What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-22 · 316 added, 550 removed, 1613 unchanged (35% of the section changed)

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Report of Independent Registered Public Accounting Firm .

(PCAOB ID 238 )

Consolidated Financial Statements of Discovery, Inc.:

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Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for goodwill impairment and content in 2020, the manner in which it accounts for leases in 2019, and the manner in which it accounts for revenue from contracts with customers in 2018.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for goodwill impairment and content in 2020, and the manner in which it accounts for leases in 2019.

Basis for Opinions

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Certain Reserves for Uncertain Tax Positions

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These procedures also included, among others (i) testing the information used in the determination of certain reserves for uncertain tax positions, including international and federal filing positions and the related final tax returns;

(ii) testing the calculation of liability for certain reserves for uncertain tax positions by jurisdiction, including evaluating management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained, as well as the likelihood of the possible estimated outcome;

(iii) testing the completeness of management’s assessment of uncertain tax positions and possible outcomes of certain tax positions, and (iv) evaluating the status and results of income tax audits with the relevant tax authorities.

Goodwill Quantitative Impairment Assessments for the Europe Reporting Unit

As described in Notes 2 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $13.1 billion as of December 31, 2020, and the goodwill associated with the Europe reporting unit was $1.9 billion.

The Company evaluates goodwill for impairment annually as of October 1 or earlier if an event or other circumstance indicates that they may not recover the carrying value of the asset.

Management 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.

If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded for the amount by which the carrying amount exceeds the fair value, not to exceed the amount of goodwill recorded for that reporting unit.

Management performed quantitative goodwill impairment analyses during the second and fourth quarters of 2020 for the Europe reporting unit using a discounted cash flow (“DCF”) model.

Significant judgments and assumptions by management in the DCF model specific to the Europe reporting unit included the amount and timing of expected future cash flows, including revenue growth rates, long-term growth rates and discount rates.

The principal considerations for our determination that performing procedures relating to the goodwill quantitative impairment assessments for the Europe reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurements of the reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assumptions related to revenue growth rates, long-term growth rates, and discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill quantitative impairment assessments, including controls over the valuation of the Company’s reporting units.

These procedures also included, among others, testing management’s process for developing the fair value measurements of the Europe reporting unit, evaluating the appropriateness of the discounted cash flow model, testing the completeness and accuracy of underlying data used in the model and evaluating the significant assumptions used by management related to revenue growth rates, long-term growth rates, and discount rates.

Evaluating management’s assumptions related to revenue growth rates and long-term growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rates and long-term growth rates.

(ii) testing the calculation of the liability for certain reserves for uncertain tax positions by jurisdiction, including evaluating management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained, as well as the likelihood of the possible estimated outcome;

(iii) for certain uncertain tax positions, testing the completeness of management’s assessment and possible outcomes, and (iv) evaluating the status and results of income tax audits with the relevant tax authorities.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

Washington, District of Columbia

February 24, 2022

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6 shares authorized;

5 shares issued and outstanding

4 shares issued and outstanding and 5 shares issued and outstanding

Series A common stock:

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2,000 shares authorized;

547 shares issued;

559 and 547 shares issued;

and 330 and 318 shares outstanding

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Treasury stock, at cost:

230 and 190 shares

( 8,244 ) ( 8,244 )

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Deferred income taxes ( 511 ) ( 186 ) ( 504 )

Equity in losses of equity method investee companies, including cash distributions 167 62 138

Equity in losses of equity method investee companies and cash distributions 63 167 62

Loss on extinguishment of debt 10 76 28

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Impairment of goodwill and other intangible assets — 124 155

(Gain) loss from derivative instruments, net ( 36 ) 48 ( 15 )

Realized gain on sale of investments ( 103 ) ( 10 ) —

Remeasurement gain on previously held equity interests — ( 14 ) —

Loss (gain) on disposition 2 — ( 84 )

Gain on sale of investments ( 19 ) ( 103 ) ( 10 )

(Gain) loss on disposition ( 71 ) 2 —

Other, net 105 ( 22 ) 86

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Content rights and payables, net ( 3,381 ) ( 3,053 ) ( 3,060 )

Accounts payable and accrued liabilities ( 131 ) 122 ( 74 )

Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities 185 ( 131 ) 122

Foreign currency, prepaid expenses and other assets, net ( 88 ) ( 20 ) ( 28 )

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Investments in and advances to equity investments ( 184 ) ( 181 ) ( 254 )

Proceeds from dissolution of joint venture and sale of investments 69 125 —

Proceeds from sales and maturities of investments and dissolution of joint venture 599 69 125

Business acquisitions, net of cash acquired ( 2 ) ( 39 ) ( 73 )

Proceeds from dispositions, net of cash disposed — — 107

(Payments for) proceeds from derivative instruments, net ( 86 ) 85 54

Other investing activities, net 93 15 ( 1 )

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Financing Activities

Principal repayments of debt, including discount payment ( 2,193 ) ( 2,658 ) ( 16 )

Principal repayments of debt, including premiums to par value and discount payment ( 574 ) ( 2,193 ) ( 2,658 )

Borrowings from debt, net of discount and issuance costs — 1,979 1,479

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Distributions to noncontrolling interests and redeemable noncontrolling interests ( 251 ) ( 254 ) ( 250 )

Borrowings under term loan facilities — — 2,000

Principal repayments of term loans — — ( 2,000 )

Other financing activities, net ( 28 ) ( 112 ) ( 70 )

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Other comprehensive loss — — — — — — — ( 7 ) ( 7 ) — ( 7 )

Preferred stock conversion ( 1 ) — 22 — — — — — — — —

Share-based compensation — — — — 73 — — — 73 — 73

Repurchases of stock — — — — — ( 637 ) — — ( 637 ) — ( 637 )

Settlement of common stock repurchase contract — — — — 5 — — — 5 — 5

Tax settlements associated with share-based plans — — — — ( 22 ) — — — ( 22 ) — ( 22 )

Issuance of stock and noncontrolling interest in connection with the acquisition of Scripps Networks Interactive, Inc.

("Scripps Networks") — — 139 1 3,217 — — — 3,218 1,700 4,918

Dividends paid to noncontrolling interests — — — — — — — — — ( 211 ) ( 211 )

Redeemable noncontrolling interest adjustments to redemption value — — — — — — ( 5 ) — ( 5 ) — ( 5 )

Issuance of stock in connection with share-based plans — — 2 — 44 — — — 44 — 44

Redeemable noncontrolling interest adjustments to redemption value — — — — — — ( 24 ) — ( 24 ) — ( 24 )

December 31, 2019 13 — 715 7 10,747 ( 7,374 ) 7,333 ( 822 ) 9,891 1,633 11,524

Cumulative effect of accounting changes — — — — — — 34 ( 30 ) 4 — 4

Cumulative effect of an accounting change — — — — — — 2 — 2 — 2

Cumulative effect of accounting changes of an equity method investee — — — — — — ( 3 ) — ( 3 ) — ( 3 )

Net income available to Discovery, Inc.

and attributable to noncontrolling interests — — — — — — 1,219 — 1,219 124 1,343

Other comprehensive loss — — — — — — — ( 7 ) ( 7 ) — ( 7 )

Preferred stock conversion ( 1 ) — 22 — — — — — — — —

Other comprehensive income — — — — — — — 171 171 — 171

Share-based compensation — — — — 94 — — — 94 — 94

Repurchases of stock — — — — — ( 965 ) — — ( 965 ) — ( 965 )

Settlement of common stock repurchase contract — — — — 5 — — — 5 — 5

Tax settlements associated with share-based plans — — — — ( 32 ) — — — ( 32 ) — ( 32 )

Equity exchange with Harpo for step acquisition of OWN (See Note 11) — — — — ( 45 ) 95 9 — 59 — 59

Dividends paid to noncontrolling interests — — — — — — — — — ( 223 ) ( 223 )

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Redeemable noncontrolling interest adjustments to redemption value — — — — — — ( 17 ) — ( 17 ) — ( 17 )

Other adjustments to stockholders' equity — — — — 2 — — — 2 2 4

December 31, 2020 13 — 717 7 10,809 ( 8,244 ) 8,543 ( 651 ) 10,464 1,536 12,000

Cumulative effect of an accounting change (See Note 2) — — — — — — 2 — 2 — 2

Cumulative effect of accounting changes of an equity method investee — — — — — — (3) — (3) — (3)

Net income available to Discovery, Inc.

and attributable to noncontrolling interests — — — — — — 1,006 — 1,006 138 1,144

Other comprehensive income — — — — — — — 171 171 — 171

Other comprehensive loss — — — — — — — ( 179 ) ( 179 ) — ( 179 )

Share-based compensation — — — — 158 — — — 158 — 158

Repurchases of stock — — — — — ( 965 ) — — ( 965 ) — ( 965 )

Equity exchange with Harpo for step acquisition of OWN (See Note 11) — — — — (45) 95 9 — 59 — 59

Preferred stock conversion ( 1 ) — 11 — — — — — — — —

Tax settlements associated with share-based plans — — — — ( 71 ) — — — ( 71 ) — ( 71 )

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Redeemable noncontrolling interest adjustments to redemption value — — — — ( 8 ) — 31 — 23 — 23

Other adjustments to stockholders' equity — — — — 2 — — — 2 2 4

December 31, 2021 12 $ — 736 $ 7 $ 11,086 $ ( 8,244 ) $ 9,580 $ ( 830 ) $ 11,599 $ 1,434 $ 13,033

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Discovery, Inc.

(“Discovery”, the “Company”, "we", "us" or "our") is a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air ("FTA") and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer (DTC) subscription products.

(“Discovery”, the “Company”, "we", "us" or "our") is a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer ("DTC") subscription products.

In January 2021, the Company launched discovery+, its aggregated DTC product, in the U.S.

across several streaming platforms.

The Company also operates production studios.

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The consolidated financial statements include the accounts of Discovery 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.

For each non-wholly owned subsidiary, the Company evaluates its ownership and other interests to determine whether it should consolidate the entity or account for its ownership interest as an investment.

As part of its evaluation, the Company makes judgments in determining whether the entity is a VIE and, if so, whether it is the primary beneficiary of the VIE and is thus required to consolidate the entity.

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Actual results may differ from these estimates.

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

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

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 (“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.

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

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 the Company’s 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 the Company eased during the second half of 2020.

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

Many of the Company’s 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, the Company has incurred additional costs to comply with various governmental regulations and implement certain safety measures for the Company's employees, talent, and partners.

Additionally, certain sporting events that the Company has 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company continues to pursue a number of cost savings initiatives which began during the third and fourth quarters of 2020 and believes 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 its expense structure to ongoing changes within the industry.

The Company also implemented remote work arrangements effective mid-March 2020 and, to date, these arrangements have not materially affected the Company's ability to operate its business.

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

As described further in Note 8, during March 2020, the Company drew down $ 500 million under its $ 2.5 billion revolving credit facility to increase its cash position and maximize flexibility in light of the current uncertainty surrounding the impact of COVID-19.

In addition, in April 2020, the Company entered into an amendment to its revolving credit facility, which increased flexibility under its 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 its revolving credit facility.

(See Note 8.)

In light of the impact of COVID-19, the Company 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.

The Company recorded goodwill and other intangible assets impairment charges of $ 124 million for its Asia-Pacific reporting unit during the year ended December 31, 2020.

(See Note 7.) Adjustments to reflect increased expected credit losses were not material.

Further, hedged transactions were assessed and the Company has 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 the Company’s 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 the Company’s 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.

The Company will continue to monitor COVID-19 and its impact on the Company’s business results and financial condition.

These 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.

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.

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, the Company does not expect the CARES Act or the Consolidated Appropriations Act, 2021 to have a material effect on its financial position and results of operations.

The Company continues to monitor other relief measures taken by the U.S.

and other governments around the world.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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dollar are translated at exchange rates in effect at the balance sheet date for assets and liabilities and at average exchange rates for revenues and expenses for the respective periods.

Translation adjustments are recorded in accumulated other comprehensive loss.

Cash flows from the Company's operations in foreign countries are generally translated at the weighted average rate for the applicable period in the consolidated statements of cash flows.

