What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-02-24 · 519 added, 640 removed, 1567 unchanged (43% of the section changed)

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Based on its evaluation, management concluded that, as of December 31, 2023, 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, 2023 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.”

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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”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive (loss) income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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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

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Critical Audit Matters

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

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

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 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.

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 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessments - Networks and DTC Reporting Units

As described in Notes 2 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $35.0 billion as of December 31, 2023, and the goodwill associated with the Networks and DTC reporting units was $17.6 billion and $8.1 billion, respectively.

Management 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 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.

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

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

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.

Management determines the fair value of the reporting units by using a combination of discounted cash flow and market valuation methodologies.

Significant judgments and assumptions for the 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 the revenue projections and profit margins.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the Networks and DTC reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Networks and DTC reporting units, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions used in the discounted cash flow method related to revenue projections for the Networks and DTC reporting units and discount rate for the Networks reporting unit, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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

These procedures included testing the effectiveness of controls relating to management’s goodwill 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.

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

These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the Networks and DTC reporting units, (ii) evaluating the appropriateness of the discounted cash flow method used by management, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow method, and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue projections and discount rate.

Evaluating management’s assumptions related to revenue projections involved evaluating whether the assumptions are reasonable considering (i) the current and past performance of the Networks and DTC reporting units, (ii) the consistency with external market and industry data, and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow method and (ii) the reasonableness of the discount rate assumption.

/s/ PricewaterhouseCoopers LLP

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2023 2022 2021

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

Distribution $ 20,237 $ 16,142 $ 5,202

Advertising 8,700 8,524 6,194

Content 11,203 8,360 737

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Depreciation and amortization 7,985 7,193 1,582

Restructuring 3,757 32 91

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

Restructuring and other charges 585 3,757 32

Impairments and loss (gain) on dispositions 77 117 ( 71 )

Total costs and expenses 42,869 41,187 10,179

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Loss from equity investees, net ( 82 ) ( 160 ) ( 18 )

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

Other (expense) income, net ( 12 ) 347 72

(Loss) income before income taxes ( 3,863 ) ( 8,960 ) 1,433

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Net (loss) income $ ( 3,079 ) $ ( 7,297 ) $ 1,197

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

Other comprehensive income (loss):

Currency translation

Pension plan and SERP ( 26 ) 2 ( 8 )

Derivatives ( 14 ) 109 ( 113 )

Change in net unrealized gains (losses) 799 ( 651 ) ( 290 )

Reclassification adjustment for net (gains) losses included in net income — ( 2 ) —

Net change, net of income tax benefit (expense) of $ 30 , $( 53 ) and $ 9

799 ( 653 ) ( 290 )

Pension plans, net of income tax benefit (expense) of $( 3 ), $ 21 and $( 1 )

( 21 ) ( 26 ) 2

Change in net unrealized gains (losses) 16 4 134

Reclassification adjustment for net (gains) losses included in net income ( 12 ) ( 18 ) ( 25 )

Net change, net of income tax benefit (expense) of $( 2 ), $ 2 and $( 27 )

Comprehensive (loss) income ( 2,297 ) ( 7,990 ) 1,018

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

Discovery Series A-1 convertible preferred stock:

$ 0.01 par value;

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

Discovery Series B convertible common stock:

$ 0.01 par value;

0 and 100 shares authorized;

0 and 7 shares issued and outstanding

Discovery Series C common stock:

$ 0.01 par value;

0 and 2,000 shares authorized;

0 and 559 shares issued;

and 0 and 330 shares outstanding

Additional paid-in capital 55,112 54,630

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( 8,244 ) ( 8,244 )

Retained earnings 2,205 9,580

(Accumulated deficit) retained earnings ( 928 ) 2,205

Accumulated other comprehensive loss ( 741 ) ( 1,523 )

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Equity in losses of equity method investee companies and cash distributions 157 211 63

Loss on extinguishment of debt — 10 76

Share-based compensation expense 500 412 178

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

Impairments and loss (gain) on dispositions — 116 ( 71 )

(Gain) loss from derivative instruments, net ( 151 ) ( 501 ) 49

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Purchases of property and equipment ( 1,316 ) ( 987 ) ( 373 )

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

Cash (used for) acquired from business acquisitions and working capital settlement ( 50 ) 3,612 ( 2 )

Purchases of investments — — ( 103 )

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Other investing activities, net 98 9 93

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

Cash (used in) provided by investing activities ( 1,259 ) 3,524 ( 56 )

Financing Activities

Principal repayments of term loans ( 4,000 ) ( 6,000 ) —

Principal repayments of debt, including premiums to par value and discount payment ( 2,860 ) ( 1,315 ) ( 574 )

Borrowings from debt, net of discount and issuance costs 1,496 — —

Repurchases of stock — — ( 969 )

Repayments under revolving credit facility ( 1,350 ) ( 125 ) —

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Distributions to noncontrolling interests and redeemable noncontrolling interests ( 301 ) ( 300 ) ( 251 )

Purchase of redeemable noncontrolling interest ( 49 ) — —

Borrowings under commercial paper program 3,857 2,268 —

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

Repayments under commercial paper program ( 3,864 ) ( 2,270 ) —

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

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

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

Net income available to Warner Bros.

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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 — — — — — — ( 45 ) 95 9 — 59 — 59

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

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

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

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

Net income available to Warner Bros.

Net (loss) income available to Warner Bros.

Discovery, Inc.

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

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

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 )

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and attributable to noncontrolling interests — — — — — — — — ( 3,126 ) — ( 3,126 ) 38 ( 3,088 )

Other comprehensive loss — — — — — — — — — ( 693 ) ( 693 ) — ( 693 )

Other comprehensive income — — — — — — — — — 782 782 — 782

Share-based compensation — — — — — — 452 — — — 452 — 452

Reclassification of redeemable noncontrolling interest to noncontrolling interest and change in noncontrolling interest ownership (See Note 19) — — — — — — 2 — — — 2 60 62

Tax settlements associated with share-based plans — — — — — — ( 70 ) — — — ( 70 ) — ( 70 )

Redemption of redeemable noncontrolling interest — — — — — — 73 — — — 73 — 73

DISCOVERY, INC.

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(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 )

Dividends paid to noncontrolling interests — — — — — — — — — — — ( 271 ) ( 271 )

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Redeemable noncontrolling interest adjustments to redemption value — — — — — — 1 — ( 5 ) — ( 4 ) — ( 4 )

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

December 31, 2023 — $ — — $ — 2,669 $ 27 $ 55,112 $ ( 8,244 ) $ ( 928 ) $ ( 741 ) $ 45,226 $ 1,081 $ 46,307

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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.

