4.875% Senior Notes due 2043 and 5.200% Senior Notes due 2047 (collectively, the “Old Notes”) for one new series of DCL 4.000% Senior Notes due September 2055 (the “New Notes”).

We completed the Exchange Offers in September 2020, by exchanging $1.4 billion aggregate principal amount of the Old Notes validly tendered and accepted by us pursuant to the Exchange Offers, for $1.7 billion aggregate principal amount of the New Notes (before debt discount of $318 million).

The New Notes are fully and unconditionally guaranteed by us and Scripps Networks on an unsecured and unsubordinated basis.

The Exchange Offers were accounted for as a debt modification and, as a result, third-party issuance costs totaling $11 million were expensed as incurred.

Also during 2020, we completed offers to purchase for cash (the “Cash Offers”) the Old Notes.

Approximately $22 million aggregate principal amount of the Old Notes were validly tendered and accepted for purchase by us pursuant to the Cash Offers, for total cash consideration of $27 million, plus accrued interest.

The Cash Offers resulted in a loss on extinguishment of debt of $5 million.

Finally, during 2020, DCL issued $2.0 billion aggregate principal amount of senior notes due in 2030 and 2050.

All of DCL's outstanding senior notes are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Discovery and Scripps Networks and contain certain covenants, events of default and other customary provisions.

DCL used the proceeds from the offering to fund a tender offer for $1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes, which resulted in a loss on extinguishment of debt of $71 million, and to repay the $500 million outstanding under our revolving credit facility described below.

2019 Senior Notes Activity

During 2019, DCL issued $1.5 billion aggregate principal of senior notes (the "2029 Notes and 2049 Notes").

Revolving Credit Facility and Commercial Paper

We have access to a $2.5 billion revolving credit facility.

Borrowing capacity under this credit facility is reduced by the outstanding borrowings under our commercial paper program.

During March 2020, we drew down $500 million under the revolving credit facility to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of COVID-19 and such amount was repaid during the second quarter of 2020.

All obligations of DCL and the other borrowers under the revolving credit facility are unsecured and are fully and unconditionally guaranteed by Discovery.

The credit agreement governing the revolving credit facility (the “Credit Agreement”) contains customary representations, warranties and events of default, as well as affirmative and negative covenants.

In the second quarter of 2020, to preserve flexibility in the current environment, we amended certain provisions of the Credit Agreement, including modifying the financial covenants to reset the Maximum Consolidated Leverage Ratio.

(See Note 8 to the accompany consolidated financial statements.) As of December 31, 2020, we were in compliance with all covenants and there were no events of default under the Credit Agreement.

Under our commercial paper program and subject to market conditions, DCL may issue unsecured commercial paper notes guaranteed by Discovery and Scripps Networks from time to time up to an aggregate principal amount outstanding at any given time of $1.5 billion, including up to $500 million of Euro-denominated borrowings.

The maturities of these notes vary but may not exceed 397 days.

The notes may be issued at a discount or at par, and interest rates vary based on market conditions and the credit rating assigned to the notes at the time of issuance.

As of December 31, 2020, we had no outstanding commercial paper borrowings.

Borrowings under the commercial paper program reduce the borrowing capacity under the revolving credit facility described above.

Our primary uses of cash include the creation and acquisition of new content, capital expenditures, business acquisitions, repurchases of our capital stock, income taxes, personnel costs, principal and interest payments on our outstanding senior notes, and funding for various equity method and other investments, including next generation initiatives.

In June 2021, we entered into a multicurrency revolving credit agreement (the "Credit Agreement"), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended.

We have the capacity to initially borrow up to $2.5 billion under the Credit Agreement.

Upon the closing of the proposed Combination with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion.

The Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit.

We may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions.

Obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by Discovery, Inc.

and Scripps Networks Interactive, Inc., and will also be guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed Combination.

The Credit Agreement will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the lenders' consent.

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

As of December 31, 2021, DCL was in compliance with all covenants and there were no events of default under the Credit Facility.

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 reduced by any outstanding borrowings under the commercial paper program.

As of December 31, 2021 and 2020, the Company had no outstanding borrowings under the Credit Facility or the commercial paper program.

• Investments

We received proceeds of $599 million during 2021 from the sales and maturities of investments.

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

• Content Acquisition

We plan to continue to invest significantly in the creation and acquisition of new content.

Additional information regarding contractual commitments to acquire content is set forth in "Commitments and Off-Balance Sheet Arrangements" in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Our investment in content has increased as we acquire and develop new content for discovery+.