Such translation adjustments are recorded in accumulated other comprehensive income.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is exposed to foreign currency risk to the extent that it enters into transactions denominated in currencies other than its subsidiaries’ respective functional currencies.

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Receivables include amounts billed and currently due from customers and are presented net of an estimate for credit losses.

To assess collectability, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks, and reserves an amount that it estimates may not be collected.

To assess collectability, the Company analyzes market trends, economic conditions, historical collection experience, the aging of receivables and customer specific risks, and reserves an amount that it estimates may not be collected.

The Company does not require collateral with respect to trade receivables.

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The Company records its costs but does not record the costs borne by the other party as the Company does not share any associated economics of exploitation.

Licensed content is comprised of films or series that have been previously produced by third parties and the Company retains limited airing rights over a contractual term.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Licensed content is comprised of films or series that have been previously produced by third parties and the Company does not own the rights .

Program licenses typically have fixed terms and require payments during the term of the license.

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Judgment is required to determine the useful lives and amortization patterns of the Company’s content assets.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quarterly, the Company prepares analyses to support its content amortization expense.

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Accordingly, the Company continually reviews its estimates and planned usage and revises its assumptions if necessary.

As part of the Company's assessment of its amortization rates, the Company compares the calculated amortization rates to those that have been utilized during the year.

If the calculated rates do not deviate materially from the applied amortization rates, no adjustment is recorded.

Any material adjustments from the Company’s review of the amortization rates are applied prospectively in the period of the change for assets in film groups, which represent the largest proportion of the Company's content assets.

The result of the content amortization analysis is either an accelerated method or a straight-line amortization method over the estimated useful lives of generally two to four years .

The result of the content amortization analysis is either an accelerated method or a straight-line amortization method over the estimated useful lives of generally two to five years .

Amortization of capitalized costs for produced and coproduced content begins when a program has been aired.

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Content assets (produced, coproduced and licensed) are predominantly monetized as a group on the Company’s linear networks and digital content offerings.

For content assets that are predominantly monetized within film groups, the Company evaluates the fair value of content in aggregate at the group level by considering expected future revenue generation typically by using a discounted cash flow analysis when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized costs.

For content assets that are predominantly monetized within film groups, the Company evaluates the fair value of content in aggregate at the group level by considering expected future revenue generation typically by using a discounted cash flow ("DCF") analysis when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized costs.

Estimates of future revenues consider historical airing patterns and future plans for airing content, including any changes in strategy.

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The Company holds investments in equity method investees and equity investments with and without readily determinable fair values.

(See Note 4.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments

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Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees, as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For certain of the Company's equity method investments, such as investments in renewable energy limited liability companies where the capital structure of the equity investment results in different liquidation rights and priorities than what is reflected by the underlying percentage ownership interests, the Company's proportionate share of net earnings is accounted for using the Hypothetical Liquidation at Book Value ("HLBV") methodology available under the equity method of accounting.

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Investments in entities or other securities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are recorded at fair value based on quoted market prices and are classified as equity securities or equity investments with readily determinable fair value.

(See Note 4.) For equity securities with readily determinable fair value, realized gains and losses are recorded in other income (expense), net.

(See Note 20.)

For equity securities with readily determinable fair value, gains and losses are recorded in other income (expense), net.

(See Note 4 and Note 20.)

Equity Investments without Readily Determinable Fair Values

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

Equity investments without readily determinable fair value are recorded at cost, less any impairment, and adjusted for subsequent observable price changes as of the date that an observable transaction takes place and are recorded in other income (expense), net.

(See Note 20.)

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

Equity investments without readily determinable fair values are recorded at cost, less any impairment, and adjusted for subsequent observable price changes as of the date that an observable transaction takes place and are recorded in other income (expense), net.

(See Note 4 and Note 20.)

Property and Equipment

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dollar denominated senior unsecured borrowing curves using public credit ratings adjusted down to a collateralized basis using a combination of recovery rate and credit notching approaches and translated into major contract currencies as applicable.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

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In addition, variable lease payments that are based on an index or rate are included in measurement of ROU assets and lease liabilities at lease inception.

All other variable lease payments are expensed as incurred and are not included in measurement of ROU assets and lease liabilities.

All other variable lease payments are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.

Lease expense for operating leases is recognized on a straight-line basis.

For finance leases, the Company recognizes interest expense on lease liabilities using the effective interest method and amortization of ROU assets on a straight-line basis.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Asset Impairment Analysis

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The Company has applied the provisions of ASU 2017-04 to quantitative goodwill impairment assessments performed in 2020.

(See "Accounting and Reporting Pronouncements Adopted" below and Note 7.)

The Company performs a quantitative impairment test every three years, irrespective of the outcome of the Company's qualitative assessment.

During 2019, the Company changed its annual impairment testing date from November 30 to October 1.

The Company believes the new date is preferable because it aligns the impairment test with the budgeting and quarter-end closing processes.

The Company determined it was impracticable to apply the change in accounting principle retrospectively because it could not determine the goodwill estimate for each reporting unit at the new annual goodwill impairment testing date without the use of hindsight.

Accordingly, the Company applied the change in accounting principle prospectively.

The change in the annual impairment testing date did not delay, accelerate or avoid an impairment charge.

The Company typically performs a quantitative impairment test every three years, irrespective of the outcome of the Company's qualitative assessment.

Long-lived Assets

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Equity method investments are written down to fair value if there is evidence of a loss in value that is other-than-temporary.

The Company may estimate the fair value of its equity method investments by considering recent investee equity transactions, discounted cash flow analysis, recent operating results, comparable public company operating cash flow multiples and in certain situations, balance sheet liquidation values.

The Company may estimate the fair value of its equity method investments by considering recent investee equity transactions, DCF analysis, recent operating results, comparable public company operating cash flow multiples and in certain situations, balance sheet liquidation values.

If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining whether an other-than-temporary decline has occurred, such as the length of the time and the extent to which the estimated fair value or market value has been below the carrying value, the financial condition and the near-term prospects of the investee, the intent and ability of the Company to retain its investment in the investee for a period of time sufficient to allow for any anticipated recovery in market value, and general market conditions.

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For equity investments without readily determinable fair value, investments are recorded at cost, less impairment, adjusted for subsequent observable price changes as of the date that an observable transaction takes place.

The Company performs a qualitative assessment on a quarterly basis to determine if an investment is impaired.

If the qualitative assessment indicates that an investment is impaired, a loss is recorded equal to the difference between the fair value and carrying value in the current period as a component of other income (expense), net.

The Company performs a qualitative assessment on a quarterly basis to determine if an observable price change has occurred.

If the qualitative assessment indicates that an observable price change has occurred, a gain or loss is recorded equal to the difference between the fair value and carrying value in the current period as a component of other income (expense), net.

(See Note 4.)

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The entire change in the fair value of derivatives that qualify as net investment hedges is initially recorded in the currency translation adjustment component of other comprehensive income.

While the change in fair value attributable to hedge effectiveness remains in accumulated other comprehensive income (loss) until the net investment is sold or liquidated, the change in fair value attributable to components excluded from the assessment of hedge effectiveness (e.g., forward points, cross currency basis, etc.) is reflected as a component of interest expense, net in the current period.

While the change in fair value attributable to hedge effectiveness remains in accumulated other comprehensive loss until the net investment is sold or liquidated, the change in fair value attributable to components excluded from the assessment of hedge effectiveness (e.g., forward points, cross currency basis, etc.) is reflected as a component of interest expense, net in the current period.

No Hedging Designation

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Gains and losses on designated cash flow and net investment hedges are initially recognized as components of accumulated other comprehensive loss on the consolidated balance sheets and reclassified into the statements of operations in the same line item in which the hedged item is recorded and in the same period as the hedged item affects earnings.

The Company records gains and losses for instruments that receive no hedging designation, as a component of other expense, net on the consolidated statements of operations.

The Company records gains and losses for instruments that receive no hedging designation, as a component of other income (expense), net on the consolidated statements of operations.

Cash flows from designated derivative instruments used as hedges are classified in the consolidated statements of cash flows in the same section as the cash flows of the hedged item.

Premiums paid for these instruments and associated settlements are reflected as components of investing cash flows.

Cash flows from periodic settlement of interest on cross currency swaps and derivative contracts not designated as hedges are reported as investing activities in the consolidated statements of cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective July 1, 2018, the Company early adopted ASU 2017-12.

As a result, the Company changed the method by which it assesses effectiveness for net investment hedges from the forward-method to the spot-method.

Previous net losses of $ 87 million incurred under the forward method related to net investment hedges will remain in other comprehensive loss under the currency translation component and will be reclassified to earnings when the net investment is sold or liquidated.

Treasury Stock

When stock is acquired for purposes other than formal or constructive retirement, the purchase price of the acquired stock is recorded in a separate treasury stock account, which is separately reported as a reduction of equity.

When stock is retired or purchased for formal or constructive retirement, the purchase price is initially recorded as a reduction to the par value of the shares repurchased, with any excess purchase price over par value recorded as a reduction to additional paid-in capital related to the series of shares repurchased and any remainder excess purchase price recorded as a reduction to retained earnings.

When stock is retired or purchased for formal or constructive retirement, the purchase price is initially recorded as a reduction to the par value of the shares repurchased, with any excess purchase price over par value recorded as a reduction to additional paid-in capital related to the series of shares repurchased and any remaining excess purchase price recorded as a reduction to retained earnings.

If the purchase price exceeds the amounts allocated to par value and additional paid-in capital related to the series of shares repurchased and retained earnings, the remainder is allocated to additional paid-in capital related to other series of shares.

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The Company generates revenues principally from:

(i) advertising revenue from advertising sold on its television networks, authenticated TVE applications and websites, (ii) distribution revenues from fees charged to distributors of its network content, which include cable, direct-to-home ("DTH") satellite, telecommunications and digital service providers and bundled long-term content arrangements, as well as through DTC subscription services and (iii) other revenue related to several items including:

(i) advertising revenue from advertising sold on its television networks, authenticated TVE applications, DTC subscription services and websites, (ii) distribution revenues from fees charged to distributors of its network content, which include cable, direct-to-home ("DTH") satellite, telecommunications and digital service providers, and bundled long-term content arrangements, as well as through DTC subscription services, and (iii) other revenue related to several items including:

(a) unbundled rights to sales of network content, including sports rights, (b) production studios content development and services, (c) the licensing of the Company's brands for consumer products, and (d) affiliate and advertising sales representation services.

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Actual audience delivery is typically reported by independent third parties.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For contracts without an audience guarantee, advertising revenues are recognized as each spot airs.

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The Company allocates the consideration to each spot based on its relative standalone selling price.

Advertising revenues from digital platforms are recognized as impressions are delivered or the services are performed.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cable operators, DTH satellite operators and telecommunications service providers typically pay royalties via a per-subscriber fee for the right to distribute the Company’s programming under the terms of distribution contracts.

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Distribution revenue from fixed-fee contracts is recognized over the contract term based on the continuous delivery of the content to the affiliate.

Any monetary incentives provided to distributors are recognized as a reduction of revenue over the service term.

Although the delivery of linear feeds and digital DTC products, such as video-on-demand (“VOD”) and authenticated TVE applications, are considered distinct performance obligations within a distribution arrangement, on demand offerings generally match the programs that are airing on the linear network.

Any monetary incentives provided to distributors other than for distinct goods or services acquired at fair value are recognized as a reduction of revenue over the service term.

Although the delivery of linear feeds and digital products, such as video-on-demand (“VOD”) and authenticated TVE applications, are considered distinct performance obligations within a distribution arrangement, on demand offerings generally match the programs that are airing on the linear network.

Therefore, the Company recognizes revenue for licensing arrangements as the license fee is earned and based on continuous delivery for fixed fee contracts.

For DTC subscription services, the Company recognizes revenue as the license fee is earned over the subscription period.

For DTC subscription services, the Company recognizes revenue as the service fee is earned over the subscription period.

Revenues associated with digital distribution arrangements are recognized when the Company transfers control of the content and the rights to distribute the content to the customer.

