ITEM 6. Selected Financial Data.[Reserved].
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. This section provides additional information regarding our businesses, current developments, results of operations, cash flows, financial condition, contractual commitments, and critical accounting policies.policies, and estimates that require significant judgment and thus have the most significant potential impact on our consolidated financial statements. This discussion and analysis is intended to better allow investors to view the company from management's perspective.
We are a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-TV, FTA and broadcast television, our authenticated GO applications, digital distribution arrangements, and content licensing agreements. Ourarrangements and DTC subscription products. For a discussion of our global portfolio of networks includes prominent television brands such as Discovery Channel,and joint ventures see our most widely distributed global brand, TLC, Animal Planet, ID, Velocity (known as Turbo outside of the U.S.) and Eurosport, a leading sports entertainment pay-TV programmer across Europe and Asia. We also develop and sell curriculum-based education products and services and operate production studios.
The impact of exchange rates on our business is an important factor in understanding period to periodperiod-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.SU.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis ("ex-FX")(ex-FX), in addition to results reported in accordance with GAAP provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.
The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the “2016“2021 Baseline Rate”), and the prior year amounts translated at the same 20162021 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. The impact of foreign currency on the comparability of our results is reflected in the tables below (in millions). Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.
Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization declined slightly forincreased 16% in 2021. Excluding the year ended December 31, 2016 as there were slight declines in capital spendingimpact of foreign currency fluctuations, depreciation and no new significant business combinations.
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| | Year Ended December 31, |
| | 2016 | | 2015 |
Foreign currency gains (losses), net | | $ | 75 |
| | $ | (103 | ) |
(Losses) gains on derivative instruments | | (12 | ) | | 5 |
|
Remeasurement gain on previously held equity interest | | — |
| | 2 |
|
Other-than-temporary impairment of AFS investments | | (62 | ) | | — |
|
Other income (expense), net | | 3 |
| | (1 | ) |
Total other income (expense), net
| | $ | 4 |
| | $ | (97 | ) |
Other income (expense), net increased $101 million in 2016. The change is primarily the result of gains in foreign currency offset by a $62 million other-than-temporary impairment in the value of our Lionsgate shares (see Note 4 to the accompanying consolidated financial statements). The change in foreign currency (gains) losses, net is caused by the remeasurement of foreign currency monetary assets and liabilities. For the year ended December 31, 2016, exchange rate changes in the British pound resulted in net remeasurement gains. The gains in the current year are in contrast to losses in the prior period for the remeasurement of our 1.90% euro-dominated senior notes due March 19, 2027, which have been effectively hedged for the year ended December 31, 2016 , and remeasurement losses on monetary assets in Venezuela following a steep decline in value during the prior year.
Income Taxes
The following table reconciles the Company'sour effective income tax rate to the U.S. federal statutory income tax rate.
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| | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 |
U.S. federal statutory income tax rate | | 35 | % | | 35 | % |
State and local income taxes, net of federal tax benefit | | (2 | )% | | 2 | % |
Effect of foreign operations | | (1 | )% | | 1 | % |
Domestic production activity deductions | | (4 | )% | | (3 | )% |
Change in uncertain tax positions | | — | % | | (1 | )% |
Renewable energy investments tax credits | | (1 | )% | | — | % |
Other, net | | — | % | | (1 | )% |
Effective income tax rate | | 27 | % | | 33 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
Pre-tax income at U.S. federal statutory income tax rate | | $ | 301 | | | 21 | % | | $ | 363 | | | 21 | % |
State and local income taxes, net of federal tax benefit | | 108 | | | 7 | % | | (10) | | | — | % |
Effect of foreign operations | | 25 | | | 2 | % | | 58 | | | 3 | % |
UK Finance Act legislative change | | (155) | | | (11) | % | | (51) | | | (3) | % |
Noncontrolling interest adjustment | | (40) | | | (3) | % | | (29) | | | (2) | % |
Change in uncertain tax positions | | 12 | | | 1 | % | | 17 | | | 1 | % |
Impairment of goodwill | | — | | | — | % | | 25 | | | 2 | % |
Deferred tax adjustment | | — | | | — | % | | (22) | | | (1) | % |
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| | | | | | | | |
| | | | | | | | |
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Other, net | | (15) | | | (1) | % | | $ | 22 | | | 1 | % |
Income tax expense | | $ | 236 | | | 16 | % | | $ | 373 | | | 22 | % |
Income tax expense was $453$236 million and $511$373 million, and the Company's effective tax rate was 27%16% and 33%22% for 20162021 and 2015,2020, respectively. The net 6% decrease in income tax expense for the effective tax rateyear ended December 31, 2021 was primarily attributable to a decrease in pre-tax book income and an increase in the resolution of multi-year statedeferred tax positionsbenefit from the UK Finance Act 2021 that resultedwas enacted in a reduction of reserves related to uncertain tax positions, allocation and taxation of income among multiple foreign and domestic jurisdictions, the impact of various foreign legislative changes, and tax credits that we receive related to our renewable energy investments. The decrease wasJune 2021. Those decreases were partially offset by 2015 favorable audit resolutions which positively impactedan increase in the assessment of uncertainstate and local income tax positions for 2015 but did not recurexpense recorded in 2016. (See Note 16 to the accompanying consolidated financial statements.)
2021.
Segment Results of Operations – 20162021 vs. 20152020
AsWe evaluate the operating performance of January 1, 2017, the Company no longer excludes amortization of deferred launch incentives in calculating totalour operating segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction and integration costs, and (viii) other items impacting comparability. We use this expense is not material. Formeasure to assess the years ended December 31, 2016operating results and December 31, 2015, deferred launch incentivesperformance of $13 millionour segments, perform analytical comparisons, identify strategies to improve performance, and $16 million, respectively, were not reflected as an adjustmentallocate resources to the calculation of totaleach segment. We believe Adjusted OIBDA in orderis relevant to conforminvestors because it allows them to analyze the current presentation.
The table below presentsoperating performance of each segment using the calculation of total Adjusted OIBDA (in millions).
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| | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Revenues: | | | | | | |
U.S. Networks | | $ | 3,285 |
| | $ | 3,131 |
| | 5 | % |
International Networks | | 3,040 |
| | 3,092 |
| | (2 | )% |
Education and Other | | 174 |
| | 173 |
| | 1 | % |
Corporate and inter-segment eliminations | | (2 | ) | | (2 | ) | | — | % |
Total revenues | | 6,497 |
| | 6,394 |
| | 2 | % |
Costs of revenues, excluding depreciation and amortization | | (2,432 | ) | | (2,343 | ) | | 4 | % |
Selling, general and administrative(a) | | (1,652 | ) | | (1,669 | ) | | (1 | )% |
Adjusted OIBDA | | $ | 2,413 |
| | $ | 2,382 |
| | 1 | % |
(a) Selling, general and administrative expensessame metric management uses. We exclude mark-to-market share-based compensation, restructuring and other charges, certain impairment charges, gains and gains (losses)losses on dispositions.business and asset dispositions, and acquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. We also exclude the depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives.
Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (“GAAP”).
The table below presents our Adjusted OIBDA by segment, with a reconciliation of consolidated net income available to Discovery, Communications, Inc. to total Adjusted OIBDA (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | % Change |
Net income available to Discovery, Inc. | | $ | 1,006 | | | $ | 1,219 | | | (17) | % |
Net income attributable to redeemable noncontrolling interests | | 53 | | | 12 | | | NM |
Net income attributable to noncontrolling interests | | 138 | | | 124 | | | 11 | % |
Income tax expense | | 236 | | | 373 | | | (37) | % |
Income before income taxes | | 1,433 | | | 1,728 | | | (17) | % |
Other (income) expense, net | | (82) | | | (42) | | | 95 | % |
Loss from equity investees, net | | 18 | | | 105 | | | (83) | % |
Loss on extinguishment of debt | | 10 | | | 76 | | | (87) | % |
Interest expense, net | | 633 | | | 648 | | | (2) | % |
Operating income | | 2,012 | | | 2,515 | | | (20) | % |
Depreciation and amortization | | 1,582 | | | 1,359 | | | 16 | % |
Impairment of goodwill and other intangible assets | | — | | | 124 | | | NM |
Employee share-based compensation | | 167 | | | 99 | | | 69 | % |
Restructuring and other charges | | 32 | | | 91 | | | (65) | % |
Transaction and integration costs | | 95 | | | 6 | | | NM |
(Gain) loss on disposition | | (71) | | | 2 | | | NM |
Adjusted OIBDA | | $ | 3,817 | | | $ | 4,196 | | | (9) | % |
| | | | | | |
Adjusted OIBDA | | | | | | |
U.S. Networks | | 3,940 | | | 3,975 | | | (1) | % |
International Networks | | 494 | | | 723 | | | (32) | % |
Corporate, inter-segment eliminations, and other | | (617) | | | (502) | | | 23 | % |
Adjusted OIBDA | | $ | 3,817 | | | $ | 4,196 | | | (9) | % |
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| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Net income available to Discovery Communications, Inc. | | $ | 1,194 |
| | $ | 1,034 |
| | 15 | % |
Net income attributable to redeemable noncontrolling interests | | 23 |
| | 13 |
| | NM |
|
Net income attributable to noncontrolling interests | | 1 |
| | 1 |
| | — | % |
Income tax expense | | 453 |
| | 511 |
| | (11 | )% |
Other (expense) income, net | | (4 | ) | | 97 |
| | NM |
|
Income (loss) from equity investees, net | | 38 |
| | (1 | ) | | NM |
|
Interest expense | | 353 |
| | 330 |
| | 7 | % |
Operating income | | 2,058 |
| | 1,985 |
| | 4 | % |
(Gain) loss on disposition | | (63 | ) | | 17 |
| | NM |
|
Restructuring and other charges | | 58 |
| | 50 |
| | 16 | % |
Depreciation and amortization | | 322 |
| | 330 |
| | (2 | )% |
Mark-to-market share-based compensation | | 38 |
| | — |
| | (100 | )% |
Total Adjusted OIBDA | | $ | 2,413 |
| | $ | 2,382 |
| | 1 | % |
| | | | | | |
Adjusted OIBDA: | | | | | | |
U.S. Networks | | $ | 1,922 |
| | $ | 1,774 |
| | 8 | % |
International Networks | | 835 |
| | 945 |
| | (12 | )% |
Education and Other | | (10 | ) | | (2 | ) | | NM |
|
Corporate and inter-segment eliminations | | (334 | ) | | (335 | ) | | — | % |
Total Adjusted OIBDA | | $ | 2,413 |
| | $ | 2,382 |
| | 1 | % |
The table below presents the calculation of Adjusted OIBDA (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | % Change |
Revenue: | | | | | | |
U.S. Networks | | $ | 7,662 | | | $ | 6,949 | | | 10 | % |
International Networks | | 4,539 | | | 3,713 | | | 22 | % |
Corporate, inter-segment eliminations, and other | | (10) | | | 9 | | | NM |
Total revenue | | 12,191 | | | 10,671 | | | 14 | % |
Costs of revenues, excluding depreciation and amortization | | 4,620 | | | 3,860 | | | 20 | % |
Selling, general and administrative (a) | | 3,754 | | | 2,615 | | | 44 | % |
Adjusted OIBDA | | $ | 3,817 | | | $ | 4,196 | | | (9) | % |
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(a) Selling, general and administrative expenses exclude employee share-based compensation and third-party transaction and integration costs. |
U.S. Networks
The following table below presents, for our U.S. Networks segment, revenues by type, certain operating expenses, contra revenue amounts,and Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
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| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Revenues: | | | | | | |
Distribution | | $ | 1,532 |
| | $ | 1,431 |
| | 7 | % |
Advertising | | 1,690 |
| | 1,650 |
| | 2 | % |
Other | | 63 |
| | 50 |
| | 26 | % |
Total revenues | | 3,285 |
| | 3,131 |
| | 5 | % |
Costs of revenues, excluding depreciation and amortization | | (891 | ) | | (892 | ) | | — | % |
Selling, general and administrative | | (472 | ) | | (465 | ) | | 2 | % |
Adjusted OIBDA | | 1,922 |
| | 1,774 |
| | 8 | % |
Depreciation and amortization | | (28 | ) | | (29 | ) | | (3 | )% |
Restructuring and other charges | | (15 | ) | | (33 | ) | | (55 | )% |
Gain on disposition | | 50 |
| | — |
| | NM |
|
Inter-segment eliminations | | (14 | ) | | (8 | ) | | 75 | % |
Operating income | | $ | 1,915 |
| | $ | 1,704 |
| | 12 | % |
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| | Year Ended December 31, | | |
| | 2021 | | 2020 | | Change % |
Revenues: | | | | | | |
Advertising | | $ | 4,188 | | | $ | 4,012 | | | 4 | % |
Distribution | | 3,297 | | | 2,852 | | | 16 | % |
Other | | 177 | | | 85 | | | NM |
Total revenues | | 7,662 | | | 6,949 | | | 10 | % |
Costs of revenues, excluding depreciation and amortization | | 1,841 | | | 1,843 | | | — | % |
Selling, general and administrative | | 1,881 | | | 1,131 | | | 66 | % |
Adjusted OIBDA | | 3,940 | | | 3,975 | | | (1) | % |
Employee share-based compensation | | 1 | | | — | | | |
Gain on disposition | | (77) | | | — | | | |
Depreciation and amortization | | 1,065 | | | 899 | | | |
Restructuring and other charges | | 4 | | | 41 | | | |
Transactions and integration costs | | 1 | | | — | | | |
Inter-segment eliminations | | 20 | | | 4 | | | |
Operating income | | $ | 2,926 | | | $ | 3,031 | | | |
Revenues
Advertising revenue increased 4% in 2021 and was primarily attributable to higher pricing, the continued monetization of content offerings on our next generation initiatives, and higher inventory, partially offset by lower overall ratings and secular declines in the pay-TV ecosystem.
Distribution revenue increased 7%,16% in 2021 and was primarily dueattributable to growth of discovery+ and an increase in contractual rate increases that include market adjustments for certain recent contract renewals partially offset by slight declines in subscribers.
Advertising revenue increased 2%, due to inventory management and pricing increases,affiliate rates, partially offset by a decline in ratings.linear subscribers, and certain prior year nonrecurring items. Excluding these nonrecurring items, distribution revenue increased 17% in 2021. Total portfolio subscribers at December 31, 2021 were 8% lower than at December 31, 2020, while subscribers to our fully distributed networks were 4% lower than the prior year. Excluding the impact of the sale of our Great American Country linear network, total subscribers to our linear networks at December 31, 2021 were 5% lower than at December 31, 2020.
Other revenue increased 26%,$92 million in 2021 and was primarily dueattributable to increases in services provided to equity method investees.a nonrecurring item.
Costs of Revenues
Costs of revenues remained consistent with the prior period. were flat in 2021, primarily attributable to our content investment in discovery+, a nonrecurring, non-cash item in 2020, and third-party app store fees, offset by more efficient content spend on our linear networks.
Content amortizationexpense was $716 million$1.6 billion in 2021 and $714 million for 2016 and 2015, respectively.2020.
Selling, General and Administrative
Selling, general and administrative expenses increased 2% as increased spending on marketing66% in 2021 and was offset by decreases in personnel costs.primarily attributable to higher marketing-related expenses to drive the growth of discovery+.
Adjusted OIBDA
Adjusted OIBDA increased 8%, primarily due to increasesdecreased 1% in distribution and advertising revenue.
2021.
International Networks
The following table presents, for our International Networks segment, revenues by type, certain operating expenses, certain contra revenue amounts,and Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions). In addition, see the International Networks' table in "Results of Operations – 2016 vs. 2015 – Items Impacting Comparability" for more information on Eurosport.
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| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Revenues: | | | | | | |
Distribution | | $ | 1,681 |
| | $ | 1,637 |
| | 3 | % |
Advertising | | 1,279 |
| | 1,353 |
| | (5 | )% |
Other | | 80 |
| | 102 |
| | (22 | )% |
Total revenues | | 3,040 |
| | 3,092 |
| | (2 | )% |
Costs of revenues, excluding depreciation and amortization | | (1,462 | ) | | (1,375 | ) | | 6 | % |
Selling, general and administrative | | (743 | ) | | (772 | ) | | (4 | )% |
Adjusted OIBDA | | 835 |
| | 945 |
| | (12 | )% |
Depreciation and amortization | | (221 | ) | | (235 | ) | | (6 | )% |
Restructuring and other charges | | (26 | ) | | (14 | ) | | 86 | % |
Loss on disposition | | 13 |
| | (17 | ) | | NM |
|
Inter-segment eliminations | | (4 | ) | | (3 | ) | | 33 | % |
Operating income | | $ | 597 |
| | $ | 676 |
| | (12 | )% |
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| | Year Ended December 31, | | | | |
| | 2021 | | 2020 | | Change % | | Change % (ex-FX) |
Revenues: | | | | | | | | |
Advertising | | $ | 2,027 | | | $ | 1,571 | | | 29 | % | | 25 | % |
Distribution | | 2,112 | | | 2,014 | | | 5 | % | | 4 | % |
Other | | 400 | | | 128 | | | NM | | NM |
Total revenues | | 4,539 | | | 3,713 | | | 22 | % | | 20 | % |
Costs of revenues, excluding depreciation and amortization | | 2,784 | | | 2,004 | | | 39 | % | | 35 | % |
Selling, general and administrative | | 1,261 | | | 986 | | | 28 | % | | 24 | % |
Adjusted OIBDA | | 494 | | | 723 | | | (32) | % | | (27)% |
Depreciation and amortization | | 394 | | | 374 | | | | | |
Impairment of goodwill and other intangible assets | | — | | | 124 | | | | | |
Restructuring and other charges | | 26 | | | 29 | | | | | |
Transaction and integration costs | | 4 | | | 4 | | | | | |
Inter-segment eliminations | | (15) | | | 1 | | | | | |
Loss on disposition | | 6 | | | — | | | | | |
Operating income | | $ | 79 | | | $ | 191 | | | | | |
Revenues
DistributionAdvertising revenue increased 3%.29% in 2021. Excluding the impact of foreign currency fluctuations, and the acquisition of Eurosport France in March 2015, distributionadvertising revenue increased 9%25%.The increase was mostly dueincreases were attributable to increases in rates in Europe and increases in subscribers and rates in Latin America. Such growth is consistent withimproved overall performance as advertising markets recovered from the value negotiated in new arrangements following investment in sports content in markets in Europe andCOVID-19 pandemic, as well as the continued developmentbroadcast of the pay-TV marketsSummer Olympics throughout Europe in Latin America.the third quarter of 2021.
AdvertisingDistribution revenue decreasedincreased 5%. in 2021. Excluding the impact of foreign currency fluctuations, and the disposition of the Company's radio business, advertisingdistribution revenue increased 3%4%. The increase wasincreases were primarily driven by ratings and volume in Southern Europe, and,attributable to a lesser extent, pricing, ratings and volume in CEEMEA,higher next generation revenues due to growth of discovery+, partially offset by lower ratingscontractual affiliate rates in Northern Europe and lower price, ratings and volume in Asia.some European markets.
Other revenue decreased 22%.increased $272 million in 2021. Excluding the impact of foreign currency fluctuations, and the disposition of the Company's radio business, other revenue decreased 17% dueincreased $281 million. The increases were primarily attributable to a reduction in sublicensing revenue for Eurosport.of Olympics sports rights to broadcast networks throughout Europe.
Costs of Revenues
Costs of revenues increased 6%.39% in 2021. Excluding the impact of foreign currency fluctuations, the acquisition of Eurosport France in March 2015, and the disposition of the Company's radio business, costs of revenues increased 11%35%. The increase was mostlyincreases were primarily attributable to increased spending onthe Olympics and to a lesser extent, European sporting events and leagues returning to a more normalized schedule, and higher content particularly sports rightsinvestment related to discovery+. Content expense, excluding the impact of foreign currency fluctuations, was $2.0 billion for 2021 and associated production costs, and increases in content impairments, primarily in Northern Europe as a result of changes in programming strategies. Content amortization was $976 million and $906 million for 2016 and 2015, respectively.$1.4 billion 2020.
Selling, General and Administrative
Selling, general and administrative expenses decreased 4%.increased 28% in 2021. Excluding the impact of foreign currency fluctuations, and the disposition of the Company's radio business, selling, general, and administrative expenses increased 4%24%. The componentsincreases were primarily attributable to higher marketing-related expenses to drive the growth of selling, generaldiscovery+ and administrative expenses included increases inthe Olympics, as well as personnel expenses and marketing costs.costs to support our next generation platforms.
Adjusted OIBDA
Adjusted OIBDA decreased 12%.32% in 2021. Excluding the impact of foreign currency fluctuations, and the disposition of the Company's radio business, Adjustedadjusted OIBDA decreased 3%27%. The decrease was primarily due to higher content expense partially offset by increases in distribution revenue.
EducationCorporate, Inter-segment Eliminations, and Other
The following table presents for our Education and Other operating segments, revenue, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
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| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Revenues | | $ | 174 |
| | $ | 173 |
| | 1 | % |
Costs of revenues, excluding depreciation and amortization | | (79 | ) | | (75 | ) | | 5 | % |
Selling, general and administrative | | (105 | ) | | (100 | ) | | 5 | % |
Adjusted OIBDA | | (10 | ) | | (2 | ) | | NM |
|
Depreciation and amortization | | (7 | ) | | (7 | ) | | — | % |
Restructuring and other charges | | (3 | ) | | (2 | ) | | 50 | % |
Inter-segment eliminations | | 18 |
| | 11 |
| | 64 | % |
Operating income | | $ | (2 | ) | | $ | — |
| | NM |
|
Adjusted OIBDA decreased $8 million. The decrease was primarily due to additional operational spending to invest in Education's digital textbooks, which more than offset improvements in operating expenses at the Studios business.
Corporate and Inter-segment Eliminations
The following table presents, for our unallocated corporate amounts revenue,including certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating loss (in millions).
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| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
Revenues | | $ | (2 | ) | | $ | (2 | ) | | — | % |
Costs of revenues, excluding depreciation and amortization | | — |
| | (1 | ) | | NM |
|
Selling, general and administrative | | (332 | ) | | (332 | ) | | — | % |
Adjusted OIBDA | | (334 | ) | | (335 | ) | | — | % |
Mark-to-market equity-based compensation | | (38 | ) | | — |
| | NM |
|
Depreciation and amortization | | (66 | ) | | (59 | ) | | 12 | % |
Restructuring and other charges | | (14 | ) | | (1 | ) | | NM |
|
Operating loss | | $ | (452 | ) | | $ | (395 | ) | | 14 | % |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | % Change |
Revenues | | $ | (10) | | | $ | 9 | | | NM |
Costs of revenues, excluding depreciation and amortization | | (5) | | | 13 | | | NM |
Selling, general and administrative | | 612 | | | 498 | | | 23 | % |
Adjusted OIBDA | | (617) | | | (502) | | | (23) | % |
Employee share-based compensation | | 166 | | | 99 | | | |
Depreciation and amortization | | 123 | | | 86 | | | |
Transaction and integration costs | | 90 | | | 2 | | | |
Restructuring and other charges | | 2 | | | 21 | | | |
Loss on asset disposition | | — | | | 2 | | | |
Inter-segment eliminations | | (5) | | | (5) | | | |
Operating loss | | $ | (993) | | | $ | (707) | | | |
Corporate operations primarily consist of executive management, administrative support services, and substantially all of our equity-based compensation.share-based compensation and third-party transaction and integration costs.
Adjusted OIBDA remained consistent with the prior period.
The increase in mark-to-market equity-based compensation expense was primarily attributable to an increase in Discovery's stock price in 2016 compared to 2015. Changes in stock price are a key driver of fair value estimates used in the attribution of expense for stock appreciation rights ("SARs") and performance-based restricted stock units ("PRSUs"). By contrast, stock options and service-based restricted stock units ("RSUs") are fair valued at grant date and amortized over their vesting period without mark-to-market adjustments. The expense associated with stock options and RSUs is included in Adjusted OIBDA as a component of selling, general and administrative expense.
Items Impacting Comparability
From time to time, certain items may impact the comparability of our consolidated results of operations between two periods. In comparing the financial results for the years 2016 and 2015, the Company has identified foreign currency and the impact of the acquisition of Eurosport as items impacting comparability between periods, as noted below.
Foreign Currency
The impact of exchange rates on our business is an important factor in understanding period to period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis (ex-FX), in addition to results reported in accordance with GAAP provides useful
information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.
The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process, (the “2015 Baseline Rate”) and the prior year amounts translated at the same 2015 Baseline Rate. In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities as well as realized and unrealized foreign currency transaction gains and losses. The impact of foreign currency on the comparability of our results is reflected in the tables below (in millions). Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.
|
| | | | | | | | | | | | | | |
Consolidated | | Year Ended December 31, |
| | 2016 | | 2015 | | % Change (Reported) | | % Change (ex-FX) |
Revenues: | | | | | | | | |
Distribution | | $ | 3,213 |
| | $ | 3,068 |
| | 5 | % | | 9 | % |
Advertising | | 2,970 |
| | 3,004 |
| | (1 | )% | | 1 | % |
Other | | 314 |
| | 322 |
| | (2 | )% | | 2 | % |
Total revenues | | 6,497 |
| | 6,394 |
| | 2 | % | | 4 | % |
Costs of revenue, excluding depreciation and amortization | | 2,432 |
| | 2,343 |
| | 4 | % | | 6 | % |
Selling, general and administrative expense | | 1,690 |
| | 1,669 |
| | 1 | % | | 4 | % |
Adjusted OIBDA | | $ | 2,413 |
| | $ | 2,382 |
| | 1 | % | | 5 | % |
|
| | | | | | | | | | | | | | |
International Networks | | Year Ended December 31, |
| | 2016 | | 2015 | | % Change (Reported) | | % Change (ex-FX) |
Revenues: | | | | | | | | |
Distribution | | $ | 1,681 |
| | $ | 1,637 |
| | 3 | % | | 10 | % |
Advertising | | 1,279 |
| | 1,353 |
| | (5 | )% | | (2 | )% |
Other | | 80 |
| | 102 |
| | (22 | )% | | (20 | )% |
Total revenues | | 3,040 |
| | 3,092 |
| | (2 | )% | | 4 | % |
Costs of revenue, excluding depreciation and amortization | | 1,462 |
| | 1,375 |
| | 6 | % | | 10 | % |
Selling, general and administrative expenses | | 743 |
| | 772 |
| | (4 | )% | | 1 | % |
Adjusted OIBDA | | $ | 835 |
| | $ | 945 |
| | (12 | )% | | (4 | )% |
There are no other items impacting comparability.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Sources of Cash
Historically, we have generated a significant amount of cash from operations. During the year ended December 31, 2017,2021, we funded our working capital needs primarily through cash flows from operations. As of December 31, 2017,2021, we had $7.3$3.9 billion of cash and cash equivalents on hand. We maintain an effective Registration Statement on Form S-3 that allows usare a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock and preferred stock.stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured.
Debt
Debt Incurred for the Scripps Networks Acquisition
In August and September 2017, the Company entered into $2 billion of term loan credit facilities and issued $6.8 billion of senior notes to fund a portion of the Scripps Networks acquisition. On September 21, 2017, DCL, a wholly-owned subsidiary of the Company, issued $5.9 billion in senior fixed rate notes, $400 million in senior floating rate notes (together, the "2017 USD Notes") and £400 million principal amount of 2.500% fixed rate senior notes (the "Sterling Notes"), collectively the "2017 Senior Notes." Using exchange rates as of December 31, 2017, the senior notes had a weighted average effective interest rate of 3.9% without including the impact of debt issuance costs. The proceeds received by DCL from the 2017 Senior Notes were net of a $11 million issuance discount and $57 million of debt issuance costs. The 2017 Senior Notes are fully and unconditionally guaranteed by the Company. Some of these proceeds have been invested in short-term investments until the closing of the acquisition. Approximately $5.9 billion aggregate principal amount of the senior notes is subject to repayment by the Company to satisfy provisions related to the special mandatory redemption provision attached to certain series of the 2017 Senior Notes. The special mandatory redemption provision requires the Company to redeem the applicable senior notes for a price equal to 101% of the principal amount plus any accrued and unpaid interest on the applicable senior notes, following a termination of the Scripps Networks Merger Agreement or if the merger does not close prior to August 30, 2018. The $5.9 billion principal amount of senior notes subject to the special mandatory redemption provision will be classified as noncurrent until either of the contingent events which would trigger the redemption has occurred. As of December 31, 2017, neither of the contingent events have occurred and therefore these senior notes are classified as noncurrent.
On August 11, 2017, DCL, a wholly-owned subsidiary of the Company, entered into a three-year delayed draw tranche and a five-year delayed draw tranche unsecured term loan credit facility (the "Term Loans"), each with a principal amount of up to $1 billion. The term of each delayed draw loan begins when Discovery borrows the funds to finance a portion of the purchase price of the Scripps Networks acquisition. The Term Loans' interest rates are based, at the Company's option, on either adjusted LIBOR plus a margin or an alternate base rate plus a margin. The Company will pay a commitment fee of 20 basis points per annum for each loan, based on its current credit rating, beginning September 28, 2017 until either the funding of the Term Loans or the termination of the Scripps Networks acquisition. As of December 31, 2017, the Company has not yet borrowed on the term loan credit facilities.
Issuance of Debt to Fund the Tender Offer for Outstanding Senior Notes
On March 13, 2017, DCL issued $450 million principal amount of 3.80% senior notes due March 13, 2024 (the "March 2017 USD Notes") and an additional $200 million principal amount of its existing 4.90% senior notes due March 11, 2026 (the "2016 USD Notes"). The Company used the proceeds to fund the repurchase of $600 million of combined aggregate principal amount of our then-outstanding senior notes through a cash tender offer that also closed on March 13, 2017.
All of DCL's outstanding senior notes are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Discovery and contain certain covenants, events of default and other customary provisions.
Revolving Credit Facility
We also have access to a $2.5 billion revolving credit facility as amended on August 11, 2017 (See Note 9 to the accompanying consolidated financial statements). Borrowing capacity under this agreement is reduced by the amount of outstanding borrowings under ourand commercial paper program. As of December 31, 2017,program described below.
•Debt
Revolving Credit Facility and Commercial Paper
In June 2021, we entered into a multicurrency revolving credit agreement (the "Credit Agreement"), replacing the Company had outstanding borrowingsexisting $2.5 billion credit agreement, dated February 4, 2016, as amended. We have the capacity to initially borrow up to $2.5 billion under the revolving credit facilityCredit Agreement. Upon the closing of $425the proposed Combination with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion. The Credit Agreement includes a $150 million at a weighted average interest ratesublimit for the issuance of 2.69%. The revolving credit facility agreement provides for a maturity datestandby letters of August 11, 2022, andcredit. We may also request additional commitments up to $1 billion from the option for two additional 364-day renewal periods. All obligationslenders upon satisfaction of DCL and the other borrowerscertain conditions. Obligations under the revolving credit facilityCredit Agreement are unsecured and are fully and unconditionally guaranteed by Discovery. Borrowings mayDiscovery, Inc. and Scripps Networks Interactive, Inc., and will also be used for general corporate purposes.guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed Combination.
The credit agreement governingCredit Agreement will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the revolving credit facility (the “Credit Agreement”)lenders' consent. The Credit Agreement contains customary representations warranties and events of default,warranties as well as affirmative and negative covenants, which mirror the provisions of the credit agreement governing the Term Loans, including limitations on liens, investments, indebtedness, dispositions, affiliate transactions, dividends and restricted payments. DCL, its subsidiaries and Discovery are also subject to a limitation on mergers, liquidation and disposals of all or substantially all of their assets. The Credit Agreement, as amended on August 11, 2017, continues to require DCL to maintain a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than 3.00 to 1.00 and now requires a consolidated leverage ratio of financial covenant of 5.50 to 1.00, with step-downs to 5.00 to 1.00 in the first year after the closing and 4.50 to 1.00 in the second year after the closing.covenants. As of December 31, 2017, Discovery,2021, DCL and the other borrowers werewas in compliance with all covenants and there were no events of default under the Credit Agreement.Facility.