Additional information regarding contractual commitments to acquire content is set forth in "Material Cash Requirements from Known Contractual and Other Obligations" in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In July 2021, we issued notices for the redemption in full of all $168 million aggregate principal amount outstanding of our 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of our 3.500% Senior Notes due June 2022 (collectively, the "2022 Notes").

The 2022 Notes were redeemed in July 2021 for an aggregate redemption price of $235 million, plus accrued interest.

In February 2021, we issued a notice for the redemption in full of all $335 million aggregate principal amount outstanding of our 4.375% Senior Notes due June 2021 (the “2021 Notes”).

The 2021 Notes were redeemed in March 2021 for an aggregate redemption price of $339 million, plus accrued interest.

In addition, we have $339 million of senior notes coming due in March 2022.

• Capital Expenditures and Investments in Next Generation Initiatives

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• Investments and Business Combinations

We made business acquisitions of $39 million and $73 million in 2020 and 2019.

During 2020, we purchased $250 million of time deposit investments.

Our uses of cash have included investments in various equity investments.

We provide funding to our investees from time to time.

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

(See Note 4 to the accompanying consolidated financial statements.) We provide funding to our investees from time to time.

We contributed $184 million and $181 million in 2021 and 2020, for investments in and advances to our investees.

We also purchased $103 million and $250 million of time deposit investments during 2021 and 2020.

In May 2021, we entered into an agreement with AT&T Inc.

to combine with WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets to create a standalone, global entertainment company.

The transaction is expected to close in the second quarter of 2022, subject to approval by the Company's shareholders and customary closing conditions, including receipt of regulatory approvals.

For the year ended December 31, 2021, we incurred transaction and integration costs of $95 million, primarily related to the WarnerMedia acquisition, and we expect to continue to incur significant transaction and integration costs in 2022 and beyond.

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

• Redeemable Noncontrolling Interest and Noncontrolling Interest

Due to business combinations, we also have redeemable equity balances of $383 million, which may require the use of cash in the event holders of noncontrolling interests put their interests to the Company beginning in 2021.

Distributions to redeemable noncontrolling interests and noncontrolling interests totaled $254 million and $250 million in 2020 and 2019.

Due to business combinations, we also have redeemable equity balances of $363 million, which may require the use of cash in the event holders of noncontrolling interests put their interests to us.

Distributions to noncontrolling interests and redeemable noncontrolling interests totaled $251 million and $254 million in 2021 and 2020, respectively.

• Common Stock Repurchases

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Under the new stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors.

(See Note 12 to the accompanying consolidated financial statements.) During 2020 and 2019, we repurchased $969 million and $633 million of our Series C common stock.

(See Note 12 to the accompanying consolidated financial statements.) There was no common stock repurchase activity during 2021.

During 2020, we repurchased $969 million of our Series C common stock.

• Income Taxes and Interest

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During 2021 and 2020, we made cash payments of $643 million and $641 million for income taxes and $664 million and $673 million for interest on our outstanding debt.

2020 Debt Activity

In addition to the tender offers for $1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes and repayment of the $500 million outstanding under our revolving credit facility described above, during 2020 we repaid $600 million of senior notes as they came due.

We have an additional $335 million of senior notes coming due in June 2021, which will be redeemed on March 21, 2021.

2019 Debt Activity

During 2019, we used the net proceeds from the issuance of the 2029 Notes and 2049 Notes to redeem and repurchase $1.3 billion aggregate principal amount of senior notes.

The repayment resulted in a loss on extinguishment of debt of $23 million.

Also during 2019, we redeemed $411 million aggregate principal senior notes, made open market bond repurchases of $55 million, resulting in a loss on extinguishment of debt of $5 million, and redeemed $900 million of senior notes and floating rate notes as they came due.

Changes in cash and cash equivalents were as follows (in millions).

Following the closing of the proposed Combination with WarnerMedia, we expect cash required for interest payments to significantly increase.

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

Year Ended December 31,

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Operating Activities

Cash provided by operating activities was $2.7 billion and $3.4 billion in 2020 and 2019.

The decrease was primarily attributable to a decrease in net income excluding non-cash items and, to a lesser extent, a negative fluctuation in working capital activity, primarily due to the timing of payments, partially offset by an increase in receivables collected.

Cash provided by operating activities was $2.8 billion and $2.7 billion in 2021 and 2020, respectively.