Discovery is a premier global media and entertainment company that provides audiences with a differentiated portfolio of content, brands and franchises across television, film, streaming, and gaming.

Some of our iconic brands and franchises include Warner Bros.

Pictures Group, Warner Bros.

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

Motion Picture Group, Warner Bros.

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

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

As of December 31, 2023, 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 our networks/DTC services as well as third parties, distribution of our films and television programs to various third party and internal television and streaming services, distribution through the home entertainment market (physical and digital), related consumer products and themed experience licensing, and interactive gaming.

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

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

Merger with the WarnerMedia Business of AT&T

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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.

(“WMH”) 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.

In August 2022, the Company and AT&T finalized the post-closing working capital settlement process, 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.

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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.

Labor Disruption

The Writers Guild of America (“WGA”) and Screen Actors Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) went on strike in May and July 2023, respectively, following the expiration of their respective collective bargaining agreements with the AMPTP.

The WGA strike ended on September 27, 2023, and a new collective bargaining agreement was ratified on October 9, 2023.

The SAG-AFTRA strike ended on November 9, 2023, and a new collective bargaining agreement was ratified on December 5, 2023.

As a result of the strikes, we paused certain theatrical and television productions, which resulted in delayed production spending amongst other impacts.

The strikes had a material impact on the operations and results of the Company.

This included a positive impact on cash flow from operations attributed to delayed production spend, and a negative impact on the results of operations attributed to timing and performance of the 2023 film slate, as well as the Company’s ability to produce, license, and deliver content.

DISCOVERY, INC.

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The Company also records realized foreign currency transaction gains and losses upon settlement of the transactions.

Foreign currency transaction gains and losses resulting from the conversion of the transaction currency to functional currency are included in other income (expense), net.

Foreign currency transaction gains and losses resulting from the conversion of the transaction currency to functional currency are included in other (expense) income, net.

Cash and Cash Equivalents

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

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

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.

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

Increases to accounts payable and subsequent payments are reported as financing activities in the consolidated statements of cash flows.

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.

trade accounts receivable on a limited 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.

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

Content Monetized Individually

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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 a film or television program that is predominantly monetized on its own but also monetized with other films and/or programs (such as on 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 expenses 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.

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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.

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

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

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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.

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

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.

Critical assumptions used in determining content amortization for programming predominantly 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, and (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model.

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

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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.

Unamortized film costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of a film (or television program) predominantly 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.

For content that is predominantly 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.

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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.

Commencing upon a title’s 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, or, if greater, for non-hosted games, on a straight-line basis over the title’s estimated economic life.

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.

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

Under this method of accounting, the Company typically records its proportionate share of the net earnings or losses of equity method investees in loss from equity investees, net 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.

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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.

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

(See Note 10 and Note 18.)

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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.

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

(See Note 10 and Note 18.)

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

The Company elected the short-term lease recognition exemption and leases with initial terms of one year or less are not recorded in the consolidated balance sheets.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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Asset Impairment Analysis

Goodwill and Indefinite-lived Intangible Assets

Goodwill is allocated to the Company’s reporting units, which are its operating segments or one level below its operating segments.

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, a quantitative impairment test is not required.

The Company evaluates goodwill 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 is greater than its carrying amount, a quantitative impairment test is not required.

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

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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.

• If the intent is to hold the asset for continued use, the impairment test requires a comparison of undiscounted future cash flows to the carrying value of the asset.

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 continued use, the impairment test requires a comparison of undiscounted future cash flows to the carrying value of the asset group.

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

• 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.

Significant judgments used for long-lived asset impairment assessments include identifying the appropriate asset groupings that represent the lowest level for which cash flows are largely independent 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.

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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.

(See Note 10.)

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• a hedge of net investments in foreign operations (“net investment hedge”);

• a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”);

• an instrument with no hedging designation.

Cash Flow Hedges

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.

For instruments accounted for as cash flow hedges, the change in the fair value of the forward contract is recorded in other comprehensive loss 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.

Net Investment Hedges

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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.

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.

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.

Fair Value Hedges

The Company may designate derivative instruments as fair value hedges to mitigate the variability in the fair value of a recognized asset or liability or of an unrecognized firm commitment.

For those derivative instruments designated as fair value hedges, the changes in fair value of the derivative instruments, including offsetting changes in fair value of the hedged items are recorded in the statements of operations in the same line item where the hedged risk occurs.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

No Hedging Designation

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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

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

Financial Statement Presentation

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

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

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

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Actual audience and delivery information is published by independent ratings services.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Digital advertising contracts typically contain promises to deliver guaranteed impressions in specific markets against a targeted demographic during a stipulated period of time.

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Actual audience delivery is typically reported by independent third parties.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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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.

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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.

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, cash billed/received for television advertising in advance or for which the guaranteed viewership has not been provided, and advance fees related to the sublicensing of Olympic rights.

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

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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”) may be issued.

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

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

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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.

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 70 % or less 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 %.

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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.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options and SARs

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.

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

Stock Options

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.

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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 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.

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

The fair values of stock options 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.

For SARs, the expected term is the period from the grant date to the end of the contractual term of the award unless the terms of the award allow for cash-settlement automatically on the date the awards vest, in which case the vesting date is used.

For stock options the simplified method is utilized to calculate the expected term, since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

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 WBD common stock and historical realized volatility of WBD 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 and peer group 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.

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

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.

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.

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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.

The amounts recorded pursuant to the loss cap were not material during the year ended December 31, 2023.

No amounts were recorded pursuant to the loss cap during the year ended December 31, 2022 since the 2022 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.

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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;

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

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.

For our collaborative arrangements entered into with third parties to jointly finance and distribute certain theatrical and television productions, net participation costs of $ 393 million and $ 276 million were recorded in cost of revenues, excluding depreciation and amortization for the years ended December 31, 2023 and 2022, respectively.

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

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The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and interpretations.

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).

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 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.

Concentrations Risk

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

The Company also has cash posted as collateral related to the Company’s revolving receivables program.

As of December 31, 2023, the Company had posted $ 539 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.

(See Note 13.)

DISCOVERY, INC.

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Accounting and Reporting Pronouncements Adopted

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

Convertible Instruments

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

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

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.

In September 2022, the Financial Accounting Standards Board (“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.

The Company adopted the guidance effective January 1, 2023 and has provided the required disclosures in Note 18.

Accounting and Reporting Pronouncements Not Yet Adopted

Segment Reporting

In November 2023, the FASB issued guidance updating the disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

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

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact this guidance will have on its disclosures.

In December 2023, the FASB issued guidance updating the disclosure requirements for income taxes, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The amendments should be applied prospectively;

however, retrospective application is permitted.

The Company is currently evaluating the impact this guidance will have on its 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.

