What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-24 · 1401 added, 1123 removed, 806 unchanged (76% of the section changed)

3 unchanged sentences

(PCAOB ID 238 )

Consolidated Financial Statements of Discovery, Inc.:

Consolidated Balance Sheets .

Consolidated Financial Statements of Warner Bros.

Discovery, Inc.

Consolidated Statements of Operations .

Consolidated Statements of Comprehensive Income (Loss) .

Consolidated Statements of Comprehensive (Loss) Income .

Consolidated Balance Sheets.

Consolidated Statements of Cash Flows .

2 unchanged sentences

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Discovery, Inc.

Management of Warner Bros.

Discovery, Inc.

(the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended.

3 unchanged sentences

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles.

Because of the inherent limitations in any internal control, no matter how well designed, internal control over financial reporting may not prevent or detect misstatements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2021 based on the framework set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its evaluation, management concluded that, as of December 31, 2021, the Company’s internal control over financial reporting was effective at a reasonable assurance level based on the specified criteria.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 based on the framework set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its evaluation, management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

On April 8, 2022, Discovery completed its Merger with the WM Business.

In accordance with the SEC’s guidance that a recently acquired business may be omitted from the scope of management’s assessment for up to one year from the date of acquisition, the Company’s management has excluded the WM Business from its evaluation of its internal control over financial reporting as of December 31, 2022.

As of and for the year ended December 31, 2022, total assets of the WM Business represented 29% of consolidated total assets of the Company, and total revenues of the WM business represented 66% of total revenues of the Company.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in Item 8 of Part II of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm.”

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Discovery, Inc.

To the Board of Directors and Stockholders of Warner Bros.

Discovery, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Discovery, Inc.

We have audited the accompanying consolidated balance sheets of Warner Bros.

Discovery, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income (loss), of equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

2 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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, and the manner in which it accounts for leases in 2019.

Basis for Opinions

11 unchanged sentences

We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded the WarnerMedia business from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded the WarnerMedia business from our audit of internal control over financial reporting.

The WarnerMedia business is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 29% and 66%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

6 unchanged sentences

Critical Audit Matters

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

As described in Notes 2 and 18 to the consolidated financial statements, the Company’s reserves for uncertain tax positions were $ 420 million as of December 31, 2021.

Management establishes a reserve for uncertain tax positions unless management 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.

As disclosed by management, significant judgment is exercised in evaluating all relevant information, the technical merits of the tax positions, and the accurate measurement of uncertain tax positions when determining the amount of the reserve and whether positions taken on the Company’s tax returns are more likely than not to be sustained.

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

The principal considerations for our determination that performing procedures relating to certain reserves for uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining certain reserves for uncertain tax positions, including a high degree of estimation uncertainty when determining the reserves and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s determination of certain reserves for uncertain tax positions, the technical merits of the tax positions, and the accurate measurement of the uncertain tax positions.

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.

Merger with WarnerMedia - Determination of Accounting Acquirer

As described in Note 4 to the consolidated financial statements, on April 8, 2022, the Company completed a merger with the WarnerMedia business of AT&T.

The merger was executed as a Reverse Morris Trust transaction, under which WarnerMedia was distributed to AT&T’s shareholders via a pro-rata distribution, and immediately thereafter, combined with Discovery, Inc.

(Discovery), with Discovery being identified as the accounting acquirer based primarily upon the following facts:

(1) Discovery initiated the merger, was the legal acquirer of Magallanes, Inc., (“Spinco”), and transferred equity consideration to Spinco stockholders, (2) AT&T received $40.5 billion of consideration (subject to working capital and other adjustments) as part of its disposition of the WarnerMedia business, (3) the Chief Executive Officer of Discovery continued as Chief Executive Officer of the combined Company after the merger and was primarily responsible for appointing the rest of the executive management team of the combined Company, and the Chief Financial Officer of Discovery will continue as Chief Financial Officer of the combined Company, (4) no stockholder or group of stockholders held a controlling interest in WBD and a key Discovery stockholder was the largest minority interest in WBD, after the completion of the merger and (5) AT&T had no input on the strategic direction and management of the combined Company after the completion of the merger.

The above facts were deemed to outweigh the fact that the holders of shares of Spinco common stock that received shares of WBD common stock in the merger in the aggregate own a majority of WBD common stock on a fully diluted basis and associated voting rights after the merger.

The principal considerations for our determination that performing procedures relating to determination of the accounting acquirer in the merger with the WarnerMedia business is a critical audit matter are (i) the significant judgment by management in determining the appropriate accounting acquirer and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of the accounting acquirer considering the facts above.

Addressing this 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 the merger accounting, including the control over management’s determination of the accounting acquirer.

These procedures also included, among others, (i) reading the merger agreement and other relevant transaction documents and (ii) evaluating management’s assessment of the facts considered in the identification of the accounting acquirer.

Acquisition of WarnerMedia - Valuation of Trade Names and Affiliate Relationships Intangible Assets

As described in Note 4 to the consolidated financial statements, on April 8, 2022, the Company completed its merger with WarnerMedia business for a purchase consideration of $42.4 billion.

The Company applied the acquisition method of accounting to WarnerMedia business, which resulted in the recognition of intangible assets, including $21.1 billion of trade names and $14.7 billion of affiliate, advertising and subscriber relationships, the primary component of which relates to the affiliate relationships.

The fair value of the trade names was estimated by management using the relief from royalty valuation method and the fair value of the affiliate relationships was estimated by management using the multi-period excess earnings valuation method.

Significant inputs used in the discounted cash flow analyses and other areas of judgment by management include (i) historical and projected financial information, (ii) discount rates used to present value future cash flows, (iii) royalty rates, (iv) projected revenue attributable to affiliate contracts and related renewals, (v) synergies, including cost savings, (vi) tax rates, (vii) economic useful life of assets, and (viii) attrition rates, as relevant, that market participants would consider when estimating fair values.

The principal considerations for our determination that performing procedures relating to the valuation of the trade names and affiliate relationships intangible assets acquired in the acquisition of WarnerMedia business is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the trade names and affiliate relationships intangible assets, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to royalty rates used in the valuation of the trade names and projected revenue attributable to affiliate contracts and related renewals used in the valuation of the affiliate relationships, 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 the recognition, measurement, and completeness of uncertain tax positions.

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 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.

These procedures included testing the effectiveness of controls relating to the application of acquisition accounting, including controls over management’s valuation of the trade names and affiliate relationships intangible assets and the development of the underlying assumptions related to the royalty rates for the trade names and projected revenue attributable to affiliate contracts and related renewals for the affiliate relationships.

These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for developing the fair value estimates of the trade names and affiliate relationships intangible assets, (iii) evaluating the appropriateness of the relief from royalty and multi-period excess earnings valuation methods, (iv) testing the completeness and accuracy of underlying data used in the valuation methods, and (v) evaluating the reasonableness of the significant assumptions used by management related to royalty rates used in the valuation of the trade names and the projected revenue attributable to affiliate contracts and related renewals used in the valuation of the affiliate relationships.

Evaluating the reasonableness of the royalty rates used in the valuation of the trade names involved considering observable royalty rates of comparable businesses and other industry factors.

Evaluating the reasonableness of the projected revenue attributable to affiliate contracts and related renewals used in the valuation of the affiliate relationships involved considering the pre-existing contractual arrangements of WarnerMedia, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the valuation method and the reasonableness of the royalty rates used in the valuation of the trade names.

Goodwill Impairment Assessment - DTC Reporting Unit

As described in Notes 2 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $34.4 billion as of December 31, 2022, and the goodwill associated with the DTC reporting unit was $7.9 billion.

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

If a qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit goodwill or other indefinite-lived intangible asset exceeds its fair value, a quantitative impairment test is performed.

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.

As of October 1, 2022, the Company performed a quantitative goodwill impairment assessment for all reporting.

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

Significant judgments and assumptions for all quantitative goodwill tests performed include discount rates, control premiums, terminal growth rates, relevant comparable company earnings multiples, and the amount and timing of expected future cash flows, including revenue growth rates and profit margins.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the DTC reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the DTC reporting unit, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to the revenue growth rates.

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 impairment assessment, including controls over the valuation of the DTC reporting unit.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the DTC reporting unit, (ii) evaluating the appropriateness of the discounted cash flow model, (iii) testing the completeness and accuracy of underlying data used in the model, and (iv) evaluating the reasonableness of the significant assumption used by management related to the revenue growth rates.

Evaluating management’s significant assumption related to the revenue growth rates involved evaluating whether the assumption is reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether the assumption is consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

3 unchanged sentences

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

Year Ended December 31,

2022 2021 2020

Advertising $ 8,524 $ 6,194 $ 5,572

Distribution 16,142 5,202 4,686

Content 8,360 737 355

Other 791 58 58

Total revenues 33,817 12,191 10,671

Costs and expenses:

Costs of revenues, excluding depreciation and amortization 20,442 4,620 3,860

Selling, general and administrative 9,678 4,016 2,722

Depreciation and amortization 7,193 1,582 1,359

Restructuring 3,757 32 91

Impairment and loss (gain) on disposition and disposal groups 117 ( 71 ) 124

Total costs and expenses 41,187 10,179 8,156

Operating (loss) income ( 7,370 ) 2,012 2,515

Interest expense, net ( 1,777 ) ( 633 ) ( 648 )

Loss from equity investees, net ( 160 ) ( 18 ) ( 105 )

Other income (expense), net 347 72 ( 34 )

(Loss) income before income taxes ( 8,960 ) 1,433 1,728

Income tax benefit (expense) 1,663 ( 236 ) ( 373 )

Net (loss) income ( 7,297 ) 1,197 1,355

Net income attributable to noncontrolling interests ( 68 ) ( 138 ) ( 124 )

Net income attributable to redeemable noncontrolling interests ( 6 ) ( 53 ) ( 12 )

Net (loss) income available to Warner Bros.

Discovery, Inc.

$ ( 7,371 ) $ 1,006 $ 1,219

Net (loss) income per share available to Warner Bros.

Discovery, Inc.

Series A common stockholders:

Basic $ ( 3.82 ) $ 1.55 $ 1.82

Diluted $ ( 3.82 ) $ 1.54 $ 1.81

Weighted average shares outstanding:

Basic 1,940 588 599

Diluted 1,940 664 672

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

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

Year Ended December 31,

2022 2021 2020

Net (loss) income $ ( 7,297 ) $ 1,197 $ 1,355

Other comprehensive income (loss) adjustments, net of tax:

Currency translation ( 653 ) ( 290 ) 292

Pension plan and SERP ( 26 ) 2 ( 8 )

Derivatives ( 14 ) 109 ( 113 )

Comprehensive (loss) income ( 7,990 ) 1,018 1,526

Comprehensive income attributable to noncontrolling interests ( 68 ) ( 138 ) ( 124 )

Comprehensive income attributable to redeemable noncontrolling interests ( 6 ) ( 53 ) ( 12 )

Comprehensive (loss) income attributable to Warner Bros.

Discovery, Inc.

$ ( 8,064 ) $ 827 $ 1,390

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

DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

3 unchanged sentences

Receivables, net 6,380 2,446

Content rights and prepaid license fees, net 245 532

Prepaid expenses and other current assets 3,888 913

Total current assets 13,999 7,264

Noncurrent content rights, net 3,832 3,439

Film and television content rights and games 26,652 3,832

Property and equipment, net 5,301 1,336

1 unchanged sentence

Intangible assets, net 44,982 6,317

Equity method investments 543 507

Other noncurrent assets 8,629 2,766

15 unchanged sentences

stockholders’ equity:

Series A-1 convertible preferred stock:

Series A common stock:

$ 0.01 par value;

8 shares authorized, issued and outstanding

Series C-1 convertible preferred stock:

10,800 and 0 shares authorized;

2,660 and 0 shares issued;

and 2,430 and 0 shares outstanding

Preferred stock:

$ 0.01 par value;

6 shares authorized;

4 shares issued and outstanding and 5 shares issued and outstanding

Series A common stock:

1,200 and 0 shares authorized, 0 shares issued and outstanding

Discovery Series A-1 convertible preferred stock:

$ 0.01 par value;

1,700 shares authorized;

0 and 8 shares authorized, issued and outstanding

Discovery Series C-1 convertible preferred stock:

$ 0.01 par value;

0 and 6 shares authorized;

0 and 4 shares issued and outstanding

Discovery Series A common stock:

$ 0.01 par value;

0 and 1,700 shares authorized;

0 and 170 shares issued;

and 0 and 169 shares outstanding

Series B convertible common stock:

Discovery Series B convertible common stock:

$ 0.01 par value;

100 shares authorized;

7 shares issued and outstanding

Series C common stock:

0 and 100 shares authorized;

0 and 7 shares issued and outstanding

Discovery Series C common stock:

$ 0.01 par value;

2,000 shares authorized;

0 and 2,000 shares authorized;

0 and 559 shares issued;

2 unchanged sentences

Treasury stock, at cost:

230 and 230 shares

( 8,244 ) ( 8,244 )

1 unchanged sentence

Accumulated other comprehensive loss ( 1,523 ) ( 830 )

Total Discovery, Inc.

Total Warner Bros.

Discovery, Inc.

stockholders’ equity 47,095 11,599

4 unchanged sentences

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

Year Ended December 31,

2021 2020 2019

Advertising $ 6,215 $ 5,583 $ 6,044

Distribution 5,409 4,866 4,835

Other 567 222 265

Total revenues 12,191 10,671 11,144

Costs and expenses:

Costs of revenues, excluding depreciation and amortization 4,620 3,860 3,819

Selling, general and administrative 4,016 2,722 2,788

Depreciation and amortization 1,582 1,359 1,347

Impairment of goodwill and other intangible assets — 124 155

Restructuring and other charges 32 91 26

Gain on disposition ( 71 ) — —

Total costs and expenses 10,179 8,156 8,135

Operating income 2,012 2,515 3,009

Interest expense, net ( 633 ) ( 648 ) ( 677 )

Loss on extinguishment of debt ( 10 ) ( 76 ) ( 28 )

Loss from equity investees, net ( 18 ) ( 105 ) ( 2 )

Other income (expense), net 82 42 ( 8 )

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

Income tax expense ( 236 ) ( 373 ) ( 81 )

Net income 1,197 1,355 2,213

Net income attributable to noncontrolling interests ( 138 ) ( 124 ) ( 128 )

Net income attributable to redeemable noncontrolling interests ( 53 ) ( 12 ) ( 16 )

Net income available to Discovery, Inc.

$ 1,006 $ 1,219 $ 2,069

Net income per share available to Discovery, Inc.

Series A, B and C common stockholders:

Basic $ 1.55 $ 1.82 $ 2.90

Diluted $ 1.54 $ 1.81 $ 2.88

Weighted average shares outstanding:

Basic 503 505 529

Diluted 664 672 711

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

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

Year Ended December 31,

2021 2020 2019

Net income $ 1,197 $ 1,355 $ 2,213

Other comprehensive income (loss) adjustments, net of tax:

Currency translation ( 290 ) 292 ( 15 )

Pension plan and SERP 2 ( 8 ) ( 10 )

Derivatives 109 ( 113 ) 18

Comprehensive income 1,018 1,526 2,206

Comprehensive income attributable to noncontrolling interests ( 138 ) ( 124 ) ( 127 )

Comprehensive income attributable to redeemable noncontrolling interests ( 53 ) ( 12 ) ( 17 )

Comprehensive income attributable to Discovery, Inc.

$ 827 $ 1,390 $ 2,062

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

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

3 unchanged sentences

Operating Activities

Net income $ 1,197 $ 1,355 $ 2,213

Net (loss) income $ ( 7,297 ) $ 1,197 $ 1,355

Adjustments to reconcile net income to cash provided by operating activities:

Content rights amortization and impairment 14,161 3,501 2,956

Content restructuring impairments and write-offs 2,808 — —

Depreciation and amortization 7,193 1,582 1,359

Deferred income taxes ( 2,842 ) ( 511 ) ( 186 )

Preferred stock conversion premium 789 — —

Equity in losses of equity method investee companies and cash distributions 211 63 167

1 unchanged sentence

Share-based compensation expense 412 178 110

Impairment of goodwill and other intangible assets — 124 155

Impairment and loss (gain) on disposition and disposal groups 116 ( 71 ) 126

(Gain) loss from derivative instruments, net ( 501 ) 49 ( 36 )

Gain on sale of investments ( 199 ) ( 19 ) ( 103 )

(Gain) loss on disposition ( 71 ) 2 —

Other, net 435 56 14

1 unchanged sentence

Receivables, net 181 47 105

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

Film and television content rights, games and payables, net ( 12,562 ) ( 3,381 ) ( 3,053 )

Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities 1,529 185 ( 131 )

3 unchanged sentences

Purchases of property and equipment ( 987 ) ( 373 ) ( 402 )

Cash acquired from business acquisition and working capital settlement 3,612 ( 2 ) ( 39 )

Purchases of investments — ( 103 ) ( 250 )

Investments in and advances to equity investments ( 168 ) ( 184 ) ( 181 )

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

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

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

Proceeds from sales and maturities of investments 306 599 69

Proceeds from (payments for) derivative instruments, net 752 ( 86 ) 85

Other investing activities, net 9 93 15

Cash used in investing activities ( 56 ) ( 703 ) ( 438 )

Cash provided by (used in) investing activities 3,524 ( 56 ) ( 703 )

Financing Activities

2 unchanged sentences

Repurchases of stock — — ( 969 )

Principal repayments of revolving credit facility — ( 500 ) ( 225 )

Repayments under revolving credit facility ( 125 ) — ( 500 )

Borrowings under revolving credit facility 125 — 500

Distributions to noncontrolling interests and redeemable noncontrolling interests ( 300 ) ( 251 ) ( 254 )

Borrowings under commercial paper program 2,268 — —

Principal repayments of term loans ( 6,000 ) — —

Repayments under commercial paper program ( 2,270 ) — —

Other financing activities, net ( 125 ) ( 28 ) ( 112 )

8 unchanged sentences

(in millions)

Preferred Stock Common Stock Additional

Discovery, Inc.

Preferred Stock Discovery, Inc.

Common Stock Warner Bros.

Discovery, Inc.

Common Stock Additional

Capital Treasury

2 unchanged sentences

Comprehensive

Loss Discovery,

Loss Warner Bros.

Stockholders’

1 unchanged sentence

Interests Total

Shares Par Value Shares Par Value

Shares Par Value Shares Par Value Shares Par Value

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

Cumulative effect of accounting changes — — — — — — — — 2 — 2 — 2

Net income available to Discovery, Inc.

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

Net income available to Warner Bros.

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 — — — — — — ( 45 ) 95 9 — 59 — 59

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

1 unchanged sentence

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 — — — — — — 2 — 2 — 2

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

Net income available to Discovery, Inc.

Net income available to Warner Bros.

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 )

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

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

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

Dividends paid to noncontrolling interests — — — — — — — — — — — ( 240 ) ( 240 )

1 unchanged sentence

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

Net income available to Discovery, Inc.

Net (loss) income available to Warner Bros.

Discovery, Inc.

and attributable to noncontrolling interests — — — — — — — — ( 7,371 ) — ( 7,371 ) 68 ( 7,303 )

1 unchanged sentence

Share-based compensation — — — — — — 399 — — — 399 — 399

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

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions)

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

Tax settlements associated with share-based plans — — — — — — ( 54 ) — — — ( 54 ) — ( 54 )

8 unchanged sentences

Description of Business

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

Some of our iconic brands and franchises include Warner Bros.

Pictures Group, Warner Bros.

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

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

Merger with the WarnerMedia Business of AT&T

On April 8, 2022 (the “Closing Date”), Discovery, Inc.

(“Discovery”) completed its merger (the “Merger”) with the WarnerMedia business (the “WarnerMedia Business”, “WM Business” or “WM”) of AT&T, Inc.

(“AT&T”) and changed its name to Warner Bros.

Discovery, Inc.

(“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.

The Company has organized its operations into two reportable segments:

Networks, consisting principally of domestic television networks and digital content services, and International Networks, consisting primarily of international television networks and digital content services.

On April 11, 2022, the Company’s shares started trading on Nasdaq under the trading symbol WBD.

The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro rata distribution, and immediately thereafter, combined with Discovery.