Commercial Paper
UnderAdditionally, our commercial paper program and subject to market conditions, DCLis supported by the Credit Facility. Under the commercial paper program, we may issue unsecuredup to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is reduced by any outstanding borrowings under the commercial paper notes guaranteed by the Company from time to time up to an aggregate principal amount outstanding at any given time of $1.0 billion. The maturities of these notes will vary but may not exceed 397 days. The notes may be issued at a discount or at par, and interest rates vary based on market conditions and the credit ratings assigned to the notes at the time of issuance. program.
As of December 31, 2017, we2021 and 2020, the Company had no commercial paperoutstanding borrowings outstanding. Borrowings under the Credit Facility or the commercial paper program would reduce the borrowing capacity under the revolving credit facility arrangement referenced above.program.
•Investments
We repay our senior notes, term loans, revolving credit facility and commercial paper as required, and accordingly these sourcesreceived proceeds of cash also require use of our cash.
Cash Settlement of Common Stock Repurchase Contract
We elected to settle our outstanding prepaid common stock repurchase contract in cash$599 million during the twelve months ended December 31, 2017, resulting in the receipt of $58 million. The cash received was inclusive of a $1 million premium over the $57 million up-front cash payment made in 2016 and was determined by the market price of our Series C common stock during the settlement period in March 2017. (See Note 9 to the accompanying consolidated financial statements.)
Dispositions
On February 26, 2018, we announced the planned sale of a controlling equity stake in its education business in the first half of 2018 to Francisco Partners for cash of $120 million. No loss is expected upon sale. The Company will retain an equity interest. (See Note 3 to the accompanying consolidated financial statements.)
Real Estate Strategy and Relocation of Global Headquarters
On January 9, 2018, we announced a new real estate strategy with plans to relocate the Company's global headquarters from Silver Spring, Maryland to New York City, New York in 2019. Contingent upon the closing of our acquisition of Scripps Networks, we will establish a National Operation Headquarters at Scripps Networks' current campus in Knoxville, Tennessee. The sale and closure of our Silver Spring building is expected approximately one year2021 from the closingsales and maturities of the Scripps Networks transaction.
investments.
Uses of Cash
Our primary uses of cash include the creation and acquisition of new content, business acquisitions, repurchases of our capital stock, income taxes, personnel costs, costs to develop and market discovery+, principal and interest payments on our outstanding debt,senior notes, and funding for various equity method and other investments.
•Content Acquisition
We plan to continue to invest significantly in the creation and acquisition of new content. Our investment in content has increased as we acquire and develop new content for discovery+. Additional information regarding contractual commitments to acquire content is set forth in "Material Cash Requirements from Known Contractual and Other Obligations" in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
•Debt
Senior Notes
In July 2021, we issued notices for the redemption in full of all $168 million aggregate principal amount outstanding of our 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of our 3.500% Senior Notes due June 2022 (collectively, the "2022 Notes"). The 2022 Notes were redeemed in July 2021 for an aggregate redemption price of $235 million, plus accrued interest.
In February 2021, we issued a notice for the redemption in full of all $335 million aggregate principal amount outstanding of our 4.375% Senior Notes due June 2021 (the “2021 Notes”). The 2021 Notes were redeemed in March 2021 for an aggregate redemption price of $339 million, plus accrued interest.
In addition, we have $339 million of senior notes coming due in March 2022.
•Capital Expenditures and Investments in Next Generation Initiatives
We effected capital expenditures of $373 million in 2021, including amounts capitalized to support our next generation platforms, such as discovery+. In addition, we expect to continue toincur significant costs to develop and market discovery+ in the future.
•Investments and Business Combinations
Scripps Networks Acquisition
On February 26, 2018, the U.S. Department of Justice notified the Company that it has closed its investigation into Discovery's agreement for a plan of merger to acquire Scripps Networks in a cash-and-stock transaction. The estimated merger consideration for the acquisition totals $12.0 billion, including cash of $8.4 billion and stock of $3.6 billion based on the Series C common stock price as of January 31, 2018. In addition, the Company will assume Scripps Networks' net debt of approximately $2.7 billion in aggregate principal amount. The transaction is expected to close by early 2018.
Scripps Networks shareholders will receive $63.00 per share in cash and a number of shares of Discovery's Series C common stock that is determined in accordance with a formula and subject to a collar based on the volume weighted average price of the Company's Series C common stock. The formula is based on the volume weighted average price of Discovery's Series C common stock over the 15 trading days ending on the third trading day prior to closing (the “Average Discovery Price”). Scripps Networks shareholders will receive 1.2096 shares of Discovery's Series C common stock if the Average Discovery Price is below $22.32, and 0.9408 shares of Discovery's Series C common stock if the Average Discovery Price is above $28.70. The intent of the range was to provide Scripps Networks shareholders with $27.00 of value per share in Discovery Series C common stock; if the Average Discovery Price is greater than or equal to $22.32 but less than or equal to $28.70, Scripps Networks shareholders will receive a proportional number of shares between 1.2096 and 0.9408. If the Average Discovery Price is below $25.51, Discovery has the option to pay additional cash instead of issuing more shares above the 1.0584 conversation ratio required at $25.51. The cash payment is equal to the product of the additional shares required under the collar formula multiplied by the Average Discovery Price; for example, if the Average Discovery Price were $22.32 with a conversion ratio of 1.2096, the Company could offer shares at the 1.0584 ratio and pay for the difference associated with the incremental
shares in cash. Outstanding employee equity awards or share-based awards that vest upon the change of control will be acquired with a similar combinationOur uses of cash have included investments in equity method investments and shares of Discovery Series C common stock pursuant to terms specified in the Merger Agreement. Therefore, the merger consideration will fluctuate based upon changes in the share price of Discovery Series C common stock and the number of Scripps Networks common shares, stock options, and other equity-based awards outstanding on the closing date. Discovery will also pay certain transaction costs incurred by Scripps Networks. The post-closing impact of the formula was intended to result in Scripps Networks’ shareholders owning approximately 20% of Discovery’s fully diluted common shares and Discovery’s shareholders owning approximately 80%. The Company will utilize previously issued debt proceeds (see Note 6 to the accompanying consolidated financial statements.) and cash on hand to finance the cash portion of the transaction. The transaction is subject to approvals and other customary closing conditions.
On July 30, 2017, the Company obtained a commitment letter from a financial institution for a $9.6 billion unsecured bridge term loan facility that could have been used to complete the Scripps Networks acquisition. No amounts were drawn under the bridge loan commitment and the commitment was terminated on September 21, 2017, following the execution of the Term Loans and the issuance of the 2017 Senior Notes. The Company incurred $40 million of debt issuance costs related to the bridge loan commitment.
During 2017, the Company issued $6.8 billion in senior notes to fund the anticipated Scripps Networks acquisitionequity investments without readily determinable fair value. (See Note 3 and Note 9 to the accompanying consolidated financial statements.) Of these total proceeds, $2.7 billion were invested in money market funds, $1.3 billion were invested in time deposit accounts, and the remainder was invested in highly liquid, short-term instruments with original maturities of 90 days or less. These investments are classified as cash and cash equivalents on the consolidated balance sheet and are anticipated to be used for the Scripps Networks acquisition. In the interim, the Company has full access to these proceeds.
For the year ended December 31, 2017, we incurred transaction and integration costs for the Scripps Networks acquisition of $79 million, including the $35 million charge associated with the modification of Advance/Newhouse's preferred stock. (See Note 124 to the accompanying consolidated financial statements.) We provide funding to our investees from time to time. We contributed $184 million and $181 million in 2021 and 2020, for investments in and advances to our investees. We also purchased $103 million and $250 million of time deposit investments during 2021 and 2020.
In May 2021, we entered into an agreement with AT&T Inc. to combine with WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets to create a standalone, global entertainment company. The transaction is expected to close in the second quarter of 2022, subject to approval by the Company's shareholders and customary closing conditions, including receipt of regulatory approvals. For the year ended December 31, 2021, we incurred transaction and integration costs of $95 million, primarily related to the WarnerMedia acquisition, and we expect to continue to incur significant transaction and integration costs related to the acquisition of Scripps Networks in 2018.
Other Investments2022 and Business Combinations
Our uses of cash have included investment in equity method investments, AFS securities, cost method investments (see Note 4 to the accompanying consolidated financial statements) and business combinations. During the year ended December 31, 2017, the Company invested $322 million in limited liability companies that sponsor renewable energy projects related to solar energy. The Company has $20 million of future funding commitments for these investments as of December 31, 2017 and intends to reduce its investments starting in 2018. We provide funding to our equity method investees from time to time. During the year ended December 31, 2017, the Company acquired other equity method investments, largely to enhance the Company's digital distribution strategies and made additional contributions to existing equity method investments totaling $73 million.
On November 30, 2017, the Company acquired from Harpo a controlling interest in OWN increasing Discovery’s ownership stake from 49.50% to 73.99%. Discovery paid $70 million in cash and recognized a gain of $33 million to account for the difference between the carrying value and the fair value of the previously held 49.50% equity interest. The gain is included in other (expense) income, net in the Company's consolidated statements of operations.beyond. (See Note 3 and Note 18 to the accompanying consolidated financial statements.)
Our cost method investments as of December 31, 2017 primarily include a 42% minority interest in Group Nine Media with a carrying value of $212 million. The Company also has investments in an educational website
•Redeemable Noncontrolling Interest and an electric car racing series. (See Note 4 to the accompanying consolidated financial statements).Noncontrolling Interest
Due to business combinations, we also have redeemable equity balances of $413$363 million, which may require the use of cash in the event holders of noncontrolling interests put their interests to the Company. (See Note 11us. Distributions to the accompanying consolidated financial statements).noncontrolling interests and redeemable noncontrolling interests totaled $251 million and $254 million in 2021 and 2020, respectively.
Content Acquisition
We plan to continue to invest significantly in the creation and acquisition of new content. Additional information regarding contractual commitments to acquire content is set forth in “Commitments and Off-Balance Sheet Arrangements” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
•Common Stock Repurchase ProgramRepurchases
Under the Company's stock repurchase program, management was authorized to purchase shares of the Company's common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices or pursuant to one or more accelerated stock repurchase 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. As of December 31, 2017, the Company had repurchased 3 million and 164 million shares of Series A and Series C common stock over the life of the program for the aggregate purchase price of $171 million and $6.6 billion, respectively. The Company's authorization under the program expired on October 8, 2017, andHistorically, we have not repurchased any shares of common stock since then. (See Note 12 to the accompanying consolidated financial statements.) We have funded our stock repurchases through a combination of cash on hand, cash generated by operations and the issuance of debt. In the future, we may also choose to fundFebruary 2020, our Board of Directors authorized additional stock repurchases through borrowings underof up to $2 billion upon completion of our revolving credit facility and future financing transactions.
Preferred Stock Conversion and Repurchase
Prior toexisting $1 billion authorization announced in May 2019. Under the Exchange Agreement with Advance/Newhouse entered into on July 30, 2017, we had an agreement with Advance/Newhouse to repurchase, on a quarterly basis, a number of shares of Series C-1 convertible preferred stock convertible into Series C common stock purchased under the Company’snew stock repurchase program during the then most recently completed fiscal quarter. The price paid per share was calculated as 99% of the average price paid for the Series C commonauthorization, management is authorized to purchase shares repurchased by the Company during the applicable fiscal quarter multiplied by the Series C conversion rate. The Advance/Newhouse repurchases are made outside of the Company’s publicly announced stock repurchase program. The Advance/Newhouse repurchase agreement was amended on August 7, 2017from time to conform the terms of the previous agreement, as detailed above,time through open market purchases at prevailing prices or privately negotiated purchases subject to the conversion ratio of the newly issued Series C-1 convertible preferred stock. Prior to the Exchange Agreement, we convertedmarket conditions and retired 2.3 million shares of our Series C convertible preferred stock under the preferred stock conversion and repurchase arrangement for an aggregate purchase price of $120 million. Following the Exchange Agreement, we repurchased 0.2 million shares of Series C-1 convertible preferred stock for a purchase price of $102 million. The aggregate purchase price paid during the year ended December 31, 2017, including Series C convertible preferred stock and Series C-1 convertible preferred stock, was $222 million.other factors. (See Note 12 to the accompanying consolidated financial statements.) There was no common stock repurchase activity during 2021. During 2020, we repurchased $969 million of our Series C common stock.
•Income Taxes and Interest
We expect to continue to make payments for income taxes and interest on our outstanding senior notes.During the year ended December 31, 2017,2021 and 2020, we made cash payments of $274$643 million and $357$641 million for income taxes and $664 million and $673 million for interest on our outstanding debt, respectively.
Restructuring and Other
Our uses of cash include restructuring costs related to management changes and cost reduction efforts, including employee terminations, intended to enable us to more efficiently operate in a leaner and more directed cost structure and invest in growth initiatives, including digital services and content creation. As of December 31, 2017, we have restructuring liabilities of $42 million related to employee terminations. (See Note 15 todebt. Following the accompanying consolidated financial statements).We expect to incur additional restructuring costs following the acquisition of Scripps Networks in early 2018.
Share-Based Compensation
We expect to continue to make payments for vested cash-settled share-based awards. Actual amounts expensed and payable for cash-settled awards are dependent on future fair value calculations, which are primarily affected by changes in our stock price or changes in the number of awards outstanding. During 2017, we paid $1 million for cash-settled share-based awards. As of December 31, 2017, liabilities totaled $47 million for outstanding liability-classified share-based compensation awards, of which $12 million was classified as current. (See Note 13 to the accompanying consolidated financial statements.)
Repurchase of Debt
DCL used the proceeds from the offeringsclosing of the March 2017 USD Notes and the 2016 USD Notesproposed Combination with WarnerMedia, we expect cash required for interest payments to repurchase $600 million aggregate principal amount of DCL's 5.05% senior notes due 2020 and 5.625% senior notes due 2019 in a cash tender offer.
significantly increase.
Cash Flows
ChangesThe following table presents changes in cash and cash equivalents were as follows (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Cash and cash equivalents, beginning of period | | $ | 300 |
| | $ | 390 |
| | $ | 367 |
|
Cash provided by operating activities | | 1,629 |
| | 1,380 |
| | 1,294 |
|
Cash used in investing activities | | (633 | ) | | (256 | ) | | (301 | ) |
Cash provided by (used in) financing activities | | 5,951 |
| | (1,184 | ) | | (919 | ) |
Effect of exchange rate changes on cash and cash equivalents | | 62 |
| | (30 | ) | | (51 | ) |
Net change in cash and cash equivalents | | 7,009 |
| | (90 | ) | | 23 |
|
Cash and cash equivalents, end of period | | $ | 7,309 |
| | $ | 300 |
| | $ | 390 |
|
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | |
Cash, cash equivalents, and restricted cash, beginning of period | | $ | 2,122 | | | $ | 1,552 | | | |
Cash provided by operating activities | | 2,798 | | | 2,739 | | | |
Cash used in investing activities | | (56) | | | (703) | | | |
Cash used in financing activities | | (853) | | | (1,549) | | | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (106) | | | 83 | | | |
Net change in cash, cash equivalents, and restricted cash | | 1,783 | | | 570 | | | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 3,905 | | | $ | 2,122 | | | |
Operating Activities
Cash provided by operating activities increased $249 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was primarily attributable to a $253 million decrease in cash paid for taxes. The decrease in cash paid for taxes, net, for the year ended December 31, 2017 is mostly due to the tax impact from the Company's investments in limited liability companies that sponsor renewable energy projects related to solar energy. (See Note 4 and Note 18 to the accompanying consolidated financial statements.) Declines in working capital, primarily due to changes in accounts receivable, were offset by a decrease in the net negative effect of foreign currency and increases in payables.
Cash provided by operating activities increased $96 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Improvementswas $2.8 billion and $2.7 billion in operating results were partially offset by increases in content spending, particularly for sports rights, of $131 million2021 and the impact of foreign currency.
Investing Activities
Cash flows used in investing activities increased $377 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016.2020, respectively. The increase in cash provided by operating activities was mostlyprimarily attributable to an increase in payments for investments of $172 million, including renewable energy projects and payments for derivative instruments of $98 million that did not receive hedge accounting, but economically hedged pricing risk for the senior notes issued September 21, 2017.net income excluding non-cash items, partially offset by a negative fluctuation in working capital activity.
Investing Activities
Cash flows used in investing activities decreased $45was $56 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015.and $703 million in 2021 and 2020, respectively. The decrease was primarily attributable to a decrease in cash paid for business combinations, net of cash acquired of $80 million, partially offset by a decreaseused in proceeds from dispositions of businesses of $42 million.
Financing Activities
Cash flows provided by financinginvesting activities increased $7.1 billion for the twelve months ended December 31, 2017 as compared to the twelve months ended December 31, 2016. The increase was primarily attributable to proceeds received from the issuancesales and maturities of senior notes which will be used to finance the Scripps Networks Acquisition (see Note 9 to the accompanying consolidated financial statements)investments and a decreasereduction in repurchasespurchases of stock of $771 million,investments, partially offset by an increase in principal repayments of debt.payments for derivatives during 2021.
Financing Activities
Cash flows used in financing activities increased $265was $853 million for the year ended December 31, 2016 as comparedand $1.5 billion in 2021 and 2020, respectively. The decrease in cash used in financing activities was primarily attributable to the year ended December 31, 2015. The increase was attributable to an increase in repurchasessuspension of stock of $423 million and a decrease in net borrowings of $471 million, which is comprised of increases in repayments under our revolving credit facility, net of repayments, of $973 million partially offset by increased borrowings of senior notes, net of repayments, of $411 million and decreases in commercial paper repayments of $91 million. These net increases were partially offset by decreases in purchases of redeemable noncontrolling interests of $548 million and payments on hedging instruments for derivatives in connection with the effective portion of interest rate contracts of $69 million.repurchases throughout 2021.
Capital Resources
As of December 31, 2017,2021, capital resources were comprised of the following (in millions).
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Total Capacity | | Outstanding Letters of Credit | | Outstanding Indebtedness | | Unused Capacity |
Cash and cash equivalents | | $ | 7,309 |
| | $ | — |
| | $ | — |
| | $ | 7,309 |
|
Revolving credit facility and commercial paper program | | 2,500 |
| | 1 |
| | 425 |
| | 2,074 |
|
Senior notes(a) | | 14,263 |
| | — |
| | 14,263 |
| | — |
|
Total | | $ | 24,072 |
| | $ | 1 |
| | $ | 14,688 |
| | $ | 9,383 |
|
(a) Interest on our senior notes is paid annually, semi-annually or quarterly. Our senior notes outstanding as of December 31, 2017 had interest rates that ranged from 1.90% to 6.35% and will mature between 2019 and 2047. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Total Capacity | | Outstanding Letters of Credit | | Outstanding Indebtedness | | Unused Capacity |
Cash and cash equivalents | | $ | 3,905 | | | $ | — | | | $ | — | | | $ | 3,905 | |
Revolving credit facility and commercial paper program | | 2,500 | | | — | | | — | | | 2,500 | |
Senior notes (a) | | 15,187 | | | — | | | 15,187 | | | — | |
Total | | $ | 21,592 | | | $ | — | | | $ | 15,187 | | | $ | 6,405 | |
| | | | | | | | |
(a) Interest on senior notes is paid annually or semi-annually. Our senior notes outstanding as of December 31, 2021 had interest rates that ranged from 1.90% to 6.35% and will mature between 2022 and 2055. |
We expect that our cash balance, cash generated from operations and availability under our revolving credit facilitythe Credit Agreement will be sufficient to fund our cash needs for both the next twelve months, including any potential required payments related toshort-term and the special mandatory redemption provision associated with certain senior notes issued on September 21, 2017.long-term. Our borrowing costs and access to the capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.
As of December 31, 2017,2021, we held $103$236 million of our $7.3$3.9 billion of cash and cash equivalents in our foreign subsidiaries. The 2017 Tax Act features a participation exemption regime with current taxation of certain foreign income and imposes a mandatory repatriation toll tax on unremitted foreign earnings. Notwithstanding the U.S. taxation of these amounts, we intend to continue to reinvest these funds outside of the U.S. Our current plans do not demonstrate a need to repatriate them to the U.S. However, if these funds are needed in the U.S., we would be required to accrue and pay foreignnon-U.S. taxes to repatriate them. The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.
Summarized Guarantor Financial Information
Basis of Presentation
As of December 31, 2021, all of the Company’s outstanding registered senior notes have been issued by DCL, a wholly owned subsidiary of the Company and guaranteed by the Company and Scripps Networks, except for $23 million of senior notes outstanding as of December 31, 2021 that have been issued by Scripps Networks and are not guaranteed. (See Note 8 to the accompanying consolidated financial statements.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned, indirect subsidiary of the Company. Scripps Networks is also 100% owned by the Company.
The tables below present the summarized financial information as combined for Discovery, Inc. (the “Parent”), Scripps Networks and DCL (collectively, the “Obligors”). All guarantees of DCL's senior notes (the “Note Guarantees”) are full and unconditional, joint and several and unsecured, and cover all payment obligations arising under the senior notes.
Note Guarantees issued by Scripps Networks or any subsidiary of the Parent that in the future issues a Note Guarantee (each, a “Subsidiary Guarantor”) may be released and discharged (i) concurrently with any direct or indirect sale or disposition of such Subsidiary Guarantor or any interest therein, (ii) at any time that such Subsidiary Guarantor is released from all of its obligations under its guarantee of payment by DCL, (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into DCL or the Parent or another Subsidiary Guarantor, or upon the liquidation of such Subsidiary Guarantor and (iv) other customary events constituting a discharge of the Obligors’ obligations.
Summarized Financial Information
The Company has included the accompanying summarized combined financial information of the Obligors after the elimination of intercompany transactions and balances among the Obligors and the elimination of equity in earnings from and investments in any subsidiary of the Parent that is a non-guarantor (in millions).
| | | | | | | | | | |
| | | | |
| | December 31, 2021 | | |
Current assets | | $ | 4,452 | | | |
Non-guarantor intercompany trade receivables, net | | 85 | | | |
Noncurrent assets | | 5,969 | | | |
Current liabilities | | 1,018 | | | |
Noncurrent liabilities | | 15,778 | | | |
| | | | | | | | | | |
| | Year Ended December 31, 2021 | | |
Revenues | | $ | 2,091 | | | |
Operating income | | 1,028 | | | |
Net income | | 294 | | | |
Net income available to Discovery, Inc. | | 246 | | | |
Additional information regarding the changes in our outstanding indebtedness and the significant terms and provisions of our revolving credit facility and outstanding indebtedness is discussed in Note 98 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
MATERIAL CASH REQUIREMENTS FROM KNOWN CONTRACTUAL AND OTHER OBLIGATIONS
As of December 31, 2021, our significant contractual and other obligations were as follows (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Total | | Short-term | | Long-term |
Long-term debt: | | | | | | |
Principal payments | | $ | 15,187 | | | $ | 339 | | | $ | 14,848 | |
Interest payments | | 9,988 | | | 629 | | | 9,359 | |
Purchase obligations: | | | | | | |
Content | | 5,352 | | | 1,798 | | | 3,554 | |
Other | | 1,611 | | | 704 | | | 907 | |
Finance lease obligations | | 277 | | | 65 | | | 212 | |
Operating lease obligations | | 801 | | | 84 | | | 717 | |
Pension and other employee obligations | | 17 | | | 3 | | | 14 | |
Total | | $ | 33,233 | | | $ | 3,622 | | | $ | 29,611 | |
Long-term Debt
Principal payments on long-term debt reflect the repayment of our outstanding senior notes, at face value, assuming repayment will occur upon maturity. Interest payments on our outstanding senior notes are projected based on their contractual interest rates and maturity dates.
Additionally, DCL's revolving credit facility allows DCL and certain designated foreign subsidiaries of DCL to borrow up to $2.5 billion, including a $150 million sublimit for the issuance of standby letters of credit. Upon the closing of the Combination with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion. As of December 31, 2021, we had no outstanding borrowings under the credit facility or the commercial paper program. (See Note 8 to the accompanying consolidated financial statements.)
Purchase Obligations
Content purchase obligations include commitments and liabilities associated with third-party producers and sports associations for content that airs on our television networks. Production contracts generally require: purchase of a specified number of episodes; payments over the term of the license; and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place. If the content is ultimately never produced, our commitments expire without obligation. The commitments exclude content liabilities recognized on the consolidated balance sheet. We expect to enter into additional production contracts and content licenses to meet our future content needs.
Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. Significant purchase obligations include transmission services, television rating services, marketing commitments and research, equipment purchases, and information technology and other services. Some of these contracts do not require the purchase of fixed or minimum quantities and generally may be terminated with a 30-day to 60-day advance notice without penalty, and are not included in the table above past the 30-day to 60-day advance notice period.
Finance Lease Obligations
We acquire satellite transponders and other equipment through multi-year finance lease arrangements. Principal payments on finance lease obligations reflect amounts due under our finance lease agreements. Interest payments on our outstanding finance lease obligations are based on the stated or implied rate in our finance lease agreements.
Operating Lease Obligations
We obtain office space and equipment under multi-year lease arrangements. Most operating leases are not cancelable prior to their expiration. Payments for operating leases represent the amounts due under the agreements assuming the agreements are not canceled prior to their expiration.
Pension and Other Employee Obligations
We sponsor a qualified defined benefit pension plan (“Pension Plan”) that covers certain U.S.-based employees. We also have a non-qualified Supplemental Executive Retirement Plan (“SERP”).
Contractual commitments include payments to meet minimum funding requirements of our Pension Plan in 2022 and estimated benefit payments for our SERP that exceed plan assets. Payments for the SERP have been estimated over a ten-year period. While benefit payments under these plans are expected to continue beyond 2031, we believe it is not practicable to estimate payments beyond this period.
We are unable to reasonably predict the ultimate amount of any payments due to cash-settled share-based compensation awards. As of December 31, 2021, the current portion of the liability for cash-settled share-based compensation awards was $17 million.
Unrecognized Tax Benefits
We are unable to reasonably predict the ultimate amount or timing of settlement of our unrecognized tax benefits because, until formal resolutions are reached, reasonable estimates of the amount and timing of cash settlements with the respective taxing authorities are not practicable. Our unrecognized tax benefits totaled $420 million as of December 31, 2021.
Put Rights
We have granted put rights to certain consolidated subsidiaries, but we are unable to reasonably predict the ultimate amount or timing of any payment. We recorded the carrying value of the noncontrolling interest in the equity associated with the put rights as a component of redeemable noncontrolling interest in the amount of $363 million. (See Note 11 to the accompanying consolidated financial statements.)
Noncontrolling Interest
The Food Network and Cooking Channel are operated and organized under the terms of the TV Food Network Partnership (the "Partnership"). We hold interests in the Partnership, along with another noncontrolling owner. The Partnership agreement specifies a dissolution date of December 31, 2022. If the term of the Partnership is not extended prior to that date, the Partnership agreement permits us, as holder of 80% of the applicable votes, to reconstitute the Partnership and continue its business. If for some reason the Partnership is not continued, it will be required to limit its activities to winding up, settling debts, liquidating assets and distributing proceeds to the partners in proportion to their partnership interests.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, we enter into transactions with related parties, primarily the Liberty Entities and our equity method investees. Information regarding transactions and amounts with related parties is discussed in Note 21 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS
We adopted certain accounting and reporting standards during 2021. Information regarding our adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to uncertain tax positions, goodwill and intangible assets, content rights, consolidation and revenue recognition. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.
Management considers an accounting estimate to be critical if it required assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates could have a material effect on our results of operations.
The development and selection of these critical accounting estimates have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company. We believe the following accounting policies are critical to our business operations and the understanding of our results of operations and involve the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Uncertain Tax Positions
We are subject to income taxes in numerous U.S. and foreign jurisdictions. From time to time, we engage in transactions or take filing positions in which the tax consequences may be uncertain and may recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We establish a reserve for uncertain tax positions unless we determine that such positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes. We include interest and where appropriate, potential penalties, as a component of income tax expense on the consolidated statement of operations. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events including the status and results of income tax audits with the relevant tax authorities. Significant judgment is exercised in evaluating all relevant information, the technical merits of the tax positions, and the accurate measurement of uncertain tax positions when determining the amount of reserve and whether positions taken on our tax returns are more likely than not to be sustained. This also involves the use of significant estimates and assumptions with respect to the potential outcome of positions taken on tax returns that may be reviewed by tax authorities. At December 31, 2021, the reserve for uncertain tax positions was $420 million, and it is reasonably possible that the total amount of unrecognized tax benefits related to certain of our uncertain tax positions could decrease by as much as $125 million within the next twelve months as a result of ongoing audits, foreign judicial proceedings, lapses of statutes of limitations or regulatory developments.
Goodwill and Intangible Assets
Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (the component level). Reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units are as follows: U.S. Networks, Europe, Latin America, and Asia-Pacific.
We evaluate our goodwill for impairment annually as of October 1 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization. If we believe that as a result of our qualitative assessment it is not more likely than not that the fair value of a reporting unit is greater than its carrying amount, a quantitative impairment test is required. The quantitative impairment test requires significant judgment in determining the fair value of the reporting units. We determine the fair value of our reporting units by using a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method and the market multiple approach, which incorporates the use of EBITDA multiples based on market data. For the DCF method, we use projections specific to the reporting unit, as well as those based on general economic conditions, which require the use of significant estimates and assumptions. Determining fair value specific to each reporting unit requires the Company to exercise judgment when selecting the appropriate discount rates, control premiums, terminal growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows, including revenue growth rates and profit margins. The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long range plan, and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions.
2021 Impairment Analysis
During the fourth quarter of 2021, the Company performed a qualitative goodwill impairment assessment for all reporting units and it determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, therefore, no quantitative goodwill impairment analysis was performed
Content Rights
Content rights principally consist of television series, specials, films and sporting events. Costs of produced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs and are capitalized if we have previously generated revenues from similar content in established markets and the content will be used and revenues will be generated for a period of at least one year.
Linear content amortization expense for each period is recognized based on the revenue forecast model, which approximates the proportion that estimated distribution and advertising revenues for the current period represent in relation to the estimated remaining total lifetime revenues. Digital content amortization for each period is recognized based on estimated viewing patterns as there are no direct revenues to associate to the individual content assets and therefore, number of views is most representative of the use of the title. Judgment is required to determine the useful lives and amortization patterns of our content assets.
Critical assumptions used in determining content amortization include: (i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or viewership model based on the adequacy of historical data, (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the forecast model, (iv) assessing the accuracy of our forecasts and (v) incorporating secondary streams. We then consider the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends. Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving our networks, the number of subscribers to our digital services, and program usage. Accordingly, we continually review our estimates and planned usage and revise our assumptions if necessary.
Consolidation
We have ownership and other interests in and contractual arrangements with various entities, including corporations, partnerships, and limited liability companies. For each such entity, we evaluate our ownership, other interests and contractual arrangements to determine whether we should consolidate the entity or account for its interest as an investment at inception and upon reconsideration events. As part of its evaluation, we initially determine whether the entity is a variable interest entity ("VIE"). Management evaluates key considerations through a qualitative and quantitative analysis in determining whether an entity is a VIE including whether (i) the entity has sufficient equity to finance its activities without additional financial support from other parties, (ii) the ability or inability to make significant decisions about the entity’s operations, and (iii) the proportionality of voting rights of investors relative to their obligations to absorb the expected losses (or receive the expected returns) of the entity. If the entity is a VIE and if we have a variable interest in the entity, we use judgment in determining if we are the primary beneficiary and are thus required to consolidate the entity. In making this determination, we evaluate whether we or another party involved with the VIE (1) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) has the obligation to absorb losses of or receive benefits from the VIE that could be significant to the VIE.