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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

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

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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.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

During the years ended December 31, 2023, 2022 and 2021, the Company did no t repurchase any of its common stock.

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.

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Diluted net (loss) income per share allocated to common stockholders $ ( 1.28 ) $ ( 3.82 ) $ 1.54

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Anti-dilutive share-based awards

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITIONS AND DISPOSITIONS

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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 Merger combined WM’s content library and valuable intellectual property with Discovery’s global footprint, collection of local-language content and deep regional expertise across more than 220 countries and territories.

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

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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

AT&T has raised certain claims associated with the merger that the Company believes are without merit.

Purchase Price Allocation

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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).

The goodwill recorded as part of the Merger has been allocated to the Studios, Networks and DTC reportable segments in the amounts of $ 9,308 million, $ 7,074 million and $ 5,727 million, respectively, and is not deductible for tax purposes.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2023, the Company finalized the fair value of assets acquired and liabilities assumed.

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

Adjustments recorded in 2023 were $ 368 million, primarily related to taxes, and were recorded in other noncurrent assets, deferred income taxes, and other noncurrent liabilities, with an offset to goodwill.

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

April 8, 2022 Measurement Period

Adjustments Updated Preliminary

Adjustments Final

April 8, 2022

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Other current assets 4,619 ( 133 ) 4,486

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

Film and television content rights and games 28,729 ( 344 ) 28,385

Property and equipment 4,260 13 4,273

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 fair values of the assets acquired and liabilities assumed were determined using several valuation approaches including, but not limited to, various cost approaches and income approaches, such as relief from royalty, multi-period excess earnings, and with-or-without methods.

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

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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.

The Company incurred acquisition-related costs of $ 162 million and $ 406 million for the years ended December 31, 2023 and 2022, respectively.

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

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

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Discovery, Inc.

( 5,359 ) ( 3,750 )

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.

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

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

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

During 2023, the Company sold or exited all of the AT&T SportsNets.

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.

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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

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.

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).

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

Networks International

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

Dispositions (See Note 4)

Segment recast ( 10,813 ) ( 2,059 ) — 10,555 2,317 —

Acquisitions (See Note 4)

— — 9,047 7,081 5,618 21,746

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

Segment recast (See Note 23)

( 10,813 ) ( 2,059 ) — 10,555 2,317 —

Acquisitions (See Note 4)

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The carrying amount of goodwill at the Networks segment included accumulated impairments of $ 1.6 billion as of December 31, 2023 and 2022.

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

The Studios and DTC segments did not include any accumulated impairments as of December 31, 2023 and 2022.

Intangible Assets

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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 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.

For assets whose economic benefits are anticipated to be consumed evenly, a straight-line method is utilized.

For assets in which the economic benefits are expected to be recognized unevenly over the useful life of the asset, an accelerated method such as the sum-of-the-months’ digits method is utilized.

Amortization expense related to finite-lived intangible assets was $ 6.9 billion, $ 6.2 billion and $ 1.3 billion for the years ended December 31, 2023, 2022 and 2021, respectively.

During 2023, the Company reassessed the useful lives and amortization methods for its linear networks and HBO trademarks and trade names, and its DC franchise, and concluded the pattern of amortization should be accelerated.

Accordingly, the Company has changed the amortization method for these assets from the straight-line method to the sum-of-the-months’ digits method.

This change was considered a change in estimate, was accounted for prospectively, and resulted in incremental amortization expense of $ 368 million for the year ended December 31, 2023.

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

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Amortization expense $ 5,757 $ 4,245 $ 3,122 $ 2,369 $ 1,782 $ 21,010

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Trademarks $ — $ 161

Impairment Analysis

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2023 Impairment Analysis

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

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

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

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.

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

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

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

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

2022 Impairment Analysis

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.

For the 2022 annual impairment test, 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.

2021 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 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.

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

RESTRUCTURING AND OTHER CHARGES

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

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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).

The Company also initiated a strategic realignment plan associated with its Warner Bros.

Pictures Animation group during the year ended December 31, 2023.

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

Year Ended December 31,

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DTC 66 1,551 2

Corporate 195 — —

Inter-segment eliminations ( 42 ) — —

Total restructuring $ 3,757 $ 32 $ 91

Corporate and inter-segment eliminations 93 153 —

Total restructuring and other charges $ 585 $ 3,757 $ 32

During the year ended December 31, 2023, restructuring and other charges primarily included content impairments and other content development costs and write-offs of $ 115 million, contract terminations and facility consolidation activities of $ 111 million, and organization restructuring costs of $ 359 million.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 .

During the year ended December 31, 2022, restructuring and other 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 )

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

Studios Networks DTC Corporate and Inter-Segment Eliminations Total

December 31, 2021 (a)

$ — $ 15 $ — $ 4 $ 19

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December 31, 2022 156 361 188 159 864

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract termination accruals, net 48 16 8 15 87

Employee termination accruals, net 47 175 60 78 360

Other accruals — 2 — — 2

Cash paid ( 153 ) ( 352 ) ( 176 ) ( 172 ) ( 853 )

December 31, 2023 $ 98 $ 202 $ 80 $ 80 $ 460

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

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, 2023

Studios Networks DTC Corporate and Inter-segment Eliminations Total

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

Distribution $ 17 $ 11,521 $ 8,703 $ ( 4 ) $ 20,237

Advertising 15 8,342 548 ( 205 ) 8,700

Content 11,358 1,005 886 ( 2,046 ) 11,203

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Studios Networks DTC Corporate and Inter-segment Eliminations Total

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

Distribution $ 12 $ 9,759 $ 6,371 $ — $ 16,142

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

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

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2021

Studios Networks DTC Corporate and Inter-segment Eliminations Total

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

Distribution $ — $ 4,486 $ 716 $ — $ 5,202

Advertising — 6,063 131 — 6,194

Content 20 706 11 — 737

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Contract liabilities Other noncurrent liabilities 160 361

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.

The change in deferred revenue for the year ended December 31, 2023 primarily reflects 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 $ 1,354 million of revenues recognized that were included in the deferred revenue balance at December 31, 2022.

Revenue recognized for the year ended December 31, 2022 related to the deferred revenue balance at December 31, 2021 was $ 411 million.

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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.

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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 following table presents a summary of remaining performance obligations by contract type (in millions).

Contract Type December 31, 2023 Duration

Distribution - fixed price or minimum guarantee $ 3,513 Through 2031

Content licensing and sports sublicensing 5,361 Through 2030

Brand licensing 2,264 Through 2043

Advertising 892 Through 2027

Total $ 12,030

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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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.

During 2023, the Company amended its revolving receivables program to reduce the facility limit to $ 5,500 million and extend the program to August 2024.