(See Note 3 and Note 4).

Prior to the Merger, WarnerMedia Holdings, Inc.

distributed $ 40.5 billion to AT&T (subject to working capital and other adjustments) in a combination of cash, debt securities, and WM's retention of certain debt.

Discovery transferred purchase consideration of $ 42.4 billion in equity to AT&T shareholders in the Merger.

In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, pursuant to section 1.3 of the Separation and Distribution Agreement, which resulted in the Company receiving a $ 1.2 billion payment from AT&T in the third quarter of 2022 in lieu of adjusting the equity issued as purchase consideration in the Merger.

AT&T shareholders received shares of WBD Series A common stock (“WBD common stock”) in the Merger representing 71 % of the combined Company and the Company's pre-Merger shareholders continued to own 29 % of the combined Company, in each case on a fully diluted basis.

Discovery was deemed to be the accounting acquirer of the WM Business for accounting purposes under U.S.

generally accepted accounting principles (“U.S.

therefore, Discovery is considered the Company’s predecessor and the historical financial statements of Discovery prior to April 8, 2022, are reflected in this Annual Report on Form 10-K as the Company’s historical financial statements.

Accordingly, the financial results of the Company as of and for any periods prior to April 8, 2022 do not include the financial results of the WM Business and current and future results will not be comparable to historical results.

In connection with the Merger, the Company reevaluated and changed its segment presentation during 2022.

As of December 31, 2022, we classified our operations in three reportable segments:

• Studios - Our Studios segment primarily consists of the production and release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC services, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming.

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

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

Impact of COVID-19

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

however, the nature and full extent of COVID-19’s effects on our operations and results are not yet known and will depend on future developments, which are highly uncertain and cannot be predicted.

Certain key sources of revenue for the Studios segment, including theatrical revenues, original television productions, studio operations, and themed entertainment, have been adversely impacted by governmentally imposed shutdowns and related labor interruptions and constraints on consumer activity, particularly in the context of public entertainment venues, such as cinemas and theme parks.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Consolidation

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.

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

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 unconsolidated investment.

7 unchanged sentences

The preparation of financial statements in accordance with U.S.

generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Actual results may differ from these estimates.

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 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 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 occurred in July and August 2021.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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, the determination of ultimate revenues as they relate to amortization of capitalized content rights and accruals of participations and residuals, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, estimated defined benefit plan liabilities, and the determination of whether the Company should consolidate certain entities.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

The reporting currency of the Company is the U.S.

The functional currency of most of the Company’s international subsidiaries is the local currency.

Financial statements of subsidiaries whose functional currency is not the U.S.

1 unchanged sentence

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.

Cash flows from the Company’s operations in foreign countries are generally translated at the weighted average rate for the respective periods.

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.

Transactions denominated in currencies other than subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise.

Such transactions include affiliate and ad sales arrangements, content arrangements, equipment and other vendor purchases and intercompany transactions.

Such transactions include affiliate and ad sales arrangements, content licensing arrangements, equipment and other vendor purchases and intercompany transactions.

Changes in exchange rates with respect to amounts recorded in the Company’s consolidated balance sheets related to these items will result in unrealized foreign currency transaction gains and losses based upon period-end exchange rates.

3 unchanged sentences

Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of 90 days or less.

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

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, historical collection experience, 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, the aging of receivables and customer specific risks, and records a provision for estimated credit losses expected over the lifetime of receivables.

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.

Content Rights

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

Content aired on the Company’s television networks and digital content offerings is sourced from a wide range of third-party producers, wholly-owned and equity method investee production studios, and sports associations.

Content is classified either as produced, coproduced or licensed.

The Company owns most or all of the rights to produced content.

The Company collaborates with third parties to finance and develop coproduced content, and it retains significant rights to exploit the programs.

Prepaid licensed content includes advance payments for rights to air sporting events that will take place in the future and advance payments for acquired films and television series.

Costs of produced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs.

The Company’s coproduction arrangements generally provide for the sharing of production costs.

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.

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.

The cost of licensed content is capitalized when the cost is known or reasonably determinable, the license period for the programs has commenced, the program materials have been accepted by the Company in accordance with the license agreements, and the programs are available for the first showing.

The Company pays in advance of delivery for television series, specials, films and sports rights.

Payments made in advance of when the right to air the content is received are recognized as prepaid licensed content.

Participation costs are expensed in line with the amortization of production costs.

Content distribution, advertising, marketing, general and administrative costs are expensed as incurred.

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

Digital content amortization for each period is recognized based on estimated viewing patterns as there are no direct revenues to associate to the individual content assets and therefore, number of views is most representative of the use of the title.

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

Revolving Receivables Program

The Company has a revolving agreement to transfer up to $ 5,700 million of certain receivables through its bankruptcy-remote subsidiary, Warner Bros.

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

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

The agreement is a continuation of the agreement the WarnerMedia Business had in place prior to the Merger.

This agreement is subject to renewal on an annual basis and the transfer limit may be expanded or reduced from time to time.

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

The gross value of the proceeds received results in derecognition of receivables and the obligations assumed are recorded at fair value.

The obligations assumed when proceeds are received relate to expected credit losses on sold receivables and estimated fee payments made on outstanding sold receivables already transferred.

The obligations are subsequently adjusted for changes in estimated expected credit losses and interest rates, which are considered Level 3 fair value measurements since the inputs are unobservable (See Note 8).

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

Accounts Receivable Factoring

The Company has a factoring agreement to sell certain of its non-U.S.

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

The Company accounts for these transactions as sales in accordance with ASC 860, “Transfers and Servicing”, as its continuing involvement subsequent to the transfer is limited to providing certain servicing and collection actions on behalf of the purchaser of the designated trade accounts receivable.

Proceeds from amounts factored are recorded as an increase to cash and cash equivalents and a reduction to receivables, net in the consolidated balance sheets.

Cash received is also reflected as cash provided by operating activities in the consolidated statements of cash flows.

The accounts receivable factoring program is separate and distinct from the revolving receivables program.

Film and Television Content Rights

The Company capitalizes costs to produce television programs and feature films, including direct production costs, production overhead, interest, acquisition costs and development costs, as well as advances for live programming rights, such as sports.

Costs to acquire licensed television series and feature film programming rights are capitalized when the license period has begun and the program is accepted and available for airing.

Production incentives received from various jurisdictions where the Company produces content are recorded as a reduction to capitalized production costs.

All capitalized content and prepaid license fees are classified as noncurrent assets, 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.

The Company groups its film and television content rights by monetization strategy:

content that is predominately monetized individually, and content that is predominately monetized as a group.

Content Monetized Individually

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

Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s or television program’s revenues recognized for such period to the film’s or television program’s estimated remaining ultimate revenues (i.e., the total revenue to be received throughout a film’s or television program’s remaining life cycle).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The process of estimating ultimate revenues requires us to make a series of judgments related to future revenue-generating activities associated with a particular film.

Prior to the theatrical release of a film, the Company’s estimates are based on factors such as the historical performance of similar films, the star power of the lead actors, the rating and genre of the film, pre-release market research (including test market screenings), international distribution plans and the expected number of theaters in which the film will be released.

Subsequent to release, ultimate revenues are updated to reflect initial performance, which is often predictive of future performance.

For a film or television program that is predominantly monetized on its own but also monetized with other films and/or programs (such as the Company’s DTC or linear services), the Company makes a reasonable estimate of the value attributable to the film or program’s exploitation while monetized with other films/programs and expense such costs as the film or television program is exhibited.

For theatrical films, the period over which ultimate revenues from all applicable sources and exhibition windows are estimated does not exceed 10 years from the date of the film’s initial release.

For television programs, the ultimate period does not exceed 10 years from delivery of the first episode, or, if still in production, five years from delivery of the most recent episode, if later.

For games, the ultimate period does not exceed two years from the date of the game’s initial release.

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

any adjustments are applied prospectively as of the beginning of the fiscal year of the change.

Content Monetized as a Group

For programs monetized as a group, including licensed programming, the Company’s film groups are generally aligned along the Company’s networks and digital content offerings, except for certain international territories wherein content assets are shared across the various networks in the territory and therefore, the territory is the film group.

Program costs, including licensed programming, that are predominantly monetized as a group are amortized based on projected usage, generally resulting in an accelerated or straight-line amortization pattern.

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

Participations and residuals are generally expensed in line with the pattern of usage.

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

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

Licensed rights to film and television programming are typically amortized over the useful life of the program’s license period on a straight-line basis (or per-play basis, if greater, for certain programming on the Company’s ad-supported networks), or accelerated basis for licensed original programs.

The Company allocates the cost of multi-year sports programming arrangements over the contract period to each event or season based on its projected advertising revenue and an allocation of affiliate revenue (estimated relative value).

If annual contractual payments related to each season approximate each season’s estimated relative value, the Company expenses the related contractual payments during the applicable season.

Amortization of sports rights takes place when the content airs.

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

Critical assumptions used in determining content amortization include:

(i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or viewership model based on the adequacy of historical data, (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model, (iv) assessing the accuracy of the Company's forecasts and (v) incorporating secondary streams.

Critical assumptions used in determining content amortization for programming predominately monetized as a group include:

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

The Company then considers the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends.

Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving the Company’s networks, the number of subscribers to its digital services, and program usage.

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

Any material adjustments from the Company’s review of the amortization rates 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 five years .

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

Amortization of capitalized costs for licensed content generally commences when the license period begins and the program is available for use.

The Company allocates the cost of multi-year sports programming arrangements over the contract period of each event or season based on the estimated relative value of each event or season.

Amortization of sports rights takes place when the content airs.

Capitalized content costs are stated at the lower of cost less accumulated amortization or fair value.

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 ("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.

Given the significant estimates and judgments involved, actual demand or market conditions may be less favorable than those projected, requiring a write-down to fair value.

Programming and development costs for programs that the Company has determined will not be produced, are fully expensed in the period the determination is made.

The Company’s film groups are generally aligned along the Company’s networks and digital content offerings except for certain international territories wherein content assets are shared across the various networks in the territory and therefore, the territory is the film group.

The Company’s rights to the Olympic Games are predominantly monetized on their own as the sublicensing of the rights in certain territories is a significant component of the monetization strategy.

Beginning in 2020, all content rights and prepaid license fees are classified 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.

(See "Accounting and Reporting Pronouncements Adopted" below and Note 6.)

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

(See Note 4.)

Accordingly, the Company reviews its estimates and planned usage at least quarterly and revises its assumptions if necessary.

Any material adjustments from the Company’s review of the amortization rates for assets in film groups are applied prospectively in the period of the change.

Unamortized Film Costs Impairment Assessment

Unamortized film costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of a film (or television program) predominately monetized on its own, or a film group, may be less than its unamortized costs.

In addition, a change in the predominant monetization strategy is considered a triggering event for impairment testing before a title is accounted for as part of a film group.

If the carrying value of an individual feature film or television program, or film group, exceeds the estimated fair value, an impairment charge will be recorded in the amount of the difference.

For content that is predominately monetized individually, the Company utilizes estimates including ultimate revenues and additional costs to be incurred (including exploitation and participation costs), in order to determine whether the carrying value of a film or television program is impaired.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Game Development Costs

Game development costs are expensed as incurred before the applicable game reaches technological feasibility, or for online hosted arrangements, before the preliminary project phase is complete and it is probable the project will be completed and the software will be used to perform the function intended.

Upon release, the capitalized game development costs are amortized based on the proportion of the game’s revenues recognized for such period to the game’s total current and anticipated revenues.

Unamortized capitalized game production and development costs are stated at the lower of cost, less accumulated amortization, or net realizable value and reported in “Film and television content rights and games” on the consolidated balance sheets.

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

(See Note 10.)

Equity Method Investments

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

Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary or the entity is not a VIE and the Company does not have a controlling financial interest.

Under this method of accounting, the Company typically records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances.

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.

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.

When applying HLBV, the Company determines the amount that would be received if the investment were to liquidate all of its assets and distribute the resulting cash to the investors based on contractually defined liquidation priorities.

The change in the Company's claim on the investee's book value in accordance with GAAP at the beginning and the end of the reporting period, after adjusting for any contributions or distributions, is the Company's share of the earnings or losses for the period.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

1 unchanged sentence

Equity Investments with Readily Determinable Fair Values

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.

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

Investments in entities or other securities in which the Company has no control or significant influence and 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.

The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1).

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

(See Note 10 and Note 18.)

1 unchanged sentence

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.

Equity investments without readily determinable fair values are recorded at cost and adjusted for subsequent observable price changes as of the date that an observable transaction takes place.

Adjustments for observable price changes are recorded in other income (expense), net.

(See Note 10 and Note 18.)

7 unchanged sentences

The Company determines if an arrangement is a lease at its inception.

Operating lease right-of-use ("ROU") assets are included in "Other noncurrent assets" and operating lease liabilities are included in “Accrued liabilities” and “Other noncurrent liabilities” in the consolidated balance sheets.

Finance lease ROU assets are included in "Property and equipment, net" and finance lease liabilities are included in “Accrued liabilities” and “Other noncurrent liabilities” in the consolidated balance sheets.

Operating lease right-of-use (“ROU”) assets are included in other noncurrent assets.

Finance lease ROU assets are included in property and equipment, net.

Operating and finance lease liabilities are included in accrued liabilities and other noncurrent liabilities in the consolidated balance sheets.

A rate implicit in the lease when readily determinable is used in arriving at the present value of lease payments.

11 unchanged sentences

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.

Defined Benefit Plans

The Company maintains defined benefit pension plans covering certain U.S.

employees and several non-U.S.

pension plans.

Defined benefit plan obligations are based on various assumptions used by the Company’s actuaries in calculating these amounts.

These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates.

Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations.

Asset Impairment Analysis

2 unchanged sentences

The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of October 1, or earlier if an event or other circumstance indicates that it may not recover the carrying value of the asset.

If the Company believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is not required.

2 unchanged sentences

Long-lived Assets

Long-lived assets such as amortizing trademarks, customer lists, other intangible assets, and property and equipment are not required to be tested for impairment annually, but rather are tested for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable.

Long-lived assets such as amortizing trademarks and trade names;

affiliate, advertising, and subscriber relationships;

franchises and other intangible assets;

and property and equipment are not required to be tested for impairment annually, but rather whenever circumstances indicate that the carrying amount of the asset may not be recoverable.

If an impairment analysis is required, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale.

1 unchanged sentence

If the carrying value of the asset exceeds the undiscounted cash flows, an impairment loss would be recognized equal to the excess of the asset’s carrying value over its fair value, which is typically determined by discounting the future cash flows associated with that asset.

If the intent is to hold the asset for sale and certain other criteria are met, the impairment test involves comparing the asset’s carrying value to its fair value less costs to sell.

• If the intent is to hold the asset for sale and certain other criteria are met, the impairment test involves comparing the asset’s carrying value to its estimated fair value less costs to sell.

If the carrying value of the asset exceeds the fair value, an impairment loss would be recognized equal to the difference.

Significant judgments used for long-lived asset impairment assessments include identifying the appropriate asset groupings and primary assets within those groupings, determining whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining the future cash flows for the assets involved and assumptions applied in determining fair value, which include reasonable discount rates, growth rates, market risk premiums and other assumptions about the economic environment.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments and Equity Investments Without Readily Determinable Fair Value

2 unchanged sentences

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.

If the fair value of the investment has dropped below its 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.

The estimation of fair value and whether an other-than-temporary impairment has occurred requires the application of significant judgment and future results may vary from current assumptions.

If declines in the value of the equity method investments are determined to be other-than-temporary, a loss is recorded in earnings in the current period as a component of loss from equity investees, net on the consolidated statements of operations.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 observable price change has occurred.

For equity investments without readily determinable fair value, investments are recorded at cost and 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 any observable price changes have 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.

1 unchanged sentence

Derivative Instruments

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates, interest rates and from market volatility related to certain equity investments measured at fair value.

At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's intentions and expectations as to the likely effectiveness as a hedge.

The three types are:

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates, interest rates, and from market volatility related to certain investments measured at fair value.

At the inception of a derivative contract, the Company designates the derivative based on the Company’s intentions and expectations as to the likely effectiveness as a hedge (see Note 13), as follows:

• a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”);

1 unchanged sentence

• an instrument with no hedging designation.

(See Note 10.)

Cash Flow Hedges

The Company designates foreign currency forward and option contracts as cash flow hedges to mitigate foreign currency risk arising from third-party revenue and intercompany licensing agreements.

The Company also designates interest rate contracts used to hedge the interest rate risk for certain senior notes and forecasted debt issuances as cash flow hedges.

For foreign exchange forward contracts accounted for as cash flow hedges, the entire change in the fair value of the forward contract is recorded in other comprehensive income (loss) and reclassified into the statement 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 may designate derivative instruments as cash flow hedges to mitigate foreign currency risk arising from third-party revenue agreements, intercompany licensing agreements, production expenses and rebates, or to hedge the interest rate risk for certain senior notes and forecasted debt issuances as cash flow hedges.

For instruments accounted for as cash flow hedges, the change in the fair value of the forward contract is recorded in other comprehensive (loss) income and reclassified into the statement 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.

Net Investment Hedges

The Company designates cross-currency swaps and foreign currency forward contracts as hedges of net investments in foreign operations.

The Company assesses effectiveness for net investment hedges utilizing the spot-method.

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.

The Company may designate derivative instruments as hedges of net investments in foreign operations.

The Company assesses the effectiveness of net investment hedges utilizing the spot-method.

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 (loss) income.

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

The Company may also enter into derivative financial instruments that do not qualify for hedge accounting and are not designated as hedges.

These instruments are intended to mitigate economic exposures due to exogenous events and changes in foreign currency exchange rates and interest rates.

The changes in fair value of derivatives not designated as hedges are recorded in other income (expense), net.

The Company may also enter into derivative instruments that do not qualify for hedge accounting or are not designated as hedges.

These instruments are intended to mitigate economic exposures due to exogenous events and changes in foreign currency exchange rates, interest rates, and from market volatility related to certain investments measured at fair value.

The changes in fair value of derivatives not designated as hedges are recorded in the statement of operations in the same line item where the hedged risk occurs.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statement Presentation

1 unchanged sentence

The portion of the fair value that represents cash flows occurring within one year is classified as current, and the portion related to cash flows occurring beyond one year is classified as noncurrent.

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 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.

1 unchanged sentence

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.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Treasury stock held by Discovery prior to the Merger was not retired.

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.

4 unchanged sentences

Revenue Recognition

The Company generates revenues principally from:

(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.

Revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those services or goods.

2 unchanged sentences

Revenue recognition for each source of revenue is also based on the following policies.

Advertising revenues are principally generated from the sale of commercial time on linear and digital platforms.

Advertising revenues are principally generated from the sale of commercial time on linear (television networks and authenticated TVE applications) and digital platforms (DTC subscription services and websites).

A substantial portion of the linear and digital advertising contracts in the U.S.

5 unchanged sentences

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

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

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

The Company provides the advertiser with advertising until the guaranteed audience level is delivered, and invoiced advertising revenue receivables may exceed the value of the audience delivery.

As such, revenues are deferred until the guaranteed audience level is delivered or the rights associated with the guarantee lapse, which is less than one year.

As such, revenues are deferred until the guaranteed audience level is delivered or the rights associated with the guarantee lapse, which is typically less than one year.

Audience guarantees are initially developed internally, based on planned programming, historical audience levels, the success of pilot programs, and market trends.

5 unchanged sentences

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.

1 unchanged sentence

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Distribution revenues are generated from fees charged to network distributors, which include cable, direct-to-home (“DTH”) satellite, telecommunications and digital service providers, and DTC subscribers.

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.

5 unchanged sentences

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 other than for distinct goods or services acquired at fair value are recognized as a reduction of revenue over the service term.

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 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.

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

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.

License fees from the sublicensing of sports rights are recognized when the rights become available for airing.

Revenue from production studios is recognized when the content is delivered and available for airing by the customer.

Royalties from brand licensing arrangements are earned as products are sold by the licensee.

Affiliate and ad sales representation services are recognized as services are provided.

Multiple Performance Obligations

Contracts with customers may include multiple distinct performance obligations.

Advertising contracts may include sponsorship, production, or product integration in addition to the airing of spots and/or the satisfaction of an audience guarantee.