If it is concluded that an entity is not a VIE, we consider our proportional voting interests in the entity and consolidate majority-owned subsidiaries in which a controlling financial interest is maintained. A controlling financial interest is determined by majority ownership and the absence of substantive third-party participation rights. Key factors we consider in determining the presence of substantive third-party participation rights include, but are not limited to, control of the board of directors, budget approval or veto rights, or operational rights that significantly impact the economic performance of the business such as programming, creative development, marketing, and selection of key personnel. Ownership interests in unconsolidated entities for which we have significant influence are accounted for as equity method.
We evaluated reconsideration events during the year ended December 31, 2021 and concluded there were no changes to our consolidation assessments.
Revenue Recognition
As described in Note 2, we generate advertising revenues primarily from advertising sold on our television networks, authenticated TVE applications, DTC subscription services and websites and distribution revenues from fees charged to distributors of our network content, which include cable, direct-to-home satellite, telecommunications and digital service providers and bundled long-term content arrangements, as well as through DTC subscription services.
A substantial portion of the advertising contracts in the U.S. and certain international markets guarantee the advertiser a minimum audience level that either the program in which their advertisements are aired or the advertisement will reach. These advertising campaigns are considered to represent a single, distinct performance obligation. For such contracts, judgment is required in measuring progress across the Company’s single performance obligation. Various factors such as pricing specific to the channel, daypart and targeted demographic, as well as estimated audience guarantees, are considered in determining how to appropriately measure progress across the campaigns. Revenues are ultimately recognized based on the audience level delivered multiplied by the average price per impression.
See Item 1A, "Risk Factors" for details on significant risks that could impact our ability to successfully grow our cash flows.
For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our financial position, earnings and cash flows are exposed to market risks and can be affected by, among other things, economic conditions, interest rate changes, foreign currency fluctuations, and changes in the market values of investments. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
Interest Rates
We are exposed to the impact of interest rate changes primarily through our actual and potential borrowing activities. During the year ended December 31, 2017,2021, we had access toentered into a $2.5new $2.5 billion multicurrency revolving credit facility, replacing the existing $2.5 billion credit agreement. We have the capacity to initially borrow up to $2.5 billion, and upon the closing of the proposed combination transaction with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion. We had no outstanding borrowings of $425 million as of December 31, 2017.2021. We also have access to a commercial paper program, andwhich had no outstanding borrowings as of December 31, 2017.2021. The interest rate on borrowings under the revolving credit facility is variable based on an underlying index and DCL's then-current credit rating for its publicly traded debt.a floating rate based on the applicable currency of the borrowing plus a margin. The revolving credit facility provides for a maturity date of August 11, 2022matures in June 2026 and the option for up to two additional 364-day renewal periods. As of December 31, 2017,2021, we had outstanding debt with a book value of $13.9$15.2 billion under various public senior notes with fixed interest rates and $400 million with a floating interest rate.
The Company has entered into a three year delayed draw tranche and a five year delayed draw tranche unsecured term loan credit facility, each with a principal amount of up to $1 billion. The Term Loans' interest rates are based, at the Company's option, on either adjusted LIBOR plus a margin, or an alternate base rate plus a margin. The Company will pay a commitment fee of 20 basis points per annum for each loan, based on its current credit rating, beginning September 28, 2017 until either the funding of the loans or the termination of the Scripps Networks acquisition. As of December 31, 2017, the Company has not yet borrowed on the term loan credit facilities.rates.
Our current objectives in managing exposure to interest rate changes are to limit the impact of interest rates on earnings and cash flows. To achieve these objectives, we may enter into variable interest rate swaps or swaptions, effectively converting fixed rate borrowings
to variable rate borrowings indexed to LIBOR in order to reduce the amount of interest paid. We may also enter into fixed rate forward starting swaps to limit the impact of volatility in interest rates for future issuances of fixed rate debt. As of December 31, 2017,2021, we have no outstandinghad entered into forward starting interest rate swaps.swap agreements with a notional value of $2 billion for the future issuances of fixed rate debt and a combination of swaption collars, purchase payer swaptions and interest rate swaps with a combined notional value of $15 billion for the expected issuances of debt associated with the upcoming WarnerMedia merger.
As of December 31, 2017,2021, the fair value of our outstanding public senior notes was $14.8 billion.$17.2 billion. The fair value of our long-term debt may vary as a result of market conditions and other factors. A change in market interest rates will impact the fair market value of our fixed rate debt. The potential change in fair value of these senior notes from an adversea 100 basis-point changeincrease in quoted interest rates across all maturities, often referred to as a parallel shift in the yield curve, would be a decrease in fair value of approximately $1.3$1.5 billion as of December 31, 2017.2021.
Foreign Currency Exchange Rates
We transact business globally and are subject to risks associated with changing foreign currency exchange rates. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows, and future earnings. Our International Networks segment operates from the following hubs:hubs in EMEA, Latin America and Asia. Cash is primarily managed from five global locationsAsia with net earnings reinvested locally and working capital requirements met from existing liquid funds. To the extent such funds are not sufficient to meet working capital requirements, drawdowns in the appropriate local currency are available from intercompany borrowings or drawdowns from our revolving credit facility. The earnings of certain international operations are expected to be reinvested in those businesses indefinitely.
The functional currency of most of our international subsidiaries is the local currency. We are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our subsidiaries’ respective functional currencies ("non-functional currency risk"). Such transactions include affiliate and ad sales arrangements, content arrangements, equipment and other vendor purchases, and intercompany transactions. Changes in exchange rates with respect to amounts recorded in our consolidated balance sheets related to these items will result in unrealized foreign currency transaction gains and losses based upon period-end exchange rates. We also record realized foreign currency transaction gains and losses upon settlement of the transactions. Moreover, we will experience fluctuations in our revenues, costs and expenses solely as a result of changes in foreign currency exchange rates.
We also are exposed to unfavorable and potentially volatile fluctuations of the U.S. dollar, which is our reporting currency, against the currencies of our operating subsidiaries when their respective financial statements are translated into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive (loss) incomeloss as a separate component of equity. Any increase or decrease in the value of the U.S. dollar against any foreign functional currency of one of our operating subsidiaries will cause us to experience unrealized foreign currency translation gains (losses)or losses with respect to amounts already invested in such foreign currencies. Accordingly, we may experience a negative impact on our net (loss) income, other comprehensive income (loss) and equity with respect to our holdings solely as a result of changes in foreign currency.
The majority of our foreign currency exposure is to the euroEuro, Polish zloty, and the British pound.Pound. We may enter into spot, forward and option contracts that change in value as foreign currency exchange rates change to hedge certain exposures associated with affiliate revenue, the cost for producing or acquiring content, certain intercompany transactions, or in connection with forecasted business combinations. These contracts hedge forecasted foreign currency transactions in order to mitigate fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flows. The net market value of our foreign currency derivative instruments intended to hedge future cash flows held at December 31, 2017 was a liability value of $5 million. Most of our non-functional currency risks related to our revenue, operating expenses and capital expenditures were not hedged as of December 31, 2017.2021. We generally do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our subsidiaries and affiliates into U.S. dollars. (See Note 10 to the accompanying consolidated financial statements.)
Derivatives
We may use derivative financial instruments to modify our exposure to exogenous events and market risks from changes in foreign currency exchange rates, interest rates, and the fair value of investments classified as AFS securities.with readily determinable fair values. We do not use derivative financial instruments unless there is an underlying exposure. While derivatives are used to mitigate cash flow risk and the risk of declines in fair value, they also limit potential economic benefits to our business in the event of positive shifts in foreign currency exchange rates, interest rates, and market values. We do not hold or enter into financial instruments for speculative trading purposes. (See Note 10 to the accompanying consolidated financial statements.)
Market Values of Investments
In addition to derivatives, we had investments in entities accounted for using theas equity method cost method, AFS securities,investments, equity investments, and other highly liquid instruments, such as money market and mutual funds, that are accounted for at fair value. The carrying values of investments in equity method investees, cost method investees, AFS securities(See Note 4 and mutual funds were $335 million, $295 million, $164 million and $2.9 billion, respectively, at December 31, 2017.Note 5 to the accompanying consolidated financial statements.) Investments in mutual funds include both fixed rate and floating rate interest earning securities that carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. Due in part to these factors, our income from such investments may decrease in the future. During 2017, the Company issued $6.8 billion in senior notes to partially fund the Scripps Networks acquisition (See Note 3 and Note 9 to the accompanying consolidated financial statements.) Of these total proceeds, $2.7 billion were invested in money market funds, $1.3 billion were invested in time deposit accounts, and the remainder was invested in highly liquid, short-term instruments with original maturities of 90 days or less.
These investments are classified as cash and cash equivalents on the consolidated balance sheet and are anticipated to be used for the Scripps Networks acquisition. In the interim, the Company has full access to these proceeds.
COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
Obligations
As of December 31, 2017, our significant contractual obligations, including related payments due by period, were as follows (in millions).
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Long-term debt: | | | | | | | | | | |
Principal payments | | $ | 14,263 |
| | $ | — |
| | $ | 2,100 |
| | $ | 1,508 |
| | $ | 10,655 |
|
Interest payments | | 8,165 |
| | 587 |
| | 1,109 |
| | 971 |
| | 5,498 |
|
Capital lease obligations: | | | | | | | | | | |
Principal payments | | 225 |
| | 38 |
| | 56 |
| | 44 |
| | 87 |
|
Interest payments | | 40 |
| | 10 |
| | 13 |
| | 9 |
| | 8 |
|
Operating lease obligations | | 230 |
| | 61 |
| | 88 |
| | 45 |
| | 36 |
|
Content | | 3,846 |
| | 1,075 |
| | 1,308 |
| | 692 |
| | 771 |
|
Other | | 920 |
| | 332 |
| | 416 |
| | 83 |
| | 89 |
|
Total | | $ | 27,689 |
| | $ | 2,103 |
| | $ | 5,090 |
| | $ | 3,352 |
| | $ | 17,144 |
|
The above table does not include certain long-term obligations as the timing or the amount of the payments cannot be predicted. For example, as of December 31, 2017, we have recorded $413 million for redeemable equity (see Note 11 to the accompanying consolidated financial statements), although we are unable to predict reasonably the ultimate amount or timing of any payment. The current portion of the liability for cash-settled share-based compensation awards was $12 million as of December 31, 2017. Additionally, reserves for unrecognized tax benefits have been excluded from the above table because we are unable to predict reasonably the ultimate amount or timing of settlement. Our unrecognized tax benefits totaled $189 million as of December 31, 2017.
The above table also does not include DCL's revolving credit facility that, during the year ended December 31, 2017, allowed DCL and certain designated foreign subsidiaries of DCL to borrow up to $2.5 billion, including a $100 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swingline loans. Borrowing capacity under this agreement is reduced by the outstanding borrowings under the commercial paper program discussed below. As of December 31, 2017, the revolving credit facility agreement provided for a maturity date of August 11, 2022 and the option for up to two additional 364-day renewal periods.
From time to time we may provide our equity method investees additional funding that has not been committed to as of December 31, 2017 based on unforeseen investee opportunities or cash flow needs. (See Note 4 to the accompanying consolidated financial statements.)
Long-term Debt
Principal payments on long-term debt reflect the repayment of our outstanding senior notes, at face value, assuming repayment will occur upon maturity. Interest payments on our outstanding senior notes are projected based on their contractual rate and maturity.
Capital Lease Obligations
We acquire satellite transponders and other equipment through multi-year capital lease arrangements. Principal payments on capital lease obligations reflect amounts due under our capital lease agreements. Interest payments on our outstanding capital lease obligations are based on the stated or implied rate in our capital lease agreements.
Operating Lease Obligations
We obtain office space and equipment under multi-year lease arrangements. Most operating leases are not cancelable prior to their expiration. Payments for operating leases represent the amounts due under the agreements assuming the agreements are not canceled prior to their expiration.
Purchase Obligations
Content purchase obligations include commitments and liabilities associated with third-party producers and sports associations for content that airs on our television networks. Production contracts generally require: purchase of a specified number of episodes; payments over the term of the license; and include both programs that have been delivered and are available for airing and programs that have not yet been produced or sporting events that have not yet taken place. If the content is ultimately never produced, our commitments expire without obligation. The commitments disclosed above exclude content liabilities recognized on the consolidated balance sheet. We expect to enter into additional production contracts and content licenses to meet our future content needs.
Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. Significant purchase obligations include transmission services, television rating services, marketing research, employment contracts, equipment purchases, and information technology and other services. The Company has contracts that do not require the purchase of fixed or minimum quantities and generally may be terminated without penalty with a 30-day to 60-day advance notice, and are not included in the table above past the 30-day to 60-day advance notice period. Amounts related to employment contracts include base compensation and do not include compensation contingent on future events.
Put Rights
The Company has granted put rights related to certain consolidated subsidiaries. Harpo, Inc. ("Harpo"), GoldenTree Asset Management L.P. ("GoldenTree"), Hasbro Inc. ("Hasbro"), and Jupiter Telecommunications Co., Ltd. ("J:COM") have the right to require the Company to purchase the remaining noncontrolling interests in OWN, VTEN, Discovery Family and Discovery Japan, respectively. The Company recorded the value of the put rights for OWN, VTEN, Discovery Family and Discovery Japan as a component of redeemable noncontrolling interests in the amounts of $55 million, $120 million, $210 million and $27 million, respectively. (See Note 11 to the accompanying consolidated financial statements.)
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements (as defined in Item 303(a)(4) of Regulation S-K) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
RELATED PARTY TRANSACTIONS
In the ordinary course of business we enter into transactions with related parties, primarily our equity method investees and Liberty Media, Liberty Global, Liberty Interactive and Liberty Broadband (together, the "Liberty Entities"). Information regarding transactions and amounts with related parties is discussed in Note 19 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS
We adopted certain accounting and reporting standards during 2017. Information regarding our adoption of new accounting and reporting standards is discussed in Note 2 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K and accompanying notes. Management considers an accounting policy to be critical if it is important to reporting our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company. We consider policies relating to the following matters to be critical accounting policies:
Revenue recognition;
Goodwill and intangible assets;
Income taxes;
Content rights;
Equity-based compensation; and
Equity method investments.
With respect to our accounting policy for goodwill, we further supplement disclosures in Note 2 with the following:
Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (the component level). Reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units are as follows: U.S. Networks, Europe, Latin America, Asia and Education.
We evaluate our goodwill for impairment annually as of November 30 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization. The impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit if a quantitative test is performed. If we believe that as a result of our 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.
Consistent with our accounting policy, the Company performed a quantitative step 1 impairment test (comparison of fair value to carrying value) for each of its reporting units in 2016 which indicated limited headroom (the excess of fair value over carrying value) in the European reporting unit of 12%, while all other reporting units had headroom in excess of 40%. Given the limited headroom in the European reporting unit, the Company closely monitored its results during 2017 and again performed a quantitative impairment test of the European reporting unit as of November 30, 2017, which indicated a slight failure (approximately $100 million or 3% deficit). The key factors resulting in the impairment include: 1) moderated revenue expectations based on continued declines in viewership, 2) expected increases in content investment to service existing customers and grow the Company's direct-to-consumer business, and 3) lower stock price multiples for peer media companies. Given the results of the step 1 impairment test, the Company applied the hypothetical purchase price analysis required by the step 2 test and recognized a pre-tax goodwill impairment charge of $1.3 billion as of November 30, 2017, for the European reporting unit. The impairment charge of $1.3 billion significantly exceeds the deficit of fair value to carrying value of approximately $100 million because of significant intangible assets that are not recognized on our balance sheet (i.e., excluded from book carrying value) but are considered in the step 2 calculation on a fair value basis. The step 1 and step 2 tests and relevant assumptions are further discussed below. For our US Networks, Latin, Asia and Education reporting units, we performed a qualitative goodwill impairment review in 2017. No factors were identified indicating a need for a quantitative assessment.
For the 2017 step 1 test, the carrying value of the European reporting unit of $4.0 billion, which includes $2.4 billion of goodwill, exceeded its fair value of $3.9 billion by 3%. In performing the step 1 test, we determined the fair value of our European reporting unit by using a combination of discounted cash flow (“DCF”) analyses and market-based valuation methodologies. The results of these valuation methodologies were weighted 75% towards the DCF and 25% towards the market-based approach, which
is consistent with prior quantitative analyses. Significant judgments and assumptions used in the DCF and market-based model to assess the reporting unit's fair value include the amount and timing of expected future cash flows, long-term growth rates of 2.5% (compared with 3% in 2016), a discount rate of 9.75% (compared with 10.5% in 2016), and our selection of guideline company earnings multiples of 7.5 (compared with 9.5 in 2016). The cash flows employed in the DCF analysis for the European reporting unit are based on the reporting unit's budget and long-term business plan, which reflect our expectations based upon recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations.
The net assets assigned to the European reporting unit included corporate allocations. These assets and liabilities include corporate enterprise goodwill and intangible assets, allocated in prior periods based on the relative fair value of the European reporting unit at the time, and deferred taxes and content, allocated based on whether or not the jurisdiction gave rise to the deferred tax balance or is using the content asset.
In the second step of the impairment test, we hypothetically assigned the European reporting unit's fair value to its individual assets and liabilities, including significant unrecognized intangible assets such as customer relationships and trade names, or liabilities, in a hypothetical purchase price allocation that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. Since the implied fair value of the reporting unit's goodwill was less than the carrying value, the difference was recorded as an impairment charge. The fair value estimates incorporated in step 2 for the hypothetical intangible assets were based on the excess earnings income approach for customer relationships, the relief-from-royalty method for trademarks, and the greenfield approach for broadcast licenses. Key judgments made by management in step 2 of the impairment test included revenue growth rates, length of contract term, number of renewals, customer attrition rates, market-based royalty rates, and market based tax rates. The valuation of advertising relationships assumed an attrition rate of 10%, affiliate relationships assumed three contract renewals, each with a four year term, per customer and trade names assumed royalty rates ranging from 2% to 5%. Other assumptions used in these hypothetical calculations had a less significant impact on the concluded fair value or were subject to less significant estimation or judgment. None of these hypothetical calculations for unrecorded intangibles were recorded in the consolidated financial statements.
As of the goodwill testing date, the carrying value of remaining goodwill assigned to the European reporting unit was $1.1 billion and the net assets of the reporting unit were approximately $2.7 billion, which results in headroom based on the estimated fair value of $3.9 billion.
See Note 8 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for the key factors underlying these charges.
Management will continue to monitor reporting units for changes in the business environment that could impact recoverability. The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities. See Item 1A, "Risk Factors" for details on all significant risks that could impact the Company's ability to successfully grow its cash flows.
For an in depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Discovery, Communications, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of the inherent limitations in any internal control, no matter how well designed, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 20172021 based on the framework set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management concluded that, as of December 31, 2017,2021, the Company’s internal control over financial reporting was effective at a reasonable assurance level based on the specified criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20172021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report in Item 8 of Part II of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm.”
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
the Stockholders of Discovery, Communications, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Discovery, Communications, Inc. and its subsidiaries (the “Company”) as of December 31, 20172021 and 2016,2020, and the related consolidated statements of operations, of comprehensive income (loss) income,, of equity and of cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 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, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016, 2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for goodwill impairment and content in 2020, and the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Certain Reserves for Uncertain Tax Positions
As described in Notes 2 and 18 to the consolidated financial statements, the Company’s reserves for uncertain tax positions were $420 million as of December 31, 2021. Management establishes a reserve for uncertain tax positions unless management determines that such positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigation processes. As disclosed by management, significant judgment is exercised in evaluating all relevant information, the technical merits of the tax positions, and the accurate measurement of uncertain tax positions when determining the amount of the reserve and whether positions taken on the Company’s tax returns are more likely than not to be sustained. This also involves the use of significant estimates and assumptions with respect to the potential outcome of positions taken on tax returns that may be reviewed by tax authorities.
The principal considerations for our determination that performing procedures relating to certain reserves for uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining certain reserves for uncertain tax positions, including a high degree of estimation uncertainty when determining the reserves and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s determination of certain reserves for uncertain tax positions, the technical merits of the tax positions, and the accurate measurement of the uncertain tax positions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the recognition, measurement, and completeness of uncertain tax positions. These procedures also included, among others (i) testing the information used in the determination of certain reserves for uncertain tax positions, including international and federal filing positions and the related final tax returns; (ii) testing the calculation of the liability for certain reserves for uncertain tax positions by jurisdiction, including evaluating management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained, as well as the likelihood of the possible estimated outcome; (iii) for certain uncertain tax positions, testing the completeness of management’s assessment and possible outcomes, and (iv) evaluating the status and results of income tax audits with the relevant tax authorities.
/s/ PricewaterhouseCoopers LLP
McLean, VirginiaWashington, District of Columbia
February 28, 201824, 2022
We have served as the Company’s auditor since 2008.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 3,905 | | | $ | 2,091 | |
Receivables, net | | 2,446 | | | 2,537 | |
Content rights and prepaid license fees, net | | 245 | | | 532 | |
Prepaid expenses and other current assets | | 668 | | | 970 | |
Total current assets | | 7,264 | | | 6,130 | |
Noncurrent content rights, net | | 3,832 | | | 3,439 | |
Property and equipment, net | | 1,336 | | | 1,206 | |
Goodwill | | 12,912 | | | 13,070 | |
Intangible assets, net | | 6,317 | | | 7,640 | |
Equity method investments | | 543 | | | 507 | |
Other noncurrent assets | | 2,223 | | | 2,095 | |
Total assets | | $ | 34,427 | | | $ | 34,087 | |
LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 412 | | | $ | 397 | |
Accrued liabilities | | 2,230 | | | 1,793 | |
Deferred revenues | | 478 | | | 557 | |
Current portion of debt | | 339 | | | 335 | |
Total current liabilities | | 3,459 | | | 3,082 | |
Noncurrent portion of debt | | 14,420 | | | 15,069 | |
Deferred income taxes | | 1,225 | | | 1,534 | |
Other noncurrent liabilities | | 1,927 | | | 2,019 | |
Total liabilities | | 21,031 | | | 21,704 | |
Commitments and contingencies (See Note 22) | | 0 | | 0 |
Redeemable noncontrolling interests | | 363 | | | 383 | |
Equity: | | | | |
Discovery, Inc. stockholders’ equity: | | | | |
Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and outstanding | | — | | | — | |
Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 4 shares issued and outstanding and 5 shares issued and outstanding | | — | | | — | |
Series A common stock: $0.01 par value; 1,700 shares authorized; 170 and 163 shares issued; and 169 and 162 shares outstanding | | 2 | | | 2 | |
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued and outstanding | | — | | | — | |
Series C common stock: $0.01 par value; 2,000 shares authorized; 559 and 547 shares issued; and 330 and 318 shares outstanding | | 5 | | | 5 | |
Additional paid-in capital | | 11,086 | | | 10,809 | |
Treasury stock, at cost: 230 shares | | (8,244) | | | (8,244) | |
Retained earnings | | 9,580 | | | 8,543 | |
Accumulated other comprehensive loss | | (830) | | | (651) | |
Total Discovery, Inc. stockholders’ equity | | 11,599 | | | 10,464 | |
Noncontrolling interests | | 1,434 | | | 1,536 | |
Total equity | | 13,033 | | | 12,000 | |
Total liabilities and equity | | $ | 34,427 | | | $ | 34,087 | |
| | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 7,309 |
| | $ | 300 |
|
Receivables, net | | 1,838 |
| | 1,495 |
|
Content rights, net | | 410 |
| | 310 |
|
Prepaid expenses and other current assets | | 434 |
| | 397 |
|
Total current assets | | 9,991 |
| | 2,502 |
|
Noncurrent content rights, net | | 2,213 |
| | 2,089 |
|
Property and equipment, net | | 597 |
| | 482 |
|
Goodwill, net | | 7,073 |
| | 8,040 |
|
Intangible assets, net | | 1,770 |
| | 1,512 |
|
Equity method investments (See Note 4) | | 335 |
| | 557 |
|
Other noncurrent assets | | 576 |
| | 490 |
|
Total assets | | $ | 22,555 |
| | $ | 15,672 |
|
LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 277 |
| | $ | 241 |
|
Accrued liabilities | | 1,309 |
| | 1,075 |
|
Deferred revenues | | 255 |
| | 163 |
|
Current portion of debt | | 30 |
| | 82 |
|
Total current liabilities | | 1,871 |
| | 1,561 |
|
Noncurrent portion of debt | | 14,755 |
| | 7,841 |
|
Deferred income taxes | | 319 |
| | 467 |
|
Other noncurrent liabilities | | 587 |
| | 393 |
|
Total liabilities | | 17,532 |
| | 10,262 |
|
Commitments and contingencies (See Note 20) | |
| |
|
Redeemable noncontrolling interests | | 413 |
| | 243 |
|
Equity: | | | | |
Discovery Communications, Inc. stockholders’ equity: | | | | |
Series A-1 convertible preferred stock: $0.01 par value; 8 authorized; 8 shares issued as of December 31, 2017 (formerly Series A convertible preferred stock: $0.01 par value; 75 authorized; 71 issued as of December 31, 2016) | | — |
| | 1 |
|
Series C-1 convertible preferred stock: $0.01 par value; 6 authorized; 6 shares issued as of December 31, 2017 (formerly Series C convertible preferred stock: $0.01 par value; 75 authorized; 28 issued as of December 31, 2016) | | — |
| | 1 |
|
Series A common stock: $0.01 par value; 1,700 shares authorized; 157 and 155 shares issued | | 1 |
| | 1 |
|
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued | | — |
| | — |
|
Series C common stock: $0.01 par value; 2,000 shares authorized; 383 and 381 shares issued | | 4 |
| | 4 |
|
Additional paid-in capital | | 7,295 |
| | 7,046 |
|
Treasury stock, at cost | | (6,737 | ) | | (6,356 | ) |
Retained earnings | | 4,632 |
| | 5,232 |
|
Accumulated other comprehensive loss | | (585 | ) | | (762 | ) |
Total equity | | 4,610 |
| | 5,167 |
|
Total liabilities and equity | | $ | 22,555 |
| | $ | 15,672 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Revenues: | | | | | | |
Advertising | | $ | 6,215 | | | $ | 5,583 | | | $ | 6,044 | |
Distribution | | 5,409 | | | 4,866 | | | 4,835 | |
Other | | 567 | | | 222 | | | 265 | |
Total revenues | | 12,191 | | | 10,671 | | | 11,144 | |
Costs and expenses: | | | | | | |
Costs of revenues, excluding depreciation and amortization | | 4,620 | | | 3,860 | | | 3,819 | |
Selling, general and administrative | | 4,016 | | | 2,722 | | | 2,788 | |
Depreciation and amortization | | 1,582 | | | 1,359 | | | 1,347 | |
Impairment of goodwill and other intangible assets | | — | | | 124 | | | 155 | |
Restructuring and other charges | | 32 | | | 91 | | | 26 | |
Gain on disposition | | (71) | | | — | | | — | |
Total costs and expenses | | 10,179 | | | 8,156 | | | 8,135 | |
Operating income | | 2,012 | | | 2,515 | | | 3,009 | |
Interest expense, net | | (633) | | | (648) | | | (677) | |
Loss on extinguishment of debt | | (10) | | | (76) | | | (28) | |
Loss from equity investees, net | | (18) | | | (105) | | | (2) | |
Other income (expense), net | | 82 | | | 42 | | | (8) | |
Income before income taxes | | 1,433 | | | 1,728 | | | 2,294 | |
Income tax expense | | (236) | | | (373) | | | (81) | |
Net income | | 1,197 | | | 1,355 | | | 2,213 | |
Net income attributable to noncontrolling interests | | (138) | | | (124) | | | (128) | |
Net income attributable to redeemable noncontrolling interests | | (53) | | | (12) | | | (16) | |
Net income available to Discovery, Inc. | | $ | 1,006 | | | $ | 1,219 | | | $ | 2,069 | |
Net income per share available to Discovery, Inc. Series A, B and C common stockholders: | | | | | | |
Basic | | $ | 1.55 | | | $ | 1.82 | | | $ | 2.90 | |
Diluted | | $ | 1.54 | | | $ | 1.81 | | | $ | 2.88 | |
Weighted average shares outstanding: | | | | | | |
Basic | | 503 | | | 505 | | | 529 | |
Diluted | | 664 | | | 672 | | | 711 | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | |
Distribution | | $ | 3,474 |
| | $ | 3,213 |
| | $ | 3,068 |
|
Advertising | | 3,073 |
| | 2,970 |
| | 3,004 |
|
Other | | 326 |
| | 314 |
| | 322 |
|
Total revenues | | 6,873 |
| | 6,497 |
| | 6,394 |
|
Costs and expenses: | | | | | | |
Costs of revenues, excluding depreciation and amortization | | 2,656 |
| | 2,432 |
| | 2,343 |
|
Selling, general and administrative | | 1,768 |
| | 1,690 |
| | 1,669 |
|
Impairment of goodwill | | 1,327 |
| | — |
| | — |
|
Depreciation and amortization | | 330 |
| | 322 |
| | 330 |
|
Restructuring and other charges | | 75 |
| | 58 |
| | 50 |
|
Loss (gain) on disposition | | 4 |
| | (63 | ) | | 17 |
|
Total costs and expenses | | 6,160 |
| | 4,439 |
| | 4,409 |
|
Operating income | | 713 |
| | 2,058 |
| | 1,985 |
|
Interest expense | | (475 | ) | | (353 | ) | | (330 | ) |
Loss on extinguishment of debt | | (54 | ) | | — |
| | — |
|
(Loss) income from equity investees, net | | (211 | ) | | (38 | ) | | 1 |
|
Other (expense) income, net | | (110 | ) | | 4 |
| | (97 | ) |
(Loss) income before income taxes | | (137 | ) | | 1,671 |
| | 1,559 |
|
Income tax expense | | (176 | ) | | (453 | ) | | (511 | ) |
Net (loss) income | | (313 | ) | | 1,218 |
| | 1,048 |
|
Net income attributable to noncontrolling interests | | — |
| | (1 | ) | | (1 | ) |
Net income attributable to redeemable noncontrolling interests | | (24 | ) | | (23 | ) | | (13 | ) |
Net (loss) income available to Discovery Communications, Inc. | | $ | (337 | ) | | $ | 1,194 |
| | $ | 1,034 |
|
Net (loss) income per share available to Discovery Communications, Inc. Series A, B and C common stockholders: | | | | | | |
Basic | | $ | (0.59 | ) | | $ | 1.97 |
| | $ | 1.59 |
|
Diluted | | $ | (0.59 | ) | | $ | 1.96 |
| | $ | 1.58 |
|
Weighted average shares outstanding: | | | | | | |
Basic | | 384 |
| | 401 |
| | 432 |
|
Diluted | | 576 |
| | 610 |
| | 656 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(in millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Net income | | $ | 1,197 | | | $ | 1,355 | | | $ | 2,213 | |
Other comprehensive income (loss) adjustments, net of tax: | | | | | | |
Currency translation | | (290) | | | 292 | | | (15) | |
Pension plan and SERP | | 2 | | | (8) | | | (10) | |