The Company’s bankruptcy-remote consolidated subsidiary held $ 3,088 million of pledged receivables as of December 31, 2023 in connection with the Company’s revolving receivables program.

For the years ended December 31, 2023 and 2022, the Company recognized $ 79 million and $ 256 million, respectively, in selling, general and administrative expenses from the revolving receivables program in the consolidated statements of operations (net of non-designated derivatives in 2023).

(See Note 13.) The outstanding portfolio of receivables derecognized from our consolidated balance sheets was $ 5,200 million and $ 5,366 million as of December 31, 2023 and 2022, respectively.

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

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Collections reinvested under revolving agreement ( 13,506 ) ( 10,491 )

Net cash proceeds received $ ( 634 )

Net cash proceeds remitted $ ( 166 ) $ ( 634 )

Net receivables sold $ 13,178 $ 9,797

Obligations recorded $ 405 $ 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

December 31, 2023 December 31, 2022

Gross receivables pledged as collateral $ 3,088 $ 3,468

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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.

Total trade accounts receivable sold under the Company’s factoring arrangement was $ 383 million and $ 477 million for the years ended December 31, 2023 and 2022, respectively.

The impact to the consolidated statements of operations was immaterial for the years ended December 31, 2023 and 2022.

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENT RIGHTS

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

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

individually or as a group.

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

Programming rights are presented as two separate captions:

licensed content and advances and live programming and advances.

Live programming includes licensed sports rights and related advances.

The prior year presentation has been recast to conform to the current period’s presentation.

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

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Completed and not released 107 — 107

In production 1,700 — 1,700

In development 95 — 95

In production and other 1,300 — 1,300

Television production costs:

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Completed and not released 380 606 986

In production 427 4,424 4,851

In development 30 15 45

In production and other 417 2,624 3,041

Total theatrical film and television production costs $ 6,498 $ 8,547 $ 15,045

Programming rights, less amortization 5,843

Licensed content and advances, net 4,519

Live programming and advances, net 1,943

Game development costs, less amortization 565

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Total noncurrent film and television content rights and games $ 21,229

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

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Predominantly Monetized as a Group

Theatrical film production costs:

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

Completed and not released 507 — 507

In production and other 1,795 — 1,795

Television production costs:

Released, less amortization 2,200 6,143 8,343

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)

Completed and not released 939 401 1,340

In production and other 457 3,386 3,843

Total theatrical film and television production costs $ 9,442 $ 9,930 $ 19,372

Licensed content and advances, net 4,961

Live programming and advances, net 2,214

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 (a)

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

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Content amortization consisted of the following (in millions).

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2023 2022 2021

Predominately monetized individually $ 5,175 $ 541 $ 55

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

Predominantly monetized individually $ 5,165 $ 5,175 $ 541

Predominantly monetized as a group 10,648 8,935 2,955

Total content amortization $ 15,813 $ 14,110 $ 3,496

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).

For the year ended December 31, 2023, total content impairments were $ 326 million, of which content impairments and other content development costs and write-offs of $ 115 million were primarily due to the abandonment of certain films in connection with the third quarter 2023 strategic realignment plan associated with the Warner Bros.

Pictures Animation group and are reflected in restructuring and other charges in the Studios segment.

For the year ended December 31, 2022, total content impairments were $ 2,807 million.

Content impairments of $ 2,756 million and content development write-offs of $ 377 million were due to the abandonment of certain content categories in connection with the strategic realignment of content following the Merger and are reflected in restructuring and other charges in the Studios, Networks and DTC segments.

(See Note 6.) No content impairments were recorded as a component of restructuring for the year ended December 31, 2021.

The table below presents the expected future amortization expense of the Company’s film and television content rights, licensed content and advances, live programming rights and advances, and games as of December 31, 2023 (in millions).

Year Ending December 31,

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Monetized as a group 2,483 1,242 774

Programming rights 1,586 1,216 866

Licensed content and advances 1,751 813 524

Live programming and advances 1,258 471 34

Games 87 16 —

Completed and not released investment in films and television content:

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nC+ Other noncurrent assets 32 % 142 135

TNT Sports Other noncurrent assets 50 % 102 96

Other Other noncurrent assets 503 518

Total equity method investments 996 1,062

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

Investments with readily determinable fair values Other noncurrent assets 53 28

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

Total investments $ 1,487 $ 1,588

(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.

(a) Investments without readily determinable fair values included $ 17 million as of December 31, 2023 and $ 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.

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The aggregate carrying values of these VIE investments were $ 697 million and $ 720 million as of December 31, 2023 and 2022, 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

The Company recognized its portion of VIE operating results with losses of $ 75 million, $ 87 million, and $ 35 million for the years ended December 31, 2023, 2022 and 2021, respectively, in loss from equity investees, net, on the consolidated statements of operations.

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

During 2023, the Company concluded that its other equity method investments without readily determinable fair values had decreased $ 73 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 decrease in fair value as a result of observable price change is recorded in other (expense) income, net on the consolidated statements of operations.

(See Note 18.) As of December 31, 2023, the Company had recorded cumulative impairments of $ 238 million for its equity method investments without readily determinable fair values.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 unchanged sentences

Noncurrent portion of debt $ 41,889 $ 48,634

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, 2023, the Company’s wholly-owned subsidiaries, Warner Media, LLC (“WML”), Historic TW Inc.

(“TWI”), Discovery Communications, LLC (“DCL”) and WMH, commenced cash tender offers to purchase for cash any and all of (i) WML’s outstanding 4.050 % Senior Notes due 2023 and 3.550 % Senior Notes due 2024, (ii) TWI’s outstanding 7.570 % Senior Notes due 2024, (iii) DCL’s outstanding 3.800 % Senior Notes due 2024, and (iv) WMH’s outstanding 3.528 % Senior Notes due 2024 and 3.428 % Senior Notes due 2024.

The Company completed the tender offers in August 2023 by purchasing senior notes in the amount of $ 1.9 billion validly tendered and accepted for purchase pursuant to the offers.

During the year ended December 31, 2023, the Company also commenced a tender offer to purchase for cash any and all of its outstanding Floating Rate Notes due in 2024.

The Company completed the tender offer in June 2023, by purchasing Floating Rate Notes in the amount of $ 460 million validly tendered and accepted for purchase pursuant to the offer.

During the year ended December 31, 2023, the Company also repaid $ 4.0 billion of aggregate principal amount outstanding of its term loan prior to the due date of April 2025;

repaid in full at maturity $ 42 million of aggregate principal amount outstanding of its senior notes due December 2023, $ 178 million of aggregate principal amount outstanding of its senior notes due September 2023, and $ 106 million of aggregate principal amount outstanding of its senior notes due February 2023;

and completed open market purchases for $ 183 million of aggregate principal amount outstanding of its senior notes.