For such contracts, the contract value is allocated to individual performance obligations and recorded as revenue when each performance obligation has been satisfied and value has been transferred to the customer.

Distribution contracts also include multiple performance obligations.

The Company also enters into certain distribution contracts that include promises to deliver content libraries.

There are generally two types of such 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 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.

Deferred Revenue

Deferred revenue consists of cash received for television advertising for which the guaranteed viewership has not been provided, product licensing arrangements in which fee collections are in excess of the license value provided, and advanced fees received related to the sublicensing of Olympic rights.

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

In general, fixed payments for the licensing of intellectual property are recognized as revenue at either the inception of the license term or as sales-based royalties as underlying sales occur if the intellectual property has significant standalone functionality (“functional IP,” such as a produced film or television series), or over the corresponding license term if the licensee’s ability to derive utility is dependent upon our continued support of the intellectual property throughout the license term (“symbolic IP,” such as a character or a brand).

Feature films may be produced or acquired for initial exhibition in theaters or direct release on our streaming service.

Arrangements with theaters for exhibiting a film over a certain period are generally sales-based royalties and recorded as revenue as the underlying sales of the exhibitors occur.

Television programs are initially produced for broadcast networks, cable networks, premium pay services, first-run syndication or streaming services;

revenues are recognized when the programs are available for use by the licensee.

Fixed license fee revenues from the subsequent licensing of feature films and television programs in the off-network cable, premium pay, syndication, streaming and international television and streaming markets are also recognized upon availability of the content for use by the licensee.

For television/streaming service licenses that include multiple titles with a fixed license fee across all titles, the availability of each title is considered a separate performance obligation, and the fixed fee is allocated to each title and recognized as revenue when the title is available for use by the licensee.

When the term of an existing agreement is renewed or extended, revenues are recognized when the licensed content becomes available under the renewal or extension.

Certain arrangements (e.g., certain pay-TV/SVOD licenses) may include variable license fees that are based on sales of the licensee;

these are recognized as revenue as the applicable underlying sales occur.

Revenues from home entertainment sales of feature films and television programs in physical format are generally recognized at the later of the delivery date or the date when made widely available for sale or rental by retailers (“street date”) based on gross sales less a provision for estimated returns, rebates and pricing allowances.

The provision is based on management’s estimates by analyzing vendor sales of our product, historical return trends, current economic conditions and changes in customer demand.

Revenues from the licensing of television programs and films for electronic sell-through or video-on-demand are recognized when the product has been purchased by and made available to the consumer to either download or stream.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues from sales of console games generally follow the same recognition methods as film and television programs in the home entertainment market.

Revenues from digital sales of in-game purchases are assessed for deferral based on type of digital item purchased (e.g., consumable vs.

durable) and estimated life of consumer game play and recognized upon purchase or

over time as applicable.

Revenues from the licensing of intellectual property such as characters or brands (e.g., for merchandising or theme parks) are

recognized either straight-line over the license term or as the licensee’s underlying product sales occur (sales-based royalty) depending on which method is most reflective of the earnings process.

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of the Company’s right to bill and receive consideration and that right is conditioned upon something other than the passage of time.

A contract liability, such as deferred revenue, is recorded when the Company has recorded billings in conjunction with its contractual right or when cash is received in advance of the Company’s performance.

Deferred revenue primarily consists of TV/SVOD content licensing arrangements where the content has not yet been made available to the customer, consumer products and themed experience licensing arrangements with fixed payments, advance payment for DTC subscriptions, and cash received for television advertising for which the guaranteed viewership has not been provided.

The amounts classified as current are expected to be earned within the next year.

2 unchanged sentences

For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-Based Compensation Expense

The Company has incentive plans under which performance-based restricted stock units (“PRSUs”), service-based restricted stock units (“RSUs”), stock options, and stock appreciation rights (“SARs”) are issued.

In addition, the Company offers an Employee Stock Purchase Plan (the “ESPP”).

2 unchanged sentences

Excess tax benefits realized from the exercise of stock options and vested RSUs, PRSUs and the ESPP are reported as cash inflows from operating activities on the consolidated statements of cash flows.

Vesting for PRSUs is subject to satisfying objective operating performance conditions or a combination of objective and subjective operating performance conditions.

Compensation expense for PRSUs is based on the fair value of the Company’s Series A and C common stock on the date of grant.

Compensation expense for PRSUs that vest based on achieving subjective operating performance conditions or in situations where the executive is able to withhold taxes in excess of the maximum statutory requirement, is remeasured at fair value each reporting period until the award is settled.

Compensation expense for all PRSUs is recognized ratably, following a graded vesting pattern during the vesting period only when it is probable that the operating performance conditions will be achieved.

PRSUs represent the contingent right to receive shares of WBD common stock, and vest over one year based on continuous service and the attainment of qualitative and quantitative performance targets.

The number of PRSUs that vest typically ranges from 0% to 100% based on a sliding scale where achieving or exceeding the performance target will result in 100% of the PRSUs vesting and achieving less than 70% of the target will result in no portion of the PRSUs vesting.

Additionally, for certain PRSUs, the Company’s Compensation Committee has discretion in determining the final number of units that vest, but may not increase the amount of any PRSU award above 100%.

Upon vesting, each PRSU becomes convertible into one share of WBD common stock.

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 WBD common stock.

Compensation expense for PRSUs is based on the fair value of WBD common stock on the date of grant.

Compensation expense for PRSUs that vest based on achieving subjective operating performance conditions or in situations where the executive may withhold taxes in excess of the maximum statutory requirement, is remeasured at fair value each reporting period until the award is settled.

Compensation expense for all PRSUs is recognized ratably over the vesting period only when it is probable that the operating performance conditions will be achieved.

The Company records a cumulative adjustment to compensation expense for PRSUs if there is a change in the determination of the probability that the operating performance conditions will be achieved.

RSUs represent the contingent right to receive shares of WBD common stock, substantially all of which vest ratably each year over periods of three to five years based on continuous service.

Compensation expense for RSUs is based on the fair value of the award on the date of grant and is recognized ratably during the vesting period.

SARs and Stock Options

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options and SARs

Stock options are granted with an exercise price equal to or in excess of the closing market price of WBD common stock on the date of grant.

Stock options vest ratably over four years from the grant date based on continuous service and expire seven years from the date of grant.

Stock option awards generally provide for accelerated vesting upon retirement or after reaching a specified age and years of service.

Compensation expense for stock options is based on the fair value of the award on the date of grant and is recognized ratably during the vesting period.

SARs are cash-settled and entitle the holder to receive a cash payment for the amount by which the price of WBD common stock exceeds the base price established on the grant date.

Cash-settled SARs are granted with a base price equal to or greater than the closing market price of WBD common stock on the date of grant.

Compensation expense for SARs is based on the fair value of the award.

Because certain SARs are cash-settled, the Company remeasures the fair value of these awards each reporting period until settlement.

Because SARs are cash-settled, the Company remeasures the fair value of these awards each reporting period until settlement.

Compensation expense for SARs, including changes in fair value, is recognized during the vesting period in proportion to the requisite service that has been rendered as of the reporting date.

For awards with graded vesting, the Company measures fair value and records compensation expense separately for each vesting tranche.

Compensation expense for stock options is based on the fair value of the award on the date of grant and is recognized ratably during the vesting period.

The fair values of SARs and stock options are estimated using the Black-Scholes option-pricing model.

The fair values of stock options and SARs are estimated using the Black-Scholes option-pricing model.

Because the Black-Scholes option-pricing model requires the use of subjective assumptions, changes in these assumptions can materially affect the fair value of awards.

2 unchanged sentences

The simplified method considers the period from the date of grant through the mid-point between the vesting date and the end of the contractual term of the award.

Expected volatility is based on a combination of implied volatilities from traded options on the Company’s common stock and historical realized volatility of the Company’s common stock.

Expected volatility is based on a combination of implied volatilities from traded options on WBD common stock and historical realized volatility of WBD common stock.

The dividend yield is assumed to be zero because the Company has no history of paying cash dividends and no present intention to pay dividends.

1 unchanged sentence

Treasury zero-coupon issues with a remaining term equal to the expected term of the award.

The ESPP enables eligible employees to purchase shares of the Company’s common stock through payroll deductions or other permitted means.

The ESPP enables eligible employees to purchase shares of WBD common stock through payroll deductions or other permitted means.

The Company recognizes the fair value of the discount associated with shares purchased under the ESPP as share-based compensation expense.

Advertising Costs

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 $ 1.2 billion, $ 412 million and $ 390 million for years ended December 31, 2021, 2020 and 2019, respectively.

Advertising costs are expensed as incurred and are presented in selling, general and administrative expenses.

Advertising costs paid to third parties totaled $ 2,519 million, $ 1,247 million and $ 412 million for years ended December 31, 2022, 2021 and 2020, respectively.

Collaborative Arrangements

The Company’s collaborative arrangements primarily relate to arrangements entered into with third parties to jointly finance and distribute certain theatrical and television productions and an arrangement entered into with CBS Broadcasting, Inc.

(“CBS”) surrounding The National Collegiate Athletic Association (the “NCAA”).

The arrangement among Turner, CBS and the NCAA provides Turner and CBS with rights to the NCAA Division I Men’s Basketball Championship Tournament (the “NCAA Tournament”) in the U.S.

and its territories and possessions through 2032.

The aggregate programming rights fee, production costs, advertising revenues and sponsorship revenues related to the NCAA Tournament and related programming are shared equally by the Company and CBS.

However, if the amount paid for the programming rights fee and production costs in any given year exceeds advertising and sponsorship revenues for that year, CBS’ share of such shortfall is limited to specified annual caps.

No amounts were recorded pursuant to the loss cap during the year ended December 31, 2022 since the most recent cap was finalized prior to the Merger.

In accounting for this arrangement, the Company records advertising revenue for the advertisements aired on its networks and amortizes its share of the programming rights fee based on the estimated relative value of each season over the term of the arrangement.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Co-financing arrangements generally represent the assignment of an economic interest in a film or television series to a producing partner.

The Company generally records the amounts received for the assignment of an interest as a reduction of production cost, as the partner assumes the risk for their share of the film or series asset.

The substance of these arrangements is that the third-party partner owns an interest in the film or series;

therefore, in each period, the Company reflects in the consolidated statements of operations either a charge or benefit to cost of revenues, excluding depreciation and amortization to reflect the estimate of the third-party partner’s interest in the profits or losses incurred on the film or series using the individual film forecast method, based on the terms of the arrangement.

On occasion, the Company acquires the economic interest in a film from a producing partner;

in this case, the Company capitalizes the acquisition cost as a content asset in film and television content rights and games and accounts for the third-party partner’s share in applicable distribution results as described above.

For our collaborative arrangements entered into with third parties to jointly finance and distribute certain theatrical and television productions, net participation costs of $ 276 million were recorded in cost of revenues, excluding depreciation and amortization for the year ended December 31, 2022.

Income taxes are recorded using the asset and liability method of accounting for income taxes.

12 unchanged sentences

Concentrations Risk

The Company has long-term contracts with distributors around the world.

Networks segment, 84 % of distribution revenue comes from the 10 largest distributors.

Agreements in place with the 10 largest cable and satellite operators with the U.S.

Networks expire at various times from 2022 through 2025.

Although the Company seeks to renew its agreements with its distributors prior to expiration of a contract, a delay in securing a renewal that results in a service disruption, a failure to secure a renewal or a renewal on less favorable terms may have a material adverse effect on the Company’s financial condition and results of operations.

Not only could the Company experience a reduction in distribution revenue, but it could also experience a reduction in advertising revenue, as viewership is impacted by affiliate subscriber levels.

No individual customer accounted for more than 10% of total consolidated revenues for 2022, 2021 or 2020.

The Company had two customers that represented more than 10% of distribution revenue in 2022, which in aggregate totaled 26 %.

As of December 31, 2022 and 2021, the Company’s trade receivables do not represent a significant concentration of credit risk as the customers and markets in which the Company operates are varied and dispersed across many geographic areas.

8 unchanged sentences

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, 2021, no collateral has been posted under these arrangements.

As of December 31, 2022, the Company had posted $ 49 million of collateral under these arrangements.

As of December 31, 2022, the Company’s exposure to counterparty credit risk included derivative assets with an aggregate fair value of $ 186 million.

3 unchanged sentences

Accounting and Reporting Pronouncements Adopted

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

In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance providing optional expedients and exceptions for applying U.S.

GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate (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.

As of December 31, 2021 and 2020, $ 245 million and $ 532 million, respectively, of content rights and prepaid license fees were reflected as a current asset.

The Company determined that most of its content is exploited as part of film groups.

For such content assets, the unit of account for the impairment assessment is the respective film group.

There was no material impact upon adoption to the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.

(See Note 6.)

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 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 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 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:

1) whether any expired or existing contracts previously assessed as not containing leases are, or contain, leases;

2) the lease classification for any expired or existing leases;

and 3) initial direct costs for any existing leases.

The Company also elected to not separate lease components from non-lease components across all lease categories.

Instead, each separate lease component and non-lease component are accounted for as a single lease component.

The Company did not elect to apply the practical expedient to use hindsight in determining the lease term and in assessing the right-of-use assets for impairment.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting and Reporting Pronouncements Not Yet Adopted

The Company applied the relevant provisions of the guidance to hedge relationships that were subsequently terminated in the first quarter of 2022.

Convertible Instruments

1 unchanged sentence

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.

The Company adopted the guidance effective January 1, 2022 and there was no material impact on its consolidated financial statements.

Government Assistance

In November 2021, the FASB issued guidance requiring disclosure for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other guidance.

The annual disclosures include the nature of the transactions, significant terms and conditions, accounting treatment and impacted financial statement lines reflecting the impact of the transactions.

The Company adopted the guidance effective January 1, 2022, and no additional disclosures were required.

The Company receives production incentives that are analogous to investment tax credits.

(See Film and Television Content Rights policy above.)

Accounting and Reporting Pronouncements Not Yet Adopted

Supplier Finance Programs

In September 2022, the FASB issued guidance updating the disclosure requirements for supplier finance program obligations.

This guidance provides specific authoritative guidance for disclosure of supplier finance programs, including key terms of such programs, amounts outstanding, and where the obligations are presented in the statement of financial position.

The guidance is effective for annual periods beginning after December 15, 2022, including interim periods, except for the disclosure of roll forward information, which is effective for annual periods beginning after December 15, 2023.

Certain components of this guidance must be applied retrospectively, while others may be applied prospectively.

Early adoption is permitted.

The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

EQUITY AND EARNINGS PER SHARE

Common Stock Issued in Connection with the WarnerMedia Merger

Prior to the Merger, Discovery had three series of common stock authorized, issued, and outstanding - Series A common stock, Series B convertible common stock, and Series C common stock - and two series of preferred stock authorized, issued, and outstanding - Series A-1 convertible preferred stock and Series C-1 convertible preferred stock.

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

The Merger required the consent of Advance/Newhouse Programming Partnership under Discovery’s certificate of incorporation as the sole holder of the Series A-1 Preferred Stock.

In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A-1 Preferred Stock into common stock, it received an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock converted.

The impact of the issuance of such additional shares of common stock was $ 789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the Merger.

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.

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, which were received in June 2020 and 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 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.

The goodwill reflects the workforce and synergies expected from broader exposure to the lifestyle entertainment sector in the U.K.

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

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

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.

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).

Content rights 18

Intangible assets 34

Accrued liabilities ( 12 )

Total assets acquired and liabilities assumed in Lifestyle Business 178

Note receivable from BBC 130

Cash received 88

Net assets received in dissolution of UKTV joint venture $ 396

A summary of total assets derecognized in connection with the dissolution of the UKTV joint venture is presented in the table below (in millions).

Carrying value of UKTV equity method investment $ 278

Settlement of note receivable 118

Total assets derecognized in dissolution of UKTV joint venture $ 396

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.

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 replaced and rebranded the DIY Network in January 2022.

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

In exchange for providing services and exclusivity to the joint venture, the Gaines received a 25 % ownership interest in the joint venture, a put right after 6.5 years at fair value, potential for an additional 5 % incentive equity, and certain guaranteed payments.

Discovery consolidated the joint venture under the voting interest consolidation model.

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.

On April 8, 2022, the Company issued 1.7 billion shares of WBD common stock as consideration paid for the acquisition of WM.

(See Note 4).

Repurchase Programs

Under the Company’s stock repurchase program, management is authorized to purchase shares of WBD 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.

All common stock repurchases, including prepaid common stock repurchase contracts, have been made through open market transactions and have been recorded as treasury stock on the consolidated balance sheets.

During the years ended December 31, 2022 and 2021, the Company did not repurchase any of its common stock.

During the year ended December 31, 2020, the Company repurchased 41.6 million shares of its common stock for $ 965 million.

Over the life of the Company’s repurchase programs and prior to the Merger and conversion of Discovery common stock to WBD common stock, the Company had repurchased 3 million and 229 million shares of Discovery Series A and Discovery Series C common stock, respectively, for the aggregate purchase price of $ 171 million and $ 8.2 billion, respectively.

Earnings Per Share

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

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

Earnings per share amounts may not recalculate due to rounding.

Year Ended December 31,

2022 2021 2020

Net (loss) income $ ( 7,297 ) $ 1,197 $ 1,355

Allocation of undistributed income to Series A-1 convertible preferred stock ( 49 ) ( 110 ) ( 128 )

Net income attributable to noncontrolling interests ( 68 ) ( 138 ) ( 124 )

Net income attributable to redeemable noncontrolling interests ( 6 ) ( 53 ) ( 12 )

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

Net (loss) income allocated to Warner Bros.

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.

The Company applied the acquisition method of accounting to Golf Digest, and recorded net assets of $ 36 million, including net working capital liabilities of $ 12 million, intangible assets of $ 25 million and goodwill of $ 23 million.

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

Intangible assets consist of trademarks and trade names and licensing agreements and have a weighted average useful life of 9 years.

The goodwill reflects the workforce and synergies expected from broader exposure to the golf entertainment sector.

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

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

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.

Series A common stockholders for basic and diluted net (loss) income per share $ ( 7,420 ) $ 912 $ 1,091

Allocation of undistributed income to Series A-1 convertible preferred stockholders — 110 128

Net (loss) income allocated to Warner Bros.

Discovery, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Equity method investments:

nC+ Equity method investments

32 % $ 151 $ 164

Discovery Solar Ventures, LLC (a)

Equity method investments

All3Media Equity method investments

Other Equity method investments

Total equity method investments 541 507

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:

Group Nine Media (b)

Other noncurrent assets 25 % 191 276

Formula E (c)

Other noncurrent assets 28 % 83 65

Philo Other noncurrent assets 19 % 50 50

Other Other noncurrent assets 172 150

Total equity investments without readily determinable fair values 496 541

Total equity investments $ 1,157 $ 1,134

(a) Discovery Solar Ventures, LLC invests in limited liability companies that sponsor renewable energy projects related to solar energy.

These investments are considered VIEs of the Company and are accounted for under the equity method of accounting using the HLBV methodology for allocating earnings.

(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, 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.

Equity Method Investments

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

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.

This basis difference is included in the carrying value of nC+ and is amortized over time as a reduction of earnings from nC+.

Earnings from nC+ were reduced by the amortization of these intangibles of $ 10 million, $ 10 million, and $ 9 million during the years ended December 31, 2021, 2020 and 2019, respectively.

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

Series A common stockholders for diluted net (loss) income per share $ ( 7,420 ) $ 1,022 $ 1,219

Denominator — weighted average:

Common shares outstanding — basic 1,940 588 599

Impact of assumed preferred stock conversion — 71 71

Dilutive effect of share-based awards — 5 2

Common shares outstanding — diluted 1,940 664 672

Basic net (loss) income per share allocated to common stockholders $ ( 3.82 ) $ 1.55 $ 1.82

Diluted net (loss) income per share allocated to common stockholders $ ( 3.82 ) $ 1.54 $ 1.81

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.

As of December 31, 2021, the Company’s maximum exposure for all its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately $ 196 million.

The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs.

The aggregate carrying values of these VIE investments were $ 126 million as of December 31, 2021 and $ 123 million as of December 31, 2020.

The Company recognized its portion of VIE operating results with net losses of $ 35 million, $ 91 million, and $ 14 million for the years ended December 31, 2021, 2020 and 2019, respectively, in loss from equity investees, net on the consolidated statements of operations.