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There are generally two types of such arrangements:

1) content licensing arrangements that include subscription video on demand (“SVOD”) licensing arrangements and 2) digital DTC content (such as VOD and authenticated TVE applications), which is a performance obligation within the Company's linear distribution arrangements.

1) content licensing arrangements that include subscription video on demand (“SVOD”) licensing arrangements and 2) digital content (such as VOD and authenticated TVE applications), which is a performance obligation within the Company's linear distribution arrangements.

These contracts vary by customer and in certain instances include a promise by the Company to deliver existing content and new content.

For SVOD arrangements, revenue is allocated to each performance obligation based on that performance obligation's relative standalone selling price.

In the case of VOD and digital DTC content, content is regularly refreshed over the term of the agreement, as new titles are added and older titles are removed.

In the case of VOD and digital content, content is regularly refreshed over the term of the agreement, as new titles are added and older titles are removed.

Consequently, satisfaction of the performance obligations generally occurs in the same pattern as the delivery of the linear feed.

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Advertising costs are expensed as promotional services are delivered and are presented in selling, general and administrative expenses.

Advertising costs paid to third parties totaled $ 412 million, $ 390 million and $ 355 million for years ended December 31, 2020, 2019 and 2018, respectively.

Advertising costs paid to third parties totaled $ 1.2 billion, $ 412 million and $ 390 million for years ended December 31, 2021, 2020 and 2019, respectively.

DISCOVERY, INC.

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A valuation allowance is provided for deferred tax assets if it is more likely than not such assets will be unrealized.

The Company also engaged in transactions that make the Company eligible for federal investment tax credits.

The Company accounts for federal investment tax credits under the flow-through method, under which the tax benefit generated from an investment tax credit is recorded in the period the credit is generated.

From time to time, the Company engages in transactions in which the tax consequences may be uncertain.

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In determining the Company's tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless the Company determines 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.

The Company includes interest and where appropriate, penalties, in its tax reserves.

The Company includes interest and where appropriate, penalties, as a component of income tax expense on the consolidated statements of operations.

There is significant judgment involved in determining the amount of reserve and whether positions taken on the Company's tax returns are more likely than not to be sustained, which involve 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.

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The Company also has a limited number of arrangements where collateral is required to be posted in the instance that certain fair value thresholds are exceeded.

As of December 31, 2020, the Company had posted $ 31 million of collateral under these arrangements.

As of December 31, 2021, no collateral has been posted under these arrangements.

As of December 31, 2021, the Company's exposure to counterparty credit risk included derivative assets with an aggregate fair value of $ 330 million.

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Accounting and Reporting Pronouncements Adopted

In March 2019, the Financial Standards Accounting Board ("FASB") issued Accounting Standards Update ("ASU") 2019-02, which generally aligns the accounting for production costs of episodic television series with the accounting for production costs of films.

In addition, ASU 2019-02 modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements in Accounting Standards Codification (“ASC”) 926-20 and the impairment, presentation and disclosure requirements in ASC 920-350.

The Company adopted this ASU on January 1, 2020 and will apply the provisions prospectively.

In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying U.S.

GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.

The Company will apply the relevant provisions of the guidance to its existing hedge relationships.

Business Combinations

In October 2021, the Financial Standards Accounting Board ("FASB") issued guidance that requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as if it had originated the contracts.

The guidance is effective for interim and annual periods beginning after December 15, 2022, and may be early adopted.

The Company early adopted this guidance during the third quarter of 2021.

The adoption of this guidance did not have a material impact on the Company's consolidated financial statements for prior acquisitions in the current annual period, and the impact in future periods will be dependent on the contract assets and contract liabilities acquired in future business combinations.

In March 2019, the FASB issued guidance which generally aligns the accounting for production costs of episodic television series with the accounting for production costs of films.

In addition, this guidance modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements.

The Company adopted this guidance on January 1, 2020 and applied the provisions prospectively.

In connection with this adoption, the Company elected to treat all content rights and prepaid license fees as a noncurrent asset, with the exception of content acquired with an initial license period of 12 months or less and prepaid sports rights expected to air within 12 months.

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(See Note 6.)

In January 2017, the FASB issued ASU 2017-04, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the former two-step goodwill impairment test and eliminating the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment.

In January 2017, the FASB issued guidance simplifying the subsequent measurement of goodwill by eliminating Step 2 from the former two-step goodwill impairment test and eliminating the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment.

Therefore, an entity will recognize impairment charges for the amount by which the carrying amount exceeds the reporting unit's fair value not to exceed the amount of goodwill recorded for that reporting unit.

Goodwill impairment will no longer be measured as the excess of the carrying amount of goodwill over its implied fair value determined by assigning the fair value of a reporting unit to all of its assets and liabilities as if it had been acquired in a business combination.

The Company adopted this ASU on January 1, 2020 and has applied the provisions to quantitative goodwill impairment assessments performed in 2020.

(See Note 7.)

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, which changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans and replaces the incurred loss methodology with a new, forward-looking “expected loss” model that considers the risk of loss over the asset’s contractual life, even if remote, historical experience, current conditions, and reasonable and supportable forecasts of future relevant events.

The Company adopted this ASU on January 1, 2020 using a modified retrospective approach and recorded a noncash cumulative effect of adoption as an increase to retained earnings of $ 2 million to align its credit loss methodology with the new standard.

The Company adopted this guidance on January 1, 2020 and has applied the provisions to quantitative goodwill impairment assessments performed subsequent to adoption.

(See Note 7.)

In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all of their leases on the balance sheet by recording a right-of-use asset and lease liability.

In February 2016, the FASB issued guidance, which requires lessees to recognize almost all of their leases on the balance sheet by recording a right-of-use asset and lease liability.

The guidance also requires improved disclosures to help users of the financial statements better understand the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted ASU 2016-02 effective January 1, 2019 and elected to apply the guidance at the effective date without recasting the comparative periods presented.

The Company adopted this guidance effective January 1, 2019 and elected to apply the guidance at the effective date without recasting the comparative periods presented.

Additionally, the Company elected to apply practical expedients allowing it to not reassess:

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Additionally, the Company did not elect to apply the short-term lease scope exemption.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), which updates numerous requirements in U.S.

GAAP, eliminates industry-specific guidance, and provides companies with a single model for recognizing revenue from contracts with customers.

The core principle of Topic 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The guidance also addresses the accounting for costs incurred as part of obtaining or fulfilling a contract with a customer by adding ASC Subtopic 340-40, Other Assets and Deferred Costs:

Contracts with Customers, and requiring that costs of obtaining a contract be recognized as an asset and amortized as goods and services are transferred to the customer, as long as the costs are expected to be recovered.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to contracts not completed as of January 1, 2018.

Revenues do not include taxes collected from customers on behalf of taxing authorities such as sales tax and value-added tax.

However, certain revenues include taxes that customers pay to taxing authorities on the Company’s behalf, such as foreign withholding tax.

Accounting and Reporting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, which provides temporary optional expedients and exceptions for applying U.S.

GAAP to contract modifications, hedging relationships, and other transactions if certain criteria are met in order to ease the potential accounting and financial reporting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

Additionally, in January 2021, the FASB issued ASU 2021-01, which clarifies the scope of Topic 848 and allows entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates.

These ASUs are effective as of March 12, 2020 through December 31, 2022.

The Company is currently assessing the impact ASU 2020-04 and ASU 2021-01 will have on its consolidated financial statements and related disclosures, if elected.

Convertible Instruments

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance.

This ASU is effective for interim and annual periods beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The Company is currently assessing the impact ASU 2020-06 will have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued guidance simplifying the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

The guidance amends the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance.

This guidance is effective for interim and annual periods beginning after December 15, 2021.

The Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

ACQUISITIONS AND DISPOSITIONS

In May 2021, the Company 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 proposed combination transaction will be executed through a Reverse Morris Trust type transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via a pro rata distribution (i.e., a spin off).

In connection with the combination transaction, AT&T will receive approximately $ 43 billion (subject to working capital and other adjustments) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt.

The Company has concluded that it will be considered the accounting acquirer.

The Company established an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of future fixed-rate debt by WarnerMedia, which is expected to be guaranteed by the Company and certain subsidiaries of the Company upon closing of the transaction.

(See Note 10.)

Immediately prior to closing, all shares of Series A, Series B, and Series C common stock and Series A-1 and Series C-1 convertible preferred stock will be reclassified and converted to one class of the Company's common stock.

AT&T’s shareholders that receive WarnerMedia stock in the distribution will receive stock representing 71 % of the combined company and the Company's shareholders will continue to own 29 % of the combined company, in each case on a fully diluted basis.

The Boards of Directors of both AT&T and the Company have approved the transaction.

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

On December 22, 2021, the transaction received unconditional antitrust clearance from the European Commission (“EC”) pursuant to the EC Merger Regulation, and on December 28, 2021, AT&T received a favorable Private Letter Ruling from the Internal Revenue Service regarding the qualification of the transactions for their intended tax-free treatments.

On February 9, 2022, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, statutory waiting period has expired or otherwise been terminated, and any agreement not to consummate the transaction between the parties and the Federal Trade Commission or the Antitrust Division of the United States Department of Justice or any other applicable governmental entity, has also expired or otherwise been terminated.

Discovery and AT&T are in the process of obtaining other required regulatory approvals.

Agreements are in place with Dr.

John Malone and Advance/Newhouse Programming Partnership to vote in favor of the transaction, representing approximately 43 % of the aggregate voting power of the shares of Discovery voting stock.

The transaction requires, among other things, the consent of Advance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder of the Series A-1 Preferred Stock, which consent was given pursuant to a consent agreement.

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 will receive an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock would be converted.

Upon the closing, the impact of the issuance of such additional shares of common stock of the Company will be recorded as a transaction expense.

No vote by AT&T shareholders is required.

The merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023.

Termination under specified circumstances will require Discovery to pay AT&T a termination fee of $ 720 million or AT&T to pay Discovery a termination fee of $ 1.8 billion.

In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $ 10 billion term loan that will be guaranteed by the Company and certain material subsidiaries of the Company upon closing of the transaction.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UKTV - Lifestyle Business

On June 11, 2019, the Company and BBC Studios (“BBC”) dissolved their 50/50 joint venture, UKTV, a British multi-channel broadcaster, with the Company taking full control of UKTV’s three lifestyle channels (the “Lifestyle Business”) and BBC taking full control of UKTV’s seven entertainment channels (the "Entertainment Business").

Prior to the transaction, the Company held a note receivable from UKTV of $ 118 million, which was included in equity method investments in the Company’s consolidated balance sheets.

Prior to the transaction, the Company held a note receivable from UKTV of $ 118 million.

Concurrent with the transaction, the note was settled.

To compensate Discovery for the note receivable and for the difference in fair value between the Lifestyle Business and the Entertainment Business retained by BBC, Discovery received cash of $ 88 million at closing and a note receivable from BBC of $ 130 million, payable in two equal installments.

The first installment was received in June 2020 and the second installment is due in June 2021.

The Company used a market-based valuation model to determine the fair value of the previously held 50 % equity method investment in the Lifestyle Business and recognized a gain of $ 5 million during the year ended December 31, 2019 for the difference between the carrying value and the fair value of the of the previously held equity interest.

The gain is included in other income (expense), net in the Company's consolidated statement of operations.

The Company used a market-based valuation model to determine the fair value of the previously held 50 % equity method investment in the Lifestyle Business and recognized an immaterial gain, which is included in other income (expense), net in the Company's consolidated statement of operations.

The Company applied the acquisition method of accounting to the Lifestyle Business, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill.

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Intangible assets consist of electronic program guide slots and trademarks and have a weighted average useful life of 6 years.

The Company used discounted cash flow ("DCF") analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation.

The Company used DCF analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation.

The measurement period closed in June 2020, with no material adjustments recorded.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The final fair value of Lifestyle Business assets acquired and liabilities assumed, as well as a reconciliation to total assets received in dissolution of the UKTV joint venture, is presented in the table below (in millions).

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In connection with the above transaction, the Company contemporaneously entered into a ten-year content licensing arrangement with BBC in exchange for license fees over the term.

Scripps Networks

On March 6, 2018, Discovery acquired Scripps Networks.