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 used in investing activities was $703 million and $438 million in 2020 and 2019.

The increase in cash used in investing activities was primarily driven by the purchase of $250 million in time deposit investments in 2020 and, to a lesser extent, an increase in purchases of property and equipment to support our next generation platforms, including discovery+, partially offset by a reduction in investments in and advances to equity investments.

Cash used in investing activities was $56 million and $703 million in 2021 and 2020, respectively.

The decrease in cash used in investing activities was primarily attributable to proceeds received from the sales and maturities of investments and a reduction in purchases of investments, partially offset by an increase in payments for derivatives during 2021.

Financing Activities

Cash used in financing activities was $1.5 billion and $2.4 billion in 2020 and 2019.

The decrease in cash used in financing activities was primarily attributable to lower net repayments and incremental borrowings of senior notes and the change in net activity under the revolving credit facility, partially offset by an increase in repurchases of stock.

Cash used in financing activities was $853 million and $1.5 billion in 2021 and 2020, respectively.

The decrease in cash used in financing activities was primarily attributable to the suspension of stock repurchases throughout 2021.

Capital Resources

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Total $ 21,592 $ — $ 15,187 $ 6,405

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

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

Our senior notes outstanding as of December 31, 2021 had interest rates that ranged from 1.90% to 6.35% and will mature between 2022 and 2055.

We expect that our cash balance, cash generated from operations and availability under the Credit Agreement will be sufficient to fund our cash needs for the next twelve months.

We expect that our cash balance, cash generated from operations and availability under the Credit Agreement will be sufficient to fund our cash needs for both the short-term and the long-term.

Our borrowing costs and access to capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.

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Basis of Presentation

Each of the Company, DCL, Discovery Communications Holding LLC (“DCH”) and/or Scripps Networks has the ability to conduct registered offerings of debt securities under the Company’s shelf registration statement.

As of December 31, 2021, all of the Company’s outstanding registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company and guaranteed by the Company and Scripps Networks, except for $23 million of senior notes outstanding as of December 31, 2021 that have been issued by Scripps Networks and are not guaranteed.

(See Note 8 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S.

DCL is a wholly owned subsidiary of DCH.

The Company wholly owns DCH through a 33 1/3% direct ownership interest and a 66 2/3% indirect ownership interest through Discovery Holding Company (“DHC”), a wholly owned subsidiary of the Company.

Scripps Networks is 100% owned by the Company.

DCL is a wholly owned, indirect subsidiary of the Company.

Scripps Networks is also 100% owned by the Company.

The tables below present the summarized financial information as combined for Discovery, Inc.

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All guarantees of DCL'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.

DCH currently is not an issuer or guarantor of any securities and therefore is not included in the summarized financial information included herein.

Note Guarantees issued by Scripps Networks 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 by DCL, (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into DCL or the Parent or another Subsidiary Guarantor, or upon the liquidation of such Subsidiary Guarantor and (iv) other customary events constituting a discharge of the Obligors’ obligations.

Summarized Financial Information

During 2020, the Company early adopted Rule 13-01 of the SEC's Regulation S-X.

In lieu of providing separate unaudited financial statements for the Parent and Scripps Networks as a Subsidiary Guarantor, 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 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).

December 31, 2021

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Additional information regarding the changes in our outstanding indebtedness and the significant terms and provisions of our revolving credit facility and outstanding indebtedness is discussed in Note 8 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2020, our significant contractual obligations, including related payments due by period, were as follows (in millions).

Payments Due by Period

Total Less than 1

Year 1-3 Years 3-5 Years More than

MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS

As of December 31, 2021, our significant contractual and other obligations were as follows (in millions).

Total Short-term Long-term

Long-term debt:

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Interest payments 9,988 629 9,359

Finance lease obligations 263 64 103 54 42

Operating lease obligations 859 91 145 121 502

Purchase obligations:

Content 5,352 1,798 3,554

Other 1,611 704 907

Finance lease obligations 277 65 212

Operating lease obligations 801 84 717

Pension and other employee obligations 17 3 14

Total $ 33,233 $ 3,622 $ 29,611

The above table does not include certain long-term obligations as the timing or the amount of the payments cannot be predicted.

The current portion of the liability for cash-settled share-based compensation awards was $37 million as of December 31, 2020.

Additionally, reserves for unrecognized tax benefits have been excluded from the above table because we are unable to predict reasonably the ultimate amount or timing of settlement.