Investments with Readily Determinable Fair Value

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

The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1).

Gains and losses are recorded in other 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.

("Lionsgate"), an entertainment company.

Formerly, the Company hedged 50 % of the Lionsgate shares with an equity collar (the "Lionsgate Collar") and pledged those shares as collateral to the derivative counterparty with changes in fair value reflected as a component of other income (expense), net on the consolidated statements of operations.

(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 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.

As a result, the Company recognized a total gain of $ 126 million, including a realized gain and receivable of $ 101 million pertaining to the Company's sale of 4 million fuboTV Inc.

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.) 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).

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

Year Ended December 31,

2022 2021 2020

Net gains (losses) recognized during the period on equity securities $ 9 $ 129 $ ( 26 )

Net gains recognized on equity securities sold 15 101 —

Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date $ ( 6 ) $ 28 $ ( 26 )

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

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

Anti-dilutive share-based awards

ACQUISITIONS AND DISPOSITIONS

On April 8, 2022, the Company completed its Merger with the WarnerMedia Business of AT&T.

The Merger was executed through a Reverse Morris Trust type transaction, under which WM was distributed to AT&T’s shareholders via a pro-rata distribution, and immediately thereafter, combined with Discovery.

Discovery was deemed to be the accounting acquirer of WM.

In identifying Discovery as the accounting acquirer, the Company’s conclusion was based primarily upon the following facts:

(1) Discovery initiated the Merger, was the legal acquirer of Magallanes, Inc., (“Spinco”), and transferred equity consideration to Spinco stockholders, (2) AT&T received $ 40.5 billion of consideration (subject to working capital and other adjustments) as part of its disposition of the WarnerMedia Business, (3) the Chief Executive Officer of Discovery continued as Chief Executive Officer of the combined Company after the Merger and was primarily responsible for appointing the rest of the executive management team of the combined Company, and the Chief Financial Officer of Discovery continued as Chief Financial Officer of the combined Company, (4) no stockholder or group of stockholders held a controlling interest in WBD and a key Discovery stockholder was the largest minority interest in WBD after the completion of the Merger, and (5) AT&T had no input on the strategic direction and management of the combined Company after the completion of the Merger.

The above facts were deemed to outweigh the fact that the holders of shares of Spinco common stock that received shares of WBD common stock in the Merger in the aggregate owned a majority of WBD common stock on a fully diluted basis and associated voting rights after the Merger.

The Merger combined WM’s premium entertainment, sports, and news assets with Discovery’s leading non-fiction and international entertainment and sports businesses.

The Company expects this broad, worldwide portfolio of brands, coupled with its DTC potential and the attractiveness of the combined assets, to result in increased market penetration globally.

The Merger is also expected to create significant cost synergies for the Company.

Purchase Price

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

Fair value of WBD common stock issued to AT&T shareholders (1)

Estimated fair value of share-based compensation awards attributable to pre-combination services (2)

Settlement of preexisting relationships (3)

Purchase consideration $ 42,376

(1) The fair value of WBD common stock issued to AT&T shareholders represents approximately 1,732 million shares of WBD common stock multiplied by the closing share price for Discovery Series A common stock of $ 24.43 on Nasdaq on the Closing Date.

The number of shares of WBD common stock issued in the Merger was determined based on the number of fully diluted shares of Discovery, Inc.

common stock immediately prior to the closing of the Merger, multiplied by the quotient of 71 %/ 29 %.

(2) This amount represents the value of AT&T restricted stock unit awards that were not vested and were replaced by WBD restricted stock unit awards with similar terms and conditions as the original AT&T awards.

The conversion was based on the ratio of the volume-weighted average per share closing price of AT&T common stock on the ten trading days prior to the Closing Date and the volume-weighted average per share closing price of WBD common stock on the ten trading days following the Closing Date.

The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger.

See Note 15 for additional information.

(3) The amount represents the effective settlement of outstanding payables and receivables between the Company and WM.

No gain or loss was recognized upon settlement as amounts were determined to be reflective of fair market value.

Balances reflect rounding of dollar and share amounts to millions, which may result in differences for recalculated standalone amounts compared with the amounts presented above.

The working capital settlement was recorded in other current assets in the preliminary purchase price allocation.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants.

Assets and liabilities carried at fair value are classified in the following three categories:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Valuations derived from techniques in which one or more significant inputs are unobservable.

The table below presents assets and liabilities measured at fair value on a recurring basis (in millions).

December 31, 2021

Category Balance Sheet Location Level 1 Level 2 Level 3 Total

Cash equivalents:

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

Equity securities:

Money market funds Cash and cash equivalents 425 — — 425

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

Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1

Mutual funds Other noncurrent assets 215 — — 215

Company-owned life insurance contracts Other noncurrent assets — 32 — 32

Total $ 652 $ 459 $ — $ 1,111

Deferred compensation plan Accrued liabilities $ 21 $ — $ — $ 21

Deferred compensation plan Other noncurrent liabilities 238 — — 238

Total $ 259 $ — $ — $ 259

December 31, 2020

Category Balance Sheet Location Level 1 Level 2 Level 3 Total

Cash equivalents:

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

Company-owned life insurance contracts Prepaid expenses and other current assets — 4 — 4

Mutual funds Other noncurrent assets 200 — — 200

Company-owned life insurance contracts Other noncurrent assets — 48 — 48

Total $ 714 $ 459 $ — $ 1,173

Deferred compensation plan Accrued liabilities $ 28 $ — $ — $ 28

Deferred compensation plan Other noncurrent liabilities 220 — — 220

Total $ 248 $ — $ — $ 248

Purchase Price Allocation

The Company applied the acquisition method of accounting to WM, whereby the excess of the fair value of the purchase price paid over the fair value of identifiable net assets acquired and liabilities assumed was allocated to goodwill.

Goodwill reflects the assembled workforce of WM as well as revenue enhancements, cost savings and operating synergies that are expected to result from the Merger.

The goodwill recorded as part of the Merger has been provisionally allocated to the Studios, Networks and DTC reportable segments in the amounts of $ 9,047 million, $ 7,076 million and $ 5,618 million, respectively, and is not deductible for tax purposes.

The purchase price allocation is preliminary and subject to change.

The Company is still refining certain estimates related to income taxes and other limited areas.

The Company reflects measurement period adjustments in the period in which the adjustments occur, and the Company will finalize its accounting for the Merger within one year of the Closing Date.

The measurement period adjustments were primarily related to content, taxes, investments, capitalized interest and the true-up of accrued liabilities.

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, measurement period adjustments, and a reconciliation to total consideration transferred is presented in the table below (in millions).

April 8, 2022 Measurement Period

Adjustments Updated Preliminary

April 8, 2022

Cash $ 2,419 $ ( 10 ) $ 2,409

Accounts receivable 4,224 ( 62 ) 4,162

Other current assets 4,619 ( 148 ) 4,471

Film and television library 28,729 ( 343 ) 28,386

Property and equipment 4,260 13 4,273

Goodwill 21,513 228 21,741

Intangible assets 44,889 100 44,989

Other noncurrent assets 5,206 337 5,543

Current liabilities ( 10,544 ) ( 1 ) ( 10,545 )

Debt assumed ( 41,671 ) ( 9 ) ( 41,680 )

Deferred income taxes ( 13,264 ) 532 ( 12,732 )

Other noncurrent liabilities ( 8,004 ) ( 637 ) ( 8,641 )

Total consideration paid $ 42,376 $ — $ 42,376

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity securities include money market funds, time deposits, investments in mutual funds held in separate trusts, which are owned as part of the Company’s supplemental retirement plans, and company-owned life insurance contracts.

(See Note 16.) The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs.

The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees.

Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation.

(See Note 16.) Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

In addition to the financial instruments listed in the tables above, the Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes.

The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of December 31, 2021 and 2020.

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 and its investments with readily determinable fair value are discussed in Note 4.

CONTENT RIGHTS

The following table presents the components of content rights (in millions).

Produced content rights:

Completed $ 10,404 $ 8,576

In-production 696 731

Coproduced content rights:

Completed 1,003 888

In-production 91 78

Licensed content rights:

Acquired 1,213 1,312

Prepaid 251 556

Content rights, at cost 13,658 12,141

Accumulated amortization ( 9,581 ) ( 8,170 )

Total content rights, net 4,077 3,971

Current portion ( 245 ) ( 532 )

Noncurrent portion $ 3,832 $ 3,439

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

The fair values of the assets acquired and liabilities assumed were determined using the income, cost, and market approaches.

The fair value measurements were primarily based on significant inputs that are not observable in the market, such as discounted cash flow analyses, and thus represent a Level 3 measurement.

Significant inputs used in the discounted cash flow analyses and other areas of judgment include (i) historical and projected financial information, (ii) discount rates used to present value future cash flows, (iii) royalty rates, (iv) projected revenue attributable to affiliate contracts and related renewals, (v) synergies, including cost savings, (vi) tax rates, (vii) economic useful life of assets, and (viii) attrition rates, as relevant, that market participants would consider when estimating fair values.

The following are the fair value approaches followed:

Category Valuation Method

Trade names Relief from royalty method of the income approach

Film and TV content library

Multi-period excess earnings method of the income approach;

net book value

Affiliate relationships Multi-period excess earnings method of the income approach

Franchises Multi-period excess earnings method of the income approach

Other intangible assets Multi-period excess earnings method of the income approach

Licensed content Net book value method

Licensed sports rights Differential method, a form of the incremental income approach

Recovery rate for advertiser relationships With-or-without method, a form of the income approach, recovery rate of 4 years

In-place advertising networks With-or-without method, a form of the income approach

Subscriber relationships Replacement cost method of the cost approach

Real estate, property and equipment Cost approach or the income approach, which estimates the value of property based on the income it generates or the market approach, which determines values based on comparable assets purchased under similar conditions

Current and noncurrent debt assumed comprising existing debt of WM,

the Term Loan, and the Notes Quoted prices for identical or similar securities in active markets

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

Fair Value Weighted Average Useful Life in Years

Trade names $ 21,084 34

Affiliate, advertising and subscriber relationships 14,800 6

Franchises 7,900 35

Other intangible assets 1,205

Total intangible assets acquired $ 44,989

The Company incurred transaction-related costs of $ 406 million for the year ended December 31, 2022.

These costs were associated with legal and professional services and were recognized as operating expenses on the consolidated statement of operations.

Additionally, the expense related to the issuance of additional shares of common stock in connection with the conversion of Advance/Newhouse Programming’s Series A-1 Preferred Stock was $ 789 million and was recorded as a transaction expense in selling, general and administrative expense upon the closing of the Merger.

(See Note 3.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of the Merger, WM’s assets, liabilities, and operations were included in the Company's consolidated financial statements from the Closing Date.

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

Year Ended December 31, 2022

Advertising $ 2,849

Distribution 10,980

Content 10,001

Total revenues 24,550

Inter-segment eliminations ( 2,225 )

Net revenues $ 22,325

Net loss available to Warner Bros.

Discovery, Inc.

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information presents the combined results of the Company and WM as if the Merger had been completed on January 1, 2021.

The unaudited pro forma combined financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the Merger had occurred on January 1, 2021, nor is it indicative of future results.

The following table presents the Company’s pro forma combined revenues and net loss (in millions).

Year Ended December 31,

Revenues $ 43,095 $ 45,326

Net loss available to Warner Bros.

Discovery, Inc.

( 5,359 ) ( 3,750 )

Content amortization $ 3,496 $ 2,908 $ 2,786

Other production charges 464 334 412

Content impairments

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

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.

The unaudited pro forma combined financial information includes, where applicable, adjustments for (i) additional costs of revenues from the fair value step-up of film and television library, (ii) additional amortization expense related to acquired intangible assets, (iii) additional depreciation expense from the fair value of property and equipment, (iv) transaction costs and other one-time non-recurring costs, (v) additional interest expense for borrowings related to the Merger and amortization associated with fair value adjustments of debt assumed, (vi) changes to align accounting policies, (vii) elimination of intercompany activity, and (viii) associated tax-related impacts of adjustments.

These pro forma adjustments are based on available information as of the date hereof and upon assumptions that the Company believes are reasonable to reflect the impact of the Merger with WM on the Company's historical financial information on a supplemental pro forma basis.

Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business.

In October 2022, the Company sold its 49 % stake in Golden Maple Limited (known as Tencent Video VIP) for proceeds of $ 143 million and recorded a gain of $ 55 million, and in April 2022 completed the sale of its minority interest in Discovery Education for proceeds of $ 138 million and recorded a gain of $ 133 million.

Also, in September 2022, the Company sold 75 % of its interest in The CW Network to Nexstar Media Inc.

(“Nexstar”), in exchange for Nexstar agreeing to fund a majority of The CW Network’s expenses and the retention of the Company’s share of certain receivables that existed prior to the transaction.

There was no cash consideration exchanged in the transaction.

The Company recorded an immaterial gain and retained a 12.5 % ownership interest in The CW Network, which is accounted for as an equity method investment.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value and changes in the carrying value of goodwill attributable to each business unit were as follows (in millions).

Networks International

Networks Total

Networks Studios Networks DTC Total

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

Acquisitions (Note 3) — 25 25

Impairment of goodwill — ( 121 ) ( 121 )

Dispositions (See Note 4)

— ( 3 ) — — — ( 3 )

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

December 31, 2021 $ 10,813 $ 2,099 $ — $ — $ — $ 12,912

Dispositions (Note 3) — ( 3 ) ( 3 )

Segment recast (See Note 23)

( 10,813 ) ( 2,059 ) — 10,555 2,317 —

Acquisitions (See Note 4)

— — 9,047 7,081 5,618 21,746

Foreign currency translation and other adjustments — ( 40 ) ( 84 ) ( 79 ) ( 17 ) ( 220 )

December 31, 2022 $ — $ — $ 8,963 $ 17,557 $ 7,918 $ 34,438

The carrying amount of goodwill at the U.S.

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 as of December 31, 2021 and 2020.

The carrying amount of goodwill at the Networks segment included accumulated impairments of $ 1.6 billion as of December 31, 2022 and 2021.

The Studios and DTC segments did no t include any accumulated impairments as of December 31, 2022 and 2021.

Intangible Assets

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

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

Period (Years) December 31, 2022 December 31, 2021

2 unchanged sentences

Amortization Net

Intangible assets subject to amortization:

Trademarks 10 $ 1,716 $ ( 858 ) $ 858 $ 1,751 $ ( 715 ) $ 1,036

Customer relationships 10 9,433 ( 4,303 ) 5,130 9,551 ( 3,338 ) 6,213

Trademarks and trade names 32 $ 22,876 $ ( 1,494 ) $ 21,382 $ 1,716 $ ( 858 ) $ 858

Affiliate, advertising and subscriber relationships 8 24,136 ( 9,458 ) 14,678 9,433 ( 4,303 ) 5,130

Franchises 35 7,900 ( 164 ) 7,736 — — —

Character rights 14 995 ( 53 ) 942 — — —

Other 6 568 ( 324 ) 244 395 ( 227 ) 168

1 unchanged sentence

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.

accordingly, we changed the amortization method for these assets from the straight-line method to the sum of the months’ 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 in 2021.

Amortization expense related to finite-lived intangible assets was $ 6.2 billion, $ 1.3 billion and $ 1.1 billion for the years ended December 31, 2022, 2021 and 2020, respectively.

7 unchanged sentences

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.

Significant judgments and assumptions for all quantitative goodwill tests performed include discount rates, control premiums, terminal growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows, including revenue growth rates and profit margins.

2022 Impairment Analysis

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.

As of October 1, 2022, the Company performed a quantitative goodwill impairment assessment for all reporting units consistent with the Company’s accounting policy.

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

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

2021 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 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.

The impairment charge 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.

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

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

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

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

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

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.

For the 2021 annual impairment test, the Company performed a 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, therefore, no quantitative goodwill impairment analysis was performed.

2020 Impairment Analysis

For the 2020 annual impairment test, 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 Europe and Asia-Pacific reporting units.

For its Europe and Asia-Pacific reporting units, the Company performed a quantitative goodwill impairment analysis for each using a DCF valuation model.

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

The quantitative goodwill impairment analysis for 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.

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

The quantitative impairment analysis for the Company’s Asia-Pacific reporting unit indicated that its estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the $ 121 million goodwill balance, of which $ 36 million was written off in the second quarter of 2020.

The impairment charge was not deductible for tax purposes.

2019 Impairment Analysis

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.

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

RESTRUCTURING

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

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

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

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

Year Ended December 31,

2022 2021 2020

Studios $ 1,050 $ — $ 6

Networks 1,003 30 84

DTC 1,551 2 1

Corporate 195 — —

Inter-segment eliminations ( 42 ) — —

Total restructuring $ 3,757 $ 32 $ 91

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.

The Europe reporting unit, which had headroom of 19 %, was the only reporting unit with fair value in excess of carrying value of less than 20 %.

The fair values of the reporting units were determined using DCF and market-based valuation models.

Cash flows were determined based on Company estimates of future operating results and discounted using an internal rate of return based on an assessment of the risk inherent in future cash flows of the respective reporting unit.

The market-based valuation models utilized multiples of earnings before interest, taxes, depreciation and amortization.

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

During the year ended December 31, 2022, restructuring charges primarily included charges related to strategic content programming initiatives, inclusive of content impairments, content development costs and write-offs, content contract terminations, and other content related charges of $ 3,133 million .

In addition, there were restructuring charges related to organization restructuring of $ 607 million and facility consolidation activities and other contract terminations of $ 17 million.

During the years ended December 31, 2021 and December 31, 2020, restructuring charges primarily included charges related to employee relocation and termination costs.

During 2020, the Company implemented various cost-saving initiatives as a result of the COVID-19 pandemic.

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

Networks International Networks Studios Networks DTC Corporate and Inter-Segment Eliminations Total

December 31, 2020 $ 23 $ 20 $ — $ — $ — $ 15 $ 58

Employee termination accruals, net 4 26 — — — 2 32

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

December 31, 2021 4 13 — — — 2 19

Segment recast (See Note 23 )

( 4 ) ( 13 ) — 15 — 2 —

Acquisitions (See Note 4 )

— — 40 — 14 55 109

Contract termination accruals, net — — 36 168 121 — 325

Employee termination accruals, net — — 114 213 87 184 598

Cash paid — — ( 34 ) ( 35 ) ( 34 ) ( 84 ) ( 187 )

December 31, 2022 $ — $ — $ 156 $ 361 $ 188 $ 159 $ 864

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated Revenue

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

Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.

Year Ended December 31, 2022

Studios Networks DTC Corporate and Inter-segment Eliminations Total

Advertising $ 15 $ 8,224 $ 371 $ ( 86 ) $ 8,524

Distribution 12 9,759 6,371 — 16,142

Content 9,156 1,120 522 ( 2,438 ) 8,360

Other 548 245 10 ( 12 ) 791

Totals $ 9,731 $ 19,348 $ 7,274 $ ( 2,536 ) $ 33,817

Year Ended December 31, 2021

Studios Networks DTC Corporate and Inter-segment Eliminations Total

Advertising $ — $ 6,063 $ 131 $ — $ 6,194

Distribution — 4,486 716 — 5,202

Content 20 706 11 — 737

Other — 56 2 — 58

Totals $ 20 $ 11,311 $ 860 $ — $ 12,191

Year Ended December 31, 2020

Studios Networks DTC Corporate and Inter-segment Eliminations Total

Advertising $ — $ 5,547 $ 25 $ — $ 5,572

Distribution — 4,496 190 — 4,686

Content 12 340 3 — 355

Other — 56 2 — 58

Totals $ 12 $ 10,439 $ 220 $ — $ 10,671

Accounts Receivable and Credit Losses

The allowance for credit losses was not material at December 31, 2022 and 2021.

Contract Assets and Liabilities

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

Category Balance Sheet Location December 31, 2022 December 31, 2021

Contract liabilities Deferred revenues $ 1,694 $ 478

Contract liabilities Other noncurrent liabilities 361 95

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The change in deferred revenue for the year ended December 31, 2022 primarily reflects an increase of $ 1,476 million related to the Merger and cash payments received or contracted billings recorded for which the performance obligations were not satisfied prior to the end of the period, partially offset by $ 411 million of revenues recognized that were included in the deferred revenue balance at December 31, 2021.