The acquisition of Scripps Networks allows the Company to offer complementary brands with an extensive library of original programming to consumers and to become a scale player with the ability to compete for audiences and advertising revenue.

The acquisition is intended to extend Scripps Networks' content to a broader international audience through Discovery's global distribution infrastructure.

Finally, the acquisition of Scripps Networks has created cost synergies for the Company.

The consideration paid for the acquisition of Scripps Networks consisted of the following:

(i) for Scripps Networks shareholders that did not make an election or elected to receive the mixed consideration, $ 65.82 in cash and 1.0584 shares of Discovery Series C common stock for each Scripps Networks share,

(ii) for Scripps Networks shareholders that elected to receive the cash consideration, $ 90.00 in cash for each Scripps Networks share,

(iii) for Scripps Networks shareholders that elected to receive the stock consideration, 3.9392 shares of Discovery Series C common stock for each Scripps Networks share, and

(iv) transaction costs that Discovery paid for costs incurred by Scripps Networks in conjunction with the acquisition.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the components of the aggregate consideration paid for the acquisition of Scripps Networks (in millions of dollars and shares, except for per share amounts, share conversion ratio and stock option conversion ratio).

Scripps Networks equity

Scripps Networks shares outstanding 131

Cash consideration per Scripps Networks share $ 65.82

Cash portion of consideration $ 8,590

Scripps Networks shares outstanding 131

Share conversion ratio per Scripps Networks share 1.0584

Discovery Series C common stock 138

Discovery Series C common stock price per share $ 23.01

Equity portion of consideration $ 3,179

Shares awarded under Scripps Networks share-based compensation programs 3

Scripps Networks share-based compensation awards converting to cash 2

Average cash consideration per share awarded less applicable exercise price $ 46.90

Cash portion of consideration $ 88

Scripps Networks share-based compensation awards 1

Share-based compensation conversion ratio (based on intrinsic value per award) 3

Discovery Series C common stock issued (1) or share-based compensation converted (2) 3

Average equity value (intrinsic value of Discovery Series C common stock or options to be issued) $ 15.19

Share-based compensation equity value $ 51

post-combination compensation expense ( 12 )

Equity portion of consideration 39

Scripps Networks transaction costs paid by Discovery 117

Total consideration paid $ 12,013

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.

The Company applied the acquisition method of accounting to Scripps Networks' business, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects workforce and synergies expected from cost savings, operations and revenue enhancements of the combined company that are expected to result from the acquisition.

The goodwill recorded as part of this acquisition was allocated to the U.S.

Networks and International Networks reportable segments in the amounts of $ 5.3 billion and $ 817 million, respectively, and is not amortizable for tax purposes.

The Company used DCF analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation.

The fair value of equity interests previously held by Scripps Networks was determined using the discounted cash flow and market value methods.

The fair value of trade-names and trademarks was determined using an income approach based on the relief from royalty method;

the remaining intangibles were determined using an income approach based on the excess earnings method.

The fair value of interest-bearing debt was determined using publicly-traded prices.

For the fair value estimates, the Company used:

(i) projected discounted cash flows, (ii) historical and projected financial information, (iii) synergies including cost savings, and (iv) attrition rates, as relevant, that market participants would consider when estimating fair values.

In March 2019, the Company finalized the fair value of assets acquired and liabilities assumed.

Measurement period adjustments were reflected in the periods in which the adjustments occurred.

The adjustments resulted from the receipt of additional financial projections associated with certain equity method investments, contingent liability estimates, deferred income tax adjustments, and true-ups for estimated working capital balances.

The fair value of assets acquired and liabilities assumed, measurement period adjustments, as well as a reconciliation to consideration paid is presented in the table below (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preliminary Measurement Period Adjustments Final

Accounts receivable $ 783 $ — $ 783

Other current assets 421 ( 9 ) 412

Content rights 1,088 ( 14 ) 1,074

Property and equipment 315 — 315

Goodwill 6,003 154 6,157

Intangible assets 9,175 — 9,175

Equity method investments, including note receivable 870 ( 157 ) 713

Other noncurrent assets 111 4 115

Current liabilities assumed ( 494 ) ( 105 ) ( 599 )

Debt assumed ( 2,481 ) — ( 2,481 )

Deferred income taxes ( 1,695 ) 123 ( 1,572 )

Other noncurrent liabilities ( 383 ) 4 ( 379 )

Noncontrolling interests ( 1,700 ) — ( 1,700 )

Total consideration paid $ 12,013 $ — $ 12,013

The table below presents a summary of intangible assets acquired and weighted average estimated useful life of these assets.

Fair Value Weighted Average Useful Life in Years

Trademarks and trade names $ 1,225 10

Advertiser relationships 4,995 10

Advertising backlog 280 1

Affiliate relationships 2,455 12

Broadcast licenses 220 6

Total intangible assets acquired $ 9,175

Magnolia Discovery Ventures

On July 19, 2019, the Company contributed its linear cable network focused on home improvement, DIY Network, to a new joint venture, Magnolia Discovery Ventures, LLC ("Magnolia"), with Chip and Joanna Gaines acting as Chief Creative Officers to the joint venture.

The joint venture is expected to replace and rebrand the DIY Network, and include a TVE app and a subscription streaming service planned for a future date.

The joint venture replaced and rebranded the DIY Network in January 2022.

Upon formation of Magnolia, Discovery received a 75 % ownership interest in the joint venture.

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Payments to the Gaines for rendering services in their capacity as the Chief Creative Officers of the joint venture will be accounted for as liability-classified share-based awards to non-employees as services are rendered.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 13, 2019, the Company paid $ 36 million in cash to acquire Golf Digest, a leading golf brand whose content is available across multiple platforms, including print and social media.

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The goodwill recorded as part of this acquisition is included in the International Networks reportable segment and is not amortizable for tax purposes.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Play Sports Group Limited

On January 8, 2019, the Company acquired a controlling interest in Play Sports Group Limited, increasing Discovery's ownership stake from 20.1 % to 70.7 %.

The Company recognized a gain of $ 8 million during the year ended December 31, 2019, which represents the difference between the carrying value and the fair value of the previously held 20.1 % equity method investment.

The gain is included in other income (expense), net in the Company's consolidated statement of operations.

The measurement period closed in January 2020, with no material adjustments recorded.

During 2020 and 2019, the Company completed other immaterial acquisitions.

Pro Forma Financial Information

The following unaudited pro forma information has been presented as if the acquisition of Scripps Networks occurred on January 1, 2017.

Pro forma information for the Company's other acquisitions was not material.

The information is based on the historical results of operations of the acquired businesses, adjusted for:

The allocation of purchase price and related adjustments, including adjustments to amortization expense related to the fair value of intangible assets acquired and the recognition of the noncontrolling interests;

Impacts of debt financing, including interest for debt issued and amortization associated with the fair value adjustments of debt assumed;

The movement and allocation of all acquisition-related costs incurred during the year ended December 31, 2018 to the year ended December 31, 2017;

Associated tax-related impacts of adjustments;

Changes to align accounting policies.

The pro forma results do not necessarily represent what would have occurred if the acquisition of Scripps Networks had taken place on January 1, 2017, nor do they represent the results that may occur in the future.

The pro forma adjustments were based on available information and upon assumptions that the Company believes are reasonable to reflect the impact of this acquisition on the Company's historical financial information on a supplemental pro forma basis (in millions).

The following table presents the Company's pro forma combined revenues and net income (in millions, except per share value).

Pro forma results for the years ended December 31, 2020 and 2019 are not presented below because the results for Scripps Networks are included in the Company's consolidated statement of operations for those years.

Year Ended December 31, 2018

Revenues $ 11,176

Net income available to Discovery, Inc.

Net income per share - basic 1.15

Net income per share - diluted 1.15

Impact of Business Combination

The operations of Scripps Networks discussed above were included in the consolidated financial statements as of the acquisition date of March 6, 2018.

The following table presents the revenue and earnings for Scripps Networks as reported within the consolidated financial statements (in millions).

Year ended December 31, 2018

Advertising $ 2,163

Distribution 795

Total revenues $ 3,048

Net income available to Discovery, Inc.

Great American Country

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

The Company recorded a gain of $ 76 million.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Education Business

In 2018, the Company sold an 88 % controlling equity stake in its education business to Francisco Partners for a sale price of $ 113 million.

The Company recorded a gain of $ 84 million based on net assets disposed of $ 44 million, including $ 40 million of goodwill.

The impact of the education business on the Company's income before income taxes was a loss of $ 2 million for the year ended December 31, 2018.

Discovery retained a 12 % ownership interest in the education business, which is accounted for as an equity method investment.

Discovery has long-term trade name license agreements with the education business that are royalty arrangements at fair value.

The Company’s equity investments consisted of the following (in millions).

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

Category Balance Sheet Location Ownership December 31, 2021 December 31, 2020

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Total equity method investments 541 507

Investments with readily determinable fair values Prepaid expenses and other current assets 32 —

Investments with readily determinable fair values Other noncurrent assets 54 51

Investments with readily determinable fair values:

Lionsgate Entertainment Corp.

Other noncurrent assets 80 54

Sharecare Prepaid expenses and other current assets 40 —

Prepaid expenses and other current assets — 32

Total equity investments with readily determinable fair values 120 86

Equity investments without readily determinable fair values:

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Other noncurrent assets 28 % 83 65

Philo Other noncurrent assets 19 % 50 50

Other Other noncurrent assets 172 150

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(b) Overall ownership percentage for Group Nine Media is calculated on an outstanding shares basis.

The amount shown herein includes a $ 20 million note receivable balance presented within Prepaid expenses and other current assets on the Company's consolidated balance sheets.

The amount shown herein includes a $ 20 million note receivable balance, excluding interest, presented within Prepaid expenses and other current assets on the Company's consolidated balance sheets.

(c) Ownership percentage for Formula E includes holdings accounted for as an equity method investment and holdings accounted for as an equity investment without a readily determinable fair value.

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Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary.

The Company recorded impairment losses of $ 8 million, $ 4 million and $ 29 million for the years ended December 31, 2020, 2019 and 2018, respectively, because the change in value was considered other-than-temporary.

The impairment losses are reflected as a component of loss from equity investees on the Company's consolidated statement of operations.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

With the exception of nC+, the carrying values of the Company’s equity method investments are consistent with its ownership in the underlying net assets of the investees.

Impairment losses due to a change in value that are considered other-than-temporary were not material for the years ended December 31, 2021, 2020 and 2019, and are reflected as a component of loss from equity investees, net on the Company's consolidated statements of operations.

With the exception of nC+, the carrying values of the Company’s equity method investments are consistent with its claim in the underlying net assets of the investees.

A portion of the Scripps Networks purchase price associated with the investment in nC+ was attributed to amortizable intangible assets.

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Amortization that reduces the Company's equity in earnings of nC+ for future periods is expected to be $ 36 million.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of the Company's other equity method investments are VIEs, for which the Company is not the primary beneficiary.

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Gains and losses are recorded in other income (expense), net on the consolidated statements of operations.

During the year ended December 31, 2021, Sharecare, an investment that was formerly determined to not have a readily determinable fair value, was listed on the Nasdaq stock exchange and reclassified as an investment with readily determinable fair value.

Prior to this reclassification, the Company recorded a gain of $ 77 million as a result of observable price changes in orderly transactions for the identical or similar investment of the same issuer.

The Company owns shares of common stock of Lions Gate Entertainment Corp.

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(See Note 10.) During the year ended December 31, 2020, the Company terminated the Lionsgate Collar.

The Company received cash of $ 44 million and recognized a gain of $ 7 million, which represents the difference between the carrying value and the fair value of the hedged shares, upon termination.

The gain is included in other income (expense), net on the consolidated statements of operations.

The Company received cash of $ 44 million and recognized an immaterial gain, which is included in other income (expense), net on the consolidated statements of operations.

During the fourth quarter of 2020, fuboTV Inc., an investment that was formerly determined to not have a readily determinable fair value, was listed on the New York Stock Exchange.

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Such gain and receivable are recorded in other income (expense), net on the consolidated statements of operations and prepaid expenses and other current assets on the consolidated balance sheets, respectively.