Derivatives | | 109 | | | (113) | | | 18 | |
Comprehensive income | | 1,018 | | | 1,526 | | | 2,206 | |
Comprehensive income attributable to noncontrolling interests | | (138) | | | (124) | | | (127) | |
Comprehensive income attributable to redeemable noncontrolling interests | | (53) | | | (12) | | | (17) | |
Comprehensive income attributable to Discovery, Inc. | | $ | 827 | | | $ | 1,390 | | | $ | 2,062 | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Net (loss) income | | $ | (313 | ) | | $ | 1,218 |
| | $ | 1,048 |
|
Other comprehensive income (loss) adjustments, net of tax: | | | | | | |
Currency translation | | 183 |
| | (191 | ) | | (201 | ) |
Available-for-sale securities | | 15 |
| | 38 |
| | (25 | ) |
Derivatives | | (20 | ) | | 24 |
| | (1 | ) |
Comprehensive (loss) income | | (135 | ) | | 1,089 |
| | 821 |
|
Comprehensive income attributable to noncontrolling interests | | — |
| | (1 | ) | | (1 | ) |
Comprehensive (income) loss attributable to redeemable noncontrolling interests | | (25 | ) | | (23 | ) | | 10 |
|
Comprehensive (loss) income attributable to Discovery Communications, Inc. | | $ | (160 | ) | | $ | 1,065 |
| | $ | 830 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Operating Activities | | | | | | |
Net income | | $ | 1,197 | | | $ | 1,355 | | | $ | 2,213 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | |
Content rights amortization and impairment | | 3,501 | | | 2,956 | | | 2,853 | |
Depreciation and amortization | | 1,582 | | | 1,359 | | | 1,347 | |
Deferred income taxes | | (511) | | | (186) | | | (504) | |
Equity in losses of equity method investee companies and cash distributions | | 63 | | | 167 | | | 62 | |
Loss on extinguishment of debt | | 10 | | | 76 | | | 28 | |
Share-based compensation expense | | 178 | | | 110 | | | 142 | |
Impairment of goodwill and other intangible assets | | — | | | 124 | | | 155 | |
| | | | | | |
Gain on sale of investments | | (19) | | | (103) | | | (10) | |
| | | | | | |
(Gain) loss on disposition | | (71) | | | 2 | | | — | |
Other, net | | 105 | | | (22) | | | 86 | |
Changes in operating assets and liabilities, net of acquisitions and dispositions: | | | | | | |
Receivables, net | | 47 | | | 105 | | | (7) | |
Content rights and payables, net | | (3,381) | | | (3,053) | | | (3,060) | |
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities | | 185 | | | (131) | | | 122 | |
Foreign currency, prepaid expenses and other assets, net | | (88) | | | (20) | | | (28) | |
Cash provided by operating activities | | 2,798 | | | 2,739 | | | 3,399 | |
Investing Activities | | | | | | |
Purchases of property and equipment | | (373) | | | (402) | | | (289) | |
Purchases of investments | | (103) | | | (250) | | | — | |
Investments in and advances to equity investments | | (184) | | | (181) | | | (254) | |
Proceeds from sales and maturities of investments and dissolution of joint venture | | 599 | | | 69 | | | 125 | |
Business acquisitions, net of cash acquired | | (2) | | | (39) | | | (73) | |
(Payments for) proceeds from derivative instruments, net | | (86) | | | 85 | | | 54 | |
| | | | | | |
| | | | | | |
| | | | | | |
Other investing activities, net | | 93 | | | 15 | | | (1) | |
Cash used in investing activities | | (56) | | | (703) | | | (438) | |
Financing Activities | | | | | | |
Principal repayments of debt, including premiums to par value and discount payment | | (574) | | | (2,193) | | | (2,658) | |
Borrowings from debt, net of discount and issuance costs | | — | | | 1,979 | | | 1,479 | |
Repurchases of stock | | — | | | (969) | | | (633) | |
Principal repayments of revolving credit facility | | — | | | (500) | | | (225) | |
Borrowings under revolving credit facility | | — | | | 500 | | | — | |
Distributions to noncontrolling interests and redeemable noncontrolling interests | | (251) | | | (254) | | | (250) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Other financing activities, net | | (28) | | | (112) | | | (70) | |
Cash used in financing activities | | (853) | | | (1,549) | | | (2,357) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (106) | | | 83 | | | (38) | |
Net change in cash, cash equivalents, and restricted cash | | 1,783 | | | 570 | | | 566 | |
Cash, cash equivalents, and restricted cash, beginning of period | | 2,122 | | | 1,552 | | | 986 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 3,905 | | | $ | 2,122 | | | $ | 1,552 | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Operating Activities | | | | | | |
Net (loss) income | | $ | (313 | ) | | $ | 1,218 |
| | $ | 1,048 |
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: | | | | | | |
Share-based compensation expense | | 39 |
| | 69 |
| | 35 |
|
Depreciation and amortization | | 330 |
| | 322 |
| | 330 |
|
Content amortization and impairment expense | | 1,910 |
| | 1,773 |
| | 1,709 |
|
Impairment of goodwill | | 1,327 |
| | — |
| | — |
|
Loss (gain) on disposition | | 4 |
| | (63 | ) | | 17 |
|
Remeasurement gain on previously held equity interest | | (34 | ) | | — |
| | (2 | ) |
Equity in losses of investee companies, net of cash distributions | | 223 |
| | 44 |
| | 8 |
|
Deferred income taxes | | (199 | ) | | (27 | ) | | 2 |
|
Loss on extinguishment of debt | | 54 |
| | — |
| | — |
|
Realized loss from derivative instruments, net | | 98 |
| | 3 |
| | 5 |
|
Other-than-temporary impairment of AFS investments | | — |
| | 62 |
| | — |
|
Other, net | | 85 |
| | 50 |
| | 35 |
|
Changes in operating assets and liabilities, net of acquisitions and dispositions: | | | | | | |
Receivables, net | | (258 | ) | | (25 | ) | | (44 | ) |
Content rights and payables, net | | (1,947 | ) | | (1,904 | ) | | (1,773 | ) |
Accounts payable and accrued liabilities | | 265 |
| | (10 | ) | | (2 | ) |
Income taxes receivable and prepaid income taxes | | 20 |
| | (31 | ) | | (64 | ) |
Foreign currency and other, net | | 25 |
| | (101 | ) | | (10 | ) |
Cash provided by operating activities | | 1,629 |
| | 1,380 |
| | 1,294 |
|
Investing Activities | | | | | | |
Payments for investments | | (444 | ) | | (272 | ) | | (272 | ) |
Purchases of property and equipment | | (135 | ) | | (88 | ) | | (103 | ) |
Distributions from equity method investees | | 77 |
| | 87 |
| | 87 |
|
Proceeds from dispositions, net of cash disposed | | 29 |
| | 19 |
| | 61 |
|
Payments for derivative instruments, net | | (101 | ) | | — |
| | (9 | ) |
Business acquisitions, net of cash acquired | | (60 | ) | | — |
| | (80 | ) |
Other investing activities, net | | 1 |
| | (2 | ) | | 15 |
|
Cash used in investing activities | | (633 | ) | | (256 | ) | | (301 | ) |
Financing Activities | | | | | | |
Commercial paper repayments, net | | (48 | ) | | (45 | ) | | (136 | ) |
Borrowings under revolving credit facility | | 350 |
| | 613 |
| | 1,016 |
|
Principal repayments of revolving credit facility | | (475 | ) | | (835 | ) | | (265 | ) |
Borrowings from debt, net of discount and including premiums | | 7,488 |
| | 498 |
| | 936 |
|
Principal repayments of debt, including discount payment and premiums to par value | | (650 | ) | | — |
| | (854 | ) |
Payments for bridge financing commitment fees | | (40 | ) | | — |
| | — |
|
Principal repayments of capital lease obligations | | (33 | ) | | (28 | ) | | (27 | ) |
Repurchases of stock | | (603 | ) | | (1,374 | ) | | (951 | ) |
Cash settlement (prepayments) of common stock repurchase contracts | | 58 |
| | (57 | ) | | — |
|
Purchase of redeemable noncontrolling interests | | — |
| | — |
| | (548 | ) |
Distributions to redeemable noncontrolling interests | | (30 | ) | | (22 | ) | | (42 | ) |
Share-based plan proceeds (payments), net | | 16 |
| | 39 |
| | (6 | ) |
Hedge of borrowings from debt instruments | | — |
| | 40 |
| | (29 | ) |
Other financing activities, net | | (82 | ) | | (13 | ) | | (13 | ) |
Cash provided by (used in) financing activities | | 5,951 |
| | (1,184 | ) | | (919 | ) |
Effect of exchange rate changes on cash and cash equivalents | | 62 |
| | (30 | ) | | (51 | ) |
Net change in cash and cash equivalents | | 7,009 |
| | (90 | ) | | 23 |
|
Cash and cash equivalents, beginning of period | | 300 |
| | 390 |
| | 367 |
|
Cash and cash equivalents, end of period | | $ | 7,309 |
| | $ | 300 |
| | $ | 390 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Discovery, Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Par Value | | Shares | | Par Value | | | | | | | |
December 31, 2018 | | 14 | | | $ | — | | | 691 | | | $ | 7 | | | $ | 10,647 | | | $ | (6,737) | | | $ | 5,254 | | | $ | (785) | | | $ | 8,386 | | | $ | 1,716 | | | $ | 10,102 | |
Cumulative effect of accounting changes | | — | | | — | | | — | | | — | | | — | | | — | | | 34 | | | (30) | | | 4 | | | — | | | 4 | |
Net income available to Discovery, Inc. and attributable to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 2,069 | | | — | | | 2,069 | | | 128 | | | 2,197 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | (7) | | | — | | | (7) | |
Preferred stock conversion | | (1) | | | — | | | 22 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | | — | | | — | | | — | | | — | | | 73 | | | — | | | — | | | — | | | 73 | | | — | | | 73 | |
Repurchases of stock | | — | | | — | | | — | | | — | | | — | | | (637) | | | — | | | — | | | (637) | | | — | | | (637) | |
Settlement of common stock repurchase contract | | — | | | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | 5 | | | — | | | 5 | |
Tax settlements associated with share-based plans | | — | | | — | | | — | | | — | | | (22) | | | — | | | — | | | — | | | (22) | | | — | | | (22) | |
Dividends paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (211) | | | (211) | |
Issuance of stock in connection with share-based plans | | — | | | — | | | 2 | | | — | | | 44 | | | — | | | — | | | — | | | 44 | | | — | | | 44 | |
Redeemable noncontrolling interest adjustments to redemption value | | — | | | — | | | — | | | — | | | — | | | — | | | (24) | | | — | | | (24) | | | — | | | (24) | |
December 31, 2019 | | 13 | | | — | | | 715 | | | 7 | | | 10,747 | | | (7,374) | | | 7,333 | | | (822) | | | 9,891 | | | 1,633 | | | 11,524 | |
Cumulative effect of an accounting change | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
Cumulative effect of accounting changes of an equity method investee | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | (3) | | | — | | | (3) | |
Net income available to Discovery, Inc. and attributable to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 1,219 | | | — | | | 1,219 | | | 124 | | | 1,343 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 171 | | | 171 | | | — | | | 171 | |
Share-based compensation | | — | | | — | | | — | | | — | | | 94 | | | — | | | — | | | — | | | 94 | | | — | | | 94 | |
Repurchases of stock | | — | | | — | | | — | | | — | | | — | | | (965) | | | — | | | — | | | (965) | | | — | | | (965) | |
Tax settlements associated with share-based plans | | — | | | — | | | — | | | — | | | (32) | | | — | | | — | | | — | | | (32) | | | — | | | (32) | |
Equity exchange with Harpo for step acquisition of OWN (See Note 11) | | — | | | — | | | — | | | — | | | (45) | | | 95 | | | 9 | | | — | | | 59 | | | — | | | 59 | |
Dividends paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (223) | | | (223) | |
Issuance of stock in connection with share-based plans | | — | | | — | | | 2 | | | — | | | 43 | | | — | | | — | | | — | | | 43 | | | — | | | 43 | |
Redeemable noncontrolling interest adjustments to redemption value | | — | | | — | | | — | | | — | | | — | | | — | | | (17) | | | — | | | (17) | | | — | | | (17) | |
Other adjustments to stockholders' equity | | — | | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | | | 2 | | | 4 | |
December 31, 2020 | | 13 | | | — | | | 717 | | | 7 | | | 10,809 | | | (8,244) | | | 8,543 | | | (651) | | | 10,464 | | | 1,536 | | | 12,000 | |
Net income available to Discovery, Inc. and attributable to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 1,006 | | | — | | | 1,006 | | | 138 | | | 1,144 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (179) | | | (179) | | | — | | | (179) | |
Share-based compensation | | — | | | — | | | — | | | — | | | 158 | | | — | | | — | | | — | | | 158 | | | — | | | 158 | |
Preferred stock conversion | | (1) | | | — | | | 11 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Tax settlements associated with share-based plans | | — | | | — | | | — | | | — | | | (71) | | | — | | | — | | | — | | | (71) | | | — | | | (71) | |
Dividends paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (240) | | | (240) | |
Issuance of stock in connection with share-based plans | | — | | | — | | | 8 | | | — | | | 198 | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Redeemable noncontrolling interest adjustments to redemption value | | — | | | — | | | — | | | — | | | (8) | | | — | | | 31 | | | — | | | 23 | | | — | | | 23 | |
December 31, 2021 | | 12 | | | $ | — | | | 736 | | | $ | 7 | | | $ | 11,086 | | | $ | (8,244) | | | $ | 9,580 | | | $ | (830) | | | $ | 11,599 | | | $ | 1,434 | | | $ | 13,033 | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Discovery Communications, Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Par Value | | Shares | | Par Value | | | | | | | |
December 31, 2014 | | 113 |
| | $ | 2 |
| | 533 |
| | $ | 5 |
| | $ | 6,917 |
| | $ | (4,763 | ) | | $ | 3,809 |
| | $ | (368 | ) | | $ | 5,602 |
| | $ | 2 |
| | $ | 5,604 |
|
Net income available to Discovery Communications, Inc. and attributable to noncontrolling interests
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,034 |
| | — |
| | 1,034 |
| | 1 |
| | 1,035 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (204 | ) | | (204 | ) | | — |
| | (204 | ) |
Repurchases of stock | | (4 | ) | | — |
| | — |
| | — |
| | — |
| | (698 | ) | | (253 | ) | | — |
| | (951 | ) | | — |
| | (951 | ) |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | — |
| | 39 |
| | — |
| | 39 |
|
Excess tax benefits from share-based compensation | | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | 12 |
|
Tax settlements associated with share-based compensation | | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | — |
| | — |
| | (27 | ) | | — |
| | (27 | ) |
Issuance of stock in connection with share-based plans | | — |
| | — |
| | 3 |
| | — |
| | 21 |
| | — |
| | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
Other adjustments for equity-based plans | | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Redeemable noncontrolling interest adjustments to redemption value | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (73 | ) | | — |
| | (73 | ) | | — |
| | (73 | ) |
Purchase of redeemable noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | 61 |
| | — |
| | — |
| | (61 | ) | | — |
| | — |
| | — |
|
Other adjustments to stockholders' equity | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
December 31, 2015 | | 109 |
| | 2 |
| | 536 |
| | 5 |
| | 7,021 |
| | (5,461 | ) | | 4,517 |
| | (633 | ) | | 5,451 |
| | — |
| | 5,451 |
|
Net income available to Discovery Communications, Inc. and attributable to noncontrolling interests
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,194 |
| | — |
| | 1,194 |
| | 1 |
| | 1,195 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (129 | ) | | (129 | ) | | — |
| | (129 | ) |
Repurchases of stock and stock settlement of common stock repurchase contracts | | (9 | ) | | — |
| | — |
| | — |
| | — |
| | (895 | ) | | (479 | ) | | — |
| | (1,374 | ) | | — |
| | (1,374 | ) |
Prepayments for common stock repurchase contracts | | — |
| | — |
| | — |
| | — |
| | (57 | ) | | — |
| | — |
| | — |
| | (57 | ) | | — |
| | (57 | ) |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
| | 35 |
| | — |
| | 35 |
|
Excess tax benefits from share-based compensation | | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Tax settlements associated with share-based compensation | | — |
| | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
Issuance of stock in connection with equity-based plans | | — |
| | — |
| | 5 |
| | — |
| | 51 |
| | — |
| | — |
| | — |
| | 51 |
| | — |
| | 51 |
|
Cash distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Share conversion | | (1 | ) | | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
December 31, 2016 | | 99 |
| | 2 |
| | 543 |
| | 5 |
| | 7,046 |
| | (6,356 | ) | | 5,232 |
| | (762 | ) | | 5,167 |
| | — |
| | 5,167 |
|
Net loss available to Discovery Communications, Inc. and attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (337 | ) | | — |
| | (337 | ) | | — |
| | (337 | ) |
Cumulative effect of accounting change - share-based payments | | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 177 |
| | 177 |
| | — |
| | 177 |
|
Preferred stock modification | | (82 | ) | | (2 | ) | | — |
| | — |
| | 37 |
| | — |
| | — |
| | — |
| | 35 |
| | — |
| | 35 |
|
Repurchases of stock | | (3 | ) | | — |
| | — |
| | — |
| | — |
| | (381 | ) | | (222 | ) | | — |
| | (603 | ) | | — |
| | (603 | ) |
Excess of fair value received over book value of equity contributed to redeemable noncontrolling interest in Velocity | | — |
| | — |
| | — |
| | — |
| | 57 |
| | — |
| | — |
| | — |
| | 57 |
| | — |
| | 57 |
|
Cash settlement of common stock repurchase contracts | | — |
| | — |
| | — |
| | — |
| | 58 |
| | — |
| | — |
| | — |
| | 58 |
| | — |
| | 58 |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 44 |
| | — |
| | — |
| | — |
| | 44 |
| | — |
| | 44 |
|
Tax settlements associated with share-based compensation | | — |
| | — |
| | (1 | ) | | — |
| | (30 | ) | | — |
| | — |
| | — |
| | (30 | ) | | — |
| | (30 | ) |
Issuance of stock in connection with share-based plans | | — |
| | — |
| | 5 |
| | — |
| | 79 |
| | — |
| | 1 |
| | — |
| | 80 |
| | — |
| | 80 |
|
Redeemable noncontrolling interest adjustments to redemption value | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (38 | ) | | — |
| | (38 | ) | | — |
| | (38 | ) |
December 31, 2017 | | 14 |
| | $ | — |
| | 547 |
| | $ | 5 |
| | $ | 7,295 |
| | $ | (6,737 | ) | | $ | 4,632 |
| | $ | (585 | ) | | $ | 4,610 |
| | $ | — |
| | $ | 4,610 |
|
The accompanying notes are an integral part of these consolidated financial statements.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
We areDiscovery, Inc. (“Discovery”, the “Company”, "we", "us" or "our") is a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air ("FTA") and broadcast television, variousauthenticated GO applications, digital distribution platforms andarrangements, content licensing agreements. We also operate a portfolio of websites, digitalarrangements and direct-to-consumer products, production studios and curriculum-based education products and services.("DTC") subscription products. In January 2021, the Company launched discovery+, its aggregated DTC product, in the U.S. across several streaming platforms. The Company presents the following business units:also operates production studios. The Company has organized its operations into 2 reportable segments: U.S. Networks, consisting principally of domestic television networks and digital content services, and International Networks, consisting principallyprimarily of international television networks and digital content services; and Education and Other, consisting principally of curriculum-based product and service offerings and production studios. Financial information for Discovery’s reportable segments is discussed in Note 21.services.
Basis of PresentationConsolidation
The consolidated financial statements include the accounts of Discovery and its majority-owned subsidiaries in which a controlling interest is maintained.maintained, including variable interest entities ("VIE") for which the Company is the primary beneficiary. For each non-wholly owned subsidiary, the Company evaluates its ownership and other interests to determine whether it should consolidate the entity or account for its ownership interest as an unconsolidated investment. As part of its evaluation, the Company makes judgments in determining whether the entity is a variable interest entity ("VIE")VIE and, if so, whether it is the primary beneficiary of the VIE and is thus required to consolidate the entity. (See Note 4.) Inter-companyIf it is concluded that an entity is not a VIE, then the Company considers its proportional voting interests in the entity. The Company consolidates majority-owned subsidiaries in which a controlling financial interest is maintained. A controlling financial interest is determined by majority ownership and the absence of significant third-party participating rights. Ownership interests in entities for which the Company has significant influence that are not consolidated are accounted for as equity method investments.
Intercompany accounts and transactions between consolidated entities have been eliminatedeliminated.
Use of Estimates
The preparation of financial statements in consolidation.accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
Significant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, estimated credit losses, content rights, leases, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, and the determination of whether the Company should consolidate certain entities. Impact of COVID-19
On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic. COVID-19 has continued to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.
Beginning in the second quarter of 2020, demand for the Company’s advertising products and services decreased due to economic disruptions from limitations on social and commercial activity. These economic disruptions and the resulting effect on the Company eased during the second half of 2020. The pandemic did not have a significant impact on demand during fiscal year 2021. Many of the Company’s third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and, as a result, the Company has incurred additional costs to comply with various governmental regulations and implement certain safety measures for the Company's employees, talent, and partners.Additionally, certain sporting events that the Company has rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which occurred in July and August 2021. The postponement of the 2020 Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In response to the impact of the pandemic, we employed innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air. We pursued a number of cost savings initiatives, which began during the third quarter of 2020 through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align our expense structure to ongoing changes within the industry.
The full extent of COVID-19’s effects on our operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others. We will continue to monitor COVID-19 and its impact on our business results and financial condition. The consolidated financial statements set forth in this Annual Report on Form 10-K reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ReclassificationsForeign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of most of the Company’s international subsidiaries is the local currency. Financial statements of subsidiaries whose functional currency is not the U.S. dollar are translated at exchange rates in effect at the balance sheet date for assets and liabilities and at average exchange rates for revenues and expenses for the respective periods. Translation adjustments are recorded in accumulated other comprehensive loss. Cash flows from the Company's operations in foreign countries are generally translated at the weighted average rate for the applicable period in the consolidated statements of cash flows.
The Company adopted new accounting guidance for share-based payments, deferred income taxesis exposed to foreign currency risk to the extent that it enters into transactions denominated in currencies other than its subsidiaries’ respective functional currencies. Transactions denominated in currencies other than subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Such transactions include affiliate and statements of cash flows as of January 1, 2017. The adoption of the new guidance for deferred income taxes resultedad sales arrangements, content arrangements, equipment and other vendor purchases and intercompany transactions. Changes in reclassifications of current deferred tax assetsexchange rates with respect to noncurrent deferred tax assets and liabilitiesamounts recorded in the Company's consolidated balance sheet as of December 31, 2016sheets related to conform to the current period presentation.these items will result in unrealized foreign currency transaction gains and losses based upon period-end exchange rates. The impact of these reclassifications is shown within the balance sheet classificationCompany also records realized foreign currency transaction gains and losses upon settlement of the deferredtransactions. Foreign currency transaction gains and losses resulting from the conversion of the transaction currency to functional currency are included in other income taxes section below.(expense), net.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of 90 days or less.
Receivables
Receivables include amounts billed and currently due from customers and are presented net of an estimate for credit losses. To assess collectability, the Company analyzes market trends, economic conditions, historical collection experience, the aging of receivables and customer specific risks, and reserves an amount that it estimates may not be collected. The new accounting pronouncements adoptedCompany does not require collateral with respect to trade receivables.
Content Rights
Content rights principally consist of television series, specials, films and sporting events. Content aired on the Company’s television networks and digital content offerings is sourced from a wide range of third-party producers, wholly-owned and equity method investee production studios, and sports associations. Content is classified either as produced, coproduced or licensed.
The Company owns most or all of the rights to produced content. The Company collaborates with third parties to finance and develop coproduced content, and it retains significant rights to exploit the programs. Prepaid licensed content includes advance payments for share-based payments resultedrights to air sporting events that will take place in the reclassificationfuture and advance payments for acquired films and television series.
Costs of net tax windfall from financing activities to operating activities inproduced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs. The Company’s coproduction arrangements generally provide for the consolidated statementsharing of cash flows.production costs. The impact of these reclassifications is shown withinCompany records its costs but does not record the share-based payments section below. The new accounting pronouncements adopted for cash flow statements resulted in a reclassification of debt extinguishment costs from operating activities to financing activities in the consolidated statement of cash flows. The impact of this reclassification is shown within the statement of cash flows section below.
Preferred Stock Exchange
As a result of the July 30, 2017, Preferred Share Exchange Agreement (the "Exchange Agreement") with Advance/Newhouse Programming Partnership ("Advance/Newhouse"), in which Discovery agreed to issue newly designated shares of Series A-1 and Series C-1 preferred stock in exchange for all outstanding shares of Discovery's Series A and Series C convertible participating preferred stock (see Note 12), historical basic and diluted earnings per share available to Series C-1 preferred stockholders, previously Series C preferred stockholders, has changed. The transactions contemplatedborne by the Exchange Agreement were completed on August 7, 2017. Prior to the Exchange Agreement, Series C convertible preferred stock was convertible into Series C common stock at a conversion rate of 2.0 shares of Series C common stock for each share of Series C preferred stock. Following the exchange, the Series C-1 preferred stock may be converted into Series C common stock at the initial conversion rate of 19.3648 shares of Series C common stock for each share of Series C-1 preferred stock. As such,other party as the Company has retrospectively recast basic and diluted earnings perdoes not share information for Series C preferred stock for the years ended December 31, 2016 and 2015 in order to conform with per share earnings that would have been available for Series C-1 preferred stock. (See Note 17). The Exchange Agreement did not impact historical basic and diluted earnings per share attributable to the Company's Series A, B and C common stockholders.
any associated economics of exploitation.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forthLicensed content is comprised of films or series that have been previously produced by third parties and the impactCompany does not own the rights. Program licenses typically have fixed terms and require payments during the term of the preferred stock modification tolicense. The cost of licensed content is capitalized when the Company's calculated basic earnings per share.
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 |
Pre-Exchange: Basic net income per share available to: | | | | |
Series A, B and C common stockholders | | $ | 1.97 |
| | $ | 1.59 |
|
Series C-1 convertible preferred stockholders | | $ | 3.94 |
| | $ | 3.18 |
|
| | | | |
Post-Exchange: Basic net income per share available to: | | | | |
Series A, B and C common stockholders | | $ | 1.97 |
| | $ | 1.59 |
|
Series C-1 convertible preferred stockholders | | $ | 38.07 |
| | $ | 30.74 |
|
Accounting and Reporting Pronouncements Adopted
Statement of Cash Flows
In November 2016,cost is known or reasonably determinable, the Financial Accounting Standard Board ("FASB") issued guidance that reduces diversity in practice in how certain cash receipts and cash payments are classified inlicense period for the statement of cash flows. The topics relevant toprograms has commenced, the program materials have been accepted by the Company include: (1) debt prepayment or debt extinguishment costs, which prior to adoption were classified as operating activities, butin accordance with the license agreements, and the programs are now classified as financing activities, (2) settlementavailable for the first showing. The Company pays in advance of delivery for television series, specials, films and receiptsports rights. Payments made in advance of discounts and premiums associated with our senior notes, which prior to adoption were classified as operating activities, but are now classified as financing activities when the stated interest rateright to air the content is deemed not insignificant toreceived are recognized as prepaid licensed content. Participation costs are expensed in line with the effective interest rateamortization of the borrowing, (3) contingent consideration payments not made soon after a business combination date, which must be classifiedproduction costs. Content distribution, advertising, marketing, general and administrative costs are expensed as financing activities up to the contingent consideration liability amount with any excess payment classified as operating activities, and (4) the election to assess distributions received from equity method investeesincurred.
Linear content amortization expense for each period is recognized based on the nature ofrevenue forecast model, which approximates the proportion that estimated distribution approach, which results in the classification of such distributions based on the nature of the activity that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities). The Company early adopted this guidance retrospectively effective January 1, 2017 resulting in a reclassification of $5 million of debt extinguishment costs from operating activities to financing activities in the consolidated statement of cash flowsand advertising revenues for the year ended December 31, 2015. There was no impact on other prior periods presented for the first and second items listed above and no change in the Company's historical accounting policy was required for the third and fourth items.
Share-Based Payments
In March 2016, the FASB issued guidance that simplifies how share-based payments are accounted for and presented in the financial statements. Implementation of the new accounting guidance was effective January 1, 2017, and impacted the financial statements as follows:
Actual forfeitures will be used in the calculations of share-based compensation expense instead of estimated forfeitures. Retained earnings were decreased by approximately $4 million to affect the modified retrospective method impact of the adoption as of January 1, 2017.
Net windfall tax benefits or deficiencies are recorded in income tax expense in thecurrent period in which they occur, whereas they were previously recorded in additional paid-in capital (“APIC”). This change has been applied prospectively. There were $7 million and $12 million in net tax windfall adjustments for the years ended December 31, 2016 and December 31, 2015, respectively.
Expected cash flows from windfall tax benefits are no longer factored into the calculation of the number of shares for diluted earnings per share. This change has been applied prospectively. Net windfall tax benefits did not impact the presentation of diluted earnings per share for the years ended December 31, 2016 and December 31, 2015 by more than $0.01 per share.
Cash flows from net windfall tax benefits are classified as operating activities in the statement of cash flows presentation. Previously net windfall tax benefits were classified as financing activities. This change was applied on a retrospective basis resulting in adjustments to prior period amounts. As a result, there were $7 million and $12 million in net tax windfall adjustments for the years ended December 31, 2016 and December 31, 2015, respectively, reclassified from financing activities to operating activities.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company evaluated the accounting for awards that are liability-classified and marked-to-market each accounting period and concluded that there is no change to the accounting for those awards.
Balance Sheet Classification of Deferred Income Taxes
In November 2015, the FASB issued guidance that removes the requirement to separate deferred tax assets and liabilities into current and noncurrent amounts, and instead requires all such amounts be classified as noncurrent on the Company's consolidated balance sheets. As a result, each tax jurisdiction will now have only one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company retrospectively adopted the new guidance effective January 1, 2017.
The following table summarizes the adjustments the Company made to conform prior period classifications to the new guidance:
|
| | | | | | | | |
| | December 31, 2016 |
| | As reported | | As adjusted |
Current deferred income tax assets | | $ | 97 |
| | $ | — |
|
Noncurrent deferred income tax assets (included within other noncurrent assets) | | 9 |
| | 20 |
|
Noncurrent deferred income tax liabilities | | (553 | ) | | (467 | ) |
Total | | $ | (447 | ) | | $ | (447 | ) |
Business Combinations
In September 2015, the FASB issued new guidance on adjustments to provisional amounts recognized in a business combination, which were recognized on a retrospective basis. Under the new requirements, adjustments will be recognized in the reporting period in which the adjustments are determined. The effects of changes in depreciation, amortization, or other income arising from changes to the provisional amounts, if any, are included in earnings of the reporting period in which the adjustments to the provisional amounts are determined. An entity is also required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted this guidance effective January 1, 2016 and has applied it on a prospective basis.
Accounting for Fees Paid in a Cloud Computing Arrangement
In April 2015, the FASB issued explicit guidance on the recognition of fees paid by a customer for cloud computing arrangements as either the acquisition of a software license or a service contract. The Company adopted this guidance effective October 1, 2015, and there was no effect on the consolidated financial statements.
Business Consolidation
In February 2015, the FASB issued guidance that amends the analysis that a reporting entity performs to determine whether it should consolidate certain legal entities. The changes in this guidance include how related parties and de facto agents are considered in the primary beneficiary determination and the analysis for determining whether a fee paid to a decision maker or service provider is a variable interest. The Company adopted this guidance effective January 1, 2016, and there was no effect on the consolidated financial statements.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Presentation of Financial Statements - Going Concern
In August 2014, the FASB issued guidance requiring the Company to perform interim and annual assessments regarding conditions or events that raise substantial doubt about the Company's ability to continue as a going concern for a period of one year after the financial statements are issued, and to provide related disclosures, if applicable. If such conditions or events exist, an entity should disclose that there is substantial doubt about the entity's ability to continue as a going concern for a period of one year after the financial statements are issued, along with the principal conditions or events that raise substantial doubt, management's evaluation of the significance of those conditions or eventsrepresent in relation to the entity's abilityestimated remaining total lifetime revenues. Digital content amortization for each period is recognized based on estimated viewing patterns as there are no direct revenues to meetassociate to the individual content assets and therefore, number of views is most representative of the use of the title. Judgment is required to determine the useful lives and amortization patterns of the Company’s content assets.