Revenue recognized for the year ended December 31, 2021 related to the deferred revenue balance at December 31, 2020 was $ 456 million.

Contract assets were not material as of December 31, 2022 and 2021.

Transaction Price Allocated to Remaining Performance Obligations

Most of the Company’s distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which revenues are recorded as a function of royalties earned to date instead of estimating incremental royalty contract revenue.

Accordingly, revenue for these arrangements is recognized based on the royalties earned to date.

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

The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees by calculating one twelfth of annual license fees specified in its distribution contracts, or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract.

The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $ 4.8 billion as of December 31, 2022 and is expected to be recognized through 2031.

The Company’s content licensing contracts and sports sublicensing deals are licenses of functional intellectual property.

The transaction price allocated to remaining performance obligations on these contracts was $ 4.6 billion as of December 31, 2022 and is expected to be recognized through 2025.

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

The transaction price allocated to remaining performance obligations on these contracts was $ 2.3 billion as of December 31, 2022 and is expected to be recognized through 2043.

The Company’s advertising contracts are principally generated from the sale of advertising campaigns comprised of multiple commercial units.

In contracts with guaranteed impressions, we have identified the overall advertising campaign as the performance obligation to be satisfied over time, and impressions delivered against the satisfaction of our guarantee as the measure of progress.

Certain of these arrangements extend beyond one year.

The transaction price allocated to remaining performance obligations on these long-term contracts was $ 646 million as of December 31, 2022 and is expected to be recognized through 2025.

The value of unsatisfied performance obligations disclosed above does not include:

(i) contracts involving variable consideration for which revenues are recognized in accordance with the sales or usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as most advertising contracts;

however for content licensing revenues, including revenues associated with the licensing of theatrical and television product for television and streaming services, the Company has included all contracts regardless of duration.

SALES OF RECEIVABLES

Revolving Receivables Program

Our bankruptcy-remote consolidated subsidiary held $ 3,468 million of pledged receivables as of December 31, 2022 in connection with the Company’s revolving receivables program.

For the year ended December 31, 2022, the Company recognized $ 256 million in selling, general and administrative expense from the revolving receivables program in the consolidated statements of operations.

The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $ 5,366 million as of December 31, 2022.

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

Year Ended December 31, 2022

Gross receivables sold/cash proceeds received $ 9,857

Collections reinvested under revolving agreement ( 10,491 )

Net cash proceeds received $ ( 634 )

Net receivables sold $ 9,797

Obligations recorded $ 377

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2022

Gross receivables pledged as collateral $ 3,468

Restricted cash pledged as collateral $ 150

Balance sheet classification:

Receivables, net $ 3,015

Prepaid expenses and other current assets $ 150

Other noncurrent assets $ 453

Accounts Receivable Factoring

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

The impact to the consolidated statements of operations was immaterial for the year ended December 31, 2022.

CONTENT RIGHTS

For purposes of amortization and impairment, capitalized content costs are comprised of produced content grouped based on predominant monetization strategy:

individually or as a group.

Programming rights include content licensed from third parties, such as film, television, and sports rights.

The table below presents the components of content rights (in millions).

December 31, 2022

Predominantly Monetized Individually

Predominantly Monetized as a Group

Theatrical film production costs:

Released, less amortization $ 3,544 $ — $ 3,544

Completed and not released 507 — 507

In production 1,700 — 1,700

In development 95 — 95

Television production costs:

Released, less amortization 2,200 6,513 8,713

Completed and not released 939 310 1,249

In production 427 4,424 4,851

In development 30 15 45

Total theatrical film and television production costs $ 9,442 $ 11,262 $ 20,704

Programming rights, less amortization 5,843

Game development costs, less amortization 650

Total film and television content rights and games 27,197

Current content rights and prepaid license fees, net ( 545 )

Total noncurrent film and television content rights and games $ 26,652

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Predominantly Monetized Individually

Predominantly Monetized as a Group

Television production costs:

Released, less amortization $ 9 $ 2,495 $ 2,504

In production — 770 770

In development — 17 17

Total television production costs $ 9 $ 3,282 $ 3,291

Programming rights, less amortization

Total film and television content rights (a)

Current content rights and prepaid license fees, net ( 245 )

Total noncurrent film and television content rights (a)

(a) As of December 31, 2021, the Company had no theatrical film production or game development costs.

Content amortization consisted of the following (in millions).

Year Ended December 31,

2022 2021 2020

Predominately monetized individually $ 5,175 $ 541 $ 55

Predominately monetized as a group 8,935 2,955 2,853

Total content amortization $ 14,110 $ 3,496 $ 2,908

Content expense includes amortization, impairments, and development expense and is generally a component of costs of revenues on the consolidated statements of operations.

For the year ended December 31, 2022, total content impairments were $ 2,807 million, of which $ 2,756 million was due to the strategic realignment of content following the Merger and are reflected in restructuring.

(See Note 6.) Content impairments of $ 5 million and $ 48 million for the years ending December 31, 2021 and December 31, 2020, respectively, were recorded as cost of revenues in the consolidated statements of operations.

No content impairments were recorded as a component of restructuring for the years ended December 31, 2021 and 2020.

Additionally, there were $ 377 million of content development costs/write-offs, content contract terminations, and other content related charges for the year ended December 31, 2022 in connection with the strategic realignment of content following the Merger that are reflected in restructuring.

(See Note 6.)

The table below presents the expected future amortization expense of the Company’s investment in film and television content and programming rights as of December 31, 2022 (in millions).

Year Ending December 31,

2023 2024 2025

Released investment in films and television content:

Monetized individually $ 2,736 $ 1,700 $ 966

Monetized as a group 2,937 1,416 776

Programming rights 1,586 1,216 866

Completed and not released investment in films and television content:

Monetized individually $ 1,235

Monetized as a group 58

At December 31, 2022, acquired film and television libraries are being amortized using straight-line or other accelerated amortization methods through 2033.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022 December 31, 2021

Equity method investments:

The Chernin Group (TCG) 2.0-A, LP Other noncurrent assets 44 % $ 313 $ —

nC+ Other noncurrent assets 32 % 135 151

Other Other noncurrent assets 614 390

Total equity method investments 1,062 541

Total investments with readily determinable fair values Other noncurrent assets (a)

Investments without readily determinable fair values Other noncurrent assets (a)

Total investments $ 1,588 $ 1,157

(a) Investments with readily determinable values include $ 40 million as of December 31, 2021 that were included in prepaid expense and other current assets.

Investments without readily determinable fair values include $ 10 million as of December 31, 2022 that were included in prepaid expenses and other current assets.

Equity Method Investments

In connection with the Merger, the Company acquired $ 807 million of equity method investments.

Impairment losses are recorded in loss from equity investees, net on the consolidated statements of operations.

Impairment losses were not material for the years ended December 31, 2022, 2021 and 2020.

During the year ended December 31, 2022, the Company entered into an agreement with British Telecommunications Plc (“BT”) to form a 50:50 joint venture to create a new premium sports offering for the United Kingdom and Ireland.

The Company has determined the joint venture is a VIE and accounts for its investment in the joint venture as an equity method investment.

Additionally, the Company has a call option to obtain the remaining 50 % equity interest in September 2024 and September 2026, at the then fair market value plus the expected earnings that BT would have received in the two years following the call option.

As of December 31, 2022, the carrying value of the joint venture was $ 96 million.

As of December 31, 2022, the Company’s maximum exposure for all its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately $ 744 million.

The Company’s maximum estimated exposure excludes the non-contractual future funding of VIEs.

The aggregate carrying values of these VIE investments were $ 720 million and $ 126 million as of December 31, 2022 and 2021, respectively.

The Company’s portion of VIE operating results for the years ended December 31, 2022, 2021 and 2020 was not material and is included in loss from equity investees, net, on the consolidated statements of operations.

Investments with Readily Determinable Fair Value

The gains and losses related to the Company's investments with readily determinable fair values for the years ended December 31, 2022, 2021 and 2020 are summarized in the table below (in millions).

Year Ended December 31,

2022 2021 2020

Net (losses) gains recognized during the period on equity securities $ ( 78 ) $ 9 $ 129

Net gains recognized on equity securities sold — 15 101

Unrealized (losses) gains recognized during reporting period on equity securities still held at the reporting date $ ( 78 ) $ ( 6 ) $ 28

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Investments Without Readily Determinable Fair Values Assessed Under the Measurement Alternative

During 2022, the Company concluded that its other equity method investments without readily determinable fair values had decreased $ 142 million in fair value as a result of observable price changes in orderly transactions for the identical or similar investment of the same issuer.

The decrease in fair value as a result of observable price change is recorded in other income (expense), net on the consolidated statements of operations.

(See Note 18).

As of December 31, 2022, the Company had recorded cumulative impairments of $ 229 million for its equity method investments without readily determinable fair values.

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

3.300 % Senior Notes, semi-annual interest, due May 2022

3.500 % Senior Notes, semi-annual interest, due June 2022

2.950 % Senior Notes, semi-annual interest, due March 2023

3.250 % Senior Notes, semi-annual interest, due April 2023

3.800 % Senior Notes, semi-annual interest, due March 2024

2.500 % Senior Notes, sterling denominated, annual interest, due September 2024

3.900 % Senior Notes, semi-annual interest, due November 2024

3.450 % Senior Notes, semi-annual interest, due March 2025

3.950 % Senior Notes, semi-annual interest, due June 2025

4.900 % Senior Notes, semi-annual interest, due March 2026

1.900 % Senior Notes, euro denominated, annual interest, due March 2027

3.950 % Senior Notes, semi-annual interest, due March 2028

4.125 % Senior Notes, semi-annual interest, due May 2029

3.625 % Senior Notes, semi-annual interest, due May 2030

5.000 % Senior Notes, semi-annual interest, due September 2037

6.350 % Senior Notes, semi-annual interest, due June 2040

4.950 % Senior Notes, semi-annual interest, due May 2042

4.875 % Senior Notes, semi-annual interest, due April 2043

5.200 % Senior Notes, semi-annual interest, due September 2047

5.300 % Senior Notes, semi-annual interest, due May 2049

4.650 % Senior Notes, semi-annual interest, due May 2050

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

Weighted-Average

Interest Rate as of

December 31, 2022 2022 2021

Term loans with maturities of 3 years or less 5.42 % $ 4,000 $ —

Floating rate senior notes with maturities of 5 years or less 5.08 % 500 —

Senior notes with maturities of 5 years or less 3.65 % 12,759 4,314

Senior notes with maturities between 5 and 10 years 4.25 % 10,373 4,128

Senior notes with maturities greater than 10 years 5.11 % 21,644 6,745

Total debt 49,276 15,187

Unamortized discount, premium and debt issuance costs, net (a)

( 428 ) ( 444 )

Debt, net of unamortized discount, premium and debt issuance costs 14,759 15,404

Unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting, net ( 277 ) ( 428 )

Debt, net of unamortized discount, premium, debt issuance costs, and fair value adjustments for acquisition accounting 48,999 14,759

Current portion of debt ( 365 ) ( 339 )

Noncurrent portion of debt $ 48,634 $ 14,420

(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").

During the year ended December 31, 2022, in connection with the Merger, the Company assumed $ 41.5 billion of senior notes (at par value) and term loans.

During the year ended December 31, 2022, the Company repaid $ 6.0 billion of aggregate principal amount outstanding of its term loans prior to the due dates of October 2023 and April 2025 and repaid in full at maturity $ 327 million of aggregate principal amount outstanding of its 2.375 % Euro Denominated Senior Notes due March 2022.

In addition, the Company redeemed in full and prior to maturity all $ 192 million of aggregate principal amount outstanding of its 3.250 % senior notes due in 2023 and all $ 796 million of aggregate principal amount outstanding of its 2.950 % senior notes due 2023 (collectively the “2023 Notes”).

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

For the year ended December 31, 2021, the Company redeemed in full and prior to maturity all $ 168 million of aggregate principal amount outstanding of 3.300 % Senior Notes due May 2022 and $ 62 million of aggregate principal amount outstanding of its 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.

In addition, the Company redeemed in full all $ 335 million of aggregate principal amount outstanding of its 4.375 % Senior Notes due June 2021 (the “2021 Notes”).

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

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 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”).

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

As of December 31, 2022, all senior notes are fully and unconditionally guaranteed by the Company, Scripps Networks Interactive, Inc.

(“Scripps Networks”), DCL (to the extent it is not the primary obligor on such senior notes), and WarnerMedia Holdings, Inc.

(to the extent it is not the primary obligor on such senior notes), except for $ 1.5 billion of senior notes of the legacy WarnerMedia Business assumed by the Company in connection with the Merger and $ 23 million of un-exchanged senior notes issued by Scripps Networks.

Additionally, the term loans of WarnerMedia Holdings, Inc., made under the $ 10.0 billion term loan credit agreement (the “Term Loan Credit Agreement”), are fully and unconditionally guaranteed by the Company, Scripps Networks, and DCL.

DISCOVERY, INC.

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 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.

The proceeds received by DCL were net of a $ 1 million issuance discount and $ 20 million of debt issuance costs.

DCL used the proceeds from the offering to repurchase $ 1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes in a cash tender offer.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revolving Credit Facility and Commercial Paper Programs

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.

In June 2021, DCL entered into a multicurrency revolving credit agreement (the “Revolving Credit Agreement”), replacing the existing $ 2.5 billion credit agreement, dated February 4, 2016, as amended, among DCL, the Company, certain lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.

DCL has the capacity to borrow up to $ 6.0 billion under the Revolving Credit Agreement (the “Credit Facility”).

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

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

Obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by the Company, Scripps Networks, and WarnerMedia Holdings, Inc.

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

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

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

Under the commercial paper program, the Company may issue up to $ 1.5 billion, including up to $ 500 million of euro-denominated borrowings.

Borrowing capacity under the Credit Facility is reduced by any outstanding borrowings under the commercial paper program.

Borrowing capacity under the Credit Facility is effectively reduced by any outstanding borrowings under the commercial paper program.

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

All obligations of DCL and the other borrowers under the Credit Facility are unsecured and are fully and unconditionally guaranteed by Discovery and Scripps.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Revolving Credit Agreement and Term Loan Credit Agreement (together, the “Credit Agreements”) include financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 5.75 to 1.00 following the closing of the Merger, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively.

As of December 31, 2022, DCL and WarnerMedia Holdings, Inc.

were in compliance with all covenants and there were no events of default under the Credit Agreements.

Long-term Debt Repayment Schedule

The following table presents a summary of scheduled and estimated debt payments, excluding the revolving credit facility and commercial paper borrowings, for the next five years based on the amount of the Company's debt outstanding as of December 31, 2021 (in millions).

The following table presents a summary of scheduled debt and estimated interest payments, excluding the revolving credit facility and commercial paper borrowings, for the next five years based on the amount of the Company's debt outstanding as of December 31, 2022 (in millions).

2023 2024 2025 2026 2027 Thereafter

Long-term debt repayments $ 363 $ 4,267 $ 7,147 $ 789 $ 4,693 $ 32,017

Interest payments $ 2,267 $ 2,183 $ 1,870 $ 1,730 $ 1,634 $ 25,853

The Company has operating and finance leases for transponders, office space, studio facilities, and other equipment.

The Company’s leases were reflected in the Company’s consolidated balance sheets as follows (in millions).

Operating Leases Location on Balance Sheet

Operating lease right-of-use assets Other noncurrent assets $ 3,189 $ 535

Operating lease liabilities (current) Accrued liabilities $ 345 $ 62

Operating lease liabilities (noncurrent) Other noncurrent liabilities 2,990 567

Total operating lease liabilities $ 3,335 $ 629

Finance Leases

Finance lease right-of-use assets Property and equipment, net $ 244 $ 249

Finance lease liabilities (current) Accrued liabilities $ 82 $ 58

Finance lease liabilities (noncurrent) Other noncurrent liabilities 186 197

Total finance lease liabilities $ 268 $ 255

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Weighted average remaining lease term (in years):

Operating leases 12 12

Finance leases 5 5

Weighted average discount rate

Operating leases 4.13 % 2.94 %

Finance leases 3.23 % 3.57 %

The Company’s leases have remaining lease terms of up to 30 years, some of which include options to extend the leases for up to 10 years.

Most leases are not cancellable prior to their expiration.

In conjunction with the Merger, the Company acquired $ 2,493 million and $ 47 million of operating and finance lease right-of-use assets, respectively.

The components of lease cost were as follows (in millions):

6 unchanged sentences

Variable lease cost $ 66 $ 7

Total lease cost $ 524 $ 178

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

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Operating Leases Location on Balance Sheet

Operating lease right-of-use assets Other noncurrent assets $ 535 $ 575

Operating lease liabilities (current) Accrued liabilities $ 62 $ 71

Operating lease liabilities (noncurrent) Other noncurrent liabilities 567 592

Total operating lease liabilities $ 629 $ 663

Finance Leases

Finance lease right-of-use assets Property and equipment, net $ 249 $ 220

Finance lease liabilities (current) Accrued liabilities $ 58 $ 57

Finance lease liabilities (noncurrent) Other noncurrent liabilities 197 184

Total finance lease liabilities $ 255 $ 241

Weighted average remaining lease term (in years):

Operating leases 12 12

Finance leases 5 5

Weighted average discount rate

Operating leases 2.94 % 3.37 %

Finance leases 3.57 % 3.80 %

Maturities of lease liabilities as of December 31, 2022 were as follows (in millions):

5 unchanged sentences

Total $ 3,335 $ 268

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.

As of December 31, 2022, the Company has additional leases that have not yet commenced with total minimum lease payments of approximately $ 474 million, primarily related to facility leases.

The remaining leases will commence in fiscal year 2023, have lease terms of 3 to 17 years, and include options to extend the terms for up to 10 additional years.

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 employs a variety of derivative financial instruments to manage its exposure to market risks primarily 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, 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.

These contracts will mitigate interest rate risk associated with the forecasted issuance of future fixed-rate public debt.

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, net over the respective terms of the newly issued notes.

The Company is exposed to foreign currency risk related to revenues, production rebates and production expenses.

As such, we have entered into foreign exchange forward contracts designated as cash flow hedges to mitigate this risk.

These cash flow hedges are carried at fair market value on the Company’s consolidated balance sheets.

Hedge effectiveness is assessed using the spot method, with fair market value changes recorded in other comprehensive (loss) income until the hedged item affects earnings.

Excluded components, including forward points, are included in current earnings.

The Company is exposed to foreign currency risk associated with its British Pound Sterling denominated debt.

During 2022, the Company executed a fixed-to-fixed cross-currency swap to mitigate this risk.

The Company is exposed to interest rate risk associated with future issuances of debt and has unwound the forward starting swap derivatives designated as hedging instruments to mitigate this risk in 2022.

The realized gain from these derivatives will remain in other comprehensive (loss) income until the debt is issued during the hedging window, which extends through 2025, and interest payments are made.

Net Investment Hedges

The Company is exposed to foreign currency risk associated with the net assets of non-USD functional entities and entered into fixed-to-fixed cross currency swaps to mitigate this risk.

The Company is also exposed to foreign currency risk stemming from foreign denominated debt.

In connection with the Merger, the Company acquired Euro denominated debt that was designated as the hedging instrument in a net investment hedge.

Additionally, the Company de-designated its British Pound Sterling denominated debt that was previously designated as a net investment hedge.

Subsequently, the Company executed the aforementioned fixed-to-fixed cross currency swap to mitigate the foreign currency exchange risk associated with this debt issuance.

No Hedging Designation

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.

Prior to the Merger, the Company was exposed to interest rate risk associated with the expected issuance of debt related to the Merger.

Prior to the Merger, the Company unwound all interest rate derivatives entered into during 2021 and entered into new treasury lock derivatives, which were subsequently unwound to mitigate this risk.

The Company does not have any interest rate derivatives as of December 31, 2022.

As part of the Merger, the Company acquired deferred compensation plans that have risk related to the fair market value gains and losses on these investments and entered into total return swaps to mitigate this risk.

The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Once production spend is completed, the aforementioned forward contracts designated as cash flow hedges for production rebates and production expenses are de-designated.

After de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.