(See Note 20.)

(See Note 20.) As of December 31, 2021, the Company no longer owns shares of fuboTV Inc.

The gains and losses related to the Company's investments with readily determinable fair values for the years ended December 31, 2021, 2020 and 2019 are summarized in the table below (in millions).

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During the year ended December 31, 2020, the Company invested $ 39 million in various equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had no indicators that a change in fair value had taken place.

As of December 31, 2020, the Company had recorded cumulative upward adjustments of $ 9 million for its equity investments without readily determinable fair values.

During the year ended December 31, 2021, the Company invested $ 42 million in various equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had decreased $ 88 million in fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The decrease was primarily related to the write-down of the Company's investment in Group Nine Media.

As of December 31, 2021, the Company had recorded cumulative upward adjustments of $ 9 million and cumulative impairments of $ 88 million for its equity investments without readily determinable fair values.

DISCOVERY, INC.

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Time deposits Cash and cash equivalents $ — $ 426 $ — $ 426

Treasury securities Cash and cash equivalents 500 — — 500

Equity securities:

Money market funds Cash and cash equivalents 425 — — 425

Time deposits Prepaid expenses and other current assets — 250 — 250

Mutual funds Prepaid expenses and other current assets 12 — — 12

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Time deposits Cash and cash equivalents $ — $ 7 $ — $ 7

Treasury securities Cash and cash equivalents 500 — — 500

Equity securities:

Money market funds Cash and cash equivalents — 150 — 150

Time deposits Prepaid expenses and other current assets — 250 — 250

Mutual funds Prepaid expenses and other current assets 14 — — 14

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The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $ 17.2 billion and $ 18.7 billion as of December 31, 2021 and 2020, respectively.

The Company's derivative financial instruments are discussed in Note 10.

The Company's derivative financial instruments are discussed in Note 10 and its investments with readily determinable fair value are discussed in Note 4.

CONTENT RIGHTS

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Noncurrent portion $ 3,832 $ 3,439

Content expense consisted of the following (in millions).

Content expense is included in cost of revenue on the consolidated statements of operations and consisted of the following (in millions).

Year Ended December 31,

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Total content expense $ 3,965 $ 3,290 $ 3,265

Content expense is generally a component of costs of revenue on the consolidated statements of operations.

No content impairments were recorded as a component of restructuring and other charges during the years ended December 31, 2020 and December 31, 2019.

Content impairments of $ 405 million for the year ended December 31, 2018 were due to the strategic programming changes following the acquisition of Scripps Networks and are reflected in restructuring and other charges as further described in Note 17.

As of December 31, 2021, the Company expects to amortize approximately 56 %, 26 % and 13 % of its produced and co-produced content, excluding content in-production, and 47 %, 23 % and 11 % of its licensed content rights in the next three twelve-month operating cycles ended December 31, 2022, 2023 and 2024, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020, the Company expects to amortize approximately 59 %, 26 % and 12 % of its produced and co-produced content, excluding content in-production, and 55 %, 21 % and 9 % of its licensed content rights in the next three twelve-month operating cycles ended December 31, 2021, 2022 and 2023, respectively.

GOODWILL AND INTANGIBLE ASSETS

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December 31, 2020 $ 10,813 $ 2,257 $ 13,070

Acquisitions (Note 3) — 25 25

Impairment of goodwill — ( 121 ) ( 121 )

Dispositions (Note 3) — ( 3 ) ( 3 )

Foreign currency translation and other adjustments — ( 155 ) ( 155 )

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Networks segment included accumulated impairments of $ 20 million as of December 31, 2021 and 2020.

The carrying amount of goodwill at the International Networks segment included accumulated impairments of $ 1.6 billion and $ 1.5 billion as of December 31, 2020 and 2019, respectively.

The carrying amount of goodwill at the International Networks segment included accumulated impairments of $ 1.6 billion as of December 31, 2021 and 2020.

Intangible Assets

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Total $ 11,544 $ ( 5,388 ) $ 6,156 $ 11,723 $ ( 4,244 ) $ 7,479

Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the assets' economic benefits are consumed over their estimated useful lives.

Amortization expense for finite-lived intangible assets reflects the pattern in which the assets' economic benefits are consumed over their estimated useful lives.

During the fourth quarter of 2021, the Company reassessed the useful lives and amortization methods for acquired customer relationships and concluded the economic benefits would be consumed in greater proportion earlier in their life with gradual decline, accordingly we have changed the amortization method for these assets from the straight-line method to the sum of the years digits method effective October 1, 2021.

This change was considered a change in estimate, was accounted for prospectively, and resulted in incremental amortization expense of $ 196 million.

Amortization expense related to finite-lived intangible assets was $ 1.3 billion, $ 1.1 billion and $ 1.1 billion for the years ended December 31, 2021, 2020 and 2019, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Amortization expense $ 1,635 $ 1,355 $ 1,073 $ 845 $ 625 $ 623

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Impairment Analysis

Significant judgments and assumptions for all quantitative goodwill tests performed include the amount and timing of future cash flows, including revenue growth rates, long-term growth rates, and discount rates.

2021 Impairment Analysis

The Company 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, the Company performed a quantitative goodwill impairment analysis for its 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, the Company 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.

The Company 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.

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.

2020 Impairment Analysis

During the second quarter of 2020, the Company 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.

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 the Company’s 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 the Company’s financial covenants under the Company’s debt arrangements.

During the third quarter of 2020, the Company realigned its International Networks management reporting structure.

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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, the Company performed its annual 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, except for its Europe and Asia-Pacific reporting units.

For the 2020 annual impairment test, the Company performed its annual 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, except for its 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, the Company performed a quantitative goodwill impairment analysis for each of these reporting units using a DCF valuation model.

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The quantitative goodwill impairment analysis for the Company’s 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 %.

The Company 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.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The quantitative impairment analysis for the Company’s 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.

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 the Company’s financial covenants under the Company’s debt arrangements.

2019 Impairment Analysis

During the third quarter of 2019, due to an increasingly challenging business environment in the Asia-Pacific region, which included 1) moderating revenue growth projections, 2) underperformance of certain sports investments, 3) heightened volatility in China and surrounding economies, and 4) a decline in Asia-Pacific stock price multiples for peer media companies, the Company believed the increased risk required it to perform an interim impairment test as of August 31, 2019.

The results of the step 1 test indicated that the carrying value of the net assets in the Asia-Pacific reporting unit exceeded its fair value.

Given these results, the Company then applied the hypothetical purchase price analysis required by the step 2 test and recognized a pre-tax goodwill impairment charge of $ 155 million during the year ended December 31, 2019, which was not deductible for tax purposes.

During 2019, due to an increasingly challenging business environment in the Asia-Pacific region, which included 1) moderating revenue growth projections, 2) underperformance of certain sports investments, 3) heightened volatility in China and surrounding economies, and 4) a decline in Asia-Pacific stock price multiples for peer media companies, the Company believed the increased risk required it to perform an interim impairment test.

The impairment test indicated that the carrying value of the net assets in the Asia-Pacific reporting unit exceeded its fair value and the Company recognized a pre-tax goodwill impairment charge of $ 155 million during the year ended December 31, 2019, which was not deductible for tax purposes.

The determination of fair value of the Company's 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.

As of October 1, 2019, the Company performed a quantitative goodwill impairment assessment for all reporting units consistent with the Company's accounting policy.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the 2019 annual impairment test, the Company performed a quantitative goodwill impairment assessment for all reporting units.

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

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Both the DCF and market-based models resulted in substantially similar fair values.

2018 Impairment Analysis

As of November 30, 2018, the Company performed its annual qualitative goodwill impairment assessment for all reporting units and determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, except for its Asia-Pacific reporting unit.

Based on the results of the qualitative assessment, the Company performed a quantitative step 1 impairment test (comparison of fair value to carrying value) for its Asia-Pacific reporting unit, which indicated that the estimated fair value exceeded its carrying value by approximately 10% and, therefore, no impairment was recorded.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.375 % Senior Notes, semi-annual interest, due June 2021

2.375 % Senior Notes, euro denominated, annual interest, due March 2022

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4.000 % Senior Notes, semi-annual interest, due September 2055

Program financing line of credit, quarterly interest based on adjusted LIBOR or variable prime rate — 10

Total debt 15,187 15,848

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Noncurrent portion of debt $ 14,420 $ 15,069

(a) Current portion of unamortized discount, premium, and debt issuance costs, net is less than $ 1 million.

On February 19, 2021, Discovery Communications, LLC (“DCL”), a wholly owned subsidiary of Discovery, Inc., issued a notice for the redemption in full of all $ 335 million aggregate principal amount outstanding of its 4.375 % Notes due June 2021 (the “Notes”) in accordance with the terms of the indenture governing the Notes.

The Notes will be redeemed on March 21, 2021 (the “Redemption Date”), at a redemption price with respect to each Note equal to the greater of (i) 100 % of the principal amount of the Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis at a comparable treasury rate plus 25 basis points, plus accrued interest thereon to the Redemption Date.

(a) Current portion of unamortized discount, premium, and debt issuance costs, net was not material.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2021, Discovery Communications, LLC (“DCL”) and Scripps Networks Interactive, Inc.

("Scripps"), wholly owned subsidiaries of Discovery Inc., issued notices for the redemption in full of all $ 168 million aggregate principal amount outstanding of DCL's 3.300 % Senior Notes due May 2022 and $ 62 million aggregate principal amount outstanding of DCL's and Scripps' 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.

Also, for the year ended December 31, 2021, DCL issued a notice for the redemption in full of all $ 335 million aggregate principal amount outstanding of its 4.375 % Senior Notes due June 2021 (the “2021 Notes”) in accordance with the terms of the indenture governing the 2021 Notes.

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

The redemptions for the year ended December 31, 2021 resulted in an immaterial loss on extinguishment of debt.

For the year ended December 31, 2020, Discovery, Inc.

commenced five separate private offers to exchange (the “Exchange Offers”) any and all of Discovery Communications, LLC's ("DCL"), a wholly-owned subsidiary of the Company, 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”).

commenced five separate private offers to exchange (the “Exchange Offers”) any and all of DCL's 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, semi-annual interest, due September 2055 (the “New Notes”).

Discovery, Inc.

completed the Exchange Offers in September 2020, by exchanging $ 1.4 billion aggregate principal amount of the Old Notes validly tendered and accepted by Discovery 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 the Company and Scripps Networks on an unsecured and unsubordinated basis.

completed the Exchange Offers in September 2020, by exchanging $ 1.4 billion aggregate principal amount of the Old Notes for $ 1.7 billion aggregate principal amount of the New Notes (before debt discount of $ 318 million).

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, for the year ended December 31, 2020, the Company 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 Discovery 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.

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

The Cash Offers resulted in an immaterial loss on extinguishment of debt.

Finally, for the year ended December 31, 2020, DCL 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.

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The repurchase resulted in a loss on extinguishment of debt of $ 71 million.

The loss included $ 62 million of net premiums to par value and $ 9 million of other charges.

As further described below, the Company used the remaining proceeds and cash on hand to fully repay the $ 500 million that was outstanding under its revolving credit facility.

For the year ended December 31, 2019, DCL issued $ 750 million aggregate principal amount of Senior Notes due 2029 and $ 750 million due 2049.

The proceeds received by DCL were net of a $ 6 million issuance discount and $ 12 million of debt issuance costs.

DCL used the proceeds from the offering to redeem and repurchase approximately $ 1.3 billion aggregate principal amount of DCL's and Scripps Networks' senior notes.

The redemptions and repurchase resulted in a loss on extinguishment of debt of $ 23 million for the year ended December 31, 2019.

The loss included $ 20 million of net premiums to par value and $ 3 million of other non-cash charges.

Also, for the year ended December 31, 2019, the Company redeemed $ 411 million aggregate principal amount of senior notes due in 2019 and made open market bond repurchases of $ 55 million, resulting in a loss on extinguishment of debt of $ 5 million.

The Company used the remaining proceeds and cash on hand to fully repay the $ 500 million that was outstanding under its revolving credit facility.