Quarterly, the Company prepares analyses to support its obligations,content amortization expense. Critical assumptions used in determining content amortization include: (i) the grouping of content with similar characteristics, (ii) the application of a quantitative revenue forecast model or viewership model based on the adequacy of historical data, (iii) determining the appropriate historical periods to utilize and management's plans that are intended to mitigatethe relative weighting of those conditions or events.historical periods in the forecast model, (iv) assessing the accuracy of the Company's forecasts and (v) incorporating secondary streams. The Company adopted this guidancethen considers the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends. Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving the Company’s networks, the number of subscribers to its digital services, and program usage. Accordingly, the Company continually reviews its estimates and planned usage and revises its assumptions if necessary. Any material adjustments from the Company’s review of the amortization rates are applied prospectively in the period of the change for assets in film groups, which represent the year ended December 31, 2016, and concluded that aslargest proportion of December 31, 2017 there were no conditions or events that raise substantial doubt about the Company's ability to continue as a going concern for one year after the financial statements are issued.content assets.
Accounting and Reporting Pronouncements Not Yet Adopted
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued updated guidance which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as aThe result of the tax reform legislation ("content amortization analysis is either an accelerated method or a straight-line amortization method over the 2017 Tax Act" or "the Tax Act")estimated useful lives of generally two to retained earningsfive years. Amortization of capitalized costs for eachproduced and coproduced content begins when a program has been aired. Amortization of capitalized costs for licensed content generally commences when the license period in whichbegins and the effect of the changeprogram is recorded. The update also requires entities to disclose their accounting policyavailable for releasing income tax effects from accumulated other comprehensive income. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. use.The Company is currently evaluatingallocates the impact thatcost of multi-year sports programming arrangements over the pronouncement will havecontract period of each event or season based on the consolidated financial statements.estimated relative value of each event or season. Amortization of sports rights takes place when the content airs.
Targeted Improvements to Accounting for Hedging Activities
In August 2017,Capitalized content costs are stated at the FASB issued significant amendments to hedge accounting which expand the eligibility for hedge accounting to more financiallower of cost less accumulated amortization or fair value. Content assets (produced, coproduced and nonfinancial hedging strategies. The guidance is intended to align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparencylicensed) are predominantly monetized as to the scope and results of hedging programs. In addition, the guidance amends the presentation and disclosure requirements and changes how companies assess effectiveness. The updated guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that the pronouncement will havea group on the consolidated financial statements.
Goodwill
UnderCompany’s linear networks and digital content offerings. For content assets that are predominantly monetized within film groups, the current accounting guidance, the quantitative goodwill impairment test is performed using a two-step process. The first step of the process is to compareCompany evaluates the fair value of content in aggregate at the group level by considering expected future revenue generation typically by using a reporting unit with its carrying amount, including goodwill. Ifdiscounted cash flow ("DCF") analysis when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the quantitative impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is required tomay be performed to measure the amount of impairment loss, if any. The second step of the quantitative goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit’s identifiable net assets excluding goodwill is compared to the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss, such as the $1.3 billion recorded for the year ended December 31, 2017 in the consolidated statements of operations, is recognized in an amount equal to that excess (see Note 8).
In January 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill. The new guidance eliminates Step 2 from the goodwill impairment test, and eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Therefore, an entity will recognize impairment charges for the amount by which the carrying amount exceeds the reporting unit's fair value, and the same impairment assessment applies to all reporting units. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this update must be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. If the Company had early adopted this accounting pronouncement, the impact of the current period goodwill impairment would have been approximately $100 million, substantially less than unamortized costs. Estimates of future revenues consider historical airing patterns and future plans for airing content, including any changes in strategy. Given the impairment charge recorded under the current guidance.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting changessignificant estimates and error corrections
In January 2017, the FASB issued guidance which states that registrants should consider additional qualitative disclosures if the impact of an issued but not yet adopted ASU is unknownjudgments involved, actual demand or cannot be reasonably estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined. This guidance is effective immediately. Transition guidance in certain issued but not yet adopted standards has been updated to reflect this amendment.
Clarifying the definition of a business
In January 2017, the FASB issued guidance that amends the definition of a business and provides a threshold which must be considered to determine whether a transaction is an acquisition (or disposal) of an asset or a business. Under the current accounting guidance, the minimum inputs and processes required for a “set” of assets and activities to meet the definition of a business is not specified. That lack of clarity has led to broad interpretations of the definition of a business. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. The guidance is effective on a prospective basis beginning January 1, 2018 and is not expected to have a material impact on the Company’s consolidated financial statements.
Income Taxes
In October 2016, the FASB issued guidance that simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new guidance includes requirements to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, and therefore eliminates the exception for an intra-entity transfer of an asset other than inventory. The new standard is effective January 1, 2018. The Company is currently analyzing the impact of the pronouncement to the consolidated financial statements.
Leases
In February 2016, the FASB issued guidance on leases that will require lessees to recognize almost all of their leases on the balance sheet by recording a right-of-use asset and liability. The new standard will be effective for reporting periods beginning after December 15, 2018, and the new accounting guidancemarket conditions may be applied at the beginning of the earliest comparative period presented in the year of adoption or at effective date without applying the provisions of the new guidanceless favorable than those projected, requiring a write-down to comparative periods presented. The Company is currently evaluating the impactfair value. Programming and development costs for programs that the pronouncement will have on the consolidated financial statements; however, it is expected that assets and liabilities will increase materially when operating leases are recorded under the new standard. The method of transition will be determined when the Company has completed its evaluation.
Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued guidance regarding the classification and measurement of financial instruments, which among other changes in accounting and disclosure requirements, replaces the cost method of accounting for non-marketable equity securities with a model for recognizing impairments and observable price changes, and also eliminates the available-for-sale classification for marketable equity securities. The standard requires equity securities, including available-for-sale ("AFS") securities, todetermined will not be measured at fair value with changesproduced, are fully expensed in the fair value recognized through net income, supersedingperiod the guidance permitting entitiesdetermination is made. The Company’s film groups are generally aligned along the Company’s networks and digital content offerings except for certain international territories wherein content assets are shared across the various networks in the territory and therefore, the territory is the film group. The Company’s rights to record gainsthe Olympic Games are predominantly monetized on their own as the sublicensing of the rights in certain territories is a significant component of the monetization strategy. Beginning in 2020, all content rights and losses on equity securitiesprepaid license fees are classified as a noncurrent asset, with readily determinable fair values in accumulated other comprehensive income. Investments accounted for under the equity methodexception of accountingcontent acquired with an initial license period of 12 months or that result in consolidation are not included within the scope of this update. The new standard will affect the Company's accounting for AFS securities for reporting periods beginning after December 15, 2017. The Company will apply the guidance on a modified retrospective basis. The transition adjustment to reclassify accumulated other comprehensive income to retained earnings isless and prepaid sports rights expected to be $26 million.air within 12 months. (See "Accounting and Reporting Pronouncements Adopted" below and Note 12.)
Revenue from Contracts with Customers
In May 2014, the FASB issued an accounting pronouncement related to revenue recognition, which applies a single, comprehensive revenue recognition model for all contracts with customers. The core principle of the new guidance is that the Company will recognize revenue from the transfer of promised goods or services to customers at an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Subsequent to the issuance of the May 2014 guidance, several clarifications and updates have been issued by the FASB on this topic, the most recent of which was issued in December 2016. Many of these clarifications and updates to the guidance, as well as a number of interpretive issues, apply to companies in the media and entertainment industry.
The guidance requires new or expanded disclosures related to the judgments made by companies when following the framework. The Company is nearing completion of its assessment of the impact of adopting this new guidance, and the Company
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
will implement the new revenue standard beginning January 1, 2018. The Company currently does not anticipate that the adoption of the new guidance will have a material impact on the Company's financial statements, principally because the Company does not expect significant changes in the way it will record distribution or advertising revenues. The Company will apply the guidance on a modified retrospective basis.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Management continually re-evaluates its estimates, judgments and assumptions, and management’s evaluations could change. These estimates are sometimes complex, sensitive to changes in assumptions and require fair value determinations using Level 3 fair value measurements. Actual results may differ materially from those estimates.
Estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, allowances for doubtful accounts, content rights, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, and the determination of whether the Company is the primary beneficiary of entities in which it holds variable interests.
Consolidation
The Company has ownership and other interests in various entities, including corporations, partnerships, and limited liability companies. For each such entity, the Company evaluates its ownership and other interests to determine whether it should consolidate the entity or account for its ownership interest as an investment. As part of its evaluation, the Company initially determines whether the entity is a VIE and, if so, whether it is the primary beneficiary of the VIE. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations, or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company consolidates VIEs for which it is the primary beneficiary, regardless of its ownership or voting interests. The primary beneficiary is the party involved with the VIE that (i) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Upon inception of a variable interest or the occurrence of a reconsideration event, the Company makes judgments in determining whether entities in which it invests are VIEs. If so, the Company makes judgments to determine whether it is the primary beneficiary and is thus required to consolidate the entity.
If it is concluded that an entity is not a VIE, then the Company considers its proportional voting interests in the entity. The Company consolidates majority-owned subsidiaries in which a controlling financial interest is maintained. A controlling financial interest is determined by majority ownership and the absence of substantive third-party participating rights.
Ownership interests in entities for which the Company has significant influence that are not consolidated under the Company’s consolidation policy are accounted for as equity method investments. Related party transactions between the Company and its equity method investees have not been eliminated. (See Note 19.6.)
Investments
The Company holds investments in equity method investees cost method investees and available-for-sale securities.equity investments with and without readily determinable fair values. (See Note 4.)
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Equity Method Investments
Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the venture unless persuasive evidence to the contrary exists. Under this method of accounting, the Company typically records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees, as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances.
For certain of the Company's equity method investments, such as investments in renewable energy limited liability companies where the capital structure of the equity investment results in different liquidation rights and priorities than what is reflected by the underlying percentage ownership interests, the Company's proportionate share of net earnings is accounted for using the Hypothetical Liquidation at Book Value ("HLBV") methodology available under the equity method of accounting. When applying HLBV, the Company determines the amount that would be received if the investment were to liquidate all of its assets and distribute the resulting cash to the investors based on contractually
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defined liquidation priorities, assuming the entity continues as a going concern.priorities. The change in the Company's claim on the investee's book value in accordance with GAAP at the beginning and the end of the reporting period, after adjusting for any contributions or distributions, is the Company's share of the earnings or losses for the period.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. (See "Asset Impairment Analysis" below.)
Cost methodEquity Investments with Readily Determinable Fair Values
Investments in entities or other securities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are recorded at fair value based on quoted market prices and are classified as equity securities or equity investments with readily determinable fair value. For equity securities with readily determinable fair value, gains and losses are recorded in other income (expense), net. (See Note 4 and Note 20.)
Equity Investments without Readily Determinable Fair Values
Equity investments without readily determinable fair values include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence and these investments do not have readily determinable fair values. Cost methodEquity investments without readily determinable fair values are recorded at cost, less any impairment, and adjusted for subsequent observable price changes as of the lower of cost or fair value.
Investments in entities or other securities in which the Company has no control or significant influencedate that an observable transaction takes place and is not the primary beneficiary and have a readily determinable fair value are accounted for at fair value based on quoted market prices are classified as either trading securities or available-for-sale securities. For investments classified as trading securities, which include securities held in a separate trust in connection with the Company’s deferred compensation plan, unrealized and realized gains and losses related to the investment and corresponding liability are recorded in earnings as a component of other income (expense), net, on the consolidated statements of operations. For investments classified as AFS, which include investments in common stock, unrealized gainsnet. (See Note 4 and losses are recorded, net of income taxes, in other comprehensive (loss) income until the security is sold or considered impaired. If declines in the value of AFS securities are determined to be other-than-temporary, a loss is recorded in earnings in the current period as a component of other income (expense), net on the consolidated statements of operations. (See "Asset Impairment Analysis" below.Note 20.) For purposes of computing realized gains and losses, the Company determines cost on a specific identification basis.
Cash obtained as a result of the Company's debt issuance in September 2017 is invested into short-term instruments that qualify as cash and cash equivalents. Any accrued interest received after maturity is reinvested into additional short-term instruments. These investments are anticipated to be used to partially fund the Scripps Networks Interactive, Inc. ("Scripps Networks") acquisition. In the interim, the Company has full access to these proceeds.
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of most of the Company’s international subsidiaries is the local currency. Assets and liabilities, including inter-company balances for which settlement is anticipated in the foreseeable future, denominated in foreign currencies are translated at exchange rates in effect at the balance sheet date. Foreign currency equity balances are translated at historical rates. Revenues and expenses denominated in foreign currencies are translated at average exchange rates for the respective periods. Foreign currency translation adjustments are recorded in accumulated other comprehensive income.
Transactions denominated in currencies other than subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in the consolidated balance sheets related to these items will result in unrealized foreign currency transaction gains and losses based upon period-end exchange rates. The Company also records realized foreign currency transaction gains and losses upon settlement of the transactions. Foreign currency transaction gains and losses are included in other (expense) income, net, and totaled a loss of $83 million, a gain of $75 million, and a loss of $103 million for 2017, 2016 and 2015, respectively.
Cash flows from the Company's operations in foreign countries are generally translated at the weighted average rate for the applicable period in the consolidated statements of cash flows. The impacts of material transactions are recorded at the applicable spot rates as of the transaction date in the consolidated statements of operations and cash flows. The effects of exchange rates on cash balances held in foreign currencies are separately reported in the Company's consolidated statements of cash flows.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of 90 days or less.
Receivables
Receivables include amounts billed and currently due from customers and are presented net of an estimate for uncollectible accounts. The Company evaluates outstanding receivables to assess collectability. In performing this evaluation, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks. Using this information, the Company reserves an amount that it estimates may not be collected. The Company does not require collateral with respect to trade receivables.
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Content Rights
Content rights principally consist of television series, specials, films and sporting events. Content aired on the Company’s television networks is sourced from a wide range of third-party producers, wholly-owned and equity method investee production studios and sports associations. Content is classified either as produced, coproduced or licensed. The Company owns most or all of the rights to produced content. The Company collaborates with third parties to finance and develop coproduced content, and it retains significant rights to exploit the programs. Licensed content is comprised of films or series that have been previously produced by third parties and the Company retains limited airing rights over a contractual term. Prepaid licensed content includes advance payments for rights to air sporting events that will take place in the future and advance payments for acquired films and television series.
Costs of produced and coproduced content consist of development costs, acquired production costs, direct production costs, certain production overhead costs and participation costs. Costs incurred for produced and coproduced content are capitalized if the Company has previously generated revenues from similar content in established markets and the content will be used and revenues will be generated for a period of at least one year. The Company’s coproduction arrangements generally provide for the sharing of production costs. The Company records its costs, but does not record the costs borne by the other party as the Company does not share any associated economics of exploitation. Program licenses typically have fixed terms and require payments during the term of the license. The cost of licensed content is capitalized when the license period for the programs has commenced and the programs are available for air or the Company has paid for the programs. The Company pays in advance of delivery for television series, specials, films and sports rights. Payments made in advance of when the right to air the content is received are recognized as in-production produced, coproduced content or prepaid licensed content. Content distribution, advertising, marketing, general and administrative costs are expensed as incurred.
Content amortization expense for each period is recognized based on the revenue forecast model, which approximates the proportion that estimated distribution and advertising revenues for the current period represent in relation to the estimated remaining total lifetime revenues. The Company annually, or on an as needed basis, prepares analyses to support its content amortization expense by network and by region. Critical assumptions used in determining content amortization include: (i) the grouping of content by network, (ii) the application of a quantitative revenue forecast model based on the adequacy of a network's historical data, (iii) determining the appropriate historical periods to utilize and the relative weighting of those historical periods in the revenue forecast model, and (iv) assessing the accuracy of the Company's revenue forecasts. The Company then considers the appropriate application of the quantitative assessment given forecasted content use, expected content investment and market trends. Content use and future revenues may differ from estimates based on changes in expectations related to market acceptance, network affiliate fee rates, advertising demand, the number of cable and satellite television subscribers receiving the Company’s networks, and program usage. Accordingly, the Company continually reviews revenue estimates and planned usage and revises its assumptions if necessary. As part of the Company's annual assessment in determining the film forecast model, the Company compares the calculated amortization rates to those that have been utilized during the year. If the calculated rates do not deviate materially from the applied amortization rates, no adjustment is recorded for the current year amortization expense. The Company allocates the cost of multi-year sports programming arrangements over the contract period to each event or season based on the estimated relative value of each event or season.
The result of the revenue forecast model is either an accelerated method or a straight-line amortization method over the estimated useful lives of primarily three to four years for produced, coproduced and licensed content. Amortization of capitalized costs for produced and coproduced content begins when a program has been aired. Amortization of capitalized costs for licensed content commences when the license period begins and the program is available for use. Amortization of sports rights takes place when the content airs.
Capitalized content costs are stated at the lower of cost less accumulated amortization or net realizable value. The Company periodically evaluates the net realizable value of content by considering expected future revenue generation. Estimates of future revenues consider historical airing patterns and future plans for airing content, including any changes in strategy. Given the significant estimates and judgments involved, actual demand or market conditions may be less favorable than those projected, requiring a write-down to net realizable value. Development costs for programs that the Company has determined will not be produced, are fully expensed in the period the determination is made.
All produced and coproduced content is classified as long-term. The portion of the unamortized licensed content balance, including prepaid sports rights, that will be amortized within one year is classified as a current asset.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairments. The cost of property and equipment acquired under capital lease arrangements represents the lesser of the present value of the minimum lease payments or the fair value of the leased asset as of the inception of the lease. The Company leases fixed assets and software. Capitalized
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Internal use software costs are for internal use. Capitalization of software costs occurscapitalized during the application development stage. Software costs incurred during the preliminary project and post implementation stages are expensed as incurred. Repairs and maintenance expenditures that do not enhance the use or extend the life of property and equipment are expensed as incurred.
Depreciation for most property and equipment is recognized using the straight-line method over the estimated useful lives of the assets. (See Note 20.)
Leases
The Company determines if an arrangement is a lease at its inception. Operating lease right-of-use ("ROU") assets whichare included in "Other noncurrent assets" and operating lease liabilities are included in “Accrued liabilities” and “Other noncurrent liabilities” in the consolidated balance sheets. Finance lease ROU assets are included in "Property and equipment, net" and finance lease liabilities are included in “Accrued liabilities” and “Other noncurrent liabilities” in the consolidated balance sheets.
A rate implicit in the lease when readily determinable is 15used in arriving at the present value of lease payments. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on information available at lease commencement date for most of its leases. The incremental borrowing rate is based on the Company's U.S. dollar denominated senior unsecured borrowing curves using public credit ratings adjusted down to 39 yearsa collateralized basis using a combination of recovery rate and credit notching approaches and translated into major contract currencies as applicable.
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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. The Company does not separate lease components from non-lease components across all lease categories. Instead, each separate lease component and non-lease component are accounted for buildings, three to five yearsas 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. 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 broadcast equipment, two to five years for capitalized software costs and three to five years for office equipment, furniture, fixtures and other property and equipment. Assets acquired under capitaloperating leases is recognized on a straight-line basis. For finance leases, the Company recognizes interest expense on lease arrangements and leasehold improvements are amortizedliabilities using the effective interest method and amortization of ROU assets on a straight-line method over the lesser of the estimated useful lives of the assets or the terms of the related leases, which is one to 15 years. Depreciation commences when property or equipment is ready for its intended use.basis.
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 November 30 andOctober 1, or earlier if an event or other circumstance indicates that weit may not recover the carrying value of the asset. If the Company believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is not required. If a qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit goodwill or other indefinite-lived intangible asset exceeds its fair value, a quantitative impairment test is performed. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded for the amount by which the carrying amount exceeds the fair value, not to exceed the amount of goodwill recorded for that reporting unit. The Company typically performs a quantitative impairment test every three years, irrespective of the outcome of the Company's qualitative assessment.
The quantitative goodwill impairment test is performed using a two-step process. The first step of the process is to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the quantitative impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is required to be performed to measure the amount of impairment loss, if any. The second step of the quantitative goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit’s identifiable net assets excluding goodwill is compared to the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Following a qualitative assessment indicating that it is not more likely than not that the fair value of the indefinite lived intangible asset exceeds its carrying amount, impairment of other intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Determining fair value requires the exercise of judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.
Long-lived Assets
Long-lived assets such as amortizing trademarks, customer lists, other intangible assets, and property and equipment are not required to be tested for impairment annually. Instead, long-lived assetsannually, but rather are tested for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable, such as when the disposal of such assets is likely or there is an adverse change in the market involving the business employing the related assets.recoverable. If an impairment analysis is required, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the impairment test first 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, the assetan impairment loss would not be deemedrecognized equal to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value. Fair value, which is typically determined by discounting the future cash flows associated with that asset. If the intent is to hold the asset for sale and certain other criteria are met, the impairment test involves comparing the asset’s carrying value to its fair value less costs to sell. To the extentIf the carrying value is greater thanof the asset’sasset exceeds the fair value, less costs to sell, an impairment loss iswould be recognized in an amount 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Method Investments AFS Securities and Cost MethodEquity Investments Without Readily Determinable Fair Value
Equity method investments, AFS securities and cost method investments are reviewed for indicators of other-than-temporary impairment on a quarterly basis. Equity method investments, AFS securities and cost method investments are written down to fair value if there is evidence of a loss in value whichthat is other-than-temporary. The Company estimatesmay estimate the fair value of its equity method investments by considering share price and other publicly available information, recent investee equity transactions, discounted cash flowDCF analysis, recent operating results, comparable public company operating cash flow multiples and in certain situations, balance sheet liquidation values. If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining whether an other-than-temporary decline has occurred, such as:as the length of the time and the extent to which the estimated fair value or market value has been below the carrying value, the financial condition and the near-term prospects of the investee, the intent and ability of the Company to retain its investment in the investee for a period of time sufficient to allow for any anticipated recovery in market value, and general market conditions. The estimation of fair value and whether an other-than-temporary impairment has occurred requires the application of significant judgment and future results may vary from current assumptions. (See Note 4.) Other than AFS securities, fair values of investments are not assessed every reporting period unless there are indications of impairment.
If declines in the value of thesethe equity method investments are determined to be other-than-temporary, a loss is recorded in earnings in the current period as a component of other income (expense),loss from equity investees, net on the consolidated statements of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For equity investments without readily determinable fair value, investments are recorded at cost, less impairment, adjusted for subsequent observable price changes as of the date that an observable transaction takes place. The Company performs a qualitative assessment on a quarterly basis to determine if an observable price change has occurred. If the qualitative assessment indicates that an observable price change has occurred, a gain or loss is recorded equal to the difference between the fair value and carrying value in the current period as a component of other income (expense), net. (See Note 4.)
Derivative Instruments
The Company uses derivative financial instruments to modify its exposure to exogenous events, market risks from changes in foreign currency exchange rates, interest rates and thefrom market volatility related to certain equity investments measured at fair value of investments classified as available-for-sale securities.value. At the inception of a derivative contract, the Company designates the derivative as one of fourthree types based on the Company's intentions and expectations as to the likely effectiveness as a hedge. These fourThe three types are: (i)
(1) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), (ii);
(2) a hedge of net investments in foreign operations ("net investment hedge"), (iii) a hedge of the fair value of a recognized asset; or liability or of an unrecognized firm commitment ("fair value hedge"), or (iv)
(3) an instrument with no hedging designation. (See Note 10.)
Cash Flow Hedges
For those derivative instruments designatedThe Company designates foreign currency forward and option contracts as cash flow hedges gainsto mitigate foreign currency risk arising from third-party revenue and intercompany licensing agreements. The Company also designates interest rate contracts used to hedge the interest rate risk for certain senior notes and forecasted debt issuances as cash flow hedges. For foreign exchange forward contracts accounted for as cash flow hedges, the entire change in the fair value of the forward contract is recorded in other comprehensive income (loss) and reclassified into the statement of operations in the same line item in which the hedged item is recorded and in the same period as the hedged item affects earnings.
Net Investment Hedges
The Company designates cross-currency swaps and foreign currency forward contracts as hedges of net investments in foreign operations. The Company assesses effectiveness for net investment hedges utilizing the spot-method. The entire change in the fair value of derivatives that qualify as net investment hedges is initially recorded in the currency translation adjustment component of other comprehensive income. While the change in fair value attributable to hedge effectiveness remains in accumulated other comprehensive loss until the net investment is sold or liquidated, the change in fair value attributable to components excluded from the assessment of hedge effectiveness (e.g., forward points, cross currency basis, etc.) is reflected as a component of interest expense, net in the current period.
No Hedging Designation
The Company may also enter into derivative financial instruments that do not qualify for hedge accounting and are not designated as hedges. These instruments are intended to mitigate economic exposures due to exogenous events and changes in foreign currency exchange rates and interest rates. The changes in fair value of derivatives not designated as hedges are recorded in other income (expense), net.
Financial Statement Presentation
Unsettled derivative contracts are recorded at their gross fair values on the consolidated balance sheets. The portion of the fair value that represents cash flows occurring within one year is classified as current, and the portion related to cash flows occurring beyond one year is classified as noncurrent. Gains and losses on the effective portion of derivative instrumentsdesignated cash flow and net investment hedges are initially recorded inrecognized as components of accumulated other comprehensive loss on the consolidated balance sheets and reclassified into the consolidated statements of operations in the same line item in which the hedged item is recognizedrecorded and in the same period as the hedged item affects earnings. If it becomes probable that a forecasted transaction will not occur, any relatedThe Company records gains and losses recorded in accumulatedfor instruments that receive no hedging designation, as a component of other comprehensive loss on the consolidated balance sheets are reclassified to otherincome (expense) income,, net on the consolidated statements of operations in that period. Generally, the maximum length of time over which the Company hedges its exposure to variability in future cash flows for forecasted transactions is less than one year.operations.
Net Investment Hedges
For those derivative instruments designated as net investment hedges, the changes in the fair value of the derivatives instruments are recorded as cumulative translation adjustments, a component of accumulated other comprehensive loss on the consolidated balance sheets, and are only recognized in earnings upon the liquidation or sale of the hedged investment. If the notional amount of the instrument designated as the hedge of a net investment is greater than the portion of the net investment being hedged, hedge ineffectiveness, which is the gain or loss of the portion over-hedged, is reclassified to other (expense) income, net on the consolidated statements of operations in that period.
Fair Value Hedges
For those derivative instruments designated as fair value hedges, the changes in the fair value of the derivative instruments, including offsetting changes in fair value of the hedged items and amounts excluded from the assessment of effectiveness are recorded in other (expense) income, net.
No Hedging Designation
The Company may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. These contracts are intended to mitigate economic exposures of the Company. The changes in fair value of derivatives not designated as hedges and the ineffective portion of derivatives designated as hedging instruments are immediately recorded in other (expense) income, net.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statement Presentation
The Company records all unsettled derivative contracts at their gross fair values on the consolidated balance sheets. (See Note 5.) The portion of the fair value that represents cash flows occurring within one year are classified as current, and the portion related to cash flows occurring beyond one year are classified as noncurrent.
The cashCash flows from the effective portion ofdesignated derivative instruments used as hedges are classified in the consolidated statements of cash flows in the same section as the cash flows fromof the hedged item. For example, thePremiums paid for these instruments and associated settlements are reflected as components of investing cash paid or received to settle the effective portion of foreign exchange derivatives intended to hedge distribution revenue earned during the year ended December 31, 2017 is reported as an operating activity in the consolidated statements of cashflows. Cash flows consistent with the classification of cash received from customers. Also, the cash flows related to our interest rate contracts used to hedge the pricing for certain senior notes are reported as a financing activity in the consolidated statements of cash flows consistent with the cash proceeds from our debt offerings. The cash flows from the ineffective portion of derivative instruments used as hedges, periodic settlement of interest on cross-currencycross currency swaps and derivative contracts not designated as hedges are reported as investing activities in the consolidated statements of cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Treasury Stock
When stock is acquired for purposes other than formal or constructive retirement, the purchase price of the acquired stock is recorded in a separate treasury stock account, which is separately reported as a reduction of equity.
When stock is retired or purchased for formal or constructive retirement, the purchase price is initially recorded as a reduction to the par value of the shares repurchased, with any excess purchase price over par value recorded as a reduction to additional paid-in capital related to the series of shares repurchased and any remainderremaining excess purchase price recorded as a reduction to retained earnings. If the purchase price exceeds the amounts allocated to par value and additional paid-in capital related to the series of shares repurchased and retained earnings, the remainder is allocated to additional paid-in capital related to other series of shares.
Common Stock Repurchase Contracts
Under commonTo determine the cost of treasury stock repurchase contracts,that is either sold or reissued, the Company makes up front cash payments foruses the future settlement of the contractlast in, either shares or in cash based on the Company's Series C common stock price at settlement in relation to the strike price of the contract.first out method. If the Company's Series C commonproceeds from the re-issuance of treasury stock priceare greater than the cost, the excess is below the strike price at expiry, the Company receives a predetermined number of its Series C common stock. If the Company's Series C common stock price is above the strike price at expiry, the Company can elect to settle the transaction in either cash or the equivalent value in shares of Series C common stock at the then current market price upon settlement, based on the notional value of the repurchase contract. The contracts represent a hybrid instrument consisting of a debt instrument and an embedded equity-linked derivative that does not require bifurcation because it is linked to the Company’s own stock. The Company accounts for these contracts as equity transactions. Prepayments are recorded as a reduction in additional paid-in capital. If the contract settles in sharesproceeds from re-issuance of Series C commontreasury stock are less than the cost, the excess cost first reduces any additional paid-in capital arising from previous treasury stock transactions for that amount will be reclassified to treasury stock. If the contract settles in cash, the cash receipt will beclass of stock, and any additional excess is recorded as an increase to additional paid-in capital.a reduction of retained earnings.
Revenue Recognition
The Company generates revenues principally from: (i) advertising revenue from (i)advertising sold on its television networks, authenticated TVE applications, DTC subscription services and websites, (ii) distribution revenues from fees charged to distributors of its network content, which include cable, direct-to-home ("DTH") satellite, telecommunications and digital service providers, (ii) advertising sold on its television networks and websites,bundled long-term content arrangements, as well as through DTC subscription services, and (iii) transactions for curriculum-based products and services, (iv)other revenue related to several items including: (a) unbundled rights to sales of network content, including sports rights, (b) production studios content development and services, (v) affiliate and advertising sales representation services and (vi)(c) the licensing of the Company's brands for consumer products.products, and (d) affiliate and advertising sales representation services.
Revenue is recognized when persuasive evidenceupon transfer of a sales arrangement exists,control of promised services are rendered or delivery occurs,goods to customers in an amount that reflects the sales price is fixedconsideration that the Company expects to receive in exchange for those services or determinable and collectability is reasonably assured.goods. Revenues do not include taxes collected from customers on behalf of taxing authorities such as sales tax and value-added tax. However, certain revenues include taxes that customers pay to taxing authorities on the Company’s behalf, such as foreign withholding tax. Revenue recognition for each source of revenue is also based on the following policies.