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

11 unchanged sentences

$ 1,382 $ 49 $ 35 $ 42 $ 25 $ 777 $ 14 $ — $ 2 $ —

Cross-currency swaps 482 3 58 — — — — — — —

Interest rate swaps

3 unchanged sentences

1,778 20 12 — 73 3,512 54 61 20 76

Foreign exchange — — — — — 44 2 — — —

No hedging designation:

Foreign exchange 976 5 1 3 96 1,020 — — 34 66

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

Cross-currency swaps

139 3 — — 3 139 3 — — 5

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

Total return swaps 291 — — 13 — — — — — —

$ 80 $ 106 $ 58 $ 197 $ 241 $ 89 $ 76 $ 152

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

(a) Excludes € 164 million of euro-denominated notes ($ 174 million equivalent at December 31, 2022) designated as net investment hedges and £ 400 million of sterling notes designated as a net investment hedges at December 31, 2021 (dedesignated in 2022).

(See Note 11.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year Ended December 31,

8 unchanged sentences

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

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.

Foreign exchange - other income (expense), net — 30 —

If current fair values of designated cash flow hedges as of December 31, 2022 remained static over the next twelve months, the amount the Company would reclassify from accumulated other comprehensive loss into income in the next twelve months would not be material for the current fiscal year.

The maximum length of time the Company is hedging exposure to the variability in future cash flows is 33 years.

The following table presents the pretax impact of derivatives designated as net investment hedges on other comprehensive income (loss) (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the pretax impact of derivatives designated as net investment hedges on other comprehensive (loss) income (in millions).

Other than amounts excluded from effectiveness testing, there were no other gains (losses) reclassified from accumulated other comprehensive loss to income during the years ended December 31, 2022, 2021 and 2020.

4 unchanged sentences

Foreign exchange contracts — 5 ( 2 ) Other income (expense), net — — —

Euro denominated notes (foreign denominated debt) 4 — — N/A — — —

Sterling notes (foreign denominated debt) 112 6 ( 20 ) N/A — — —

Total $ 162 $ 125 $ ( 83 ) $ 33 $ 42 $ 43

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

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

Year Ended December 31,

3 unchanged sentences

Foreign exchange derivatives ( 37 ) ( 39 ) 32

Equity — 7 13

Total in other income (expense), net

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REDEEMABLE NONCONTROLLING INTERESTS

Redeemable noncontrolling interests are presented outside of permanent equity on the Company's consolidated balance sheet when the put right is outside of the Company's control.

Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values remeasured at the period end foreign exchange rates.

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).

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.

The adjustment of carrying value to the redemption value that reflects a redemption in excess of fair value is included as an adjustment to income from continuing operations available to Discovery, Inc.

stockholders in the calculation of earnings per share.

(See Note 19.) The table below summarizes the Company's redeemable noncontrolling interests balances (in millions).

Discovery Family $ 213 $ 206

MotorTrend Group LLC ("MTG") 114 112

Total $ 363 $ 383

The table below presents the reconciliation of changes in redeemable noncontrolling interests (in millions).

$ 475 $ ( 33 ) $ 29

Beginning balance $ 383 $ 442 $ 415

Initial fair value of redeemable noncontrolling interests of acquired businesses

Cash distributions to redeemable noncontrolling interests ( 11 ) ( 31 ) ( 39 )

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

Redemption of redeemable noncontrolling interest ( 26 ) — —

Comprehensive income adjustments:

Net income attributable to redeemable noncontrolling interests

Currency translation on redemption values ( 5 ) 3 1

Retained earnings adjustments:

Adjustments of carrying value to redemption value (redemption value does not equal fair value) ( 16 ) — 14

Adjustments of carrying value to redemption value (redemption value equals fair value) ( 15 ) 7 4

OWN interest adjustment — — 6

Ending balance $ 363 $ 383 $ 442

The significant arrangements for redeemable noncontrolling interests are described below:

Discovery Family

("Hasbro") has the right to put the entirety of its remaining 40 % interest in Discovery Family to Discovery at any time during the one-year period beginning December 31, 2021, or in the event a Discovery performance obligation related to Discovery Family is not met.

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 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

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.

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.

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.

The Company has three series of common stock authorized, issued and outstanding as of December 31, 2021:

Series A common stock, Series B common stock and Series C common stock.

Holders of these three series of common stock have equal rights, powers and privileges, except as otherwise noted.

Holders of Series A common stock are entitled to one vote per share and holders of Series B common stock are entitled to ten votes per share on all matters voted on by stockholders, except for directors to be elected by holders of the Company’s Series A-1 convertible preferred stock.

Holders of Series C common stock are not entitled to any voting rights, except as required by Delaware law.

Generally, holders of Series A common stock and Series B common stock and Series A-1 convertible preferred stock vote as one class, except for certain preferential rights afforded to holders of Series A-1 convertible preferred stock.

Holders of Series A common stock, Series B common stock and Series C common stock will participate equally in cash dividends if declared by the Board of Directors, subject to preferential rights of outstanding preferred stock.

Each share of Series B common stock is convertible, at the option of the holder, into one share of Series A common stock.

Series A and Series C common stock are not convertible.

Generally, distributions made in shares of Series A common stock, Series B common stock or Series C common stock will be made proportionally to all common stockholders.

In the event of a reclassification, subdivision or combination of any series of common stock, the shares of the other series of common stock will be equally reclassified, subdivided or combined.

In the event of a liquidation, dissolution, or winding up of Discovery, after payment of Discovery’s debts and liabilities and subject to preferential rights of outstanding preferred stock, holders of Series A common stock, Series B common stock and Series C common stock and holders of Series A-1 and Series C-1 convertible preferred stock will share equally in any assets available for distribution to holders of common stock.

Convertible Preferred Stock

The Company has two series of preferred stock authorized, issued and outstanding as of December 31, 2021:

Series A-1 convertible preferred stock and Series C-1 convertible preferred stock.

Series A-1 convertible preferred stock is convertible into nine 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.

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.

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

Holders of Series A-1 and Series C-1 convertible preferred stock have equal rights, powers and privileges, except as otherwise noted.

Except for the election of common stock directors, the holders of Series A-1 convertible preferred stock are entitled to vote on matters to which holders of Series A and Series B common stock are entitled to vote, and holders of Series C-1 convertible preferred stock are entitled to vote on matters to which holders of Series C common stock, which is generally non-voting, are entitled to vote pursuant to Delaware law.

Series A-1 convertible preferred stockholders vote on an as converted to common stock basis together with the Series A and Series B common stockholders as a single class on all matters except the election of directors.

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.

Holders of the Company’s common stock are not entitled to vote in the election of such directors.

Advance/Newhouse retains these rights so long as it or its permitted transferees own or have the right to vote such shares that equal at least 80 % of the shares of Series A convertible preferred stock issued to Advance/Newhouse in connection with the formation of Discovery, as converted to Series A-1 convertible preferred stock, plus any Series A-1 convertible preferred stock released from escrow, as may be adjusted for certain capital transactions.

Holders of Series A-1 convertible preferred stock are subject to a right of first offer in favor of Discovery should Advance/Newhouse desire to sell 80 % or more of the Series A-1 convertible preferred stock in a “Permitted Transfer” (as defined in the Discovery charter).

Subject to the prior preferences and other rights of any senior stock, holders of Series A-1 and Series C-1 convertible preferred stock will participate equally with common stockholders on an as converted to common stock basis in any cash dividends declared by the Board of Directors.

In the event of a liquidation, dissolution or winding up of Discovery, after payment of Discovery’s debts and liabilities and subject to the prior payment with respect to any stock ranking senior to Series A-1 and Series C-1 convertible preferred stock, the holders of Series A-1 and Series C-1 convertible preferred stock will receive, before any payment or distribution is made to the holders of any common stock or other junior stock, an amount (in cash or property) equal to $ 0.01 per share.

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.

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

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.

Over the life of the Company's repurchase programs and as of December 31, 2021, the Company had repurchased 3 million and 229 million shares of Series A and Series C common stock, respectively, for the aggregate purchase price of $ 171 million and $ 8.2 billion, respectively.

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

Year Ended December 31,

2021 2020 2019

Series C Common Stock:

Shares repurchased — 41.6 23.2

Purchase price $ — $ 965 $ 637

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 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)

The table below presents the tax effects related to each component of other comprehensive (loss) income and reclassifications made into the consolidated statements of operations (in millions).

Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019

Tax Benefit (Expense)

Currency translation adjustments:

Unrealized gains (losses):

Foreign currency $ ( 404 ) $ 17 $ ( 387 ) $ 357 $ 33 $ 390 $ ( 95 ) $ 14 $ ( 81 )

Net investment hedges 105 ( 8 ) 97 ( 109 ) 11 ( 98 ) 56 4 60

Reclassifications:

Gain on disposition

— — — — — — 6 — 6

Total currency translation adjustments

( 299 ) 9 ( 290 ) 248 44 292 ( 33 ) 18 ( 15 )

Derivative adjustments:

Unrealized gains (losses)

169 ( 35 ) 134 ( 110 ) 24 ( 86 ) 38 ( 9 ) 29

Reclassifications from other comprehensive income to net income ( 33 ) 8 ( 25 ) ( 34 ) 7 ( 27 ) ( 14 ) 3 ( 11 )

Total derivative adjustments

136 ( 27 ) 109 ( 144 ) 31 ( 113 ) 24 ( 6 ) 18

Pension plan and SERP liability:

Unrealized gains (losses) 3 ( 1 ) 2 ( 10 ) 2 ( 8 ) ( 13 ) 3 ( 10 )

Other comprehensive income (loss) adjustments

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

Total return swaps (Selling, general and administrative expense) 5 — —

Total $ 480 $ ( 33 ) $ 29

FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants.

Assets and liabilities carried at fair value are classified in the following three categories:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Valuations derived from techniques in which one or more significant inputs are unobservable.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss

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

Currency Translation Derivative Adjustments Pension Plan and SERP Liability Accumulated

Comprehensive Income (Loss)

December 31, 2018 $ ( 804 ) $ 16 $ 3 $ ( 785 )

Other comprehensive income (loss) before reclassifications

( 20 ) 29 ( 10 ) ( 1 )

Reclassifications from accumulated other comprehensive loss to net income

6 ( 11 ) — ( 5 )

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 )

December 31, 2019 ( 847 ) 32 ( 7 ) ( 822 )

Other comprehensive income (loss) before reclassifications 292 ( 86 ) ( 8 ) 198

Reclassifications from accumulated other comprehensive loss to net income

— ( 27 ) — ( 27 )

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

The table below presents assets and liabilities measured at fair value on a recurring basis (in millions).

December 31, 2022

Other comprehensive income (loss) before reclassifications ( 290 ) 134 2 ( 154 )

Reclassifications from accumulated other comprehensive loss to net income

— ( 25 ) — ( 25 )

Other comprehensive income (loss) ( 290 ) 109 2 ( 179 )

Category Balance Sheet Location Level 1 Level 2 Level 3 Total

Cash equivalents:

Time deposits Cash and cash equivalents $ — $ 50 $ — $ 50

Equity securities:

Money market funds Cash and cash equivalents 20 — — 20

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

Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1

Mutual funds Other noncurrent assets 243 — — 243

Company-owned life insurance contracts Other noncurrent assets — 94 — 94

Time deposits Other noncurrent assets — 8 — 8

Total $ 277 $ 153 $ — $ 430

Deferred compensation plan Accrued liabilities $ 73 $ — $ — $ 73

Deferred compensation plan Other noncurrent liabilities 590 — — 590

Total $ 663 $ — $ — $ 663

December 31, 2021

NONCONTROLLING INTEREST

The Company has a controlling interest in the TV Food Network Partnership (the "Partnership"), which includes the Food Network and Cooking Channel.

Food Network and Cooking Channel are operated and organized under the terms of the Partnership.

The Company holds 80 % of the voting interest and 68.7 % of the economic interest in the Partnership.

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

If the term of the Partnership is not extended prior to the dissolution date of December 31, 2022, the Partnership agreement permits the Company, as holder of 80 % of the applicable votes, to reconstitute the Partnership and continue its business.

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

Ownership interests attributable to the noncontrolling owner are presented as noncontrolling interests on the Company's consolidated financial statements.

Under the terms of the Partnership agreement, the noncontrolling owner cannot force a redemption outside of the Company's control.

As such, the noncontrolling interests in the Partnership are reflected as a component of permanent equity in the Company's consolidated financial statements.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REVENUES AND ACCOUNTS RECEIVABLE

Disaggregated Revenue

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

Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.

Year Ended December 31, 2021

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

Advertising $ 4,188 $ 2,027 $ — $ 6,215

Distribution 3,297 2,112 — 5,409

Other 177 400 ( 10 ) 567

Totals $ 7,662 $ 4,539 $ ( 10 ) $ 12,191

Year Ended December 31, 2020

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

Advertising $ 4,012 $ 1,571 $ — $ 5,583

Distribution 2,852 2,014 — 4,866

Other 85 128 9 222

Totals $ 6,949 $ 3,713 $ 9 $ 10,671

Year Ended December 31, 2019

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

Advertising $ 4,245 $ 1,799 $ — $ 6,044

Distribution 2,739 2,096 — 4,835

Other 108 146 11 265

Totals $ 7,092 $ 4,041 $ 11 $ 11,144

Accounts Receivable and Credit Losses

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

Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates.

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

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.

Category Balance Sheet Location Level 1 Level 2 Level 3 Total

Cash equivalents:

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

Equity securities:

Money market funds Cash and cash equivalents 425 — — 425

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

Company-owned life insurance contracts Prepaid expenses and other current assets — 1 — 1

Mutual funds Other noncurrent assets 215 — — 215

Company-owned life insurance contracts Other noncurrent assets — 32 — 32

Total $ 652 $ 459 $ — $ 1,111

Deferred compensation plan Accrued liabilities $ 21 $ — $ — $ 21

Deferred compensation plan Other noncurrent liabilities 238 — — 238

Total $ 259 $ — $ — $ 259

(See Note 17.) The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs.

The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees.

Changes in the fair value of the investments are recorded in other (expense) income, net and changes in the deferred compensation liability are recorded in selling, general and administrative expense.

Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract Liability

A contract liability, such as deferred revenue, is recorded when cash is received in advance of the Company's performance.

Total deferred revenues, including both current and noncurrent, were $ 573 million and $ 649 million at December 31, 2021 and December 31, 2020, respectively.

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, 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.

Transaction Price Allocated to Remaining Performance Obligations

Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue.

Accordingly, in these instances revenue is recognized based upon the royalties earned to date.

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

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

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

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

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

The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property.

Certain of these arrangements extend beyond one year.

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.

Certain of these arrangements extend beyond one year.

The transaction price allocated to remaining performance obligations on these long-term contracts was $ 94 million as of December 31, 2021 and is expected to be recognized over the next 11 years.

The value of unsatisfied performance obligations disclosed above does not include:

(i) contracts involving variable consideration for which revenues are recognized in accordance with the usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as advertising contracts.

Capitalized Contract Costs

Sales commissions are generally expensed as incurred because contracts for which the sales commissions are generated are one year or less or are not material.

Sales commissions are recorded as a component of cost of revenues on the consolidated statements of operations.

The financing component of content licensing arrangements is not capitalized, because the period between delivery of the license and customer payment is one year or less or is not material.

In addition to the financial instruments listed in the tables above, the Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable, term loans, and senior notes.

The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of December 31, 2022 and 2021.

The estimated fair value of the Company’s outstanding senior notes, including accrued interest, using quoted prices from over-the-counter markets, considered Level 2 inputs, was $ 38.0 billion and $ 17.2 billion as of December 31, 2022 and 2021, respectively.

The Company’s derivative financial instruments are discussed in Note 13, its investments with readily determinable fair value are discussed in Note 10, and the obligation for its revolving receivable program is discussed in Note 8.

SHARE-BASED COMPENSATION

The Company has various incentive plans under which PRSUs, RSUs, stock options, and SARs have been issued.

As of December 31, 2021, the Company has reserved a total of 87 million shares of its Series A and Series C common stock for future exercises, vestings and grants of stock options, stock-settled SARs, PRSUs and RSUs.

In connection with the Merger, AT&T RSUs subject to time or performance based vesting and restricted stock held by WM employees were replaced with WBD RSUs granted on comparable terms (other than any performance based vesting requirements) upon the closing of the Merger, increasing RSU expense, grants and unrecognized compensation expense for the year ended December 31, 2022 compared to the years ended December 31, 2021 and 2020.

As of December 31, 2022, the Company has reserved a total of 237 million shares of its common stock for future exercises, vesting, and grants of stock options, stock-settled SARs, PRSUs, and RSUs.

Upon exercise or vesting of stock awards, the Company issues new shares from its existing authorized but unissued shares.

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.

As of December 31, 2022, there were 173 million shares of common stock in reserves that were available for future issuance under the incentive plans.

Share-Based Compensation Expense

8 unchanged sentences

Tax benefit recognized $ 79 $ 29 $ 18

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 unchanged sentences

Convertible as of December 31, 2022 0.2 $ 41.36 0.0 $ 2

The Company has granted PRSUs to certain senior level executives.

PRSUs represent the contingent right to receive shares of the Company’s Series A or C common stock, substantially all of which vest over three to four years based on continuous service and whether the Company achieves certain operating performance targets.

The performance targets for substantially all PRSUs are cumulative measures of the Company’s adjusted operating income before depreciation and amortization (as defined in Note 23), free cash flows and revenues over a three-year period.

The number of PRSUs that vest principally range from 0 % to 100 % based on a sliding scale where achieving or exceeding the performance target will result in 100 % of the PRSUs vesting and achieving less than 80 % of the target will result in no portion of the PRSUs vesting.

Additionally, for certain PRSUs, the Company’s Compensation Committee has discretion in determining the final amount of units that vest, but may not increase the amount of any PRSU award above 100 %.

Upon vesting, each PRSU becomes convertible into one share of the Company’s Series A or Series C common stock as applicable.

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, 2022, there was no unrecognized compensation cost related to PRSUs.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8 unchanged sentences

Vested and expected to vest as of December 31, 2022 31.2 $ 25.14 2.3 $ 296

RSUs represent the contingent right to receive shares of the Company's Series A or C common stock, substantially all of which vest ratably each year over periods of one to four years based on continuous service.

As of December 31, 2022, there was $ 498 million of unrecognized compensation cost related to RSUs, of which $ 36 million is related to cash settled RSUs.

Stock settled RSUs are expected to be recognized over a weighted-average period of 1.9 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

5 unchanged sentences

Granted 0.3 $ 32.90

Exercised ( 5.9 ) $ 27.84 $ 145

Forfeited ( 0.2 ) $ 30.46

2 unchanged sentences

Exercisable as of December 31, 2022 12.0 $ 29.87 2.6 $ —

Stock options are granted with an exercise price equal to or in excess of the closing market price of the Company’s Series A or Series C common stock on the date of grant.

Substantially all stock options vest ratably over three to four years from the grant date based on continuous service and expire seven to ten years from the date of grant.

Stock option awards generally provide for accelerated vesting upon retirement or after reaching a specified age and years of service.

The Company received cash payments from the exercise of stock options totaling $ 1 million, $ 159 million, and $ 8 million during 2022, 2021 and 2020, respectively.

10 unchanged sentences

The total intrinsic value of options exercised during 2022, 2021 and 2020 was $ 0 million , $ 145 million and $ 3 million, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5 unchanged sentences

Outstanding as of December 31, 2022 — $ — 0.0 $ —

Vested and expected to vest as of December 31, 2021 0.9 $ 22.46 0.1 $ 1

SAR award grants include cash-settled SARs and stock-settled SARs.

Cash-settled SARs entitle the holder to receive a cash payment for the amount by which the price of the Company’s Series A or Series C common stock exceeds the base price established on the grant date.

Cash-settled SARs are granted with a base price equal to or greater than the closing market price of the Company’s Series A or Series C common stock on the date of grant.

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.

The weighted-average assumptions used to determine the fair value of outstanding SARs were as follows.

Year Ended December 31,

2021 2020 2019

Risk-free interest rate 0.22 % 0.10 % 1.60 %

Expected term (years) 0.1 0.5 0.8

Expected volatility 41.12 % 42.13 % 30.54 %

Dividend yield — — —

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 $ 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

The ESPP enables eligible employees to purchase shares of the Company’s common stock through payroll deductions or other permitted means.