Our unrecognized tax benefits totaled $348 million as of December 31, 2020.

The above table also does not include DCL's revolving credit facility that allows DCL and certain designated foreign subsidiaries of DCL to borrow up to $2.5 billion, including a $100 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for Euro-denominated swing line loans.

Borrowing capacity under this agreement is reduced by the outstanding borrowings under the commercial paper program.

As of December 31, 2020, the revolving credit facility agreement provided for a maturity date of August 2022 and the option for up to two additional 364-day renewal periods.

From time to time we may provide our equity method investees additional funding that has not been committed to as of December 31, 2020 based on unforeseen investee opportunities or cash flow needs.

Long-term Debt

Principal payments on long-term debt reflect the repayment of our outstanding senior notes, at face value, assuming repayment will occur upon maturity.

Interest payments on our outstanding senior notes are projected based on their contractual rate and maturity.

Finance Lease Obligations

We acquire satellite transponders and other equipment through multi-year finance lease arrangements.

Principal payments on finance lease obligations reflect amounts due under our finance lease agreements.

Interest payments on our outstanding finance lease obligations are based on the stated or implied rate in our finance lease agreements.

Operating Lease Obligations

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

Most operating leases are not cancelable 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.

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 $2.5 billion, including a $150 million sublimit for the issuance of standby letters of credit.

Upon the closing of the Combination with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion.

As of December 31, 2021, we had no outstanding borrowings under the credit facility or the commercial paper program.

(See Note 8 to the accompanying consolidated financial statements.)

Purchase Obligations

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

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

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.

Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms.

Significant purchase obligations include transmission services, television rating services, marketing research, employment contracts, equipment purchases, and information technology and other services.

We have contracts that 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.

Amounts related to employment contracts include base compensation and do not include compensation contingent on future events.

We have granted put rights to certain consolidated subsidiaries, which have been excluded from the table above since we are unable to reasonably predict the ultimate amount or timing of any payment.

We recorded the carrying value of the noncontrolling interest in the equity associated with the put rights as a component of redeemable noncontrolling interest in the amount of $383 million.

(See Note 11 to the accompanying consolidated financial statements.)

Pension Obligations

Significant purchase obligations include transmission services, television rating services, marketing commitments and research, equipment purchases, and information technology and other services.

Some of these contracts do not require the purchase of fixed or minimum quantities and generally may be terminated with a 30-day to 60-day advance notice without penalty, and are not included in the table above past the 30-day to 60-day advance notice period.

Finance Lease Obligations

We acquire satellite transponders and other equipment through multi-year finance lease arrangements.

Principal payments on finance lease obligations reflect amounts due under our finance lease agreements.

Interest payments on our outstanding finance lease obligations are based on the stated or implied rate in our finance lease agreements.

Operating Lease Obligations

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

Most operating leases are not cancelable 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.

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”).

Contractual commitments summarized in the contractual obligations table include payments to meet minimum funding requirements of our Pension Plan in 2021 and estimated benefit payments for our SERP.

Contractual commitments include payments to meet minimum funding requirements of our Pension Plan in 2022 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.

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

As of December 31, 2021, the current portion of the liability for cash-settled share-based compensation awards was $17 million .

Unrecognized Tax Benefits

We are unable to reasonably predict the ultimate amount or timing of settlement of our unrecognized tax benefits because, until formal resolutions are reached, reasonable estimates of the amount and timing of cash settlements with the respective taxing authorities are not practicable.

Our unrecognized tax benefits totaled $420 million as of December 31, 2021.

We have granted put rights to certain consolidated subsidiaries, but we are unable to reasonably predict the ultimate amount or timing of any payment.

We recorded the carrying value of the noncontrolling interest in the equity associated with the put rights as a component of redeemable noncontrolling interest in the amount of $363 million.

(See Note 11 to the accompanying consolidated financial statements.)

Noncontrolling Interest

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We hold interests in the Partnership, along with another noncontrolling owner.

During the fourth quarter of 2020, the Partnership agreement was extended and specifies a dissolution date of December 31, 2022.

The Partnership agreement specifies a dissolution date of December 31, 2022.

If the term of the Partnership is not extended prior to that date, the Partnership agreement permits us, as holder of 80% of the applicable votes, to reconstitute the Partnership and continue its business.

If for some reason the Partnership is not continued, it will be required to limit its activities to winding up, settling debts, liquidating assets and distributing proceeds to the partners in proportion to their partnership interests.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements (as defined in Item 303(a)(4) of Regulation S-K) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

RELATED PARTY TRANSACTIONS

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K and accompanying notes.