Advertising
Advertising revenues are principally generated from the sale of commercial time on linear and digital platforms. A substantial portion of the linear and digital advertising contracts in the U.S. and certain international markets guarantee the advertiser a minimum audience level that either the program in which their advertisements are aired or the advertisement will reach. On the linear platform, the Company provides a service to deliver an advertising campaign which is satisfied by the provision of a minimum number of advertising spots in exchange for a fixed fee over a contract period of one year or less. The Company delivers spots in accordance with these contracts during a variety of day parts and programs. In the agreements governing these advertising campaigns, the Company has also promised to deliver to its customers a guaranteed minimum number of viewers (“impressions”) on a specific television network within a particular demographic (e.g. men aged 18-35). These advertising campaigns are considered to represent a single, distinct performance obligation. Revenues are recognized based on the audience level delivered multiplied by the average price per impression. The Company provides the advertiser with advertising until the guaranteed audience level is delivered, and invoiced advertising revenue receivables may exceed the value of the audience delivery. As such, revenues are deferred until the guaranteed audience level is delivered or the rights associated with the guarantee lapse, which is less than one year. Audience guarantees are initially developed internally, based on planned programming, historical audience levels, the success of pilot programs, and market trends. Actual audience and delivery information is published by independent ratings services.
Digital advertising contracts typically contain promises to deliver guaranteed impressions in specific markets against a targeted demographic during a stipulated period of time. If the specified number of impressions is not delivered, the transaction price is reduced by the number of impressions not delivered multiplied by the contractually stated price per impression. Each promise is considered a separate performance obligation. For digital contracts with an audience guarantee, advertising revenues are recognized as impressions are delivered. Actual audience delivery is typically reported by independent third parties.
For contracts without an audience guarantee, advertising revenues are recognized as each spot airs. The airing of individual spots without a guaranteed audience level are each distinct, individual performance obligations. The Company allocates the consideration to each spot based on its relative standalone selling price.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Distribution
Cable operators, DTH satellite operators and telecommunications service providers typically pay royalties via a per-subscriber fee for the right to distribute the Company’s programming under the terms of distribution contracts. The majority of the Company’s distribution fees are collected monthly throughout the year and distribution revenue is recognized over the term of the contracts based on contracted programming rates and reported subscriber levels. The amount of distribution fees due to the Company areis reported by distributors
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on actual subscriber levels. Such information is generally not received until after the close of the reporting period. In these cases, the Company estimates the number of subscribers receiving the Company’s programming.programming to estimate royalty revenue. Historical adjustments to recorded estimates have not been material. Distribution revenue from fixed-fee contracts is recognized over the contract term based on the continuous delivery of the content to the affiliate. Any monetary incentives provided to distributors other than for distinct goods or services acquired at fair value are recognized as a reduction of revenue over the service term.
Although the delivery of linear feeds and digital products, such as video-on-demand (“VOD”) and authenticated TVE applications, are considered distinct performance obligations within a distribution arrangement, on demand offerings generally match the programs that are airing on the linear network. Therefore, the Company recognizes revenue for licensing arrangements as the license fee is earned and based on continuous delivery for fixed fee contracts.
For DTC subscription services, the Company recognizes revenue as the service fee is earned over the subscription period.
Revenues associated with digital distribution arrangements are recognized when the Company transfers control of the content and the rights to distribute the content to the customer. If multiple programs are included in the arrangement, the Company allocates the fee to each program based on its relative fair value.
AdvertisingOther
Advertising revenues are principally generatedLicense fees from the salesublicensing of bundled commercial time on television networks and websites. The Company allocates the ad sales arrangement consideration to each item based on its relative fair value. Advertising revenuessports rights are recognized net of agency commissions inwhen the period advertising spots are aired. A substantial portion ofrights become available for airing. Revenue from production studios is recognized when the advertising contracts in the U.S. guarantee the advertiser a minimum audience level that either the program in which their advertisements are aired or the advertisement will reach. Revenues are recognized for the actual audience level delivered. The Company provides the advertiser with additional advertising spots in future periods if the guaranteed audience level is not delivered. Revenues are deferred for any shortfall in the guaranteed audience level until the guaranteed audience levelcontent is delivered orand available for airing by the rights associated with the guarantee lapse. Audience guarantees are initially developed internally based on planned programming, historical audience levels, the success of pilot programs, and market trends. In the U.S., actual audience and delivery information is published by independent ratings services. In certain instances, the independent ratings information is not received until after the close of the reporting period. In these cases, reported advertising revenue and related deferred revenue are based upon the Company’s estimates of the audience level delivered. Historical adjustments to recorded estimates have not been material.
Advertising revenues from online properties are recognized as impressions are delivered or the services are performed.
Other
Revenue for curriculum-based services is recognized ratably over the contract term as service is provided.customer. Royalties from brand licensing arrangements are earned as products are sold by the licensee. Revenue fromAffiliate and ad sales representation services are recognized as services are provided.
Multiple Performance Obligations
Contracts with customers may include multiple distinct performance obligations. Advertising contracts may include sponsorship, production, or product integration in addition to the production studios segmentairing of spots and/or the satisfaction of an audience guarantee. For such contracts, the contract value is recognizedallocated to individual performance obligations and recorded as revenue when each performance obligation has been satisfied and value has been transferred to the customer. Distribution contracts also include multiple performance obligations. The Company also enters into certain distribution contracts that include promises to deliver content libraries. There are generally two types of such arrangements: 1) content licensing arrangements that include subscription video on demand (“SVOD”) licensing arrangements and 2) digital content (such as VOD and authenticated TVE applications), which is a performance obligation within the Company's linear distribution arrangements. These contracts vary by customer and in certain instances include a promise by the Company to deliver existing content and new content. For SVOD arrangements, revenue is allocated to each performance obligation based on that performance obligation's relative standalone selling price. In the case of VOD and digital content, content is deliveredregularly refreshed over the term of the agreement, as new titles are added and available for airing byolder titles are removed. Consequently, satisfaction of the customer.performance obligations generally occurs in the same pattern as the delivery of the linear feed.
Deferred Revenue
Deferred revenue primarily consists of cash received for television advertising for which the advertising spots haveguaranteed viewership has not yet fully delivered the ratings guaranteed,been provided, product licensing arrangements advanced billings to subscribers for access toin which fee collections are in excess of the Company’s curriculum-based streaming serviceslicense value provided, and advanced fees received related to the sublicensing of Olympic rights. The amounts classified as current are expected to be earned within the next year.
Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation Expense
The Company has incentive plans under which performance-based restricted stock units (“PRSUs”), service-based restricted stock units (“RSUs”), stock options, and stock appreciation rights (“SARs”) are issued. The Company's unitIn addition, the Company offers an Employee Stock Purchase Plan (the "ESPP"). Share-based compensation expense for all awards plan is no longer active, effective January 1, 2016.recorded as a component of selling, general and administrative expense. Forfeitures for all awards are recognized as incurred. Excess tax benefits realized from the exercise of stock options and vested RSUs, PRSUs and the ESPP are reported as cash inflows from operating activities on the consolidated statements of cash flows.
PRSUs
Vesting for certain PRSUs is subject to satisfying objective operating performance conditions while vesting for other PRSUs is based on the achievement ofor a combination of objective and subjective operating performance conditions. Compensation expense for PRSUs that vest based on achieving objective operating performance conditions is measured based on the fair value of the Company’s Series A and C common stock on the date of grant less actual forfeitures.grant. Compensation expense for PRSUs that vest based on achieving subjective operating performance conditions or in situations where the executive is able to withhold taxes in excess of the minimummaximum statutory requirement, is remeasured at the fair value of the Company’s Series A and Series C common stock, as applicable, less actual forfeitures each reporting period until the date of conversion.award is settled. Compensation expense for all PRSUs is recognized ratably, following a graded vesting pattern during the vesting period only when it is probable that the operating performance conditions will be achieved. The Company records a cumulative adjustment to compensation expense for PRSUs if there is a change in the determination of whether or not it is probablethe probability that the operating performance conditions will be achieved.
The Company measures the cost of employee services received in exchange for RSUs based on the fair value of the Company’s Series A common stock on the date of grant less actual forfeitures.
Compensation expense for RSUs is recognized ratably during the vesting period.
Compensation expense for stock options is attributed to expense over the vesting period based on the fair value on the date of grant less actual forfeitures. Compensation expense for stock options is recognized ratably during the vesting period.
The Company measures the cost of employee services received in exchange for SARs and unit awards based on the fair value of the award less forfeitures.on the date of grant and is recognized ratably during the vesting period.
SARs and Stock Options
Compensation expense for SARs is based on the fair value of the award. Because certain SARs and all unit awards are cash-settled, the Company remeasures the fair
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of these awards each reporting period until settlement. Compensation expense for SARs, including changes in fair value, for SARs and unit awards is recognized during the vesting period in proportion to the requisite service that has been rendered as of the reporting date. For awards with graded vesting, the Company measures fair value and records compensation expense separately for each vesting tranche.
Compensation expense for stock options is based on the fair value of the award on the date of grant and is recognized ratably during the vesting period.
The fair values of SARs and stock options are estimated using the Black-Scholes option-pricing model. 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 the Company’s common stock and historical realized volatility of the Company’s 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. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the award.
When recording compensation cost for share-based awards, the Company has the option to estimate the number of awards granted that are expected to be forfeited or use actual forfeitures, in accordance with the March 2016 FASB guidance that simplified how share-based payments are accounted for and presented in the financial statements. On January 1, 2017, the Company adopted the new guidance on a modified retrospective basis to use actual forfeitures in the calculations of share-based compensation expense instead of estimated forfeitures.ESPP
The Employee Stock Purchase Plan (the “ESPP”)ESPP enables eligible employees to purchase shares of the Company’s common stock through payroll deductions or other permitted means. The Company recognizes the fair value of the discount associated with shares purchased under the planESPP as equity-basedshare-based compensation expense.
Share-based compensation expense is recorded as a component of selling, general and administrative expense. The Company classifies the intrinsic value of SARs that are vested or will become vested within one year as a current liability.
Excess tax benefits realized from the exercise of stock options and vested RSUs, PRSUs and the ESPP are reported as cash inflows from operating activities on the consolidated statements of cash flows.
Advertising Costs
Advertising costs are expensed as promotional services are delivered and are presented in selling, general and administrative expenses. Advertising costs paid to third parties totaled $162 million, $166$1.2 billion, $412 million and $148$390 million for 2017, 2016years ended December 31, 2021, 2020 and 2015,2019, respectively.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income taxes are recorded using the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred taxes are measured using rates the Company expects to apply to taxable income in years in which those temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not such assets will be unrealized. The Company also engages in transactions that make the Company eligible for federal investment tax credits. The Company accounts for federal investment tax credits under the flow-through method, under which the tax benefit generated from an investment tax credit is recorded in the period the credit is generated.
From time to time, the Company engages in transactions in which the tax consequences may be uncertain. Significant judgment is required in assessing and estimating the tax consequences of these transactions. The Company prepares and files tax returns based on its interpretation of tax laws and regulations. In the normal course of business, the Company's tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities.
In determining the Company's tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless the Company determines that such positions are more likely than not to be sustained upon examination based on their technical merits, including the resolution of any appeals or litigationslitigation processes. The Company includes interest and where appropriate, penalties, as a component of income tax expense on the consolidated statements of operations. There is considerablesignificant judgment involved in determining the amount of reserve and whether positions taken on the Company's tax returns are more likely than not to be sustained.sustained, which involve the use of significant estimates and assumptions with respect to the potential outcome of positions taken on tax returns that may be reviewed by tax authorities. 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.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law, including the new tax on global intangible low-taxed income ("GILTI"). The Company concluded that it would not be appropriate to provide deferred taxes on individual inside basis differences or the outside basis difference (or portion thereof) because a taxpayer’s GILTI is based on its aggregate income from all foreign corporations. Because the computation is done at an aggregate level, the unit of account is not the taxpayer’s investment in an individual foreign corporation or that corporation’s assets and liabilities.
Concentrations Risk
Customers
The Company has long-term contracts with distributors around the world. For the U.S. Networks segment, more than 90%84% of distribution revenue comes from the 10 largest distributors. For the International Networks segment, approximately 42% of distribution revenue comes from the 10 largest distributors. Agreements in place with the 10 largest cable and satellite operators with the U.S. Networks and International Networks expire at various times from 20182022 through 2021.2025. Although the Company seeks to renew its agreements with its distributors prior to expiration of a contract, a delay in securing a renewal that results in a service disruption, a failure to secure a renewal or a renewal on less favorable terms may have a material adverse effect on the Company’s financial condition and results of operations. Not only could the Company experience a reduction in distribution revenue, but it could also experience a reduction in advertising revenue, as viewership is impacted by affiliate subscriber levels.
No individual customer accounted for more than 10% of total consolidated revenues for 2017, 2016 and 2015.2021, 2020 or 2019. As of December 31, 20172021 and 2016,2020, the Company’s trade receivables do not represent a significant concentration of credit risk as the customers and markets in which the Company operates are varied and dispersed across many geographic areas.
Financial Institutions
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk. In conjunction with the Scripps Networks acquisition, $2.7 billion of proceeds from debt issuances were invested in money market funds, $1.3 billion were invested in time deposit accounts, and the remainder was invested in highly liquid, short-term instruments with original maturities of 90 days or less. These investments are classified as cash and cash equivalents on the balance sheet and are anticipated to be used for the Scripps Networks acquisition; in the interim, the Company has full access to these proceeds. Additionally, the Company has cash and cash equivalents held by its foreign subsidiaries. Under the TCJA, the Company is subject to U.S. taxes for the deemed repatriation of certain cash balances held by foreign corporations. The Company intends to continue to permanently reinvest these funds outside of the U.S., and current plans do not demonstrate a need to repatriate them to fund our U.S. operations.
Lender Counterparties
There is a risk that the counterparties associated with the Company’s revolving credit facility will not be available to fund as obligated under the terms of the facility and that the Company may, at the time of such unavailability to fund, have limited or no access to the commercial paper market. If funding under the revolving credit facility is unavailable, the Company may have to acquire a replacement credit facility from different counterparties at a higher cost or may be unable to find a suitable replacement. Typically, the Company seeks to manage such risks from its revolving credit facility by contracting with experienced large financial institutions and monitoring the credit quality of its lenders. As of December 31, 2017, the Company did not anticipate nonperformance by any of its counterparties.
Counterparty Credit Risk
The Company is exposed to the risk that the counterparties to outstanding derivative financial instruments will default on their obligations. The Company manages these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with outstanding derivative financial instruments is spread across a relatively broad counterparty base of banks and financial institutions. In connection with the Company's hedge of certain investments classified as available-for-sale securities, the Company has pledged shares as collateral to the derivative counterparty. (See Note 5.) The Company also has a limited number of arrangements where collateral is required to be posted in the instance that certain fair value thresholds are exceeded. As of December 31, 2017, $3 million of2021, no collateral has been posted by the Company under these arrangements and classified as other noncurrent assets in the consolidated balance sheets.arrangements. As of December 31, 2017, our2021, the Company's exposure to counterparty credit risk included derivative assets with an aggregate fair value of $25$330 million. (See Note 10.)
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting and Reporting Pronouncements Adopted
LIBOR
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company will apply the relevant provisions of the guidance to its existing hedge relationships.
Business Combinations
In October 2021, the Financial Standards Accounting Board ("FASB") issued guidance that requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as if it had originated the contracts. The guidance is effective for interim and annual periods beginning after December 15, 2022, and may be early adopted. The Company early adopted this guidance during the third quarter of 2021. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements for prior acquisitions in the current annual period, and the impact in future periods will be dependent on the contract assets and contract liabilities acquired in future business combinations.
Content
In March 2019, the FASB issued guidance which generally aligns the accounting for production costs of episodic television series with the accounting for production costs of films. In addition, this guidance modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements. The Company adopted this guidance on January 1, 2020 and applied the provisions prospectively. In connection with this adoption, the Company elected to treat all content rights and prepaid license fees as a noncurrent asset, with the exception of content acquired with an initial license period of 12 months or less and prepaid sports rights expected to air within 12 months. As of December 31, 2021 and 2020, $245 million and $532 million, respectively, of content rights and prepaid license fees were reflected as a current asset. The Company determined that most of its content is exploited as part of film groups. For such content assets, the unit of account for the impairment assessment is the respective film group. There was no material impact upon adoption to the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows. (See Note 6.)
Goodwill
In January 2017, the FASB issued guidance simplifying the subsequent measurement of goodwill by eliminating Step 2 from the former two-step goodwill impairment test and eliminating the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Therefore, an entity will recognize impairment charges for the amount by which the carrying amount exceeds the reporting unit's fair value not to exceed the amount of goodwill recorded for that reporting unit. Goodwill impairment will no longer be measured as the excess of the carrying amount of goodwill over its implied fair value determined by assigning the fair value of a reporting unit to all of its assets and liabilities as if it had been acquired in a business combination. The Company adopted this guidance on January 1, 2020 and has applied the provisions to quantitative goodwill impairment assessments performed subsequent to adoption. (See Note 7.)
Leases
In February 2016, the FASB issued guidance, which requires lessees to recognize almost all of their leases on the balance sheet by recording a right-of-use asset and lease liability. The guidance also requires improved disclosures to help users of the financial statements better understand the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted this guidance effective January 1, 2019 and elected to apply the guidance at the effective date without recasting the comparative periods presented. Additionally, the Company elected to apply practical expedients allowing it to not reassess: 1) whether any expired or existing contracts previously assessed as not containing leases are, or contain, leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. The Company also elected to not separate lease components from non-lease components across all lease categories. Instead, each separate lease component and non-lease component are accounted for as a single lease component. The Company did not elect to apply the practical expedient to use hindsight in determining the lease term and in assessing the right-of-use assets for impairment. Additionally, the Company did not elect to apply the short-term lease scope exemption.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting and Reporting Pronouncements Not Yet Adopted
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. This guidance is effective for interim and annual periods beginning after December 15, 2021. The Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.
NOTE 3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Scripps Networks Interactive, Inc.WarnerMedia
On February 26, 2018, the U.S. Department of Justice notifiedIn May 2021, the Company entered into an agreement with AT&T Inc. to combine with WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets to create a standalone, global entertainment company.
The proposed combination transaction will be executed through a Reverse Morris Trust type transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via a pro rata distribution (i.e., a spin off). In connection with the combination transaction, AT&T will receive approximately $43 billion (subject to working capital and other adjustments) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. The Company has concluded that it has closed its investigation into Discovery's agreement for a planwill be considered the accounting acquirer. The Company established an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of merger to acquire Scripps Networks in a cash-and-stock transaction. The estimated merger consideration for the acquisition totals $12.0 billion, including cash of $8.4 billion and stock of $3.6 billion based on the Series C common stock price as of January 31, 2018. In addition, the Company will assume Scripps Networks' netfuture fixed-rate debt of approximately $2.7 billion. The transactionby WarnerMedia, which is expected to close in early 2018.
Scripps Networks shareholders will receive $63.00 per share in cashbe guaranteed by the Company and a number of shares of Discovery's Series C common stock that is determined in accordance with a formula and subject to a collar based on the volume weighted average pricecertain subsidiaries of the Company's Series C common stock. The formula is based onCompany upon closing of the volume weighted average price of Discovery's Series C common stock over the 15 trading days ending on the third trading daytransaction. (See Note 10.)
Immediately prior to closing, (the “Average Discovery Price”). Scripps Networks shareholders will receive 1.2096all shares of Discovery's Series C common stock if the Average Discovery Price is below $22.32,A, Series B, and 0.9408 shares of Discovery's Series C common stock if the Average Discovery Price is above $28.70. The intent of the range was to provide Scripps Networks shareholders with $27.00 of value per share in Discovery Series C common stock; if the Average Discovery Price is greater than or equal to $22.32 but less than or equal to $28.70, Scripps Networks shareholders will receive a proportional number of shares between 1.2096 and 0.9408. If the Average Discovery Price is below $25.51, Discovery has the option to pay additional cash instead of issuing more shares above the 1.0584 conversation ratio required at $25.51. The cash payment is equal to the product of the additional shares required under the collar formula multiplied by the Average Discovery Price; for example, if the Average Discovery Price were $22.32 with a conversion ratio of 1.2096, the Company could offer shares at the 1.0584 ratio and pay for the difference associated with the incremental shares in cash. Outstanding employee equity awards or share-based awards that vest upon the change of control will be acquired with a similar combination of cash and shares of Discovery Series C common stock pursuant to terms specified in the Merger Agreement. Therefore, the merger consideration will fluctuate based upon changes in the share price of Discovery Series C common stock and the number of Scripps Networks common shares,Series A-1 and Series C-1 convertible preferred stock options,will be reclassified and other equity-based awards outstanding on the closing date. Discovery will also pay certain transaction costs incurred by Scripps Networks. The post-closing impactconverted to one class of the formula was intendedCompany's common stock. AT&T’s shareholders that receive WarnerMedia stock in the distribution will receive stock representing 71% of the combined company and the Company's shareholders will continue to resultown 29% of the combined company, in Scripps Networks’ shareholders owning approximately 20% of Discovery’seach case on a fully diluted common sharesbasis. The Boards of Directors of both AT&T and Discovery’s shareholders owning approximately 80%. Thethe Company will utilize debt (see Note 9) and cash on hand to financehave approved the cash portion of the transaction.
The transaction is anticipated to close in the second quarter of 2022, subject to regulatory approvalsapproval by the Company's shareholders and otherthe satisfaction of customary closing conditions.
conditions, including receipt of regulatory approvals. On December 22, 2021, the transaction received unconditional antitrust clearance from the European Commission (“EC”) pursuant to the EC Merger Regulation, and on December 28, 2021, AT&T received a favorable Private Letter Ruling from the Internal Revenue Service regarding the qualification of the transactions for their intended tax-free treatments. On February 9, 2022, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, statutory waiting period has expired or otherwise been terminated, and any agreement not to consummate the transaction between the parties and the Federal Trade Commission or the Antitrust Division of the United States Department of Justice or any other applicable governmental entity, has also expired or otherwise been terminated. Discovery and AT&T are in the process of obtaining other required regulatory approvals. Agreements are in place with Dr. John C. Malone and Advance/Newhouse and members of the Scripps family entered into voting agreementsProgramming Partnership to vote in favor of the transactions andtransaction, representing approximately 43% of the stockholdersaggregate voting power of boththe shares of Discovery and Scripps Networks approvedvoting stock. The transaction requires, among other things, the transaction on November 17, 2017. In addition,consent of Advance/Newhouse has provided its consent, in its capacityProgramming Partnership under the Company's certificate of incorporation as the sole holder of Discovery’s outstandingthe Series A-1 Preferred Stock, which consent was given pursuant to a consent agreement. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A preferredA-1 Preferred Stock into common stock, for Discoveryit will receive an increase to enter into the Merger Agreement and consummate the merger. In connection with this consent, Discovery and Advance/Newhouse entered into an exchange agreement pursuant to which Advance/Newhouse exchanged all of its shares of Series A and Series C preferred stock of Discovery for shares of newly designated Series A-1 and Series C-1 preferred stock of Discovery. The exchange transaction did not change the aggregate number of shares of Discovery’s Series A common stock andof the Company into which the Series C common stock that are beneficially owned by Advance/Newhouse or change voting rights or liquidation preferences afforded to Advance/Newhouse. The $35 millionA-1 Preferred Stock would be converted. Upon the closing, the impact of the modification has beenissuance of such additional shares of common stock of the Company will be recorded as a componenttransaction expense. No vote by AT&T shareholders is required.
The merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee of selling, general$720 million or AT&T to pay Discovery a termination fee of $1.8 billion.
In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by the Company and administrative expense. (See Note 12 and Note 17.) All of Discovery's direct costscertain material subsidiaries of the Scripps Networks acquisition will be reflected as a componentCompany upon closing of selling, general and administrative expense in the consolidated statements of operations.transaction.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UKTV - Lifestyle Business
The following table summarizesOn June 11, 2019, the components of the estimated merger consideration (in millions of dollarsCompany and shares, except for per share amounts, share conversion ratio, stock option conversion ratio, average cash consideration and average equity consideration). The estimated merger consideration is based on the number of Scripps Networks shares outstanding as of December 31, 2017, and utilizesBBC Studios (“BBC”) dissolved their 50/50 joint venture, UKTV, a January 31, 2018 transaction closing date to compute the equity portion of the purchase price.
|
| | | | |
Outstanding Scripps Networks equity | | |
Scripps Networks shares outstanding | | 130 |
|
Cash consideration per share | | $ | 63.00 |
|
Estimated cash portion of purchase price | | $ | 8,193 |
|
| | |
Scripps Networks shares outstanding | | 130 |
|
Share conversion ratio | | 1.1316 |
|
Discovery Series C common stock assumed to be issued | | 147 |
|
Discovery Series C common stock price per share | | $ | 23.86 |
|
Estimated equity portion of purchase price | | $ | 3,511 |
|
| | |
Outstanding shares under Scripps Networks share-based compensation programs | | |
Shares under Scripps Networks share-based compensation programs | | 3 |
|
Scripps Networks share-based compensation converting to cash (70%)
| | 2 |
|
Average cash consideration (per share less applicable exercise price) | | $ | 50.34 |
|
Estimated cash portion of purchase price | | $ | 114 |
|
| | |
Scripps Networks share-based compensation converting to Discovery Series C common stock (30%)
| | 1 |
|
Stock option conversion ratio (based on intrinsic value per award) | | 3 |
|
Discovery Series C common stock (1) or options (2) assumed to be issued | | 3 |
|
Average equity consideration (intrinsic value of Discovery Series C common stock or options to be issued as consideration) | | $ | 12.84 |
|
Estimated equity portion of purchase price for share awards | | $ | 45 |
|
| | |
Scripps Networks transaction costs required to be paid by Discovery | | $ | 105 |
|
| | |
Total estimated consideration to be paid | | $ | 11,968 |
|
Balances reflect rounding of dollar and share amounts to millions, which may result in differences for recalculated amounts comparedBritish multi-channel broadcaster, with the amounts presented above.
Merger Consideration Sensitivity
The table below illustrates the potential impactCompany taking full control of UKTV’s 3 lifestyle channels (the “Lifestyle Business”) and BBC taking full control of UKTV’s 7 entertainment channels (the "Entertainment Business"). Prior to the total estimated outstanding Discovery Series C common stock to be issued assuming that the stock portion of the consideration for outstanding Scripps shares were converted to shares of Discovery Series C common stock at either the low-end or the high-end of the collar range. For the purposes of this calculation, the total number of Scripps outstanding shares has been assumed to be the same as in the table above. The stock prices used to determine the equity portion of the consideration in each scenario is based on Discovery Series C common stock price at the low-end and the high-end of the collar (in millions of dollars and shares, except for conversion ratio).
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | |
| | Discovery Series C Common Stock (DISCK) Shares to Issue and Total Estimated Consideration to be Paid |
| | Minimum | | Maximum |
Scripps shares outstanding as of December 31, 2017 | | 130 |
| | 130 |
|
Average Discovery price - Series C common stock | | $ | 22.32 |
| | $ | 28.70 |
|
Conversion ratio | | 1.2096 |
| | 0.9408 |
|
Discovery Series C common stock to be issued for estimated Scripps shares outstanding | | 157 |
| | 122 |
|
Total estimated consideration to be paid | | $ | 11,968 |
| | $ | 11,968 |
|
If the average price of Discovery Series C common stock is above the collar maximum or below the collar minimum, the total estimated consideration to be paid will increase or decrease accordingly from the amount shown in the table above.
The merger will be accounted for as a business combination using the acquisition method of accounting, which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained. Accordingly, the costs to acquire such interests will be allocated to the underlying net assets based on their respective fair values, including noncontrolling interests. Any excess of the purchase price over the estimated fair value of the net assets acquired will be recorded as goodwill.
OWN
On November 30, 2017,transaction, the Company acquiredheld a note receivable from Harpo, Inc. ("Harpo") a controlling interest in OWN, increasing Discovery’s ownership stake from 49.50% to 73.99%. OWN is a pay-TV networkUKTV of $118 million. Concurrent with the transaction, the note was settled.
To compensate Discovery for the note receivable and website that provides adult lifestyle and entertainment content, which is focused on African Americans. Discovery paid $70 million in cash and recognized a gain of $33 million to account for the difference in fair value between the carrying valueLifestyle Business and the Entertainment Business retained by BBC, Discovery received cash of $88 million at closing and a note receivable from BBC of $130 million, payable in 2 equal installments, which were received in June 2020 and June 2021. The Company used a market-based valuation model to determine the fair value of the previously held 49.50%50% equity interest. The price included an assessment of fair value of the equity interestmethod investment in the network, subject to the impact of the note payable to Discovery. TheLifestyle Business and recognized an immaterial gain, which is included in other income (expense) income,, net in the Company's consolidated statementsstatement of operations (see Note 18). Discovery consolidated OWN under the VIE consolidation model upon closing of the transaction. As a result, the accounting for OWN was changed from an equity method investment to a consolidated subsidiary.operations.
The Company applied the acquisition method of accounting to OWN’s business,the Lifestyle Business, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the workforce and synergies expected from broader exposure to the self-discovery and self-improvementlifestyle entertainment sector. The goodwill recorded as part of this acquisition is includedsector in the U.S. Network reportable segment and is not amortizable for tax purposes. Intangible assets consist of advertiser backlog, advertiser relationships and affiliate relationships with a weighted average estimated useful life of 9 years.
The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets, principally intangibles, and certain contingent liabilities. The Company used discounted cash flow ("DCF") analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur. The preliminary fair value of assets acquired and liabilities assumed, as well as a reconciliation to cash consideration transferred is presented in the table below (in millions).
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | |
| | November 30, 2017 |
Intangible assets | | $ | 295 |
|
Content rights | | 176 |
|
Accounts receivable | | 84 |
|
Other assets | | 26 |
|
Other liabilities | | (230) |
|
Net assets acquired | | $ | 351 |
|
Goodwill | | 136 |
|
Remeasurement gain on previously held equity interest | | (33) |
|
Carrying value of previously held equity interest | | (329) |
|
Redeemable noncontrolling interest | | (55) |
|
Cash consideration transferred | | $ | 70 |
|
Following the acquisition of the incremental equity interest and change to governance provisions, the Company has determined that it is now the primary beneficiary of OWN as Discovery obtained control of the Board of Directors and operational rights that significantly impact the economic performance of the business such as programming and marketing, and selection of key personnel. As the primary beneficiary, Discovery includes OWN's assets, liabilities and results of operations in the Company's consolidated financial statements. As of December 31, 2017, the carrying amounts of assets and liabilities of the consolidated VIE were $707 million and $505 million, respectively. The fair value of the noncontrolling interest retained by Harpo was computed based on Harpo's contractual claims to the underlying net assets of the business, which are partially subordinate to the Company's given the Company's historical funding of OWN's losses. The loans funded by Discovery to launch the network require repayment prior to equity distributions to partners.
Harpo has the right to require the Company to purchase its remaining non-controlling interest during 90-day windows beginning on July 1, 2018 and every two and half years thereafter through January 1, 2026. As OWN’s put right is outside the Company's control, OWN’s noncontrolling interest is presented as redeemable noncontrolling interest outside of permanent equity on the Company's consolidated balance sheet. (See Note 11.)
The Enthusiast Network, Inc.
On September 25, 2017, the Company contributed its linear cable network focused on cars and motor sports, Velocity, to a new joint venture ("VTEN"), with GoldenTree Asset Management L.P. ("GoldenTree"). GoldenTree's contributions to the joint venture included businesses from The Enthusiast Network, Inc. ("TEN"), primarily MotorTrend.com, Motor Trend YouTube channel and the Motor Trend OnDemand OTT service. TEN did not contribute its print businesses to the joint venture. The joint venture will establish a portfolio of digital content, social groups, live events and original content focused on the automotive audience. In exchange for their contributions, Discovery and GoldenTree received 67.5% and 32.5% ownership of the new joint venture, respectively.