Unless otherwise determined by the Company’s Compensation Committee, the purchase price for shares offered under the ESPP is 85 % of the closing price of the Company’s Series A common stock on the purchase date.

The Company’s Board of Directors has authorized 8 million shares of the Company’s common stock to be issued under the ESPP.

The ESPP enables eligible employees to purchase shares of WBD common stock through payroll deductions or other permitted means.

Unless otherwise determined by the Company’s Compensation Committee, the purchase price for shares offered under the ESPP is 85 % of the closing price of WBD common stock on the purchase date.

The Company’s board of directors has authorized 8 million shares of WBD common stock to be issued under the ESPP.

During the years ended December 31, 2022, 2021 and 2020 the Company issued 526 thousand, 203 thousand and 254 thousand shares under the ESPP, respectively, and received cash totaling $ 7 million, $ 6 million and $ 5 million, respectively.

RETIREMENT SAVINGS PLANS

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

Defined Contribution Plans

Eligible employees may contribute a portion of their compensation to the plans, which may be subject to certain statutory limitations.

For these plans, the Company also makes contributions, including discretionary contributions, subject to plan provisions, which vest immediately.

The Company made total contributions of $ 50 million, $ 47 million and $ 37 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company's contributions were recorded in cost of revenues and selling, general and administrative expense in the consolidated statements of operations.

Executive Deferred Compensation Plans

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.

The amounts deferred are invested in various mutual funds at the direction of the executive, which are used to finance payment of the deferred compensation obligation.

Distributions from the deferred compensation plan are made upon termination or other events as specified in the plan.

The Company has established separate rabbi trusts to hold the investments that finance the deferred compensation obligation.

The accounts of the separate rabbi trusts are included in the Company’s consolidated financial statements.

The investments are included in prepaid expenses and other current assets and other noncurrent assets in the consolidated balance sheets.

The deferred compensation obligation is included in accrued liabilities and other noncurrent liabilities in the consolidated balance sheets.

The values of the investments and deferred compensation obligation are recorded at fair value.

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 and Note 20.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defined Benefit Plans

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.

Expense recognized in relation to the Pension Plan and SERP is based upon actuarial valuations.

Inherent in those valuations are key assumptions including discount rates and, where applicable, expected returns on assets.

Discount rates are based on a bond portfolio approach that includes high-quality debt instruments with maturities matching the Company's expected benefit payments from the plans.

Expected returns on assets are based on the weighted-average expected rate of return and capital market forecasts for each asset class employed and also consider the Company's historical compounded return on plan assets for 10 and 15 -year periods.

Benefits are generally based on the employee’s compensation and years of service.

Since December 31, 2009, no additional service benefits have been earned by participants under the Pension Plan.

The amount of eligible compensation that is used to calculate a plan participant’s pension benefit includes compensation earned by the employee through December 31, 2019, after which time all plan participants have a frozen pension benefit.

Net periodic pension cost was not material for the years ended December 31, 2021, 2020 and 2019.

The projected benefit obligation, fair value of plan assets and discount rate used in determining the projected benefit obligations were as follows (in millions).

Pension Plan SERP

2021 2020 2021 2020

Projected benefit obligation $ 82 $ 94 $ 22 $ 25

Fair value of plan assets (Level 1) $ 63 $ 70 $ — $ —

Discount rate 2.42 % 1.92 % 2.13 % 1.58 %

RESTRUCTURING AND OTHER CHARGES

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

Year Ended December 31,

2021 2020 2019

Networks $ 4 $ 41 $ 15

International Networks 26 29 20

Corporate, inter-segment eliminations, and other 2 21 ( 9 )

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

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

December 31, 2019 $ 4 $ 5 $ 9 $ 18

Net contract termination accruals — — 4 4

Employee termination accruals, net 41 29 13 83

Other accruals, net — — 4 4

Cash paid ( 22 ) ( 14 ) ( 15 ) ( 51 )

December 31, 2020 23 20 15 58

Employee termination accruals, net 4 26 2 32

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

December 31, 2021 $ 4 $ 13 $ 2 $ 19

The domestic and foreign components of income before income taxes were as follows (in millions).

The income tax balances as of December 31, 2022 are inclusive of the WM Business as a result of the Merger.

The domestic and foreign components of (loss) income before income taxes were as follows (in millions).

Year Ended December 31,

2 unchanged sentences

Foreign ( 213 ) ( 165 ) ( 188 )

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

(Loss) income before income taxes $ ( 8,960 ) $ 1,433 $ 1,728

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

4 unchanged sentences

Foreign 407 166 125

1,179 747 559

Federal ( 2,367 ) ( 250 ) ( 14 )

2 unchanged sentences

( 2,842 ) ( 511 ) ( 186 )

Income taxes $ 236 $ 373 $ 81

Income tax (benefit) expense $ ( 1,663 ) $ 236 $ 373

DISCOVERY, INC.

8 unchanged sentences

Effect of foreign operations 246 ( 3 ) % 25 2 % 58 3 %

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

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

Noncontrolling interest adjustment ( 17 ) — % ( 40 ) ( 3 ) % ( 29 ) ( 2 ) %

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

Impairment of goodwill — — % — — % 25 2 %

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

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

Other, net 41 — % ( 3 ) — % 39 2 %

Income tax expense $ 236 16 % $ 373 22 % $ 81 4 %

Income tax (benefit) expense $ ( 1,663 ) 19 % $ 236 16 % $ 373 22 %

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

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

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

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.

1 unchanged sentence

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.

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

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

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

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

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, the tax attribute carry-forward balance includes $ 1,105 million of net operating loss deferred tax assets established in Luxembourg during the year.

Prior to 2022, the Company concluded that the likelihood of utilizing these net operating losses was remote and the deferred tax assets associated with these operating losses were worthless, leading to no deferred tax assets established for these net operating losses.

However, as a result of recent changes in the company’s global tax profile upon the Merger, the Company believes the likelihood that these net operating losses would be utilized is no longer remote and has established deferred tax assets of $ 1,105 million during the year ended December 31, 2022 for the cumulative balance of these net operating losses.

The Company also recorded a full valuation allowance of $ 1,105 million to offset the associated deferred tax assets after weighing all available evidence for realizability.

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

20 unchanged sentences

Ending balance $ 1,929 $ 420 $ 348

On April 8, 2022, the Company completed its Merger with the WM Business.

In connection with the Merger, the Company entered into a tax matters agreement (“TMA”) with AT&T.

Pursuant to the TMA, the Company is responsible for tax liabilities of the WM Business related to the periods prior to AT&T's ownership of the WM Business (June 14, 2018), and AT&T is responsible for tax liabilities of the WM Business related to the period for which they owned the WM Business (June 15, 2018 through April 8, 2022).

The Company is indemnified by AT&T for any tax liabilities of the WM Business arising for the period June 15, 2018 through April 8, 2022.

As of December 31, 2022, the Company has recorded reserves for uncertain tax positions and the associated interest and penalties payable related to the WM Business of $ 1,353 million and $ 322 million, respectively, through purchase accounting.

Indemnification receivables of $ 388 million were also recorded through purchase accounting during the year ended December 31, 2022.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

With respect to uncertain tax positions related to jurisdictions that have joint and several liability among members of the AT&T tax filing group during the AT&T ownership period, the Company recognizes only the amount they expect to pay to the taxing authorities after considering the TMA with AT&T and AT&T’s ability to settle any disputed positions with the taxing authorities.

As of December 31, 2022, the Company has not recorded any liabilities for uncertain tax positions or indemnification receivables related to matters that were attributable to jurisdictions that have joint and several liability among members of the AT&T filing group since AT&T was determined to be the primary obligor.

The balances as of December 31, 2022, 2021 and 2020 included $ 1,929 million, $ 420 million, and $ 348 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, 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 increase in the reserve for unrecognized tax benefits for the year ended December 31, 2022 was primarily attributable to the Merger.

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

2 unchanged sentences

It is difficult to predict the final outcome or timing of resolution of any particular tax matter.

Accordingly, an estimate of any related impact to the reserve for uncertain tax positions cannot currently be determined.

With few exceptions, the Company is no longer subject to audit by any jurisdiction for years prior to 2008.

2 unchanged sentences

As of December 31, 2022, 2021 and 2020, the Company had accrued approximately $ 413 million, $ 60 million, and $ 53 million, respectively, of total interest and penalties payable related to unrecognized tax benefits.

The increase in the accrual for interest and penalties payable at December 31, 2022 is primarily attributable to the Merger.

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

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

Notwithstanding the U.S.

taxation of these amounts, we intend to continue to reinvest these funds outside of the U.S.

Our current plans do not demonstrate a need to repatriate them to the U.S.

However, if these funds were to be needed in the U.S., we would be required to accrue and pay non-U.S.

taxes to repatriate them.

The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.

In August 2022, the U.S.

government enacted the Inflation Reduction Act (“IRA”), which, among other changes, created a new corporate alternative minimum tax (“CAMT”) of 15% for corporations whose average annual adjusted financial statement income for any consecutive 3 tax year periods ending after December 31, 2021, and preceding the tax year exceeds $1 billion, and a 1% excise tax on stock repurchases made by publicly traded U.S.

corporations.

The effective date of these provisions was January 1, 2023.

The Company will continue to monitor for additional IRA guidance to determine whether there is a material impact to the Company’s financial statements.

RETIREMENT SAVINGS PLANS

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

Defined Contribution Plans

Eligible employees may contribute a portion of their compensation to the plans, which may be subject to certain statutory limitations.

For these plans, the Company also makes contributions, including discretionary contributions, subject to plan provisions, which vest immediately.

The Company made total contributions of $ 188 million, $ 50 million, and $ 47 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company’s contributions were recorded in cost of revenues and selling, general and administrative expense on the consolidated statements of operations.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

In calculating earnings per share, the Company follows the two-class method, which distinguishes between classes of securities based on the proportionate participation rights of each security type in the Company's undistributed income.

The Company's Series A, B and C common stock is treated as one class and the Series C-1 convertible preferred stock is treated as a separate class for purposes of applying the two-class method.

The Company's Series C-1 convertible preferred stock is an in-substance common stock equivalent as it has substantially equal rights and shares equally on an as-converted basis with respect to income available to Discovery, Inc.

The Company's Series A-1 convertible preferred stock is also a separate class but is not considered a common stock equivalent and therefore is not presented separately in the calculation of earnings per share.

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, 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.

Series C-1 convertible preferred stockholders for diluted net income per share is included in net income allocated to Discovery, Inc.

Series A, B and C common stockholders for diluted net income per share.

The weighted average number of diluted shares outstanding adjusts the weighted average number of shares of Series A, B and C common stock outstanding for the potential dilution that would occur if common stock equivalents, including convertible preferred stock and share-based awards, were converted into common stock or exercised, calculated using the treasury stock method.

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.

Executive Deferred Compensation Plans

The Company has deferred compensation plans through which certain senior-level employees may elect to defer a portion of their eligible compensation.

Distributions from the deferred compensation plans are generally made following separation from service or other events as specified in the plan.

While these plans are unfunded, the Company has established separate rabbi trusts used to provide for certain of these benefits.

The accounts of the separate rabbi trusts are included in the Company’s consolidated financial statements.

The investments are included in prepaid expenses and other current assets and other noncurrent assets on the consolidated balance sheets.

The deferred compensation obligation is included in accrued liabilities and other noncurrent liabilities in the consolidated balance sheets.

The values of the investments and deferred compensation obligation are recorded at fair value.

Changes in the fair value of the investments are included as a component of other income (expense), net, on the consolidated statements of operations.

Changes in the fair value of the deferred compensation obligation are recorded in earnings as a component of selling, general and administrative expenses on the consolidated statements of operations.

(See Note 14 and Note 18.)

Multiemployer Benefit Plans

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.

The risks of participating in these multiemployer pension plans are different from single-employer pension plans in that (i) contributions made by the Company to the multiemployer pension plans may be used to provide benefits to employees of other participating employers;

(ii) if the Company chooses to stop participating in certain of these multiemployer pension plans, it may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability;

and (iii) actions taken by a participating employer that lead to a deterioration of the financial health of a multiemployer pension plan may result in the unfunded obligations of the multiemployer pension plan being borne by its remaining participating employers.

While no multiemployer pension plan that the Company contributed to is individually significant to it, the Company was listed on certain Form 5500s as providing more than 5% of total contributions based on the current information available.

The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006, which represents the funded status of the plan as certified by the plan’s actuary.

In general, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded.

We are listed as providing more than 5% of total contributions to the Motion Picture Industry Pension Plan (the “MPI Plan”) and the Directors Guild of America Producer Pension Plan (the “DGA Plan”).

The DGA Plan was funded at 90.7 % for the most recent available plan year.

The MPI Plan and the Screen Actors Guild – Producers Pension Plan were funded at 68.9 % and 74.7 %, respectively, for the most recent available plan year, but neither of these plans was considered to be in endangered, critical, or critical and declining status in the most recent plan year.

Total contributions made by us to multiemployer pension plans for the year ended December 31, 2022 were $ 112 million.

Our share of contributions to plans whose zone status is below green is not material.

Since these plans were acquired as part of the Merger, there were no contributions for the years ended December 31, 2021 and 2020.

We also contribute to various other multiemployer benefit plans that provide health and welfare benefits to active and retired participants.

Total contributions made by us to these other multiemployer benefit plans for the year ended December 31, 2022 were $ 182 million.

Defined Benefit Plans

The Company has defined benefit pension plans that cover certain U.S.

based employees (the “U.S.

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

Under the existing Scripps Networks Interactive pension plan, no additional service benefits have been earned by participants since December 31, 2009, and the amount of eligible compensation that is used to calculate a plan participant’s pension benefit includes compensation earned by the employee through December 31, 2019, after which time all plan participants have a frozen pension benefit.

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

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

pension plans.

The acquired U.S.

pension plans consist of the Time Warner Excess Benefit Plan (the “Excess plan”), the Retirement Accumulation Plan (“RAP”), the Supplemental Executive Retirement Plan (“SERP”) and the Wealth Accumulation Plan (“WAP”).

The acquired U.S.

pension plans were closed to new entrants during 2010.

The Excess plan and RAP are both frozen to new benefit accruals.

SERP and WAP only have retirees remaining.

The pension formula for the Excess plan captured pay above compensation limits or benefit limits.

RAP is a cash balance type formula and now provides only interest credits.

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.

The Company also holds net assets and net liabilities on behalf of other U.S.

pension plans.

The plan provisions vary by plan and by country.

Some of these plans are unfunded and all are noncontributory.

Assets are recorded in other noncurrent assets, and liabilities are recorded in accrued liabilities and other noncurrent liabilities on the consolidated balance sheets.

Discount rates, long-term rate of return on plan assets, increases in compensation levels, and mortality rates are key assumptions used in determining the benefit obligation.

The table below describes how the assumptions are determined.

Assumption Description

Discount rate Based on a bond portfolio approach that includes high-quality debt instruments with maturities matching the Company's expected benefit payments from the plans.

Long-term rate of return on plan assets Based on the weighted-average expected rate of return and capital market forecasts for each asset class employed and also considers the Company's historical compounded return on plan assets for 10 and 15 -year periods.

Increase in compensation levels Based on past experience and the near-term outlook.

Mortality Various mortality tables adjusted and projected using mortality improvement rates.

Net Periodic Pension Cost

Expense recognized in relation to the Pension Plans and SERP is based upon actuarial valuations.

Inherent in those valuations are key assumptions, including discount rates and, where applicable, expected returns on assets.

The service cost component of net periodic pension cost is recorded in operating expenses on the consolidated statements of operations, while the remaining components are recorded in other income (expense), net.

Net periodic pension cost was not material for the years ended December 31, 2022, 2021 and 2020.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Obligations and Funded Status

The following tables present information about plan assets and obligations of the Pension Plan and SERP based upon a valuation as of December 31, 2022 and 2021, respectively (in millions).

Year Ended December 31, 2022

2021 2020 2019

Net income $ 1,197 $ 1,355 $ 2,213

Allocation of undistributed income to Series A-1 convertible preferred stock

( 110 ) ( 128 ) ( 204 )

Net income attributable to noncontrolling interests

( 138 ) ( 124 ) ( 128 )

Net income attributable to redeemable noncontrolling interests

( 53 ) ( 12 ) ( 16 )

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.

Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share $ 912 $ 1,091 $ 1,845

Allocation of net income:

Series A, B and C common stockholders 780 919 1,531

Series C-1 convertible preferred stockholders 132 172 314

Pension Plan SERP

Accumulated benefit obligation $ 746 $ 16

Change in projected benefit obligation:

Projected benefit obligation at beginning of year $ 82 $ 22

Amounts assumed upon acquisition (See Note 4) 907 1

Service cost 2 —

Interest cost 21 —

Benefits paid ( 35 ) ( 1 )

Actuarial gains ( 225 ) ( 6 )

Settlement charges ( 6 ) —

Projected benefit obligation at end of year 746 16

Fair value at beginning of year 63 —

Amounts assumed upon acquisition (See Note 4) 756 —

Actual return on plan assets ( 268 ) —

Company contributions 23 1

Benefits paid ( 35 ) ( 1 )

Settlement charges ( 6 ) —

Fair value at end of year 533 —

Under funded status $ ( 213 ) $ ( 16 )

Amounts recognized as assets and liabilities on the consolidated balance sheets:

Other noncurrent assets $ 92 $ —

Accrued liabilities ( 27 ) ( 2 )

Other noncurrent liabilities ( 278 ) ( 14 )

Total $ ( 213 ) $ ( 16 )

Allocation of undistributed income to Series A-1 convertible preferred stockholders

Net income available to Discovery, Inc.

Series A, B and C common stockholders for diluted net income per share $ 1,022 $ 1,219 $ 2,049

Denominator — weighted average:

Series A, B and C common shares outstanding — basic

Impact of assumed preferred stock conversion

Dilutive effect of share-based awards

Series A, B and C common shares outstanding — diluted

Series C-1 convertible preferred stock outstanding — basic and diluted

Basic net income per share allocated to:

Series A, B and C common stockholders $ 1.55 $ 1.82 $ 2.90

Series C-1 convertible preferred stockholders

$ 30.01 $ 35.24 $ 56.07

Diluted net income per share allocated to:

Series A, B and C common stockholders

$ 1.54 $ 1.81 $ 2.88

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

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

Year Ended December 31,

2021 2020 2019

Anti-dilutive share-based awards

Amounts recognized in accumulated other comprehensive (gain) loss consist of:

Net loss (gain) $ 97 $ ( 3 )

The weighted average assumptions used to determine benefit obligations were as follows.

December 31, 2022

Discount rate 4.70 % 5.03 %

Rate of compensation increases 3.11 % — %

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Pension Plan SERP

Accumulated benefit obligation $ 82 $ 22

Change in projected benefit obligation:

Projected benefit obligation at beginning of year $ 94 $ 25

Interest cost 2 1

Benefits paid ( 1 ) —

Actuarial gains ( 3 ) ( 1 )

Settlement charges ( 10 ) ( 3 )

Projected benefit obligation at end of year 82 22

Fair value at beginning of year 70 —

Actual return on plan assets 1 —

Company contributions 3 3

Benefits paid ( 1 ) —

Settlement charges ( 10 ) ( 3 )

Fair value at end of year 63 —

Under funded status $ ( 19 ) $ ( 22 )

Amounts recognized as assets and liabilities on the consolidated balance sheets:

Accrued liabilities $ — $ ( 2 )

Other noncurrent liabilities ( 19 ) ( 20 )

Total $ ( 19 ) $ ( 22 )

Amounts recognized in accumulated other comprehensive (gain) loss consist of:

Net loss $ 14 $ 4

The weighted average assumptions used to determine benefit obligations were as follows.

December 31, 2021

Discount rate 2.42 % 2.13 %

Rate of compensation increases (a)

(a) The Scripps Networks Interactive pension plan reached their scheduled freeze date on December 31, 2019.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's investment policy is to maximize the total rate of return on plan assets to meet the long-term funding obligations of the pension plans.

There are no restrictions on the types of investments held in the pension plans, which are invested using a combination of active management and passive investment strategies.

Risk is controlled through diversification among multiple asset classes, managers, styles, and securities.