During the year ended December 31, 2023, the Company issued $ 1.5 billion of 6.412 % fixed rate senior notes due March 2026.

After March 2024, the senior notes are redeemable at par plus accrued and unpaid interest.

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.

1 unchanged sentence

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.

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 during 2022 and 2021 resulted in an immaterial loss on extinguishment of debt.

The redemptions during 2023 and 2022 resulted in an immaterial gain on extinguishment of debt.

(See Note 18.)

As of December 31, 2023, 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.

(“Scripps Networks”), DCL (to the extent it is not the primary obligor on such senior notes), and WMH (to the extent it is not the primary obligor on such senior notes), except for $ 1.1 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.

DISCOVERY, INC.

1 unchanged sentence

Revolving Credit Facility and Commercial Paper Programs

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 Company has a multicurrency revolving credit agreement (the “Revolving Credit Agreement”) and 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 Company 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 WMH.

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.

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Credit Agreement Financial Covenants

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.

The Revolving 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 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 upon completion of the first full quarter following the first and second anniversaries of the closing, respectively.

As of December 31, 2023, DCL and WMH were in compliance with all covenants and there were no events of default under the Revolving Credit Agreement.

Long-term Debt Repayment Schedule

3 unchanged sentences

Interest payments $ 2,007 $ 1,904 $ 1,778 $ 1,634 $ 1,510 $ 24,344

The Company has operating and finance leases for transponders, office space, studio facilities, and other equipment.

The Company has operating and finance leases for transponders, office space, studio facilities, software, and other equipment.

The Company’s leases were reflected in the Company’s consolidated balance sheets as follows (in millions).

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental information related to leases was as follows.

Weighted average remaining lease term (in years):

4 unchanged sentences

Finance leases 4.17 % 3.23 %

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.

The Company’s leases have remaining lease terms of up to 29 years, some of which include multiple options to extend the leases for up to a total of 20 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):

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Total finance lease cost $ 93 $ 86

Variable lease cost $ 66 $ 7

Variable fees and other (a)

Total lease cost $ 707 $ 524

(a) Includes variable lease payments related to our operating and finance leases and costs of leases with initial terms of less than one year.

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

16 unchanged sentences

Total $ 3,351 $ 265

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.

As of December 31, 2023, the Company’s total minimum lease payments for additional leases that have not yet commenced were not material.

DERIVATIVE FINANCIAL INSTRUMENTS

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.

In the normal course of business, the Company is exposed to foreign currency exchange rate market risk and interest rate fluctuations.

As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign currency forward contracts, fixed-to-fixed currency swaps, total return swaps and interest rate swaps, to hedge certain foreign currency, market value and interest rate exposures.

The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them.

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

Cash Flow Hedges

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

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).

There were no amounts eligible to be offset under master netting agreements as of December 31, 2023 and 2022.

The fair value of the Company’s derivative financial instruments at December 31, 2023 and 2022 was determined using a market-based approach (Level 2).

The Company’s derivative financial instruments were reflected in the Company’s consolidated balance sheets as follows (in millions).

December 31, 2023 December 31, 2022

9 unchanged sentences

Cross-currency swaps — — — — — 482 3 58 — —

Interest rate swaps

— — — — — 2,000 44 — 11 —

Net investment hedges:

1 unchanged sentence

1,779 23 12 7 42 1,778 20 12 — 73

Fair value hedges:

Interest rate swaps 1,500 7 — — 5 — — — — —

No hedging designation:

2 unchanged sentences

— — — — — 139 3 — — 3

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

Total return swaps 395 19 — — — 291 — — 13 —

$ 90 $ 21 $ 45 $ 138 $ 80 $ 106 $ 58 $ 197

(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).

(a) Excludes € 164 million of euro-denominated notes ($ 174 million equivalent at December 31, 2022) designated as a net investment hedge and £ 402 million of sterling notes re-designated as a net investment hedge in 2023 ($ 513 million equivalent at December 31, 2023.

(See Note 11.)

The following table presents the pretax impact of derivatives designated as cash flow hedges on income and other comprehensive (loss) income (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives Designated for Hedge Accounting

Cash Flow Hedges

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 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 and executed a fixed-to-fixed cross-currency swap in 2022 to mitigate this risk.

During the year ended December 31, 2023, the Company unwound the cross-currency swaps related to its Sterling debt and recognized a gain of $ 76 million as an adjustment to other comprehensive income.

The Sterling debt was subsequently re-designated as a net investment hedge effective May 2023.

The Company is exposed to interest rate risk associated with future issuances of debt and 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 until the debt is issued during the hedging window, which extends through 2025, and interest payments are made.

The following table presents the pretax impact of derivatives designated as cash flow hedges on income and other comprehensive loss (in millions).

Year Ended December 31,

4 unchanged sentences

Gains (losses) reclassified into income from accumulated other comprehensive loss:

Foreign exchange - advertising revenue 1 1 1

Foreign exchange - distribution revenue ( 5 ) ( 1 ) 4

Foreign exchange - advertising revenue 1 1 1

Foreign exchange - costs of revenues 3 25 —

Foreign exchange - other (expense) income, net

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

Foreign exchange - other income (expense), net — 30 —

Interest rate - other (expense) income, net

If current fair values of designated cash flow hedges as of December 31, 2023 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 32 years.

Net Investment Hedges

The Company is exposed to foreign currency risk associated with the net assets of non-USD functional entities and uses fixed-to-fixed cross currency swaps to mitigate this risk.

During the year ended December 31, 2023, to mitigate the risk associated with the net assets of non-USD functional entities, the Company re-designated its Sterling denominated debt due in 2024 as a net investment hedge after the unwind of the cash flow hedge previously noted.

The Company is also exposed to foreign currency risk stemming from foreign denominated debt.

During the year ended December 31, 2023, the Company settled its Euro denominated debt that was acquired in connection with the Merger and was designated as the hedging instrument in a net investment hedge.

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.

The following table presents the pretax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions).

Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the years ended December 31, 2023, 2022 and 2021.

Year Ended December 31,

2 unchanged sentences

Cross currency swaps $ 43 $ 46 $ 114 Interest expense, net $ 24 $ 33 $ 42

Foreign exchange contracts — 5 ( 2 ) Other income (expense), net — — —

Foreign exchange contracts — — 5 Other (expense) income, net

Euro denominated notes (foreign denominated debt) 3 4 — N/A — — —

Sterling notes (foreign denominated debt) 112 6 ( 20 ) N/A — — —

Sterling denominated notes (foreign denominated debt) ( 11 ) 112 6 N/A — — —

Total $ 35 $ 162 $ 125 $ 24 $ 33 $ 42

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).