Discovery consolidated the joint venture under the voting interest consolidation model upon the closing of the transaction. As the Company controlled Velocity and continues to control Velocity after the transaction, the change in the value of the Company's ownership interest was accounted for as an equity transaction and no gain or loss was recognized in the Company's consolidated statements of operations. The Company applied the acquisition method of accounting to TEN's contributed businesses, whereby the excess of the fair value of the contributed business over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the workforce and synergies expected from broader exposure to the automotive entertainment sector. The goodwill recorded as part of this acquisition is included in the U.S. Network reportable segment and is not amortizable for tax purposes. Intangible assets primarily consist of trade names, licensing agreements and customer relationships with a weighted average estimated useful life of 16 years.
The Company used DCF analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation. The fair value of net assets acquired includes measurement period adjustments primarily due to finalization of the valuation of intangible assets recorded against goodwill. The fair value of the assets acquired and liabilities assumed is presented in the table below (in millions).
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | |
| | Preliminary September 25, 2017 | | Measurement Period Adjustments | | Final September 25, 2017 |
Goodwill | | $ | 59 |
| | $ | 16 |
| | $ | 75 |
|
Intangible assets | | 71 |
| | (18 | ) | | 53 |
|
Property plant and equipment, net | | 16 |
| | 1 |
| | 17 |
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Other assets acquired | | 6 |
| | — |
| | 6 |
|
Liabilities assumed | | (8 | ) | | 1 |
| | (7) |
|
Net assets acquired | | $ | 144 |
| | $ | — |
| | $ | 144 |
|
Discovery has a fair value call right exercisable during 30 day windows beginning September 2022 and March 2024 to require GoldenTree to sell its entire ownership interest in the joint venture at fair value. GoldenTree has a fair value put right exercisable during 30 day windows beginning in March 2021, September 2022 and March 2024 that requires Discovery to either purchase all of GoldenTree's interest in the joint venture at fair value or participate in an initial public offering for the joint venture. GoldenTree's 32.5% noncontrolling interest in the joint venture is presented as redeemable noncontrolling interest outside of permanent equity on the Company's consolidated balance sheet. The opening balance sheet value recognized for the redeemable noncontrolling interest upon closing was $82 million, based on GoldenTree's ownership interest in the book value of Velocity and fair value of GoldenTree's contribution. The balance was subsequently increased by $38 million to adjust the redemption value to fair value of $120 million. (See Note 11.)
Eurosport International and France
On March 31, 2015 the Company acquired an additional 31% interest in Eurosport France for €36 million ($38 million). This transaction gave the Company a 51% controlling stake in Eurosport. The Company recognized gains of $2 million for the year ended December 31, 2015 to account for the difference between the carrying value and the fair value of the previously held 20% equity method investments in Eurosport France and Eurosport International. The gains were included in other (expense) income, net in the Company's consolidated statements of operations. (See Note 18.) On October 1, 2015, TF1 put its remaining 49% interest in Eurosport to the Company for €491 million ($548 million). (See Note 11.)
Eurosport is a leading pan-European sports media platform. The flagship Eurosport network focuses on regionally popular sports, such as tennis, skiing, cycling and motor sports. Eurosport’s brands and platforms also include Eurosport HD (high definition simulcast), Eurosport 2, Eurosport 2 HD and Eurosportnews. The acquisitions are intended to enhance the Company's pay-TV offerings in Europe and increase the growth of Eurosport.
The Company used a DCF analysis, which represent Level 3 fair value measurements, to assess certain components of the Eurosport purchase price allocations. The fair value of the assets acquired, liabilities assumed, noncontrolling interests recognized and the remeasurement gains recorded on the previously held equity interests is presented in the table below (in millions).
|
| | | | |
| | Eurosport France |
| | March 31, 2015 |
Goodwill | | $ | 69 |
|
Intangible assets | | 40 |
|
Other assets acquired | | 25 |
|
Cash | | 35 |
|
Removal of TF1 put right | | 2 |
|
Currency translation adjustment | | (6 | ) |
Remeasurement gain on previously held equity interest | | (2 | ) |
Liabilities assumed | | (30 | ) |
Deferred tax liabilities | | (14 | ) |
Redeemable noncontrolling interest (Note 11) | | (60 | ) |
Carrying value of previously held equity interest | | (21 | ) |
Net assets acquired | | $ | 38 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The goodwill reflects the workforce and synergies expected from increased pan-European market penetration as the operations of Eurosport and the Company are combined.U.K. The goodwill recorded as part of this acquisition is included in the International Networks reportable segment and is not amortizable for tax purposes. Intangible assets primarily consist of distribution and advertising customer relationships, advertiser backlogelectronic program guide slots and trademarks withand have a weighted average estimated useful life of 106 years. The Company used DCF analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation. The measurement period closed in June 2020, with no material adjustments recorded.
OtherThe final fair value of Lifestyle Business assets acquired and liabilities assumed, as well as a reconciliation to total assets received in dissolution of the UKTV joint venture, is presented in the table below (in millions).
| | | | | | | | |
Cash | | $ | 17 | |
Content rights | | 18 | |
Intangible assets | | 34 | |
Goodwill | | 121 | |
Accrued liabilities | | (12) | |
| | |
Total assets acquired and liabilities assumed in Lifestyle Business | | 178 | |
Note receivable from BBC | | 130 | |
Cash received | | 88 | |
Net assets received in dissolution of UKTV joint venture | | $ | 396 | |
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A summary of total assets derecognized in connection with the dissolution of the UKTV joint venture is presented in the table below (in millions).
| | | | | | | | |
Carrying value of UKTV equity method investment | | $ | 278 | |
Settlement of note receivable | | 118 | |
Total assets derecognized in dissolution of UKTV joint venture | | $ | 396 | |
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In 2017 and 2015,connection with the above transaction, the Company acquired other businessescontemporaneously entered into a ten-year content licensing arrangement with BBC in exchange for total cash and contingent consideration of $4 million and $91 million, net of cash acquired, respectively. Total consideration as of December 31, 2015 included contingent consideration of $13 million, of which $2 million was paid during 2016. The acquisitions included FTA networks in Poland, Italy and Turkey, cable networks in Denmark and a pay-TV sports channel in Asia. The goodwill reflectslicense fees over the synergies and regional market penetration from combining the operations of these acquisitions with the Company's operations.term.
Pro Forma Financial InformationMagnolia Discovery Ventures
The Company did not have material pro forma information to present for 2017, 2016 and 2015. The Company's 2017 business combinations are not material individually or in the aggregate,On July 19, 2019, the Company had no 2016 business combinations, and the Company's 2015 business combinations are also not material individually or in the aggregate.
Dispositions
Education Sale
On February 26, 2018, the Company announced the planned sale of a controlling equity stake incontributed its education business in the first half of 2018linear cable network focused on home improvement, DIY Network, toFrancisco Partners for cash of $120 million. No loss is expected upon sale. The Company will retain an equity interest. Additionally, the Company will have ongoing license agreements which are considered to be at fair value. As of December 31, 2017, the Company determined that the education business did not meet the held for sale criteria, as defined in GAAP as management had not committed to a plan to sell the assets.
Raw and Betty Studios, LLC
On April 28, 2017, the Company sold Raw and Betty to All3Media. All3Media is a U.K. based television, film and digital production and distribution company. The Company owns 50% of All3Media and accounts for its investment in All3Media under the equity method of accounting. The Company recorded a loss of $4 million for the disposition of these businesses for the year ended December 31, 2017. The loss on disposition of Raw and Betty included $38 million in net assets, including $30 million of goodwill. Raw and Betty were components of the studios operating segment reported with Education and Other.
Group Nine Transaction
On December 2, 2016, the Company recorded a pre-tax gain of $50 million upon disposition of its digital network Seeker and production studio SourceFed, following its contribution of the businesses and $100 million in cash for the formation of a new joint venture, Group Nine Media, Inc.Magnolia Discovery Ventures, LLC ("Group Nine Media"Magnolia"), on December 2, 2016 ("Group Nine Transaction"). Group Nine Media includes Thrillist Media Group, NowThis Mediawith Chip and TheDodo.com. AsJoanna Gaines acting as Chief Creative Officers to the joint venture. The joint venture replaced and rebranded the DIY Network in January 2022.
Upon formation of Magnolia, Discovery received a result of the transaction, Discovery obtained a non-controlling75% ownership interest in the preferred stock of Group Nine Media, which is accountedjoint venture. In exchange for under the cost method of accounting. As of December 31, 2017, the Company owns a 42% minority interest in Group Nine Media with a carrying value of $212 million. (See Note 4.) The gain on contribution of the digital networks business included the disposition of $32 million in net assets, including $22 million of goodwill allocatedproviding services and exclusivity to the transaction based on the relative fair values of the digital networks business disposed of and the portion of the U.S. Networks reporting unit that was retained.
Russia
On October 7, 2015, Discovery recorded a loss of $5 million upon the deconsolidation of its Russian business following its contribution to a joint venture, (the “New Russian Business”) withthe Gaines received a Russian media company, National Media Group ("NMG"). The New Russian Business was established to comply with changes in Russian legislation that limit foreign ownership of media companies in Russia. No cash consideration was exchanged in the transaction. NMG contributed a FTA license which enables advertising for the New Russian Business. As part of the transaction, Discovery obtained a 20%25% ownership interest in the New Russian Business, which isjoint venture, a put right after 6.5 years at fair value, potential for an additional 5% incentive equity, and certain guaranteed payments. Discovery consolidated the joint venture under the voting interest consolidation model. Payments to the Gaines for rendering services in their capacity as the Chief Creative Officers of the joint venture will be accounted for under the equity method of accounting. The loss on contribution of the Russian business included $15 million of goodwill allocatedas liability-classified share-based awards to the transaction based on the relative fair values of the Russian business disposed of and the portion of the reporting unit that was retained. Although Discovery no longer consolidates the Russian business, Discovery earns revenue by providing content and brands to the New Russian Business under long-term licensing arrangements. (See Notenon-employees as services are rendered.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Golf Digest
19.)On May 13, 2019, the Company paid $36 million in cash to acquire Golf Digest, a leading golf brand whose content is available across multiple platforms, including print and social media. The Russian business wasCompany applied the acquisition method of accounting to Golf Digest, and recorded net assets of $36 million, including net working capital liabilities of $12 million, intangible assets of $25 million and goodwill of $23 million. The measurement period closed in May 2020, with no material adjustments recorded. Intangible assets consist of trademarks and trade names and licensing agreements and have a weighted average useful life of 9 years. The goodwill reflects the workforce and synergies expected from broader exposure to the golf entertainment sector. The goodwill recorded as part of this acquisition is included in the International Networks reportable segment;segment and is not amortizable for tax purposes.
Other
During 2020 and 2019, the licensing arrangements withCompany completed other immaterial acquisitions.
Dispositions
Great American Country
In June 2021, the New Russian Business are reported as distribution revenue inCompany completed the International Networks reportable segment. (See Note 21.)
Radio
On June 30, 2015, Discovery soldsale of its radio businesses in Northern EuropeGreat American Country network to Bauer Media Group ("Bauer")Hicks Equity Partners for total consideration, neta sale price of cash disposed of €72 million ($80 million), which included €54 million ($61 million) in cash and €18 million ($19 million) of contingent consideration.$90 million. The cumulative gain on the disposal is $1 million. Based on the final resolution and receipt of contingent consideration payable, DiscoveryCompany recorded a pre-tax gain of $13 million for the year ended December 31, 2016. The Company had previously recorded a $12 million loss including estimated contingent consideration as disclosed for the year ended December 31, 2015.
The Company determined that the disposals noted above did not meet the definition of a discontinued operation because the dispositions do not represent strategic shifts that have a significant impact on the Company's operations and consolidated financial results.
NOTE 4. INVESTMENTS
The Company’s investments consisted of the following (in millions).$76 million.
|
| | | | | | | | | | |
| | | | December 31, |
Category | | Balance Sheet Location | | 2017 | | 2016 |
Cash equivalents: | | | | | | |
Time deposits | | Cash and cash equivalents | | $ | 1,305 |
| | $ | — |
|
Trading securities: | | | | | | |
Money market funds | | Cash and cash equivalents | | 2,707 |
| | — |
|
Mutual funds | | Prepaid expenses and other current assets | | 182 |
| | 160 |
|
Equity method investments: | | | | | | |
Equity investments | | Equity method investments | | 335 |
| | 246 |
|
OWN advances and note receivable | | Equity method investments
| | — |
| | 311 |
|
AFS securities: | | | | | | |
Common stock | | Other noncurrent assets | | 82 |
| | 64 |
|
Common stock - pledged | | Other noncurrent assets | | 82 |
| | 64 |
|
Cost method investments | | Other noncurrent assets | | 295 |
| | 245 |
|
Total investments | | | | $ | 4,988 |
| | $ | 1,090 |
|
Money Market Funds, Time Deposits and U.S. Treasury Securities
During 2017, the Company issued $6.8 billion in senior notes to fund the anticipated Scripps Networks acquisition. (See Note 3 and Note 9.) Of these total proceeds, $2.7 billion were invested in money market funds, $1.3 billion were invested in time deposit accounts, and the remainder was invested in highly liquid, short-term instruments with original maturities of 90 days or less. These investments are classified as cash and cash equivalents on the consolidated balance sheet and are anticipated to be used for the Scripps Networks acquisition. In the interim, the Company has full access to these proceeds. Of the $6.8 billion in debt proceeds, approximately $5.9 billion is subject to a special mandatory redemption provision that requires the Company to redeem the notes for a price equal to 101% of their principal amount, plus any accrued and unpaid interest on the notes, in the event that the Scripps Networks acquisition has not closed or the agreement is terminated prior to August 30, 2018. While the Company expects to complete the Scripps Networks acquisition by the required date, unanticipated developments could delay or prevent the acquisition.
Mutual Funds
Trading securities include investments in mutual funds held in a separate trust, which are owned as part of the Company’s supplemental retirement plan. (See Note 5.)
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENTS
The Company’s equity investments consisted of the following, net of investments recorded in other noncurrent liabilities (in millions). | | | | | | | | | | | | | | | | | | | | | | | | | | |
Category | | Balance Sheet Location | | Ownership | | December 31, 2021 | | December 31, 2020 |
Equity method investments: | | | | | | | | |
nC+ | | Equity method investments | | 32% | | $ | 151 | | | $ | 164 | |
Discovery Solar Ventures, LLC (a) | | Equity method investments | | N/A | | 75 | | | 83 | |
All3Media | | Equity method investments | | 50% | | 78 | | | 76 | |
Other | | Equity method investments | | | | 237 | | | 184 | |
Total equity method investments | | | | | | 541 | | | 507 | |
| | | | | | | | |
Investments with readily determinable fair values: | | | | | | | | |
Lionsgate Entertainment Corp. | | Other noncurrent assets | | | | 80 | | | 54 | |
Sharecare | | Prepaid expenses and other current assets | | | | 40 | | | — | |
fuboTV Inc. | | Prepaid expenses and other current assets | | | | — | | | 32 | |
Total equity investments with readily determinable fair values | | | | | | 120 | | | 86 | |
| | | | | | | | |
Equity investments without readily determinable fair values: | | | | | | | | |
Group Nine Media (b) | | Other noncurrent assets | | 25% | | 191 | | | 276 | |
Formula E (c) | | Other noncurrent assets | | 28% | | 83 | | | 65 | |
Philo | | Other noncurrent assets | | 19% | | 50 | | | 50 | |
Other | | Other noncurrent assets | | | | 172 | | | 150 | |
Total equity investments without readily determinable fair values | | | | | | 496 | | | 541 | |
Total equity investments | | | | | | $ | 1,157 | | | $ | 1,134 | |
| | | | | | | | |
(a) Discovery Solar Ventures, LLC invests in limited liability companies that sponsor renewable energy projects related to solar energy. These investments are considered VIEs of the Company and are accounted for under the equity method of accounting using the HLBV methodology for allocating earnings. |
(b) Overall ownership percentage for Group Nine Media is calculated on an outstanding shares basis. The amount shown herein includes a $20 million note receivable balance, excluding interest, presented within Prepaid expenses and other current assets on the Company's consolidated balance sheets. |
(c) Ownership percentage for Formula E includes holdings accounted for as an equity method investment and holdings accounted for as an equity investment without a readily determinable fair value. |
Equity Method Investments
The Company makes investments that support its underlying business strategy and enable it to enter new markets and develop programming. Almost allInvestments in equity method investees are privately owned. those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. Impairment losses due to a change in value that are considered other-than-temporary were not material for the years ended December 31, 2021, 2020 and 2019, and are reflected as a component of loss from equity investees, net on the Company's consolidated statements of operations.
With the exception of the OWN investment prior to the November 30, 2017 acquisition (see Note 3)nC+, and certain investments in renewable energy projects accounted for using the HLBV methodology, carrying values of the Company’s equity method investments are consistent with its ownershipclaim in the underlying net assets of the investees. A portion of the Scripps Networks purchase price associated with the investment in nC+ was attributed to amortizable intangible assets. This basis difference is included in the carrying value of nC+ and is amortized over time as a reduction of earnings from nC+. Earnings from nC+ were reduced by the amortization of these intangibles of$10 million, $10 million, and $9 million during the years ended December 31, 2021, 2020 and 2019, respectively. Amortization that reduces the Company's equity in earnings of nC+ for future periods is expected to be $36 million.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of the Company's other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of December 31, 2017,2021, the Company’s maximum estimated exposure for all its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments and guarantees made on behalf of VIEs, was approximately $204$196 million. The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE equity method investments were $181 million and $426$126 million as of December 31, 20172021 and 2016, respectively.$123 million as of December 31, 2020. The Company recognized its portion of VIE operating results with net losses of $182$35 million, earnings of $7$91 million, and earnings of $30$14 million for 2017, 2016the years ended December 31, 2021, 2020 and 2015,2019, respectively, in incomeloss from equity investees, net on the consolidated statements of operations.
Renewable Energy Investments with Readily Determinable Fair Value
TheInvestments in entities or other securities in which the Company invested in limited liability companies that sponsor renewable energy projects related to solar energy duringhas no control or significant influence, is not the years ended December 31, 2017primary beneficiary, and December 31, 2016, for the amounts of $322 million and $63 million, respectively. There were nohave a readily determinable fair value are classified as equity investments in 2015.with readily determinable fair value. The Company expects these investments to result in tax benefits received, which reduce the Company's tax liability, and cash flows from the operations of the investees. These investments are considered VIEs of the Company. The Company accounts for these investments under the equity method of accounting. While the Company possesses rights that allow it to exercise significant influence over the investments, the Company does not have the power to direct the activities that will most significantly impact their economic performance, such as the investee's ability to obtain sufficient customers or control solar panel assets. Oncemeasured at fair value based on a stipulated return on investment is garneredquoted market price per unit in active markets multiplied by the Company, the investment allocations to the Company are significantly reduced. Accordingly, the Company applies the HLBV method for recognizing the Company's proportionate sharenumber of the investments' net earnings or losses.
The Company recognized $251 millionunits held without consideration of transaction costs (Level 1). Gains and $24 million of losses on these investments as of December 31, 2017 and December 31, 2016, respectively. The losses are reflected as a component of (loss)recorded in other income from equity investees,(expense), net on the Company's consolidated statements of operations. The Company has recorded income tax benefits associated with these investments of $294 million post-tax reform and $26 million for 2017 and 2016, respectively. These benefits are comprised of $83 million post-tax reform and $9 million from
During the entities' passive losses and $211 million post-tax reform and $17 million from investment tax credits for 2017 and 2016, respectively. The Company accounts for investment tax credits utilizing the flow through method. As of December 31, 2017 and December 31, 2016, the Company's carrying value of renewable energy investments were $98 million and $39 million, respectively. The Company has $20 million of future funding commitments for these investments as of December 31, 2017, which are cancelable under limited circumstances. The Company has concluded that losses incurred on these investments to-date are not indicative of an other-than-temporary impairment due to the nature of these investments. Losses in the early stages of investments in companies that sponsor renewable energy projects are not uncommon, and the Company expects improved performance from these investments in future periods.
Other Equity Method Investments
At December 31, 2017 and December 31, 2016, the Company's other equity method investments included All3Media, a Russian cable television business, Mega TV in Chile, and certain joint ventures in Canada. The Company acquired other equity method investments, largely to enhance the Company's digital distribution strategies, particularly for Eurosport Player, and made additional contributions to existing equity method investments totaling $73 million during 2017.
Significant Subsidiaries
The table set forth below presents selected financial information for investments accounted for under the equity method. Because renewable energy projects discussed above are accounted for under the HLBV equity method of accounting, the Company's equity method losses do not directly correlate with the GAAP results of the investees presented below. The selected statement of operations information for each of the three yearsyear ended December 31, 2017, 2016,2021, Sharecare, an investment that was formerly determined to not have a readily determinable fair value, was listed on the Nasdaq stock exchange and 2015 and the selected balance sheet informationreclassified as of December 31, 2017 and 2016 (in millions).
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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| | 2017 | | 2016 | | 2015 |
Selected Statement of Operations Information: | | | | | | |
Revenues | | $ | 1,780 |
| | $ | 1,617 |
| | $ | 1,324 |
|
Cost of sales | | 1,100 |
| | 998 |
| | 853 |
|
Operating income | | 76 |
| | 83 |
| | 42 |
|
Pre-tax income (loss) from continuing operations before extraordinary items | | 16 |
| | (78 | ) | | (42 | ) |
After-tax net loss | | (27 | ) | | (98 | ) | | (42 | ) |
Net loss attributable to the entity | | (27 | ) | | (99 | ) | | (42 | ) |
| | | | | | |
Selected Balance Sheet Information:
| | | | | | |
Current assets | | $ | 1,002 |
| | $ | 884 |
| | |
Noncurrent assets | | 1,946 |
| | 1,646 |
| | |
Current liabilities | | 701 |
| | 752 |
| | |
Noncurrent liabilities | | 1,008 |
| | 1,177 |
| | |
Redeemable preferred stock | | 476 |
| | — |
| | |
Non-controlling interests | | 6 |
| | 8 |
| | |
| | | | | | |
AFS Securities
On November 12, 2015,an investment with readily determinable fair value. Prior to this reclassification, the Company acquired 5recorded a gain of $77 million as a result of observable price changes in orderly transactions for the identical or similar investment of the same issuer.
The Company owns shares or 3%,of common stock of Lions Gate Entertainment Corp. ("Lionsgate"), an entertainment company, for $195 million. Lionsgate operates incompany. Formerly, the motion picture production and distribution, television programming and syndication, home entertainment, family entertainment and digital distribution businesses. As the shares have a readily determinable fair value and the Company has the intent to retain the investment, the shares are classified as AFS securities.
The accumulated amounts associated with the components of the Company's AFS securities, which are included in other non-current assets, are summarized in the table below.
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Cost | | $ | 195 |
| | $ | 195 |
|
Accumulated change in the value of: | | | | |
Hedged AFS recognized in other expense, net | | (1 | ) | | (19 | ) |
Unhedged AFS recorded in other comprehensive income | | 32 |
| | 14 |
|
Other-than-temporary impairment of AFS Securities | | (62 | ) | | (62 | ) |
Carrying value | | $ | 164 |
| | $ | 128 |
|
The Company hedged 50% of the Lionsgate shares with an equity collar (the “Lionsgate Collar”"Lionsgate Collar") and pledged those shares as collateral to the derivative counter party. In the application of hedge accounting, when the share price of Lionsgate is within the boundaries of the collar and the hedge has no intrinsiccounterparty with changes in fair value the Company records the gains or losses on the Lionsgate AFS securitiesreflected as a component of other comprehensive income (loss). When(expense), net on the share priceconsolidated statements of the Lionsgate AFS is outside the boundaries of the collar and the hedge has intrinsic value, the Company records a gain or loss for the change in the fair value of the hedged portion of Lionsgate shares that correspond to the change in intrinsic value of the hedge as a component of other (expense) income, net.operations. (See Note 10.)
In 2016, the Company determined that the decline in value of AFS securities related to its investment in Lionsgate was other-than-temporary in nature and, as such, the cost basis was adjusted to fair value. The impairment determination was based on the sustained decline in the stock price of Lionsgate in relation to the purchase price and the prolonged length of time the fair value of the investment has been less than the carrying value. Based on the other-than-temporary impairment determination, unrealized pre-tax losses of $62 million previously recorded as a component of other comprehensive income (loss) were recognized as an impairment charge that is included as a component of other (expense) income, net for During the year ended December 31, 2016. Since2020, the Company terminated the Lionsgate Collar. The Company received cash of $44 million and recognized an immaterial gain, which is included in other income (expense), net on the consolidated statements of operations.
During the fourth quarter of 2020, fuboTV Inc., an investment that was formerly determined to not have a readily determinable fair value, was listed on the New York Stock Exchange. As a result, the Company recognized a total gain of $126 million, including a realized gain and receivable of $101 million pertaining to the Company's sale of 4 million fuboTV Inc. shares. Such gain and receivable are recorded in other income (expense), net on the consolidated statements of operations and prepaid expenses and other current assets on the consolidated balance sheets, respectively. (See Note 20.) As of December 31, 2021, the Company no longer owns shares of fuboTV Inc.
The gains and losses related to the Company's investments with readily determinable fair values for the years ended December 31, 2021, 2020 and 2019 are summarized in the table below (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Net gains (losses) recognized during the period on equity securities | | $ | 9 | | | $ | 129 | | | $ | (26) | |
Less: Net gains recognized on equity securities sold | | 15 | | | 101 | | | — | |
Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date | | $ | (6) | | | $ | 28 | | | $ | (26) | |
Equity investments without readily determinable fair values assessed under the measurement alternative
Equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence and these investments do not have readily determinable fair values.
During the year ended December 31, 2021, the Company invested $42 million in various equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had decreased $88 million in fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The decrease was primarily related to the write-down of the Company's investment in Group Nine Media. As of December 31, 2021, the Company had recorded cumulative upward adjustments of $9 million and cumulative impairments of $88 million for its equity investments without readily determinable fair values.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
impairment charge in 2016, the changes in fair value as result of changes in stock price have been recorded as a component of other comprehensive income (loss).
Cost Method Investments
The Company's cost method investments as of December 31, 2017 and December 31, 2016 totaled $295 million and $245 million, respectively, and primarily include its non-controlling interest in Group Nine Media with a carrying value of $212 million and $182 million as of December 31, 2017 and December 31, 2016, respectively. (See Note 3.) Although Discovery has significant influence through its voting rights in the preferred stock of Group Nine Media, the Company applied the cost method for its ownership interest, which does not meet the definition of in-substance common stock. As of December 31, 2017, the Company owns a 42% minority interest in Group Nine Media. The Company increased its cost method investments by $50 million and $18 million for the years ended December 31, 2017 and December 31, 2016. For the year ended December 31, 2017, there were no indicators of impairment or that the fair values of the Company's investments had changed materially.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. FAIR VALUE MEASUREMENTS
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories: |
| | | | | | | |
Level 1 | – | Quoted prices for identical instruments in active markets. |
Level 2 | – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
Level 3 | – | Valuations derived from techniques in which one or more significant inputs are unobservable. |
The table below presents assets and liabilities measured at fair value on a recurring basis (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
Category | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | |
Time deposits | | Cash and cash equivalents | | $ | — | | | $ | 426 | | | $ | — | | | $ | 426 | |
| | | | | | | | | | |
Equity securities: | | | | | | | | | | |
Money market funds | | Cash and cash equivalents | | 425 | | | — | | | — | | | 425 | |
| | | | | | | | | | |
Mutual funds | | Prepaid expenses and other current assets | | 12 | | | — | | | — | | | 12 | |
Company-owned life insurance contracts | | Prepaid expenses and other current assets | | — | | | 1 | | | — | | | 1 | |
Mutual funds | | Other noncurrent assets | | 215 | | | — | | | — | | | 215 | |
Company-owned life insurance contracts | | Other noncurrent assets | | — | | | 32 | | | — | | | 32 | |
Total | | | | $ | 652 | | | $ | 459 | | | $ | — | | | $ | 1,111 | |
Liabilities | | | | | | | | | | |
Deferred compensation plan | | Accrued liabilities | | $ | 21 | | | $ | — | | | $ | — | | | $ | 21 | |
Deferred compensation plan | | Other noncurrent liabilities | | 238 | | | — | | | — | | | 238 | |
Total | | | | $ | 259 | | | $ | — | | | $ | — | | | $ | 259 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 |
Category | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | |
Cash equivalent: | | | | | | | | | | |
Time deposits | | Cash and cash equivalents | | $ | — |
| | $ | 1,305 |
| | $ | — |
| | $ | 1,305 |
|
Trading securities: | | | | | | | | | | |
Money market funds | | Cash and cash equivalents | | 2,707 |
| | — |
| | — |
| | 2,707 |
|
Mutual funds | | Prepaid expenses and other current assets | | 182 |
| | — |
| | — |
| | 182 |
|
AFS securities: | | | | | | | | | | |
Common stock | | Other noncurrent assets | | 82 |
| | — |
| | — |
| | 82 |
|
Common stock - pledged | | Other noncurrent assets | | 82 |
| | — |
| | — |
| | 82 |
|
Derivatives: | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange | | Prepaid expenses and other current assets | | — |
| | 7 |
| | — |
| | 7 |
|
Net investment hedges: | | | | | | | | | | |
Cross-currency swaps | | Other noncurrent assets | | — |
| | 3 |
| | — |
| | 3 |
|
Foreign exchange | | Prepaid expenses and other current assets | | — |
| | 2 |
| | — |
| | 2 |
|
Fair value hedges: | | | | | | | | | | |
Equity (Lionsgate Collar) | | Other noncurrent assets | | — |
| | 13 |
| | — |
| | 13 |
|
Total | | | | $ | 3,053 |
| | $ | 1,330 |
| | $ | — |
| | $ | 4,383 |
|
Liabilities: | | | | | | | | | | |
Deferred compensation plan | | Accrued liabilities | | $ | 182 |
| | $ | — |
| | $ | — |
| | $ | 182 |
|
Derivatives: | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange | | Accrued liabilities | | — |
| | 12 |
| | — |
| | 12 |
|
Net investment hedges: | | | | | | | | | | |
Cross-currency swaps | | Accrued liabilities | | — |
| | 13 |
| | — |
| | 13 |
|
Cross-currency swaps | | Other noncurrent liabilities | | — |
| | 98 |
| | — |
| | 98 |
|
Foreign exchange | | Accrued liabilities | | — |
| | 8 |
| | — |
| | 8 |
|
No hedging designation: | | | | | | | | | |
|
|
Credit contracts | | Other noncurrent liabilities | | — |
| | 1 |
| | — |
| | 1 |
|
Cross-currency swaps | | Other noncurrent liabilities | | — |
| | 6 |
| | — |
| | 6 |
|
Total | | | | $ | 182 |
| | $ | 138 |
| | $ | — |
| | $ | 320 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
Category | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | |
Time deposits | | Cash and cash equivalents | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | |
Treasury securities | | Cash and cash equivalents | | 500 | | | — | | | — | | | 500 | |
Equity securities: | | | | | | | | | | |
Money market funds | | Cash and cash equivalents | | — | | | 150 | | | — | | | 150 | |
Time deposits | | Prepaid expenses and other current assets | | — | | | 250 | | | — | | | 250 | |
Mutual funds | | Prepaid expenses and other current assets | | 14 | | | — | | | — | | | 14 | |
Company-owned life insurance contracts | | Prepaid expenses and other current assets | | — | | | 4 | | | — | | | 4 | |
Mutual funds | | Other noncurrent assets | | 200 | | | — | | | — | | | 200 | |
Company-owned life insurance contracts | | Other noncurrent assets | | — | | | 48 | | | — | | | 48 | |
Total | | | | $ | 714 | | | $ | 459 | | | $ | — | | | $ | 1,173 | |
Liabilities | | | | | | | | | | |
Deferred compensation plan | | Accrued liabilities | | $ | 28 | | | $ | — | | | $ | — | | | $ | 28 | |
Deferred compensation plan | | Other noncurrent liabilities | | 220 | | | — | | | — | | | 220 | |
Total | | | | $ | 248 | | | $ | — | | | $ | — | | | $ | 248 | |
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | |
| | | | December 31, 2016 |
Category | | Balance Sheet Location | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | |
Trading securities - mutual funds | | Prepaid expenses and other current assets | | $ | 160 |
| | $ | — |
| | $ | — |
| | $ | 160 |
|
Available-for-sale securities: | | | | | | | | | | |
Common stock | | Other noncurrent assets | | 64 |
| | — |
| | — |
| | 64 |
|
Common stock - pledged | | Other noncurrent assets | | 64 |
| | — |
| | — |
| | 64 |
|
Derivatives: | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange | | Prepaid expenses and other current assets | | — |
| | 31 |
| | — |
| | 31 |
|
Net investment hedges: | | | | | | | | | | |
Cross-currency swaps | | Other noncurrent assets | | — |
| | 35 |
| | — |
| | 35 |
|
Fair value hedges: | | | | | | | | | | |
Equity (Lionsgate Collar) | | Other noncurrent assets | | — |
| | 25 |
| | — |
| | 25 |
|
No hedging designation: | | | | | | | | | | |
Cross-currency swaps | | Other noncurrent assets | | — |
| | 1 |
| | — |
| | 1 |
|
Total | | | | $ | 288 |
| | $ | 92 |
| | $ | — |
| | $ | 380 |
|
Liabilities: | | | | | | | | | | |
Deferred compensation plan | | Accrued liabilities | | $ | 160 |
| | $ | — |
| | $ | — |
| | $ | 160 |
|
Derivatives: | | | | | | | | | | |
Cash flow hedges: | | | | | | | | | | |
Foreign exchange | | Accrued liabilities | | — |
| | 18 |
| | — |
| | 18 |
|
Net investment hedges: | | | | | | | | | | |
Cross-currency swaps | | Accrued liabilities | | — |
| | 3 |
| | — |
| | 3 |
|
Cross-currency swaps | | Other noncurrent liabilities | | — |
| | 31 |
| | — |
| | 31 |
|
Total | | | | $ | 160 |
| | $ | 52 |
| | $ | — |
| | $ | 212 |
|
Cash obtained as a result of the issuance of senior notes to fund a portion of the purchase price of the Scripps Networks acquisition is invested intoEquity securities include money market funds, time deposit accounts, U.S. Treasury securitiesdeposits, investments in mutual funds held in separate trusts, which are owned as part of the Company’s supplemental retirement plans, and highly liquid short-term instruments that qualify as cash and cash equivalents. Any accrued interest received after maturity are reinvested into additional short-term instruments.company-owned life insurance contracts. (See Note 4.16.) The Company values cash and cash equivalents using quoted market prices.