Risk is further controlled both at the manager and asset class levels by assigning return targets and evaluating performance against these targets.

The following table presents the pension plans asset allocations by asset category (in millions).

December 31, 2022

Investment Type Target Actual

Equity securities 12 % 13 %

Fixed income securities 75 % 74 %

Multi-asset credit fund 5 % 4 %

Real assets 4 % 4 %

Hedge funds 2 % 4 %

Total 100 % 100 %

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

See Note 14 for a discussion of the fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value (in millions).

December 31, 2022

Total Level 1 Level 2 Level 3

Equity securities $ 69 $ 34 $ 35 $ —

Fixed income securities 532 14 446 72

Multi-asset credit fund 21 — 21 —

Total plan assets measured at fair value $ 627 $ 53 $ 502 $ 72

Assets held at net asset value practical expedient

Real assets $ 22

Hedge funds 20

Total assets held at net asset value practical expedient $ 42

Derivatives ( 136 ) — ( 136 ) —

Total plan assets $ 533

The table below sets forth a summary of changes in the fair value of the Level 3 pension assets for the year ended December 31, 2022 (in millions).

Fixed income funds

Fair value at beginning of year $ 98

Unrealized losses ( 26 )

Balance at end of year $ 72

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Total Level 1 Level 2 Level 3

Equity Securities $ 48 $ 48 $ — $ —

Fixed income securities 12 12 — —

Total plan assets measured at fair value $ 63 $ 63 $ — $ —

Estimated Benefit Payments

The following table presents the estimated future benefit payments expected to be paid out for the defined benefits plans over the next ten years (in millions).

Pension Plan SERP

2023 $ 46 $ 2

Thereafter 238 4

SUPPLEMENTAL DISCLOSURES

2 unchanged sentences

Useful Lives 2022 2021

Broadcast equipment (a)

Office equipment, furniture, fixtures and other 3 - 5 years

Equipment, furniture, fixtures and other (a)

$ 1,682 $ 1,139

Capitalized software costs 2 - 5 years

5 unchanged sentences

Property and equipment, net $ 5,301 $ 1,336

(a) Property and equipment includes assets acquired under finance lease arrangements, primarily satellite transponders classified as broadcast equipment.

(a) Property and equipment includes assets acquired under finance lease arrangements.

Assets acquired under finance lease arrangements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the terms of the related leases.

4 unchanged sentences

The net book value of capitalized software costs was $ 949 million and $ 371 million as of December 31, 2022 and 2021, respectively.

The related accumulated amortization was $ 533 million and $ 448 million as of December 31, 2021 and 2020, respectively.

Depreciation expense for property and equipment totaled $ 957 million, $ 311 million and $ 267 million for the years ended December 31, 2022, 2021 and 2020, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following (in millions).

Production receivables $ 1,231 $ —

Other current assets 2,657 913

Total prepaid expenses and other current assets $ 3,888 $ 913

Accrued liabilities

Accrued liabilities consisted of the following (in millions).

Accrued participation and residuals $ 2,986 $ —

Accrued production and content rights payable 3,153 776

Accrued payroll and related benefits 2,292 533

Content rights payable 772 528

Other accrued liabilities 3,073 921

Total accrued liabilities $ 11,504 $ 2,230

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other income (expense), net

2 unchanged sentences

2022 2021 2020

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

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

Interest income 18 10 22

Foreign currency (losses) gains, net $ ( 150 ) $ 93 $ ( 115 )

Gains (losses) on derivative instruments, net 475 ( 33 ) 29

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

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

Change in the value of investments with readily determinable fair value ( 105 ) ( 6 ) 28

Expenses from debt modification — ( 11 ) —

Other income, net 8 — 31

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

Gain on sale of equity method investments 195 4 2

Loss on extinguishment of debt — ( 10 ) ( 76 )

Other income (expense), net 74 22 ( 3 )

Total other income (expense), net $ 347 $ 72 $ ( 34 )

$ 82 $ 42 $ ( 8 )

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Cash Flow Information

4 unchanged sentences

Non-cash investing and financing activities:

Equity issued for the acquisition of WarnerMedia 42,309 — —

Receivable from sale of fuboTV Inc.

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

Non-cash consideration related to the sale of The CW Network 126 — —

Accrued consideration for the joint venture with BT 90 — —

Accrued purchases of property and equipment 66 34 48

1 unchanged sentence

Equity exchange with Harpo for step acquisition of OWN — — 59

Unsettled stock repurchases — — 4

Cash, Cash Equivalents, and Restricted Cash

3 unchanged sentences

Total cash, cash equivalents, and restricted cash $ 3,930 $ 3,905

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

(a) Restricted cash primarily includes cash posted as collateral related to the Company’s revolving receivables and hedging programs.

(See Note 8 and Note 13).

Assets Held for Sale

As of December 31, 2022, the Company classified its Ranch Lot and Knoxville office building and land as assets held for sale.

The Company reclassified $ 209 million to prepaid expenses and other current assets on the consolidated balance sheet at December 31, 2022 and stopped recording depreciation on the assets.

An immaterial write-down to the estimated fair value, less costs to sell, was recorded during the year ended December 31, 2022, and is included in impairment and loss (gain) on disposition and disposal groups in the consolidated statements of operations.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Comprehensive (Loss) Income

The table below presents the tax effects related to each component of other comprehensive (loss) income and reclassifications made in the consolidated statements of operations (in millions).

Year Ended December 31, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020

Tax Benefit (Expense)

Currency translation adjustments:

Unrealized gains (losses):

Foreign currency $ ( 743 ) $ 2 $ ( 741 ) $ ( 404 ) $ 17 $ ( 387 ) $ 357 $ 33 $ 390

Net investment hedges 145 ( 55 ) 90 105 ( 8 ) 97 ( 109 ) 11 ( 98 )

Reclassifications:

Gain on disposition

( 2 ) — ( 2 ) — — — — — —

Total currency translation adjustments

( 600 ) ( 53 ) ( 653 ) ( 299 ) 9 ( 290 ) 248 44 292

Derivative adjustments:

Unrealized gains (losses)

7 ( 3 ) 4 169 ( 35 ) 134 ( 110 ) 24 ( 86 )

Reclassifications from other comprehensive income to net income ( 23 ) 5 ( 18 ) ( 33 ) 8 ( 25 ) ( 34 ) 7 ( 27 )

Total derivative adjustments

( 16 ) 2 ( 14 ) 136 ( 27 ) 109 ( 144 ) 31 ( 113 )

Pension plan and SERP liability:

Unrealized gains (losses) ( 47 ) 21 ( 26 ) 3 ( 1 ) 2 ( 10 ) 2 ( 8 )

Other comprehensive (loss) income adjustments

$ ( 663 ) $ ( 30 ) $ ( 693 ) $ ( 160 ) $ ( 19 ) $ ( 179 ) $ 94 $ 77 $ 171

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss

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

Currency Translation Derivative Adjustments Pension Plan and SERP Liability Accumulated

Comprehensive Income (Loss)

December 31, 2019 $ ( 847 ) $ 32 $ ( 7 ) $ ( 822 )

Other comprehensive income (loss) before reclassifications

292 ( 86 ) ( 8 ) 198

Reclassifications from accumulated other comprehensive loss to net income

— ( 27 ) — ( 27 )

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

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

Other comprehensive income (loss) before reclassifications ( 290 ) 134 2 ( 154 )

Reclassifications from accumulated other comprehensive loss to net income

— ( 25 ) — ( 25 )

Other comprehensive income (loss) ( 290 ) 109 2 ( 179 )

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

Other comprehensive income (loss) before reclassifications ( 651 ) 4 ( 26 ) ( 673 )

Reclassifications from accumulated other comprehensive loss to net income

( 2 ) ( 18 ) — ( 20 )

Other comprehensive income (loss) ( 653 ) ( 14 ) ( 26 ) ( 693 )

December 31, 2022 $ ( 1,498 ) $ 14 $ ( 39 ) $ ( 1,523 )

REDEEMABLE NONCONTROLLING INTERESTS

Redeemable noncontrolling interests are presented outside of permanent equity on the Company’s consolidated balance sheets when the put right is outside of the Company's control.

Such currency translation adjustments to redemption value are allocated to the Company’s stockholders only.

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

(See Note 3.) The table below summarizes the Company's redeemable noncontrolling interests balances (in millions).

Discovery Family $ 173 $ 213

MotorTrend Group LLC (“MTG”) 112 114

Total $ 318 $ 363

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the reconciliation of changes in redeemable noncontrolling interests (in millions).

2022 2021 2020

Beginning balance $ 363 $ 383 $ 442

Cash distributions to redeemable noncontrolling interests ( 50 ) ( 11 ) ( 31 )

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

Redemption of redeemable noncontrolling interest — ( 26 ) —

Comprehensive income adjustments:

Net income attributable to redeemable noncontrolling interests

Currency translation on redemption values ( 5 ) ( 5 ) 3

Retained earnings adjustments:

Adjustments of carrying value to redemption value (redemption value does not equal fair value) — ( 16 ) —

Adjustments of carrying value to redemption value (redemption value equals fair value) 4 ( 15 ) 7

Ending balance $ 318 $ 363 $ 383

The significant arrangements for redeemable noncontrolling interests are described below:

Discovery Family

(“Hasbro”) had the right to put the entirety of its remaining 40 % interest in Discovery Family to the Company at any time during the one-year period beginning December 31, 2021, or in the event the Company’s performance obligation related to Discovery Family is not met.

Embedded in the redeemable noncontrolling interest is also a Warner Bros.

Discovery call right that is exercisable for one year after December 31, 2021.

Neither the put nor call was exercised in 2022.

In December 2022, Hasbro and WBD signed an amendment to the previous agreement extending the put-call election to the period January 31, 2025 to March 31, 2025.

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 the Company 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.

In 2022, GoldenTree exercised its irrevocable put right and the Company is required to purchase GoldenTree’s 32.5 % noncontrolling interest.

The Company performed an analysis of the redemption value as of December 31, 2022, and both parties have begun the process of determining a fair market value based on their own appraisals.

The Company does not expect this process, which is one of potentially several steps to agreeing to a redemption value, will be completed until later in 2023, a date that is not certain.

Accordingly, there has been no change in the classification of MTG as mezzanine equity since the date of the put is not certain.

NONCONTROLLING INTEREST

The Company has a controlling interest in the TV Food Network Partnership (the “Partnership”), which includes the Food Network and Cooking Channel.

Food Network and Cooking Channel are operated and organized under the terms of the Partnership.

The Company holds 80 % of the voting interest and 68.7 % of the economic interest in the Partnership.

During the fourth quarter of 2022, the Partnership agreement was extended and specifies a dissolution date of December 31, 2023.

If the term of the Partnership is not extended prior to the dissolution date of December 31, 2023, the Partnership agreement permits the Company, as holder of 80 % of the applicable votes, to reconstitute the Partnership and continue its business.

Ownership interests attributable to the noncontrolling owner are presented as noncontrolling interests on the Company's consolidated financial statements.

Under the terms of the Partnership agreement, the noncontrolling owner cannot force a redemption outside of the Company’s control.

As such, the noncontrolling interests in the Partnership are reflected as a component of permanent equity in the Company's consolidated financial statements.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY TRANSACTIONS

In the normal course of business, the Company enters into transactions with related parties.

Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation ("Liberty Broadband") and their subsidiaries and equity method investees (together the “Liberty Group”).

Discovery’s Board of Directors includes Mr.

Malone, who is Chairman of the Board of Liberty Global and beneficially owns approximately 30 % of the aggregate voting power with respect to the election of directors of Liberty Global.

Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 49 % of the aggregate voting power with respect to the election of directors of Liberty Broadband.

Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation (“Liberty Broadband”) and their subsidiaries (collectively the “Liberty Group”).

The Company’s board of directors includes Dr.

John Malone, who is Chairman of the Board of Liberty Global and Liberty Broadband and beneficially owns approximately 30 % and 48 % of the aggregate voting power with respect to the election of directors of Liberty Global and Liberty Broadband, respectively.

The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Total revenues and service charges $ 2,533 $ 1,093 $ 1,012

Interest income $ — $ — $ 1

Expenses $ 406 $ 238 $ 244

Distributions to noncontrolling interests and redeemable noncontrolling interests $ 300 $ 251 $ 254

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

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

Receivables $ 338 $ 172

Payables $ 38 $ 23

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

(See Note 4.)

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 Purchase Obligations Pension and Other Employee Obligations Total

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 12), arrangements to purchase various goods and services, long-term debt (see Note 11), pension funding and payments (see Note 17), and future funding commitments to equity method investees (see Note 10) (in millions).

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

2023 $ 7,969 $ 1,597 $ 453 $ 10,019

5 unchanged sentences

Total $ 29,732 $ 3,047 $ 899 $ 33,678

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

Production contracts generally require:

purchase of a specified number of episodes;

payments over the term of the license;

and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place.

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

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

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 and DTC services.

Production and licensing contracts generally require the purchase of a specified number of episodes, payments during production or over the term of a license, and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place.

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

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

1 unchanged sentence

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.

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.)

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

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

Although the Company had funding commitments to equity method investees as of December 31, 2022, the Company may also provide uncommitted additional funding to its equity method investments in the future.

(See Note 10.)

Other employee obligations are primarily related to employment agreements with creative talent for the WM broadcast networks.

Six Flags Guarantee

In connection with WM’s former investment in the Six Flags (as defined below) theme parks located in Georgia and Texas (collectively, the “Parks”), in 1997, certain subsidiaries of the Company agreed to guarantee (the “Six Flags Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships, including annual payments made to the Parks or to the limited partners and additional obligations at the end of the respective terms for the Partnerships in 2027 and 2028 (the “Guaranteed Obligations”).

The aggregate gross undiscounted estimated future cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are $ 544 million.

To date, no payments have been made by the Company pursuant to the Six Flags Guarantee.

Six Flags Entertainment Corporation (formerly known as Six Flags, Inc.

and Premier Parks Inc.) (“Six Flags”), which has the controlling interest in the Parks, has agreed, pursuant to a subordinated indemnity agreement (the “Subordinated Indemnity Agreement”), to guarantee the performance of the Guaranteed Obligations when due and to indemnify the Company, among others, if the Six Flags Guarantee is called upon.

If Six Flags defaults on its indemnification obligations, the Company has the right to acquire control of the managing partner of the Parks.

Six Flags’ obligations to the Company are further secured by its interest in all limited partnership units held by Six Flags.

Based the Company’s evaluation of the current facts and circumstances surrounding the Guaranteed Obligations and the Subordinated Indemnity Agreement, it is unable to predict the loss, if any, that may be incurred under the Guaranteed Obligations, and no liability for the arrangements has been recognized as of December 31, 2022.

Because of the specific circumstances surrounding the arrangements and the fact that no active or observable market exists for this type of financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and related Subordinated Indemnity Agreement.

Contingencies

The Company has granted put rights to certain consolidated subsidiaries.

Other Contingent Commitments

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

The Company's other contingent commitments at December 31, 2022 were $ 283 million, with $ 279 million estimated to be due in 2026.

For other contingent commitments where payment obligations are outside our control, the timing of amounts represents the earliest period in which the payment could be requested.

For the remaining other contingent commitments, the timing of the amounts presented represents when the maximum contingent commitment will expire but does not mean that we expect to incur an obligation to make any payments within that time period.

In addition, these amounts do not reflect the effects of any indemnification rights we might possess.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has granted put rights to certain consolidated subsidiaries, but the Company is unable to reasonably predict the ultimate amount or timing of any payment.

(See Note 19.)

Legal Matters

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

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

7 unchanged sentences

The Company’s operating segments are determined based on:

(i) financial information reviewed by its chief operating decision maker ("CODM"), the Chief Executive Officer ("CEO"), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions.

(i) financial information reviewed by its chief operating decision maker, the Chief Executive Officer (“CEO”), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions.

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

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

Studios, primarily consisting of the production and release of feature films for initial exhibition in theaters, production and initial licensing of television programs to third parties and our networks/DTC services, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming;

Networks, consisting primarily of our domestic and international television networks;

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

Goodwill was reallocated to the new reporting units based on relative fair value.

Prior periods have been recast to conform to the current period presentation.

The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level.

Inter-segment transactions primarily include advertising and content purchases.

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

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 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.

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

The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period.

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

Adjusted 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.

Inter-segment transactions primarily include advertising and content licenses.

The Company records inter-segment transactions of content licenses at the gross amount.

Prior year amounts have been recast to reflect the current presentation.

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

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

Adjusted EBITDA is defined as operating income excluding:

• employee share-based compensation;

• depreciation and amortization;

• restructuring and facility consolidation;

• certain impairment charges;

• gains and losses on business and asset dispositions;

• certain inter-segment eliminations;

• third-party transaction and integration costs;

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

• amortization of capitalized interest for content;

• other items impacting comparability.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

1 unchanged sentence

2022 2021 2020

Studios $ 9,731 $ 20 $ 12

Networks 19,348 11,311 10,439

International Networks 4,539 3,713 4,041

Corporate, inter-segment eliminations, and other ( 10 ) 9 11

DTC 7,274 860 220

Corporate 30 — —

Inter-segment eliminations ( 2,566 ) — —

Total revenues $ 33,817 $ 12,191 $ 10,671

Reconciliation of Net Income Available to Discovery, Inc.

to Adjusted OIBDA

Adjusted EBITDA

Year Ended December 31,

2022 2021 2020

Net income available to Discovery, Inc.

Studios $ 1,772 $ 14 $ 1

Networks 8,725 5,533 5,101

DTC ( 1,596 ) ( 1,345 ) ( 544 )

Corporate ( 1,200 ) ( 385 ) ( 362 )

Inter-segment eliminations 17 — —

Adjusted EBITDA $ 7,718 $ 3,817 $ 4,196

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of Net Income (Loss) Available to Warner Bros.

Discovery, Inc, to Adjusted EBITDA

Year Ended December 31,

2022 2021 2020

Net (loss) income available to Warner Bros.

Discovery, Inc.

$ ( 7,371 ) $ 1,006 $ 1,219

Net income attributable to redeemable noncontrolling interests 6 53 12

Net income attributable to noncontrolling interests 68 138 124

Income tax expense 236 373 81

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

Income tax (benefit) expense ( 1,663 ) 236 373

(Loss) income before income taxes ( 8,960 ) 1,433 1,728

Other (income) expense, net ( 347 ) ( 72 ) 34

Loss from equity investees, net 160 18 105

Loss on extinguishment of debt 10 76 28

Interest expense, net 1,777 633 648

Operating income 2,012 2,515 3,009

Operating (loss) income ( 7,370 ) 2,012 2,515

Impairment and loss (gain) on disposition and disposal groups 117 ( 71 ) 126

Restructuring 3,757 32 91

Depreciation and amortization 7,193 1,582 1,359

Impairment of goodwill and other intangible assets — 124 155

Employee share-based compensation 410 167 99

Restructuring and other charges 32 91 26

Transaction and integration costs 1,195 95 6

Loss (gain) on disposition ( 71 ) 2 —

Settlement of a withholding tax claim — — ( 29 )

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

Adjusted OIBDA

Year Ended December 31,

2021 2020 2019

Networks $ 3,940 $ 3,975 $ 4,117

International Networks 494 723 1,057

Corporate, inter-segment eliminations, and other ( 617 ) ( 502 ) ( 503 )

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of fair value step-up for content 2,416 — —

Adjusted EBITDA $ 7,718 $ 3,817 $ 4,196

Content Amortization and Impairment Expense

1 unchanged sentence

2022 2021 2020

Studios $ 5,950 $ — $ —

Networks 6,171 2,991 2,694

International Networks 1,934 1,307 1,303

Corporate, inter-segment eliminations, and other 2 2 2

DTC 6,800 510 262

Corporate ( 1 ) — —

Inter-segment eliminations ( 1,951 ) — —

Total content amortization and impairment expense $ 16,969 $ 3,501 $ 2,956

6 unchanged sentences

Total revenues $ 33,817 $ 12,191 $ 10,671

Distribution and advertising revenues are attributed to each country based on viewer location.

Other revenues are attributed to each country based on customer location.

Revenues are attributed to each country based on the customer or viewer location.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment by Geography

Poland 176 180

$ 3,785 $ 834

Other non-U.S.

2 unchanged sentences

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