Fair Value Hedges

During the year ended December 31, 2023, the Company issued $ 1.5 billion of 6.412 % fixed rate senior notes due March 2026.

Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate.

Changes in the fair value of the senior note and the interest rate swap are recorded in interest expense, net.

The following table presents fair value hedge adjustments to hedged borrowings (in millions).

Carrying Amount of

Hedged Borrowings Cumulative Amount of Fair Value Hedging Adjustments Included in Hedged Borrowings

Balance Sheet Location December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Noncurrent portion of debt $ 1,502 $ — $ 2 $ —

The following table presents the pretax impact of derivatives designated as fair value hedges on income, including offsetting changes in fair value of the hedged items (in millions).

Year Ended December 31,

(Loss) gain on changes in fair value of hedged fixed rate debt (1)

Gain (loss) on changes in the fair value of derivative contracts (1)

Total in interest expense, net $ — $ —

(1) Accrued interest expense related to the hedged debt and derivative contracts is excluded from the amounts above and was $ 27 million as of December 31, 2023.

Derivatives Not Designated for Hedge Accounting

The Company has deferred compensation plans that have risk related to the fair market value gains and losses on investments and has 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.

The Company is exposed to risk of secured overnight financing rate changes in connection with securitization interest paid on the receivables securitization program.

To mitigate this risk, the Company entered into and unwound and settled $ 6.0 billion notional of non-designated interest rate swaps for a total realized gain of $ 63 million during the year ended December 31, 2023.

The gains and losses on these derivatives are recorded to selling, general and administrative expenses, offsetting securitization interest expense.

Forward contracts designated as cash flow hedges are de-designated as production spend occurs or when rebate receivables are recognized.

After de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other (expense) income, net in the consolidated statements of operations (in millions).

Year Ended December 31,

2023 2022 2021

Interest rate swaps $ 63 $ — $ —

Total return swaps 46 5 —

Total in selling, general and administrative expense 109 5 —

Interest rate swaps 20 512 ( 2 )

Cross-currency swaps 1 — 8

Foreign exchange derivatives 7 ( 37 ) ( 39 )

Total in other income (expense), net

Total in other (expense) income, net

28 475 ( 33 )

Total return swaps (Selling, general and administrative expense) 5 — —

Total $ 137 $ 480 $ ( 33 )

7 unchanged sentences

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

Equity securities:

Money market funds Cash and cash equivalents 20 — — 20

Money market fund Cash and cash equivalents 1 — — 1

Mutual funds Prepaid expenses and other current assets 42 — — 42

2 unchanged sentences

Company-owned life insurance contracts Other noncurrent assets — 97 — 97

Time deposits Other noncurrent assets — 8 — 8

Total $ 276 $ 203 $ — $ 479

2 unchanged sentences

Total $ 681 $ — $ — $ 681

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

8 unchanged sentences

Company-owned life insurance contracts Other noncurrent assets — 94 — 94

Time deposits Other noncurrent assets — 8 — 8

Total $ 277 $ 153 $ — $ 430

3 unchanged sentences

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 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.

(See Note 17.) The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees.

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

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.

3 unchanged sentences

SHARE-BASED COMPENSATION

The Company has various incentive plans under which PRSUs, RSUs, stock options, and SARs have been issued.

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.

The Company has various incentive plans under which PRSUs, RSUs, and stock options have been issued.

Upon exercise or vesting of stock awards, the Company issues new shares from its existing authorized but unissued shares.

7 unchanged sentences

Stock options 60 71 58

SARs 2 — ( 4 )

Total share-based compensation expense $ 500 $ 412 $ 178

Tax benefit recognized $ 97 $ 79 $ 29

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company recorded total liabilities for cash-settled and other liability-classified share-based compensation awards of $ 36 million and $ 6 million as of December 31, 2023 and 2022, respectively.

11 unchanged sentences

Convertible as of December 31, 2023 0.2 $ 37.41 0.0 $ 2

As of December 31, 2022, there was no unrecognized compensation cost related to PRSUs.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2023, there was $ 53 million of unrecognized compensation cost related to PRSUs.

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

10 unchanged sentences

Stock settled RSUs are expected to be recognized over a weighted-average period of 1.8 years, and cash settled RSUs are expected to be recognized over a weighted-average period of 2.0 years.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

18 unchanged sentences

Expected volatility 54.80 % 42.15 % 42.45 %

Dividend yield — — —

The weighted-average grant date fair value of options granted during 2023, 2022 and 2021 was $ 7.43 , $ 9.60 and $ 14.08 , respectively, per option.

The total intrinsic value of options exercised during 2023, 2022 and 2021 was $ 0 million , $ 0 million and $ 145 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).

SARs Weighted-

Price Weighted-

(years) Aggregate

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

Settled ( 0.9 ) $ 22.37 $ 3

Outstanding as of December 31, 2022 — $ — 0.0 $ —

Employee Stock Purchase Plan

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.

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).

4 unchanged sentences

(Loss) income before income taxes $ ( 3,863 ) $ ( 8,960 ) $ 1,433

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

Income tax (benefit) expense $ ( 784 ) $ ( 1,663 ) $ 236

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9 unchanged sentences

Noncontrolling interest adjustment ( 9 ) — % ( 17 ) — % ( 40 ) ( 3 ) %

Impairment of goodwill — — % — — % 25 2 %

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

Other, net 82 ( 2 ) % 41 — % ( 3 ) — %

Income tax (benefit) expense $ ( 784 ) 20 % $ ( 1,663 ) 19 % $ 236 16 %

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

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

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

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

(See Note 3.)

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 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 a one-time expense incurred in 2022 related to a 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.

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

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

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

Equity method and other investments in partnerships ( 411 ) ( 522 )

Noncurrent portion of debt ( 6 ) ( 87 )

Other ( 1,356 ) ( 809 )

1 unchanged sentence

Net deferred income tax liabilities $ ( 8,039 ) $ ( 10,325 )

DISCOVERY, INC.

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.

As of December 31, 2023, the company maintains a valuation allowance of $ 2,191 million to offset deferred tax assets attributable to certain foreign net operating losses, and to a lesser extent U.S.

federal and state tax attribute carryforwards.

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

8 unchanged sentences

Earliest expiration date of loss carry-forwards 2028 2024 2024

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

Ending balance $ 2,147 $ 1,929 $ 420

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, 2023, 2022, and 2021 included $ 2,147 million, $ 1,929 million, and $ 420 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.

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.