As of December 31, 2021, all senior notes are fully and unconditionally guaranteed by the Company and Scripps Networks, except for $ 23 million of un-exchanged Scripps Networks senior notes acquired in conjunction with the acquisition of Scripps Networks.

Revolving Credit Facility and Commercial Paper Programs

DCL and certain designated foreign subsidiaries of DCL have the capacity to borrow up to $ 2.5 billion revolving credit facility (the "Credit Facility"), including a $ 100 million sublimit for the issuance of standby letters of credit and a $ 50 million sublimit for Euro-denominated swing line loans.

The Credit Facility matures in August 2022 with the option for up to two additional 364 -day renewal periods and is subject to a maximum consolidated leverage ratio financial covenant of 5.50 to 1.00 at December 31, 2020.

As further described below, during the year ended December 31, 2020, the Company entered into an amendment to the Credit Facility.

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

DCL has the capacity to initially borrow up to $ 2.5 billion under the Credit Agreement.

Upon the closing of the proposed combination transaction 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.

DCL 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 transaction.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amendment to Revolving Credit Facility

To preserve flexibility in the current environment, in the second quarter of 2020, the Company amended certain provisions of its revolving credit facility, including the following:

The financial covenants were modified to reset the Maximum Consolidated Leverage Ratio as set forth below:

Measurement Period Ending Maximum Consolidated Leverage Ratio

March 31, 2020 and June 30, 2020 5.00 :1.00

September 30, 2020 through March 31, 2021 5.50 :1.00

June 30, 2021 5.00 :1.00

September 30, 2021 and thereafter 4.50 :1.00

In addition, the restricted payments covenant was modified to add a limitation on restricted payments made in cash unless after giving pro forma effect thereto, the consolidated leverage ratio is less than or equal to 4.50 :1.00.

Finally, the minimum LIBOR rate and the minimum base rate were each increased from 0 % to 0.50 % per annum.

Credit Agreement Financial Covenants

The Credit Agreement includes financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 4.50 to 1.00, which increases to 5.75 to 1.00 upon the closing of the proposed combination transaction with WarnerMedia, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively.

Long-term Debt Repayment Schedule

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Variable lease cost $ 7 $ 9

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases was as follows (in millions):

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Finance leases $ 104 $ 36

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases was as follows (in millions):

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Finance leases 3.57 % 3.80 %

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease liabilities as of December 31, 2021 were as follows (in millions):

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Total $ 629 $ 255

During the year ended December 31, 2019, the Company recorded approximately $ 370 million of operating lease liabilities associated with its new global headquarters in New York City.

As of December 31, 2021, the Company has additional leases that have not yet commenced with total minimum lease payments of approximately $ 8 million, primarily related to equipment leases.

The remaining leases will commence in fiscal year 2022, have lease terms of 4 to 5 years, and include options to extend the terms for up to 10 additional years.

Supplemental Information for Comparative Periods

Rent expense under operating leases was $ 205 million for the year ended December 31, 2018.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates and interest rates.

The Company does not enter into or hold derivative financial instruments for speculative trading purposes.

In addition to the Company's normal course of business cash flow hedging program, the Company entered into the following arrangements:

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges

During the year ended December 31, 2020, the Company unwound certain foreign exchange forward contracts designated as cash flow hedges with an aggregate notional amount of $ 255 million.

The Company received cash of $ 19 million in settlement and expects to realize the unrealized gain in accumulated other comprehensive loss between 2025 and 2030.

During the year ended December 31, 2021, the Company dedesignated, unwound and settled foreign exchange forward contracts with a total notional value of $ 374 million.

An $ 18 million pretax accumulated other comprehensive gain was previously deferred in accumulated other comprehensive loss.

In December 2021, the Company determined a portion of the hedged transactions were probable of not occurring within the defined hedge periods.

As a result, the Company reclassified $ 16 million of the pretax gain that was previously deferred in accumulated other comprehensive loss into other income (expense), net in the consolidated statements of operations.

The Company also dedesignated additional foreign exchange forward contracts that have not been settled with an aggregate notional amount of $ 163 million.

During the year ended December 31, 2020, the Company dedesignated, unwound and settled certain foreign exchange forward contracts designated as cash flow hedges with an aggregate notional amount of $ 255 million.

The Company received cash of $ 19 million, which was deferred in accumulated other comprehensive loss and subsequently reclassified to other income (expense), net in December 2021 due to a change of assumptions in forecasted cash flows as the Company determined that the hedged transactions were no longer probable of occurring.

Also, during the year ended December 31, 2020, the Company executed forward starting interest rate swap contracts designated as cash flow hedges with a total notional value of $ 1.6 billion.

1 unchanged sentence

The Company also issued and settled interest rate cash flow hedges with a total notional value of $ 1 billion following the pricing of its offering of 3.625 % Senior Notes due May 2030 and 4.650 % Senior Notes due May 2050.

(See Note 8.) The $ 7 million pretax accumulated other comprehensive loss at the termination date will be amortized as an adjustment to interest expense over the respective terms of the newly issued notes.

During the year ended December 31, 2019, the Company executed foreign exchange forward contracts with an aggregate notional amount of $ 798 million.

The forwards were designated as cash flow hedges and will mitigate exposure to foreign exchange rate volatility and the associated impact on earnings related to a portion of forecasted foreign currency revenues from PGA Golf from 2023 through 2030.

Also, during the year ended December 31, 2019, terminated and settled its interest rate cash flow hedges with a total notional value of $ 500 million following the pricing of its offering of 4.125 % senior notes due May 2029.

(See Note 8.) The $ 18 million pretax accumulated other comprehensive loss at the termination date will be amortized as an adjustment to interest expense over the ten-year term of the newly issued notes.

Finally, during the year ended December 31, 2019, the Company executed a forward starting interest rate swap contract designated as a cash flow hedge with a total notional value of $ 400 million.

This contract will mitigate interest rate risk associated with the forecasted issuance of future fixed rate public debt.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Investment Hedges

During the year ended December 31, 2019, the Company entered into two fixed-to-fixed cross-currency swaps with an aggregate notional amount of $ 201 million.

The swaps were designated as net investment hedges of NOK assets and GBP assets.

The maturity date of both swaps is February 2024.

The objective of these swaps is to protect the company against the risk of changes in the foreign currency-equivalent of net investments in the foreign operations due to movements in foreign currency.

Contemporaneously, the Company unwound an existing $ 100 million notional fixed-to-fixed cross currency swap that was designated as a net investment hedge of NOK assets and recorded a gain of $ 5 million as a cumulative translation adjustment under other comprehensive income (loss).

During the year ended December 31, 2018, the Company entered into a foreign currency forward contract with a notional value of 35.6 billion Chilean Pesos (equivalent to $ 53 million) at execution date and with a due date of December 15, 2021.

This was designated a net investment hedge, hedging against changes in the foreign currency-equivalent of the net investment in the foreign operation due to movements in exchange rates.

Also, during the year ended December 31, 2018, the Company entered into six fixed-to-fixed cross-currency swaps with an aggregate notional amount of $ 1.7 billion.

The swaps were all designated as net investment hedges of Euro assets and GBP assets.

The maturity dates of the swaps are 2022 and 2027.

(See Note 8.) The $ 7 million pretax accumulated other comprehensive loss at the termination date will be amortized as an adjustment to interest expense, net over the respective terms of the newly issued notes.

No Hedging Designation

During the year ended December 31, 2018, the Company entered into three foreign exchange forwards contracts with a notional value of $ 860 million.

The objective of these contracts is to protect the Company against adverse revaluation impact on its Euro denominated debt.

During the year ended December 31, 2021, in anticipation of the proposed combination transaction with WarnerMedia, the Company executed forward starting interest rate swap contracts with a total notional value of $ 5.0 billion, swaption collars with a total notional value of $ 2.5 billion, and purchase payer swaptions with a total notional value of $ 7.5 billion.

The objective of these contracts is to mitigate interest rate risk associated with the forecasted issuance of future fixed-rate public debt.

Premiums of $ 142 million were paid at execution and reflected as cash outflows from investing activities.

The contracts did not receive hedging designation and changes in the fair value are recognized in other income (expense), net in the consolidated statements of operations.

The following table summarizes the impact of derivative financial instruments on the Company's consolidated balance sheets (in millions).

19 unchanged sentences

Foreign exchange 1,020 — — 34 66 1,035 — — 2 26

Interest rate swaps 15,000 126 28 9 5 — — — — —

Cross-currency swaps

139 3 — — 5 139 2 — — 13

Equity (Lionsgate collar)

$ 241 $ 89 $ 76 $ 152 $ 40 $ 57 $ 16 $ 299

$ 40 $ 57 $ 16 $ 299 $ 88 $ 137 $ 25 $ 165

(a) Excludes £ 400 million of sterling notes ($ 540 million equivalent at December 31, 2021) designated as a net investment hedge.

12 unchanged sentences

Foreign exchange - costs of revenues — 2 2

Interest rate - interest expense 1 ( 2 ) —

Foreign exchange - other expense, net (dedesignated portion)

If current fair values of designated cash flow hedges as of December 31, 2020 remained static over the next twelve months, the Company would reclassify $ 14 million of net deferred losses from accumulated other comprehensive loss into income in the next twelve months.

Interest rate - interest expense, net ( 2 ) 1 ( 2 )

Foreign exchange - other expense, net 30 — 3

If current fair values of designated cash flow hedges as of December 31, 2021 remained static over the next twelve months, the Company would reclassify $ 10 million of net deferred gains from accumulated other comprehensive loss into income in the next twelve months.

The maximum length of time the Company is hedging exposure to the variability in future cash flows is 34 years.

14 unchanged sentences

Foreign exchange derivatives ( 39 ) 32 ( 65 )

Credit contracts — — ( 1 )

Equity — 7 13

6 unchanged sentences

Adjustments to the carrying amount of redeemable noncontrolling interests to redemption value as a result of changes in exchange rates are reflected in currency translation adjustments, a component of other comprehensive income (loss).

however, such currency translation adjustments to redemption value are allocated to Discovery stockholders only.

Such currency translation adjustments to redemption value are allocated to Discovery stockholders only.

Redeemable noncontrolling interest adjustments of carrying value to redemption value are reflected in retained earnings.

4 unchanged sentences

MotorTrend Group LLC ("MTG") 114 112

Oprah Winfrey Network ("OWN") 10 64

Total $ 363 $ 383

5 unchanged sentences

Equity exchange with Harpo for step acquisition of OWN — ( 50 ) —

Redemption of redeemable noncontrolling interest ( 26 ) — —

Comprehensive income adjustments:

10 unchanged sentences

Embedded in the redeemable noncontrolling interest is also a Discovery call right that is exercisable for one year after December 31, 2021.

Upon the exercise of the put or call options, the price to be paid for the redeemable noncontrolling interest is a function of the then-current fair market value of the redeemable noncontrolling interest, to which certain discounts and redemption values may apply in specified situations depending upon the party exercising the put or call and the basis for the exercise of the put or call.

Upon the exercise of the put or call options, the price to be paid for the redeemable noncontrolling interest is a function of the then-current fair market value of the redeemable noncontrolling interest, to which certain discounts and redemption floor values may apply in specified situations depending upon the party exercising the put or call and the basis for the exercise of the put or call.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Discovery and GoldenTree created the MTG joint venture in 2017.

GoldenTree acquired a put right exercisable during 30 -day windows beginning on each of March 25, 2021, September 25, 2022 and March 25, 2024, that requires Discovery to either purchase all of GoldenTree's noncontrolling 32.5 % interest in the joint venture at fair value or participate in an initial public offering for the joint venture.

Harpo has the right to require the Company to purchase Harpo's remaining noncontrolling interest in OWN at fair value during four 90 -day windows beginning on July 1, 2018 and every two and a half years thereafter through January 1, 2026.

Harpo exercised the first of such remaining put rights in August 2018.

In November 2018, the Company and Harpo entered into an amendment to the limited liability company ("LLC") agreement whereby Harpo agreed to withdraw its August 2018 put notice and upon any succeeding redemption, the put payment value will equal the fair value of Harpo's equity interest in OWN plus an incremental 9.337 % per annum for the 2.5 year period between the July 1, 2018 put right date and the January 1, 2021 put right date.