Management considers an accounting policy to be critical if it is material to reporting our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application.

The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company.

Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to uncertain tax positions, goodwill and intangible assets, content rights, consolidation and revenue recognition.

We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources.

There can be no assurance that actual results will not differ from those estimates.

Management considers an accounting estimate to be critical if it required assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates could have a material effect on our results of operations.

The development and selection of these critical accounting estimates have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company.

We believe the following accounting policies are critical to our business operations and the understanding of our results of operations and involve the more significant judgments and estimates used in the preparation of our consolidated financial statements.

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and foreign jurisdictions.

From time to time, we engage in transactions or takes filing positions in which the tax consequences may be uncertain and may recognize tax liabilities based on estimates of whether additional taxes and interest will be due.

From time to time, we engage in transactions or take filing positions in which the tax consequences may be uncertain and may recognize tax liabilities based on estimates of whether additional taxes and interest will be due.

We establish a reserve for uncertain tax positions unless we determine that such positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes.

We include interest and where appropriate, potential penalties, in our tax reserves.

We include interest and where appropriate, potential penalties, as a component of income tax expense on the consolidated statement of operations.

This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events including the status and results of income tax audits with the relevant tax authorities.

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This also involves the use of significant estimates and assumptions with respect to the potential outcome of positions taken on tax returns that may be reviewed by tax authorities.

At December 31, 2021, the reserve for uncertain tax positions was $420 million, and it is reasonably possible that the total amount of unrecognized tax benefits related to certain of our uncertain tax positions could decrease by as much as $125 million within the next twelve months as a result of ongoing audits, foreign judicial proceedings, lapses of statutes of limitations or regulatory developments.

Goodwill and Intangible Assets

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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.

Determining fair value specific to each reporting unit requires the Company to exercise judgment when selecting the appropriate discount rates, control premiums, terminal growth rates, assumed tax rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows, including revenue growth rates and profit margins.

Determining fair value specific to each reporting unit requires the Company to exercise judgment when selecting the appropriate discount rates, control premiums, terminal growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows, including revenue growth rates and profit margins.

The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long range plan, and recent operating performance.

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2021 Impairment Analysis

We concluded that the continued impacts of COVID-19 on the operating results of the Europe reporting unit represented a triggering event in the second quarter of 2020.

During the second quarter, we performed a quantitative goodwill impairment analysis for our Europe reporting unit using a DCF valuation model.

A market-based valuation model was not weighted in the analysis given the significant volatility in the equity markets.

Significant judgments and assumptions in the DCF model included the amount and timing of future cash flows, including revenue growth rates, long-term growth rates of 2%, and a discount rate ranging from 10% to 10.5%.

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

Also during the second quarter of 2020, we determined that it was more likely than not that the fair value was greater than the carrying value for all other reporting units with the exception of the Asia-Pacific reporting unit.

We performed a quantitative goodwill impairment analysis for the Asia-Pacific reporting unit and determined that the estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $36 million goodwill balance during the second quarter of 2020.

The impairment charge was not deductible for tax purposes.

Significant judgments and assumptions included the amount and timing of future cash flows, including revenue growth rates, long-term growth rates ranging from 2% to 2.5%, and a discount rate of 11%.

The cash flows employed in the DCF analysis for the Asia-Pacific reporting unit were based on the reporting unit’s budget and long-term business plan.

The determination of fair value of our Asia-Pacific reporting unit represents a Level 3 fair value measurement in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

The goodwill impairment charge did not have an impact on the calculation of our financial covenants under our debt arrangements.

During the third quarter of 2020, we realigned our International Networks management reporting structure.

As a result, Australia and New Zealand, which were previously included in the Europe reporting unit, are now included in the Asia-Pacific reporting unit, including the associated goodwill.

As a result of this realignment, we performed a quantitative goodwill impairment analysis for our Europe and Asia-Pacific reporting units using a DCF valuation model.

A market-based valuation model was not weighted in the analysis given the significant volatility in the equity markets.

Significant judgments and assumptions in the DCF model included the amount and timing of future cash flows, including revenue growth rates, long-term growth rates of 2% for Europe and 2% to 2.5% for Asia-Pacific, and a discount rate ranging from 10% to 10.5% for Europe and 11% for Asia-Pacific.

The estimated fair value of both the Europe and Asia-Pacific reporting units exceeded their carrying values and, therefore, no impairment was recorded.