6 unchanged sentences

As of December 31, 2023, 2022, and 2021, the Company had accrued approximately $ 571 million, $ 413 million, and $ 60 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 increase in the accrual for interest and penalties payable at December 31, 2023 includes interest and penalty accruals recorded in 2023 through purchase price accounting related to the Merger.

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

6 unchanged sentences

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

10 unchanged sentences

Distributions from the deferred compensation plans are generally made following separation from service or other events as specified in the plan.

In certain plans, the Company may make discretionary contributions to employee accounts.

While these plans are unfunded, the Company has established separate rabbi trusts used to provide for certain of these benefits.

3 unchanged sentences

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.

Changes in the fair value of the investments are included as a component of other (expense) income, net, on the consolidated statements of operations.

Changes in the fair value of the deferred compensation obligation are included 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;

The Company contributes to various 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 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 the 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.

The Company also contributes to various other multiemployer benefit plans that provide health and welfare benefits to both active and retired participants.

The Company does not participate in any multiemployer benefit plans that are individually significant to the Company.

The following table summarizes the Company’s contributions to multiemployer pension and health and welfare benefit plans (in millions).

Year Ended December 31,

Pension benefits $ 128 $ 112

Health and welfare benefits 153 182

Total contributions $ 281 $ 294

Since these plans were acquired as part of the Merger, there were no contributions for the year ended December 31, 2021.

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

based employees and several U.S.

nonqualified defined benefit pension plans that are noncontributory.

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

The Company also holds net assets and net liabilities on behalf of other U.S.

10 unchanged sentences

Mortality Various mortality tables adjusted and projected using mortality improvement rates.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Periodic Pension Cost

Expense recognized in relation to the Pension Plans and SERP is based upon actuarial valuations.

Expense recognized for the pension plans 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, 2023, 2022 and 2021.

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

Pension Plan SERP

The following tables present information about plan assets and obligations of the pension plans based upon a valuation as of December 31, 2023 and 2022, respectively (in millions).

December 31, 2023 December 31, 2022

Pension Plans Pension Plans

Accumulated benefit obligation $ 753 $ 762

7 unchanged sentences

Settlement charges ( 11 ) ( 6 )

Effects of foreign currency exchange rate changes and other 4 —

Projected benefit obligation at end of year 753 762

5 unchanged sentences

Settlement charges ( 11 ) ( 6 )

Effects of foreign currency exchange rate changes and other 16 —

Fair value at end of year 540 533

5 unchanged sentences

Total $ ( 213 ) $ ( 229 )

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 % — %

Amounts recognized in accumulated other comprehensive loss consist of:

Net loss $ 79 $ 94

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

December 31, 2023 December 31, 2022

Pension Plans Pension Plans

Discount rate 4.62 % 4.70 %

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

Rate of compensation increases 3.18 % 3.05 %

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.

2 unchanged sentences

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).

The following table presents the weighted average pension plans asset allocations by asset category (in millions).

December 31, 2023

21 unchanged sentences

Total plan assets $ 540

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2023 (in millions).

1 unchanged sentence

Fair value at beginning of year $ 72

Unrealized losses ( 26 )

Unrealized gains 9

Transfers out ( 5 )

Balance at end of year $ 76

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

2 unchanged sentences

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 )

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

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

Pension Plans

Thereafter 234

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL DISCLOSURES

12 unchanged sentences

(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.

Assets acquired under finance lease arrangements are generally amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the terms of the related leases.

(See Note 12.)

4 unchanged sentences

Depreciation expense for property and equipment totaled $ 1,097 million, $ 957 million and $ 311 million for the years ended December 31, 2023, 2022 and 2021, respectively.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prepaid expenses and other current assets

1 unchanged sentence

Production receivables $ 1,265 $ 1,231

Prepaid content rights 843 545

Other current assets 2,283 2,112

7 unchanged sentences

Total accrued liabilities $ 10,368 $ 11,504

Other income (expense), net

Other income (expense), net, consisted of the following (in millions).

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other (Expense) Income, net

Other (expense) income, net, consisted of the following (in millions).

Year Ended December 31,

6 unchanged sentences

Gain on sale of equity method investments — 195 4

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

Other income (expense), net 74 22 ( 3 )

Total other income (expense), net $ 347 $ 72 $ ( 34 )

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gain (loss) on extinguishment of debt 17 — ( 10 )

Interest income 179 67 18

Other (expense) income, net ( 27 ) 7 4

Total other (expense) income, net

$ ( 12 ) $ 347 $ 72

Supplemental Cash Flow Information

4 unchanged sentences

Non-cash investing and financing activities:

Non-cash consideration related to the sale of the Ranch Lot 175 — —

Non-cash consideration related to the purchase of the Burbank Studios Lot 175 — —

Non-cash consideration transferred related to the transaction agreements with JCOM 68 — —

Non-cash consideration paid related to the transaction agreements with JCOM 2 — —

Non-cash consideration related to MegaMedia put exercise 36 — —

Non-cash settlement of PRSU awards 35 — —

Equity issued for the acquisition of WarnerMedia — 42,309 —

Receivable from sale of fuboTV Inc.

Non-cash consideration related to the sale of The CW Network — 126 —

2 unchanged sentences

Assets acquired under finance lease and other arrangements 235 53 134

Equity exchange with Harpo for step acquisition of OWN — — 59

Cash, Cash Equivalents, and Restricted Cash

5 unchanged sentences

(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

Assets Held for Sale

In 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 during 2022 and stopped recording depreciation on the assets.

The Knoxville office building and land and the Ranch Lot were sold during 2023.

The Burbank Studios Lot was purchased during 2023 in exchange for the Ranch Lot and cash.

Supplier Finance Programs

Consistent with customary industry practice, the Company generally pays certain content producers at or near the completion of the production cycle.

In these arrangements, content producers may earn fees upon contractual milestones to be invoiced at or near completion of production.

In these instances, the Company accrues the content in progress in accordance with the contractual milestones.

Certain of the Company’s content producers sell their related receivables to a bank intermediary who provides payments that coincide with these contractual production milestones upon confirmation with the Company of our obligation to the content producer.

This confirmation does not involve a security interest in the underlying content or otherwise result in the payable receiving seniority with respect to other payables of the Company.

As of December 31, 2023 and December 31, 2022, the Company has confirmed $ 338 million and $ 273 million, respectively, of accrued content producer liabilities.

These amounts were outstanding and unpaid by the Company and were recorded in accrued liabilities on the consolidated balance sheets, given the principal purpose of the arrangement is to allow producers access to funds prior to the typical payment due date and the arrangement does not significantly change the nature of the payables and does not significantly extend the payment terms beyond the industry norms.

Invoices processed through the program are subject to a one-year maximum tenor.