In December 2020, the Company and Harpo completed an equity exchange and amended the LLC agreement whereby the Company acquired an additional 20.2 % ownership interest in OWN from Harpo in exchange for $ 35 million of the Company's Series A common stock, which was issued from treasury stock.

As a result of the exchange, the Company's ownership in OWN increased to approximately 94 %.

A third-party exited the joint venture during 2021, and as a result, the Company now owns 95 % of OWN with Harpo holding 5 %.

Harpo's remaining put rights are currently exercisable on July 1, 2023 and January 1, 2026.

16 unchanged sentences

Shares of Series A-1 and Series C-1 convertible preferred stock may be independently converted into Series A common stock and Series C common, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, all outstanding shares of Series A-1 and Series C-1 convertible preferred stock were held by Advance/Newhouse.

3 unchanged sentences

Series C-1 convertible preferred stock is considered the economic equivalent of Series C common stock and is subject to certain transfer restrictions.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additionally, through its ownership of the Series A-1 convertible preferred stock, Advance/Newhouse has special voting rights on certain matters and the right to elect three directors.

5 unchanged sentences

Following payment of such amount and the payment in full of all amounts owing to the holders of securities ranking senior to Discovery’s common stock, holders of Series A-1 and Series C-1 convertible preferred stock will share equally on an as converted to common stock basis with the holders of common stock with respect to any assets remaining for distribution to such holders.

No Series A-1 or C-1 convertible preferred stock was converted during the years ended December 31, 2020 and 2018.

During the year ended December 31, 2019, Advance Newhouse Programming Partnership converted 1.1 million of its Series C-1 convertible preferred stock into 22.0 million shares of Series C common stock.

Common Stock Issued in Connection with Scripps Networks Acquisition

In March 2018, the Company issued 139 million shares of Series C common stock as part of the consideration paid for the acquisition of Scripps Networks, inclusive of the conversion of 1 million Scripps Networks share-based compensation awards.

(See Note 3.)

During the years ended December 31, 2021, 2020 and 2019, no Series A-1 convertible preferred stock was converted.

During the years ended December 31, 2021 and 2019, Advance Newhouse Programming Partnership converted 0.6 million and 1.1 million shares of its Series C-1 convertible preferred stock into 11.0 million and 22.0 million shares of Series C common stock, respectively.

No series C-1 convertible preferred stock was converted during the year ended December 31, 2020.

Repurchase Programs

The Company has a stock repurchase program that was implemented in 2010.

Under the program, management was authorized to purchase shares of the Company's common stock from time to time through open market purchases, privately negotiated transactions at prevailing prices, pursuant to one or more accelerated stock repurchase agreements, or other derivative arrangements as permitted by securities laws and other legal requirements, and subject to stock price, business and market conditions and other factors.

The Company's authorization under this program expired in October 2017.

Under the Company's stock repurchase program, management is authorized to purchase shares of the Company's common stock from time to time through open market purchases, privately negotiated transactions at prevailing prices, pursuant to one or more accelerated stock repurchase agreements, or other derivative arrangements as permitted by securities laws and other legal requirements, and subject to stock price, business and market conditions and other factors.

In February 2020, the Company's Board of Directors authorized additional stock repurchases of up to $ 2 billion upon completion of its existing $ 1 billion repurchase authorization announced in May 2019.

2 unchanged sentences

The table below presents a summary of common stock repurchases (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

3 unchanged sentences

Purchase price $ — $ 965 $ 637

In May 2019, the Company made an upfront cash payment of $ 96 million to enter into two prepaid common stock repurchase contracts for the Company’s Series C common stock.

Both contracts settled in cash for $ 50 million each during June 2019 and August 2019, as the price of Discovery’s Series C common stock was above the strike price at expiration for each contract.

In 2019, the Company made an upfront cash payment of $ 96 million to enter into common stock repurchase contracts for the Company’s Series C common stock.

These contracts settled in cash for a total of $ 100 million during the year ended December 31, 2019.

The contracts were accounted for as equity transactions.

Convertible Preferred Stock

There were no convertible preferred stock repurchases during 2020, 2019 or 2018.

As of December 31, 2020, the Company had repurchased 0.2 million shares of Series C-1 convertible preferred stock for $ 102 million.

There were no convertible stock repurchases during 2021, 2020, or 2019.

Over the life of the Company's repurchase programs and as of December 31, 2021, the Company had repurchased 0.2 million shares of Series C-1 convertible preferred stock for $ 102 million.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Comprehensive Income (Loss)

22 unchanged sentences

Other comprehensive income (loss) adjustments

$ ( 160 ) $ ( 19 ) $ ( 179 ) $ 94 $ 77 $ 171 $ ( 22 ) $ 15 $ ( 7 )

DISCOVERY, INC.

2 unchanged sentences

The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).

Currency Translation AFS (a)

Derivative Adjustments Pension Plan and SERP Liability Accumulated

Currency Translation Derivative Adjustments Pension Plan and SERP Liability Accumulated

Comprehensive Income (Loss)

5 unchanged sentences

Other comprehensive income (loss) ( 14 ) 18 ( 10 ) ( 6 )

Other comprehensive loss attributable to redeemable noncontrolling interests ( 1 ) — — ( 1 )

Reclassifications to retained earnings resulting from the adoption of ASU 2018-02 ( 28 ) ( 2 ) — ( 30 )

4 unchanged sentences

Other comprehensive income (loss) 292 ( 113 ) ( 8 ) 171

Other comprehensive loss attributable to redeemable noncontrolling interests ( 1 ) — — — ( 1 )

Reclassifications to retained earnings resulting from the adoption of ASU 2018-02 ( 28 ) — ( 2 ) — ( 30 )

December 31, 2020 ( 555 ) ( 81 ) ( 15 ) ( 651 )

4 unchanged sentences

December 31, 2021 $ ( 845 ) $ 28 $ ( 13 ) $ ( 830 )

(a) Effective January 1, 2018, unrealized gains and losses on equity investments with readily determinable fair values are recorded in other income (expense), net.

(See Note 4.)

NONCONTROLLING INTEREST

37 unchanged sentences

The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses.

The Company does not require collateral with respect to trade receivables.

The Company’s accounts receivable balances and the related credit losses arise primarily from distribution and advertising revenue.

The Company monitors ongoing credit exposure through active review of customers’ financial conditions, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectability.

The allowance for credit losses decreased from $ 59 million at December 31, 2020 to $ 54 million at December 31, 2021.

The activity in the allowance for credit losses for the twelve months ended December 31, 2021 was not material.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in allowance for credit losses consisted of the following (in millions):

December 31, 2019 Impact of adoption of ASU 2016-13 Provisions for credit losses Write-offs December 31, 2020

Distribution customers $ 19 $ 1 $ 9 $ ( 11 ) $ 18

Advertising and other customers 35 ( 3 ) 21 ( 12 ) 41

Total $ 54 $ ( 2 ) $ 30 $ ( 23 ) $ 59

Contract Liability

2 unchanged sentences

Noncurrent deferred revenue is a component of other noncurrent liabilities on the consolidated balance sheets.

The change in deferred revenue for the year ended December 31, 2020 reflects cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by $ 309 million of revenues recognized that were included in deferred revenue at December 31, 2019, which was primarily due to an increase in the delivery of advertising commitments during the period.

The change in deferred revenue for the year ended December 31, 2021 was primarily due to cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by revenue recognized during the period, of which $ 456 million was included in the deferred revenue balance at December 31, 2020.

Revenue recognized for the year ended December 31, 2020 related to the deferred revenue balance at December 31, 2019 was $ 309 million.

3 unchanged sentences

However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year.

The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees or by calculating one twelfth of annual license fees specified in its distribution contracts.

The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees;

by calculating one twelfth of annual license fees specified in its distribution contracts;

or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract.

The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $ 1.3 billion as of December 31, 2021 and is expected to be recognized over the next five years .

1 unchanged sentence

Certain of these arrangements extend beyond one year.

The transaction price allocated to remaining performance obligations on these long-term contracts was $ 807 million as of December 31, 2020 and is expected to be recognized over the next four years.

The transaction price allocated to remaining performance obligations on these long-term contracts was $ 712 million as of December 31, 2021 and is expected to be recognized over the next five years .

The Company's brand licensing contracts are licenses of symbolic intellectual property.

12 unchanged sentences

There were 42 million shares of common stock in reserves that were available for future issuance under the incentive plans as of December 31, 2021.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-Based Compensation Expense

6 unchanged sentences

SARs — ( 4 ) 22

ESPP and other — — ( 1 )

Total share-based compensation expense $ 178 $ 110 $ 142

Tax benefit recognized $ 29 $ 18 $ 17

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liability-classified share-based compensation awards include certain PRSUs and SARs.

9 unchanged sentences

Converted ( 0.8 ) $ 26.56 $ 35

Forfeited — $ —

Outstanding as of December 31, 2021 0.9 $ 34.84 0.0 $ 20

8 unchanged sentences

Holders of PRSUs do not receive payments of dividends in the event the Company pays a cash dividend until such PRSUs are converted into shares of the Company’s common stock.

As of December 31, 2020, unrecognized compensation cost related to PRSUs was immaterial.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, there was no unrecognized compensation cost related to PRSUs.

The table below presents RSU activity (in millions, except years and weighted-average grant price).

11 unchanged sentences

Stock settled RSUs are expected to be recognized over a weighted-average period of 1.0 years and cash settled RSUs are expected to be recognized over a weighted-average period of 2.5 years.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

23 unchanged sentences

Dividend yield — — —

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted-average grant date fair value of options granted during 2021, 2020 and 2019 was $ 14.08 , $ 7.57 and $ 8.43 , respectively, per option.

5 unchanged sentences

Outstanding as of December 31, 2020 2.6 $ 24.01 0.5 $ 12

Granted — $ —

Settled ( 1.7 ) $ 24.87 $ 11

Forfeited — $ —

Outstanding as of December 31, 2021 0.9 $ 22.46 0.1 $ 1

4 unchanged sentences

Stock-settled SARs entitle the holder to shares of Series A or Series C common stock in accordance with the award agreement terms.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of outstanding SARs is estimated using the Black-Scholes option-pricing model.

7 unchanged sentences

As of December 31, 2021 and 2020, the weighted-average fair value of SARs outstanding was $ 1.77 and $ 5.48 per award.

The Company made cash payments of $ 11 million and $ 2 million to settle exercised SARs during 2020 and 2019, respectively.

The Company made no cash payments to settle exercised SARs during 2018.

As of December 31, 2020, there was $ 2 million of unrecognized compensation cost related to SARs, which is expected to be recognized over a weighted-average period of 0.7 years.

The Company made cash payments of $ 8 million, $ 11 million, and $ 2 million to settle exercised SARs during 2021, 2020, and 2019 respectively.

As of December 31, 2021, unrecognized compensation cost related to SARs was immaterial.

Employee Stock Purchase Plan

5 unchanged sentences

The Company has defined contribution, defined benefit, and other savings plans for the benefit of its employees that meet eligibility requirements.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defined Contribution Plans

4 unchanged sentences

Executive Deferred Compensation Plans

The Company’s savings plans also include a deferred compensation plan through which members of the Company’s executive team in the U.S.

The Company has a deferred compensation plan through which members of the Company’s executive team in the U.S.

may elect to defer a portion of their eligible compensation.

7 unchanged sentences

Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation and are recorded in earnings as a component of other income (expense), net, on the consolidated statements of operations.

(See Note 5.)

(See Note 5 and Note 20.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defined Benefit Plans

As a result of the acquisition of Scripps Networks in 2018, the Company assumed a defined benefit pension plan (“Pension Plan”) that covers certain U.S.

The Company has a defined benefit pension plan (“Pension Plan”) that covers certain U.S.

based employees and a non-qualified unfunded Supplemental Executive Retirement Plan (“SERP”) that provides defined pension benefits to eligible executives.

21 unchanged sentences

Total restructuring and other charges $ 32 $ 91 $ 26

Restructuring charges for the years ended December 31, 2021, 2020 and 2019 primarily include charges related to employee relocation and termination costs and other cost reduction efforts.