During the fourth quarter of 2020, we performed our annual qualitative goodwill impairment assessment for all reporting units and we determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, except for our Europe and Asia-Pacific reporting units.

Given limited headroom of below 20% in its Europe and Asia-Pacific reporting units during the third quarter of 2020, we performed a quantitative goodwill impairment analysis for each of these reporting units using a DCF valuation model.

A market-based valuation model was not weighted in the analysis due to significant volatility in the reporting units' equity markets.

The quantitative goodwill impairment analysis for our Europe reporting unit indicated that the estimated fair value exceeded its carry value by approximately 20% and, therefore, no impairment was recorded.

Significant judgments and assumptions included the amount and timing of future cash flows, including revenue growth rates, long-term growth rate of 2%, and discount rates ranging from 10.5% to 11%.

We noted that a 1.0% increase in the discount rate and a 0.5% decrease in the long-term growth rate would not have resulted in an impairment loss.

As of December 31, 2020, the carrying value of goodwill assigned to the Europe reporting unit was $1.9 billion.

The quantitative impairment analysis for our Asia-Pacific reporting unit indicated that estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $85 million goodwill balance.

The impairment was a result of increased cost projections for this region committed to during the fourth quarter of 2020 as part of our global discovery+ rollout strategy.

The impairment charge was not deductible for tax purposes.

Significant judgments and assumptions included the amount and timing of future cash flows, including revenue growth rates, long-term growth rates ranging from 2% to 2.5%, and a discount rate of 11%.

The cash flows employed in the DCF analysis for the Asia-Pacific reporting unit were based on the reporting unit’s budget and long-term business plan.

The goodwill impairment charge did not have an impact on the calculation of our financial covenants under our debt arrangements.

During the fourth quarter of 2021, the Company performed a qualitative goodwill impairment assessment for all reporting units and it determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, therefore, no quantitative goodwill impairment analysis was performed

Content Rights

Content rights principally consist of television series, specials, films and sporting events.

Costs of produced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs and is capitalized if we have previously generated revenues from similar content in established markets and the content will be used and revenues will be generated for a period of at least one year.

Costs of produced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs and are capitalized if we have previously generated revenues from similar content in established markets and the content will be used and revenues will be generated for a period of at least one year.

Linear content amortization expense for each period is recognized based on the revenue forecast model, which approximates the proportion that estimated distribution and advertising revenues for the current period represent in relation to the estimated remaining total lifetime revenues.

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Ownership interests in unconsolidated entities for which we have significant influence are accounted for as equity method.

We evaluated reconsideration events during the year ended December 31, 2021 and concluded there were no changes to our consolidation assessments.

Revenue Recognition

As described in Note 2, we generate advertising revenues primarily from advertising sold on our television networks and websites and distribution revenues from fees charged to distributors of its network content, which include cable, direct-to-home satellite, telecommunications and digital service providers and bundled long-term content arrangements, as well as through DTC subscription services.

Revenue contracts with our advertising customers may include multiple distinct performance obligations.

For example, linear and digital advertising contracts may include the airing of spots and/or the satisfaction of an audience guarantee.

For such contracts, judgment is required in allocating the contract value to the individual performance obligations based on their relative standalone selling prices.

Various factors such as prior transactions, rate cards and other market indicators are used to determine the standalone selling price of each performance obligation and accordingly, how much revenue is allocated to each performance obligation.

For these contracts, revenue recorded when each performance obligation has been satisfied and value has been transferred to the customer.

As described in Note 2, we generate advertising revenues primarily from advertising sold on our television networks, authenticated TVE applications, DTC subscription services and websites and distribution revenues from fees charged to distributors of our network content, which include cable, direct-to-home satellite, telecommunications and digital service providers and bundled long-term content arrangements, as well as through DTC subscription services.

A substantial portion of the advertising contracts in the U.S.

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These advertising campaigns are considered to represent a single, distinct performance obligation.

For such contracts, judgement is required in measuring progress across the Company’s single performance obligation.

For such contracts, judgment is required in measuring progress across the Company’s single performance obligation.

Various factors such as pricing specific to the channel, daypart and targeted demographic, as well as estimated audience guarantees, are considered in determining how to appropriately measure progress across the campaigns.

Revenues are ultimately recognized based on the audience level delivered multiplied by the average price per impression.

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

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

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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What changed 10-K

Item 7. Management’s Discussion and Analysis