The Company does not incur any fees or expenses associated with the paying agent services, and this service may be terminated by the Company or the financial institution upon 30 days’ notice.

At, or near, the production completion date (invoice due date), the Company pays the financial institution the stated amounts for confirmed producer invoices.

These payments are reported as cash flows from operating activities.

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

Currency Translation Derivative Adjustments Pension Plans Accumulated

Comprehensive Income (Loss)

16 unchanged sentences

December 31, 2023 $ ( 699 ) $ 18 $ ( 60 ) $ ( 741 )

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REDEEMABLE NONCONTROLLING INTERESTS

1 unchanged sentence

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 (loss) income.

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.

Redeemable noncontrolling interest adjustments of carrying value to redemption value are reflected in retained earnings, unless there is an accumulated deficit, in which case the adjustments are reflected in additional paid-in capital.

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 the Company’s stockholders in the calculation of earnings per share.

3 unchanged sentences

Total $ 165 $ 318

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the reconciliation of changes in redeemable noncontrolling interests (in millions).

2 unchanged sentences

Cash distributions to redeemable noncontrolling interests ( 30 ) ( 50 ) ( 11 )

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

Reclassification of redeemable noncontrolling interest to noncontrolling interest ( 22 ) — —

Redemption of redeemable noncontrolling interest ( 111 ) — ( 26 )

6 unchanged sentences

Ending balance $ 165 $ 318 $ 363

The significant arrangements for redeemable noncontrolling interests are described below:

The Company’s significant redeemable noncontrolling interests are described below.

Discovery Family

5 unchanged sentences

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 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.

In 2022, GoldenTree exercised its irrevocable put right and in 2023, the Company finalized its purchase of GoldenTree’s 32.5 % noncontrolling interest for $ 49 million.

In August 2023, the Company and JCOM Co., Ltd.

(“JCOM”) executed a series of transaction agreements to which the Company and JCOM each contributed to Discovery Japan, Inc.

(“JVCo”), an existing 80 / 20 joint venture between the Company and JCOM, certain rights, liabilities, or rights via license agreements in exchange for new common shares of JVCo, resulting in the Company and JCOM owning 51 % and 49 % of JVCo, respectively.

Retaining controlling financial interest subsequent to the transaction, the Company continues to consolidate the joint venture.

As the terms of the agreement no longer incorporate JCOM’s option to put its noncontrolling interest to the Company, JCOM’s noncontrolling interest was reclassified from redeemable noncontrolling interest to noncontrolling interest outside of stockholders’ equity on the Company’s consolidated balance sheet.

NONCONTROLLING INTEREST

8 unchanged sentences

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

15 unchanged sentences

Distributions to noncontrolling interests and redeemable noncontrolling interests $ 301 $ 300 $ 251

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13 unchanged sentences

Total $ 24,072 $ 3,242 $ 1,055 $ 28,369

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.

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

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

Production and licensing contracts generally require the purchase of a specified number of episodes and payments during production or over the term of a license, and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place.

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

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.

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

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

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

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

(See Note 10.)

Other employee obligations are primarily related to employment agreements with creative talent for the WM broadcast networks.

Other employee obligations are primarily related to employment agreements with creative talent for certain broadcast networks.

Six Flags Guarantee

2 unchanged sentences

To date, no payments have been made by the Company pursuant to the Six Flags Guarantee.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Flags Entertainment Corporation (formerly known as Six Flags, Inc.

2 unchanged sentences

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.

Based on 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, 2023.

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.

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Other Contingent Commitments

Other contingent commitments primarily include contingent payments for post-production term advance obligations on certain co-financing arrangements, as well as operating lease commitment guarantees, letters of credit, bank guarantees, and surety bonds, which generally support performance and payments for a wide range of global contingent and firm obligations, including insurance, litigation appeals, real estate leases, and other operational needs.

Other contingent commitments primarily include contingent payments for post-production term advance obligations on a certain co-financing arrangement, as well as operating lease commitment guarantees, letters of credit, bank guarantees, and surety bonds, which generally support performance and payments for a wide range of global contingent and firm obligations, including insurance, litigation appeals, real estate leases, and other operational needs.

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

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 other contingent commitments where payment obligations are outside of 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.

The Company has granted put rights to non-controlling interest holders in 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, stockholders, vendors, other business partners, government regulations, or intellectual property, as well as disputes and matters involving counterparties to contractual agreements, such as disputes arising out of definitive agreements entered into in connection with the Merger.

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

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

The Company may not currently be able to estimate the reasonably possible loss or range of loss for such matters until developments in such matters have provided sufficient information to support an assessment of such loss.

In the absence of sufficient information to support an assessment of the reasonably possible loss or range of loss, no accrual for such contingencies is made and no loss or range of loss is disclosed.

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

There were no guarantees recorded under ASC 460 as of December 31, 2023 and 2022.

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There were no material amounts for indemnifications or other contingencies recorded as of December 31, 2023 and 2022.

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REPORTABLE SEGMENTS

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(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.

During the fourth quarter of 2023, the Company updated its DTC subscriber definition to include Premium Sports Products, which were previously included in the Networks segment.

Prior period segment results were not recast to reflect this change because the impact was not material.

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.

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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.

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• 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.

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

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

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

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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).

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

Year Ended December 31,

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Total revenues $ 41,321 $ 33,817 $ 12,191

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Adjusted EBITDA

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Adjusted EBITDA $ 10,200 $ 7,718 $ 3,817

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of Net Income (Loss) Available to Warner Bros.

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(Loss) income before income taxes ( 3,863 ) ( 8,960 ) 1,433

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

Other expense (income), net 12 ( 347 ) ( 72 )

Loss from equity investees, net 82 160 18

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Operating (loss) income ( 1,548 ) ( 7,370 ) 2,012

Impairment and loss (gain) on disposition and disposal groups 117 ( 71 ) 126

Restructuring 3,757 32 91

Impairments and loss (gain) on dispositions 77 117 ( 71 )

Restructuring and other charges 585 3,757 32

Depreciation and amortization 7,985 7,193 1,582

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Transaction and integration costs 162 1,195 95

Facility consolidation costs 32 — —

Amortization of fair value step-up for content 2,373 2,416 —

Amortization of capitalized interest for content 46 — —

Adjusted EBITDA $ 10,200 $ 7,718 $ 3,817

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Total content amortization and impairment expense $ 16,139 $ 16,969 $ 3,501

Content expense is generally a component of costs of revenue on the consolidated statements of operations (see Note 9.)

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

(See Note 9.)

DISCOVERY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues by Geography

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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

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Total property and equipment, net $ 5,957 $ 5,301

SUBSEQUENT EVENTS

In February 2024, the Company finalized an agreement to sell its 50 % stake in All3Media.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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