During 2020, the Company implemented various cost-savings initiatives including personnel reductions, restructurings and resource reallocations to align its expense structure to ongoing changes within the industry, including economic challenges resulting from the COVID-19 pandemic.

These actions were intended to enable the Company to more efficiently operate in a leaner and more directed cost structure and continued throughout 2021.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring charges for the years ended December 31, 2020 and 2019 primarily include charges related to employee termination costs and other cost reduction efforts.

These actions are intended to enable the Company to more efficiently operate in a leaner and more directed cost structure and are expected to continue into 2021;

however, all such amounts cannot be reasonably estimated at this time as the restructuring plans have not been finalized.

Restructuring charges for year ended December 31, 2018 include employee terminations, facility closures, and contract terminations, which include costs to terminate certain production commitments, life of series production and content licensing contracts.

Other restructuring charges for the year ended December 31, 2018 consisted of $ 405 million of content write-offs, which resulted from a global strategic review of content following the acquisition of Scripps Networks.

Changes in restructuring and other liabilities recorded in accrued liabilities by reportable segment and corporate, inter-segment eliminations, and other were as follows (in millions).

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

Networks International Networks Corporate, inter-segment eliminations, and other Total

5 unchanged sentences

December 31, 2020 23 20 15 58

Net contract termination accruals — — 4 4

Employee termination accruals, net 4 26 2 32

Other accruals, net — — 4 4

Cash paid ( 23 ) ( 33 ) ( 15 ) ( 71 )

6 unchanged sentences

Income before income taxes $ 1,433 $ 1,728 $ 2,294

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the provision for income taxes were as follows (in millions).

9 unchanged sentences

Income taxes $ 236 $ 373 $ 81

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the Company's effective income tax rates to the U.S.

6 unchanged sentences

Effect of foreign operations 25 2 % 58 3 % ( 21 ) ( 1 ) %

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

Noncontrolling interest adjustment ( 40 ) ( 3 ) % ( 29 ) ( 2 ) % ( 30 ) ( 1 ) %

Change in uncertain tax positions 12 1 % 17 1 % 3 — %

Impairment of goodwill — — % 25 2 % 32 1 %

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

Non-deductible compensation 17 1 % 22 1 % 20 2 %

Change in uncertain tax positions 17 1 % 3 — % 37 3 %

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

Renewable energy investments tax credits — — % ( 1 ) — % ( 12 ) ( 1 ) %

legislative changes — — % — — % ( 19 ) ( 2 ) %

Other, net ( 15 ) ( 1 ) % 22 1 % 33 2 %

1 unchanged sentence

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.

Income tax expense was $ 373 million and $ 81 million, and the Company's effective tax rate was 22 % and 4 % for 2020 and 2019, respectively.

The increase in income tax expense for the year ended December 31, 2020 was primarily attributable to the discrete, one-time, non-cash deferred tax benefit of $ 445 million from legal entity restructurings that was recorded during the year ended December 31, 2019.

2 unchanged sentences

that was recorded during the year ended December 31, 2020.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense was $ 81 million and $ 341 million, and the Company's effective tax rate was 4 % and 33 % for 2019 and 2018, respectively.

The decrease in income tax expense for the year ended December 31, 2019 was primarily attributable to the discrete, one-time, non-cash deferred tax benefit of $ 445 million from legal entity restructurings.

Additionally, the decrease in income tax expense was attributable to a decrease in the provision for uncertain tax positions and a decrease in the effect of foreign operations, which was mainly driven by the establishment of certain valuation allowances during the year ended December 31, 2018 that did not recur in 2019, and a tax benefit realized during the year ended December 31, 2019 from the final regulations related to the determination of the foreign tax credit released by the U.S.

Treasury department and IRS in December 2019.

This decrease was partially offset by an increase in income and the impact of a goodwill impairment charge that was non-deductible for tax purposes during the year ended December 31, 2019.

Finally, the income tax expense for the year ended December 31, 2018 included a one-time discrete tax benefit from U.S.

legislative changes that extended the accelerated deduction of qualified film productions.

Components of deferred income tax assets and liabilities were as follows (in millions).

14 unchanged sentences

Net deferred income tax liabilities $ ( 470 ) $ ( 937 )

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s net deferred income tax assets and liabilities were reported on the consolidated balance sheets as follows (in millions).

8 unchanged sentences

Earliest expiration date of loss carry-forwards 2034 2022 2022

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the beginning and ending amounts of unrecognized tax benefits (without related interest and penalty amounts) is as follows (in millions).

11 unchanged sentences

The balances as of December 31, 2021, 2020 and 2019 included $ 420 million, $ 348 million and $ 375 million, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s income tax expense and effective tax rate after giving effect to interest deductions and offsetting benefits from other tax jurisdictions.

For the year ended December 31, 2020, decreases in unrecognized tax benefits related to multiple audit resolutions and the lapse of statutes of limitations were offset by the uncertainty of allocation and taxation of income among multiple jurisdictions.

For the year ended December 31, 2021, increases in unrecognized tax benefits related to the uncertainty of allocation and taxation of income among multiple jurisdictions partially offset by multiple audit resolutions and the lapse of statutes of limitations.

The Company and its subsidiaries file income tax returns in the U.S.

8 unchanged sentences

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

4 unchanged sentences

Series A-1 convertible preferred stock is currently convertible into 9 shares of the Company's Series A common stock and Series C-1 convertible preferred stock is convertible into 19.3648 shares of the Company's Series C common stock, subject to certain anti-dilution adjustments.

During the years ended December 31, 2020 and 2018, no Series A-1 or C-1 convertible preferred stock was converted.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2021, 2020 and 2019, no Series A-1 convertible preferred stock was converted.

No Series C-1 convertible preferred stock was converted during the year ended December 31, 2020.

Net income allocated to Discovery, Inc.

3 unchanged sentences

The computation of the diluted earnings per share of Series A, B and C common stockholders assumes the conversion of Series A-1 and C-1 convertible preferred stock, while the diluted earnings per share amounts of Series C-1 convertible preferred stock does not assume conversion of those shares.

The table below sets forth the computation for income (loss) available to Discovery, Inc.

stockholders (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below sets forth the Company's calculated earnings per share (in millions).

Earnings per share amounts may not recalculate due to rounding.

8 unchanged sentences

( 53 ) ( 12 ) ( 16 )

Redeemable noncontrolling interest adjustments to redemption value

— ( 20 ) ( 5 )

Redeemable noncontrolling interest adjustments of carrying value to redemption value (redemption value does not equal fair value) 16 — ( 20 )

Net income available to Discovery, Inc.

21 unchanged sentences

Series C-1 convertible preferred stockholders $ 29.80 $ 35.12 $ 55.80

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

Anti-dilutive share-based awards

PRSUs whose performance targets have not yet been achieved

Only outstanding PRSUs whose performance targets have been achieved as of the last day of the most recent period are included in the dilutive effect calculation.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL DISCLOSURES

9 unchanged sentences

Accumulated depreciation ( 1,329 ) ( 1,363 )

Assets under construction 141 285

Property and equipment, net $ 1,336 $ 1,206

3 unchanged sentences

(b) Land has an indefinite life and is not depreciated.

Leasehold improvements have an estimated useful life of the shorter of five years or the lease term.

Leasehold improvements generally have an estimated useful life equal to the lease term.

Capitalized software costs are for internal use.

14 unchanged sentences

2021 2020 2019

Foreign currency (losses) gains, net $ ( 115 ) $ 17 $ ( 93 )

Foreign currency gains (losses), net $ 93 $ ( 115 ) $ 17

(Losses) gains on derivative instruments, net ( 33 ) 29 ( 52 )

Interest income 18 10 22

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

Gains (losses) on derivatives not designated as hedges 29 ( 52 ) 50

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 ( 26 )

Expenses from debt modification — ( 11 ) —

Interest income 10 22 15

Gain on sale of equity method investments 2 13 —

Remeasurement gain on previously held equity interest — 14 —

Other (expense) income, net ( 2 ) 4 ( 4 )

Other income, net 8 — 31

Total other income (expense), net

$ 82 $ 42 $ ( 8 )

Supplemental Cash Flow Information

5 unchanged sentences

Receivable from sale of fuboTV Inc.

Equity issued for the acquisition of Scripps Networks — — 3,218

Disposal of UKTV investment and acquisition of Lifestyle Business — — 291

5 unchanged sentences

December 31, 2021 December 31, 2020

Cash, cash equivalents, and restricted cash:

Cash and cash equivalents $ 3,905 $ 2,091

1 unchanged sentence

Total cash, cash equivalents, and restricted cash $ 3,905 $ 2,122

(a) Restricted cash includes cash posted as collateral related to forward starting interest rate swap contracts that were executed during years ended December 31, 2020 and 2019.

(See Note 10.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a) Restricted cash includes cash posted as collateral related to forward starting interest rate swap contracts.

RELATED PARTY TRANSACTIONS

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Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees or minority partners of consolidated subsidiaries.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31,

2020 2019 (a)

2021 2020 2019

Revenues and service charges:

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

2020 2019 (a)

Receivables $ 172 $ 177

Payables $ 23 $ 43

(a) Amounts have been revised to adjust for classification between lines and excluded balances solely within this footnote disclosure.

Revised amounts are not material to the previously issued financial statements.

COMMITMENTS, CONTINGENCIES, AND GUARANTEES

In the normal course of business, the Company enters into various commitments, which primarily include programming and talent arrangements, operating and finance leases (See Note 9), arrangements to purchase various goods and services, and future funding commitments to equity method investees.

Year Ending December 31, Content Other Total

Year Ending December 31, Content Other Purchase Obligations Pension and Other Employee Obligations Total

2022 $ 1,798 $ 704 $ 3 $ 2,505

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Total $ 5,352 $ 1,611 $ 17 $ 6,980

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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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.

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.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pension and other employee obligations 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.

(See Note 16.)

Although the Company had funding commitments to equity method investees as of December 31, 2021, the Company may also provide uncommitted additional funding to its equity method investments in the future.

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Legal Matters

The Company is party to various lawsuits and claims in the ordinary course of business, including claims related to employees, vendors, other business partners or patent issues.

From time to time, in the normal course of its operations, the Company is subject to various litigation matters and claims, including claims related to employees, vendors, other business partners or patent issues.

However, a determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgment about future events.

Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on the Company's future consolidated financial position, future results of operations or cash flows.

During the year ended December 31, 2019, a withholding tax claim recorded as part of the Scripps Networks purchase accounting was settled with a portion of the claim being resolved subsequent to the measurement period, which resulted in a reversal of the remaining accrual and a reduction in selling, general, and administrative expense of $ 29 million.

There were no guarantees recorded under ASC 460 as of December 31, 2021 and 2020.

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The Company does not report assets by segment because this is not used to allocate resources or evaluate segment performance.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company evaluates the operating performance of its segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization (“Adjusted OIBDA”).

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.

(See Note 22.) The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment.

(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, and (viii) other items impacting comparability.

The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment.

The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses.

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Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives.

Adjusted OIBDA and Total Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with U.S.

Effective January 1, 2019, the Company's definition of Adjusted OIBDA was modified to exclude all employee share-based compensation, whereas only mark-to-market share-based compensation was previously excluded.

Over time, the Company has moved to a higher percentage of equity classified awards (in lieu of liability classified awards, which require mark-to-market accounting) under its stock incentive plans and expects to continue this practice in future periods.

Since most equity classified awards are non-cash expenses not entirely under management control, the Company has elected to exclude all employee share-based compensation from Adjusted OIBDA beginning in 2019.

The revised definition of Adjusted OIBDA will be used by the Company's CODM in evaluating segment performance in 2019.

Accordingly, prior period amounts have been recast to reflect the current definition.

Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with U.S.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Total revenues $ 12,191 $ 10,671 $ 11,144

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of Net Income Available to Discovery, Inc.

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Adjusted OIBDA $ 3,817 $ 4,196 $ 4,671

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Content Amortization and Impairment Expense

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Content expense is generally a component of costs of revenue on the consolidated statements of operations (see Note 6).

No content impairments were recorded as a component of restructuring and other charges during the years ended December 31, 2020 and December 31, 2019.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues by Geography

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data