The fair value of Level 1 tradingequity securities was determined by reference to the quoted market price per unitshare in active markets multiplied by the number of unitsshares held without consideration of transaction costs. (See Note 4.) The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees.
AFS securities represent equity investments with readily determinable fair values. The Changes in the fair value of Level 1 AFS securities was determinedthe investments are offset by reference tochanges in the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. (See Note 4.)
Derivative financial instruments are comprised of foreign exchange, interest rate, credit and equity contracts. (See Note 10). The fair value of Level 2 derivative financial instruments was determined using a market-based approach.the deferred compensation obligation. (See Note 16.) Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).
In addition to the financial instruments listed in the tables above, the Company hasholds other financial instruments, including cash deposits, accounts receivable, accounts payable, commercial paper, borrowings under the revolving credit facility, capital leases and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of December 31, 20172021 and December 31, 2016.2020. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over the counterover-the-counter markets, considered Level 2 inputs, was $14.8$17.2 billion and $7.4$18.7 billion as of December 31, 20172021 and 2016,2020, respectively.
The Company's derivative financial instruments are discussed in Note 10 and its investments with readily determinable fair value are discussed in Note 4.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. CONTENT RIGHTS
The following table presents the components of content rights (in millions). | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Produced content rights: | | | | |
Completed | | $ | 10,404 | | | $ | 8,576 | |
In-production | | 696 | | | 731 | |
Coproduced content rights: | | | | |
Completed | | 1,003 | | | 888 | |
In-production | | 91 | | | 78 | |
Licensed content rights: | | | | |
Acquired | | 1,213 | | | 1,312 | |
Prepaid | | 251 | | | 556 | |
Content rights, at cost | | 13,658 | | | 12,141 | |
Accumulated amortization | | (9,581) | | | (8,170) | |
Total content rights, net | | 4,077 | | | 3,971 | |
Current portion | | (245) | | | (532) | |
Noncurrent portion | | $ | 3,832 | | | $ | 3,439 | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Produced content rights: | | | | |
Completed | | $ | 4,355 |
| | $ | 3,920 |
|
In-production | | 442 |
| | 420 |
|
Coproduced content rights: | | | | |
Completed | | 745 |
| | 632 |
|
In-production | | 27 |
| | 57 |
|
Licensed content rights: | | | | |
Acquired | | 1,070 |
| | 1,090 |
|
Prepaid(a) | | 181 |
| | 129 |
|
Content rights, at cost | | 6,820 |
| | 6,248 |
|
Accumulated amortization | | (4,197 | ) | | (3,849 | ) |
Total content rights, net | | 2,623 |
| | 2,399 |
|
Current portion | | (410 | ) | | (310 | ) |
Noncurrent portion | | $ | 2,213 |
| | $ | 2,089 |
|
(a) Prepaid licensed content rights includes prepaid rights to the Olympic Games of $83 million that are reflected as current content rights assets on the consolidated balance sheet as of December 31, 2017.
Content expense is included in costscost of revenuesrevenue on the consolidated statements of operations and consisted of the following (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Content amortization | | $ | 3,496 | | | $ | 2,908 | | | $ | 2,786 | |
Other production charges | | 464 | | | 334 | | | 412 | |
Content impairments | | 5 | | | 48 | | | 67 | |
Total content expense | | $ | 3,965 | | | $ | 3,290 | | | $ | 3,265 | |
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
| | 2017 | | 2016 | | 2015 |
Content amortization | | $ | 1,878 |
| | $ | 1,701 |
| | $ | 1,628 |
|
Other production charges | | 310 |
| | 272 |
| | 231 |
|
Content impairments (a) | | 32 |
| | 72 |
| | 81 |
|
Total content expense | | $ | 2,220 |
| | $ | 2,045 |
| | $ | 1,940 |
|
(a) Content impairments are generally recorded as a componentAs of costs of revenue. However during the years ended December 31, 2016 and 2015, content impairments of $7 million and $21 million, respectively, were reflected as a component of restructuring and other charges. These impairment charges resulted from the cancellation of certain series due to legal circumstances pertaining to the associated talent. No content impairments were recorded as a component of restructuring and other during the year ended December 31, 2017.
As of December 31, 2017,2021, the Company estimates thatexpects to amortize approximately 96%56%, 26% and 13% of unamortized costs ofits produced and co-produced content, rights, excluding content in-production, and prepaid licenses, will be amortized within47%, 23% and 11% of its licensed content rights in the next three years. As of twelve-month operating cycles ended December 31, 2017, the Company will amortize $1.1 billion of the above unamortized content rights, excluding content in-production2022, 2023 and prepaid licenses, during the next twelve months.2024, respectively.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in millions).
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Land, buildings and leasehold improvements | $ | 363 |
| | $ | 327 |
|
Broadcast equipment | 728 |
| | 607 |
|
Capitalized software costs | 379 |
| | 347 |
|
Office equipment, furniture, fixtures and other | 431 |
| | 333 |
|
Property and equipment, at cost | 1,901 |
| | 1,614 |
|
Accumulated depreciation | (1,304 | ) | | (1,132 | ) |
Property and equipment, net | $ | 597 |
| | $ | 482 |
|
Property and equipment includes assets acquired under capital lease arrangements, primarily satellite transponders classified as broadcast equipment, with gross carrying values of $358 million and $284 million as of December 31, 2017 and 2016, respectively. The related accumulated amortization for capital lease assets was $154 million and $155 million as of December 31, 2017 and 2016, respectively.
The net book value of capitalized software costs was $86 million and $96 million as of December 31, 2017 and 2016, respectively.
Depreciation expense for property and equipment, including amortization of capitalized software costs and capital lease assets, totaled $150 million, $139 million and $138 million for 2017, 2016 and 2015, respectively.
In addition to the capitalized property and equipment included in the above table, the Company rents certain facilities and equipment under operating lease arrangements. Rental expense for operating leases totaled $127 million, $122 million and $134 million for 2017, 2016 and 2015, respectively.
NOTE 8.7. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The carrying value and changes in the carrying value of goodwill attributable to each business unit were as follows (in millions).
| | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Networks | | International Networks | | | | Total |
December 31, 2019 | | $ | 10,813 | | | $ | 2,237 | | | | | $ | 13,050 | |
Acquisitions (Note 3) | | — | | | 25 | | | | | 25 | |
| | | | | | | | |
Impairment of goodwill | | — | | | (121) | | | | | (121) | |
Foreign currency translation and other adjustments | | — | | | 116 | | | | | 116 | |
December 31, 2020 | | $ | 10,813 | | | $ | 2,257 | | | | | $ | 13,070 | |
| | | | | | | | |
Dispositions (Note 3) | | — | | | (3) | | | | | (3) | |
| | | | | | | | |
Foreign currency translation and other adjustments | | — | | | (155) | | | | | (155) | |
December 31, 2021 | | $ | 10,813 | | | $ | 2,099 | | | | | $ | 12,912 | |
|
| | | | | | | | | | | | | | | | |
| | U.S. Networks | | International Networks | | Education and Other | | Total |
December 31, 2015 | | $ | 5,287 |
| | $ | 2,800 |
| | $ | 77 |
| | $ | 8,164 |
|
Dispositions (Note 3) | | (22 | ) | | — |
| | — |
| | (22 | ) |
Foreign currency translation | | — |
| | (92 | ) | | (10 | ) | | (102 | ) |
December 31, 2016 | | 5,265 |
| | 2,708 |
| | 67 |
| | 8,040 |
|
Acquisitions (Note 3) | | 211 |
| | 7 |
| | — |
| | 218 |
|
Dispositions (Note 3) | | — |
| | — |
| | (30 | ) | | (30 | ) |
Impairment of goodwill | | — |
| | (1,327 | ) | | — |
| | (1,327 | ) |
Foreign currency translation | | 2 |
| | 167 |
| | 3 |
| | 172 |
|
December 31, 2017 | | $ | 5,478 |
| | $ | 1,555 |
| | $ | 40 |
| | $ | 7,073 |
|
The carrying amount of goodwill at the International Networks segment included accumulated impairments of $1.3 billion as of December 31, 2017. The carrying amount of goodwill at the U.S. Networks segment included accumulated impairments of $20 million as of December 31, 2017, 20162021 and 2015, respectively.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2020. The carrying amount of goodwill at the International Networks segment included accumulated impairments of $1.6 billion as of December 31, 2021 and 2020.
Intangible Assets
Finite-lived intangible assets consisted of the following (in millions, except years).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Period (Years) | | December 31, 2021 | | December 31, 2020 |
Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization: | | | | | | | | | | | | | |
Trademarks | 10 | | $ | 1,716 | | | $ | (858) | | | $ | 858 | | | $ | 1,751 | | | $ | (715) | | | $ | 1,036 | |
Customer relationships | 10 | | 9,433 | | | (4,303) | | | 5,130 | | | 9,551 | | | (3,338) | | | 6,213 | |
Other | 8 | | 395 | | | (227) | | | 168 | | | 421 | | | (191) | | | 230 | |
Total | | | $ | 11,544 | | | $ | (5,388) | | | $ | 6,156 | | | $ | 11,723 | | | $ | (4,244) | | | $ | 7,479 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Period (Years) | | December 31, 2017 | | December 31, 2016 |
Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Intangible assets subject to amortization: | | | | | | | | | | | | | |
Trademarks | 10 | | $ | 494 |
| | $ | (224 | ) | | $ | 270 |
| | $ | 412 |
| | $ | (165 | ) | | $ | 247 |
|
Customer relationships | 16 | | 2,026 |
| | (758 | ) | | 1,268 |
| | 1,632 |
| | (594 | ) | | 1,038 |
|
Other | 16 | | 118 |
| | (50 | ) | | 68 |
| | 97 |
| | (34 | ) | | 63 |
|
Total | | | $ | 2,638 |
| | $ | (1,032 | ) | | $ | 1,606 |
| | $ | 2,141 |
| | $ | (793 | ) | | $ | 1,348 |
|
Indefinite-lived intangible assets not subject to amortization (in millions):
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Intangible assets not subject to amortization: | | | | |
Trademarks | | $ | 164 |
| | $ | 164 |
|
Straight-line amortizationAmortization expense for finite-lived intangible assets reflects the pattern in which the assets' economic benefits are consumed over their estimated useful lives. During the fourth quarter of 2021, the Company reassessed the useful lives and amortization methods for acquired customer relationships and concluded the economic benefits would be consumed in greater proportion earlier in their life with gradual decline, accordingly we have changed the amortization method for these assets from the straight-line method to the sum of the years digits method effective October 1, 2021. This change was considered a change in estimate, was accounted for prospectively, and resulted in incremental amortization expense of $196 million. Amortization expense related to finite-lived intangible assets was $180 million, $183 million$1.3 billion, $1.1 billion and $192 million$1.1 billion for 2017, 2016the years ended December 31, 2021, 2020 and 2015,2019, respectively.
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). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
Amortization expense | | $ | 1,635 | | | $ | 1,355 | | | $ | 1,073 | | | $ | 845 | | | $ | 625 | | | $ | 623 | |
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Amortization expense | | $ | 220 |
| | $ | 203 |
| | $ | 198 |
| | $ | 174 |
| | $ | 147 |
| | $ | 664 |
|
Indefinite-lived intangible assets not subject to amortization (in millions): | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Trademarks | | $ | 161 | | | $ | 161 | |
TheImpairment Analysis
Significant judgments and assumptions for all quantitative goodwill tests performed include the amount and timing of the estimated expenses in the above table may vary due to future acquisitions, dispositions, impairments, changes in estimated useful lives or changes in foreign currency exchangecash flows, including revenue growth rates, long-term growth rates, and discount rates.
2021 Impairment Analysis
Consistent withDuring the Company's accounting policy, the Company performed a quantitative step 1 impairment test (comparisonfourth quarter of fair value to carrying value) for each of its reporting units in 2016 which indicated limited headroom (the excess of fair value over carrying value) in the European reporting unit of 12%, all other reporting units had headroom in excess of 40%. Given the limited headroom in the European reporting unit, the Company closely monitored its results during 2017 and again performed a quantitative impairment test of the European reporting unit as of November 30, 2017, which indicated potential impairment (approximately $100 million or 3% deficit). The key factors resulting in the impairment include: 1) moderated revenue expectations based on continued declines in viewership, 2) expected increases in content investment to service existing customers and grow the Company's direct-to-consumer business, and 3) lower stock price multiples for peer media companies. Given the results of the step 1 impairment test, the Company applied the hypothetical purchase price analysis required by the step 2 test and recognized a pre-tax goodwill impairment charge of $1.3 billion as of November 30, 2017, for the European reporting unit. The impairment charge of $1.3 billion significantly exceeds the deficit of fair value to carrying value of approximately $100 million because of significant intangible assets that are not recognized on the Company's consolidated balance sheet (i.e., excluded from book carrying value) but are considered in the step 2 calculation on a fair value basis. The step 1 and step 2 tests and relevant assumptions are further discussed below. For the US Networks, Latin, Asia and Education reporting units,2021, the Company performed a qualitative goodwill impairment review in 2017. No factors were identified indicating a needassessment for a quantitative assessment.
For the 2017 step 1 test, the carrying value of the Europeanall reporting unit of $4.0 billion, which includes $2.4 billion of goodwill, exceeded its fair value of $3.9 billion by 3%. In performing the step 1 test, the Companyunits and it determined that it was more likely than not that the fair value of its Europeanthose reporting unit by using a combinationunits exceeded their carrying values, therefore, no quantitative goodwill impairment analysis was performed.
2020 Impairment Analysis
During the second quarter of DCF analyses and market-based valuation methodologies. The results of these valuation methodologies were weighted 75% towards2020, the DCF and 25% towardsCompany determined that it was more likely than not that the market-based approach, which is consistent
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with prior quantitative analyses. Significant judgments and assumptions used in the DCF and market-based model to assess the reporting unit's fair value include the amount and timing of expected future cash flows, long-term growth rates of 2.5% (compared with 3% in 2016), a discount rate of 9.75% (compared with 10.5% in 2016), and our selection of guideline company earnings multiples of 7.5 (compared with 9.5 in 2016). The cash flows employed in the DCF analysis for the European reporting unit are based on the reporting unit's budget and long-term business plan, which reflect our expectations based upon recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in the valuations.
The net assets assigned to the European reporting unit included corporate allocations. These assets and liabilities include corporate enterprise goodwill and intangible assets, allocated in prior periods based on the relative fair value of the European reporting unit at the time, and deferred taxes and content, allocated based on whether or not the jurisdiction gave rise to the deferred tax balance or is using the content asset.
In the second step of the impairment test, the Company hypothetically assigned the European reporting unit's fair value to its individual assets and liabilities, including significant unrecognized intangible assets such as customer relationships and trade names, or liabilities, in a hypothetical purchase price allocation that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. Since the implied fair value of the reporting unit's goodwill was lessgreater than the carrying value for all other reporting units with the difference was recorded as anexception of the Asia-Pacific reporting unit. The Company performed a quantitative goodwill impairment charge. The fair value estimates incorporated in step 2analysis for the hypothetical intangible assets were based on the excess earnings income approach for customer relationships, the relief-from-royalty method for trademarks, and the greenfield approach for broadcast licenses. Key judgments made by management in step 2 of the impairment test included revenue growth rates, length of contract term, number of renewals, customer attrition rates, market-based royalty rates, and market based tax rates. The valuation of advertising relationships assumed an attrition rate of 10%, affiliate relationships assumed three contract renewals, each with a four year term, per customer and trade names assumed royalty rates ranging from 2% to 5%. Other assumptions used in these hypothetical calculations had a less significant impact on the concluded fair value or were subject to less significant estimation or judgment. None of these hypothetical calculations for unrecorded intangibles were recorded in the consolidated financial statements.
As of the goodwill testing date, the carrying value of remaining goodwill assigned to the EuropeanAsia-Pacific reporting unit was $1.1 billion and the net assets of the reporting unit were approximately $2.7 billion, which results in $1.2 billion headroom based ondetermined that the estimated fair value of $3.9 billion.
did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $36 million goodwill balance. The impairment charge was not deductible for tax purposes. The determination of fair value of the Company's DNI-EuropeCompany’s Asia-Pacific reporting unit represents a Level 3 fair value measurement in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. Changes
During the third quarter of 2020, the Company realigned its International Networks management reporting structure. As a result, Australia and New Zealand, which were previously included in the Europe reporting unit, are now included in the Asia-Pacific reporting unit, including the associated goodwill. As a result of this realignment, the Company performed a quantitative goodwill impairment analysis for its Europe and Asia-Pacific reporting units using a DCF valuation model. A market-based valuation model was not weighted in the analysis given the significant judgmentsvolatility in the equity markets. The estimated fair value of both the Europe and estimates could significantly impactAsia-Pacific reporting units exceeded their carrying values and, therefore, no impairment was recorded.
For the concluded2020 annual impairment test, the Company performed its annual qualitative goodwill impairment assessment for all reporting units and it determined that it was more likely than not that the fair value of those reporting units exceeded their carrying values, except for its Europe and Asia-Pacific reporting units. Given limited headroom of below 20% in its Europe and Asia-Pacific reporting units during the third quarter of 2020, the Company performed a quantitative goodwill impairment analysis for each of these reporting units using a DCF valuation model. A market-based valuation model was not weighted in the analysis due to significant volatility in the reporting units' equity markets.
The quantitative goodwill impairment analysis for the Company’s Europe reporting unit indicated that the estimated fair value exceeded its carry value by approximately 20% and, therefore, no impairment was recorded.
The quantitative impairment analysis for the Company’s Asia-Pacific reporting unit indicated that estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $85 million goodwill balance. The impairment charge was not deductible for tax purposes. The determination of fair value of the Company’s Asia-Pacific reporting unit orrepresents a Level 3 fair value measurement in the valuationfair value hierarchy due to its use of intangible assets. Changesinternal projections and unobservable measurement inputs.
2019 Impairment Analysis
During 2019, due to assumptionsan increasingly challenging business environment in the Asia-Pacific region, which included 1) moderating revenue growth projections, 2) underperformance of certain sports investments, 3) heightened volatility in China and surrounding economies, and 4) a decline in Asia-Pacific stock price multiples for peer media companies, the Company believed the increased risk required it to perform an interim impairment test. The impairment test indicated that would decrease the carrying value of the net assets in the Asia-Pacific reporting unit exceeded its fair value and the Company recognized a pre-tax goodwill impairment charge of $155 million during the year ended December 31, 2019, which was not deductible for tax purposes. The determination of fair value of the Company's Asia-Pacific reporting unit would resultrepresents a Level 3 fair value measurement in corresponding increasesthe fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 2019 annual impairment of goodwill at the reporting unit.
The goodwill impairment charge does not have an impact on the calculation of the Company's financial covenants under the Company's debt arrangements.
As of November 30, 2016,test, the Company performed a quantitative goodwill impairment assessment for all reporting units. Due to the period elapsed since the last quantitative impairment test in 2013, the Company elected to proceed to the first step of the quantitative goodwill impairment test. The estimated fair value of each reporting unit exceeded its carrying value and, therefore, no impairment was recorded. The Europe reporting unit, which had headroom of 19%, was the only reporting unit with fair value in excess of carrying value of less than 20%. The fair values of the reporting units were determined using DCF and market-based valuation models. Cash flows were determined based on Company estimates of future operating results and discounted using an internal rate of return based on an assessment of the risk inherent in future cash flows of the respective reporting unit. The market-based valuation models utilized multiples of earnings before interest, taxes, depreciation and amortization. Both the DCF and market-based models resulted in substantially similar fair values.
As of November 30, 2015, 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.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.8. DEBT
The table below presents the components of outstanding debt (in millions). | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
4.375% Senior Notes, semi-annual interest, due June 2021 | | $ | — | | | $ | 335 | |
2.375% Senior Notes, euro denominated, annual interest, due March 2022 | | 339 | | | 369 | |
3.300% Senior Notes, semi-annual interest, due May 2022 | | — | | | 168 | |
3.500% Senior Notes, semi-annual interest, due June 2022 | | — | | | 62 | |
2.950% Senior Notes, semi-annual interest, due March 2023 | | 796 | | | 796 | |
3.250% Senior Notes, semi-annual interest, due April 2023 | | 192 | | | 192 | |
3.800% Senior Notes, semi-annual interest, due March 2024 | | 450 | | | 450 | |
2.500% Senior Notes, sterling denominated, annual interest, due September 2024 | | 540 | | | 545 | |
3.900% Senior Notes, semi-annual interest, due November 2024 | | 497 | | | 497 | |
3.450% Senior Notes, semi-annual interest, due March 2025 | | 300 | | | 300 | |
3.950% Senior Notes, semi-annual interest, due June 2025 | | 500 | | | 500 | |
4.900% Senior Notes, semi-annual interest, due March 2026 | | 700 | | | 700 | |
1.900% Senior Notes, euro denominated, annual interest, due March 2027 | | 678 | | | 739 | |
3.950% Senior Notes, semi-annual interest, due March 2028 | | 1,700 | | | 1,700 | |
4.125% Senior Notes, semi-annual interest, due May 2029 | | 750 | | | 750 | |
3.625% Senior Notes, semi-annual interest, due May 2030 | | 1,000 | | | 1,000 | |
5.000% Senior Notes, semi-annual interest, due September 2037 | | 548 | | | 548 | |
6.350% Senior Notes, semi-annual interest, due June 2040 | | 664 | | | 664 | |
4.950% Senior Notes, semi-annual interest, due May 2042 | | 285 | | | 285 | |
4.875% Senior Notes, semi-annual interest, due April 2043 | | 516 | | | 516 | |
5.200% Senior Notes, semi-annual interest, due September 2047 | | 1,250 | | | 1,250 | |
5.300% Senior Notes, semi-annual interest, due May 2049 | | 750 | | | 750 | |
4.650% Senior Notes, semi-annual interest, due May 2050 | | 1,000 | | | 1,000 | |
4.000% Senior Notes, semi-annual interest, due September 2055 | | 1,732 | | | 1,732 | |
| | | | |
| | | | |
| | | | |
Total debt | | 15,187 | | | 15,848 | |
Unamortized discount, premium and debt issuance costs, net (a) | | (428) | | | (444) | |
Debt, net of unamortized discount, premium and debt issuance costs | | 14,759 | | | 15,404 | |
Current portion of debt | | (339) | | | (335) | |
Noncurrent portion of debt | | $ | 14,420 | | | $ | 15,069 | |
| | | | |
(a) Current portion of unamortized discount, premium, and debt issuance costs, net was not material. |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
5.625% Senior notes, semi-annual interest, due August 2019 | | $ | 411 |
| | $ | 500 |
|
2.200% Senior notes, semi-annual interest, due September 2019 | | 500 |
| | — |
|
Floating rate notes, quarterly interest, due September 2019 | | 400 |
| | — |
|
5.050% Senior notes, semi-annual interest, due June 2020 | | 789 |
| | 1,300 |
|
4.375% Senior notes, semi-annual interest, due June 2021 | | 650 |
| | 650 |
|
2.375% Senior notes, euro denominated, annual interest, due March 2022 | | 358 |
| | 314 |
|
3.300% Senior notes, semi-annual interest, due May 2022 | | 500 |
| | 500 |
|
2.950% Senior notes, semi-annual interest, due March 2023 | | 1,200 |
| | — |
|
3.250% Senior notes, semi-annual interest, due April 2023 | | 350 |
| | 350 |
|
3.800% Senior notes, semi-annual interest, due March 2024 | | 450 |
| | — |
|
2.500% Senior notes, sterling denominated, annual interest, due September 2024 | | 538 |
| | — |
|
3.450% Senior notes, semi-annual interest, due March 2025 | | 300 |
| | 300 |
|
4.900% Senior notes, semi-annual interest, due March 2026 | | 700 |
| | 500 |
|
1.900% Senior notes, euro denominated, annual interest, due March 2027 | | 717 |
| | 627 |
|
3.950% Senior notes, semi-annual interest, due March 2028 | | 1,700 |
| | — |
|
5.000% Senior notes, semi-annual interest, due September 2037 | | 1,250 |
| | — |
|
6.350% Senior notes, semi-annual interest, due June 2040 | | 850 |
| | 850 |
|
4.950% Senior notes, semi-annual interest, due May 2042 | | 500 |
| | 500 |
|
4.875% Senior notes, semi-annual interest, due April 2043 | | 850 |
| | 850 |
|
5.200% Senior notes, semi-annual interest, due September 2047 | | 1,250 |
| | — |
|
Revolving credit facility | | 425 |
| | 550 |
|
Commercial paper | | — |
| | 48 |
|
Capital lease obligations | | 225 |
| | 151 |
|
Total debt | | 14,913 |
| | 7,990 |
|
Unamortized discount and debt issuance costs | | (128 | ) | | (67 | ) |
Debt, net | | 14,785 |
| | 7,923 |
|
Current portion of debt | | (30 | ) | | (82 | ) |
Noncurrent portion of debt | | $ | 14,755 |
| | $ | 7,841 |
|
Senior Notes
On September 21, 2017, Discovery Communications, LLC ("DCL"), a wholly-owned subsidiary of the Company, issued $500 million principal amount of 2.200% senior notes due 2019 (the “2019 Notes”), $1.20 billion principal amount of 2.950% senior notes due 2023 (the “2023 Notes”), $1.70 billion principal amount of 3.950% senior notes due 2028 (the “2028 Notes”), $1.25 billion principal amount of 5.000% senior notes due 2037 (the “2037 Notes”), $1.25 billion principal amount of 5.200% senior notes due 2047 (the “2047 Notes” and, together with the 2019 Notes, the 2023 Notes, the 2028 Notes, the 2037 Notes and the 2047 Notes, the “Senior Fixed Rate Notes”) and $400 million principal amount of floating rate senior notes due 2019 (the “Senior Floating Rate Notes” and, together with the Senior Fixed Rate Notes, the “USD Notes”). Interest on the Senior Fixed Rate Notes is payable on March 20 and September 20 of each year, beginning March 20, 2018. Interest on the Senior Floating Rate Notes is payable on March 20, June 20, September 20 and December 20 of each year, beginning December 20, 2017. The USD Notes are fully and unconditionally guaranteed by the Company.
On September 21, 2017, DCL issued £400 million principal amount ($540 million at issuance based on the exchange rate of $1.35 per pound at September 21, 2017) of 2.500% senior notes due 2024 (the “Sterling Notes”). Interest on the Sterling Notes is payable on September 20 of each year, beginning September 20, 2018.
The proceeds received by DCL from the USD Notes and the Sterling Notes were net of a $11 million issuance discount and $57 million of debt issuance costs. The Sterling Notes are fully and unconditionally guaranteed by the Company.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior Notes
WithFor the exceptionyear ended December 31, 2021, Discovery Communications, LLC (“DCL”) and Scripps Networks Interactive, Inc. ("Scripps"), wholly owned subsidiaries of Discovery Inc., issued notices for the redemption in full of all $168 million aggregate principal amount outstanding of DCL's 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of DCL's and Scripps' 3.500% Senior Notes due June 2022 (collectively, the "2022 Notes"). The 2022 Notes were redeemed in July 2021 for an aggregate redemption price of $235 million, plus accrued interest.
Also, for the year ended December 31, 2021, DCL issued a notice for the redemption in full of all $335 million aggregate principal amount outstanding of its 4.375% Senior Notes due June 2021 (the “2021 Notes”) in accordance with the terms of the 2019indenture governing the 2021 Notes. The 2021 Notes were redeemed in March 2021 for an aggregate redemption price of $339 million, plus accrued interest.
The redemptions for the year ended December 31, 2021 resulted in an immaterial loss on extinguishment of debt.
For the year ended December 31, 2020, Discovery, Inc. commenced 5 separate private offers to exchange (the “Exchange Offers”) any and all of DCL's outstanding 5.000% Senior Notes due 2037, 6.350% Senior Notes due 2040, 4.950% Senior Notes due 2042, 4.875% Senior Notes due 2043 and 5.200% Senior Notes due 2047 (collectively, the “Old Notes”) for one new series of DCL 4.000% Senior Floating Rate Notes, semi-annual interest, due September 2055 (the “New Notes”). Discovery, Inc. completed the USD Notes and Sterling Notes include a redemption requirement following a termination of the Scripps Networks Merger Agreement or if the merger does not close prior to August 30, 2018. The $5.9Exchange Offers in September 2020, by exchanging $1.4 billion aggregate principal amount of senior notes subject to special mandatory redemption will be classified as noncurrent until either of the contingent events which would trigger the redemption has occurred. As of December 31, 2017, neither of the contingent events have occurred and therefore these senior notes are classified as noncurrent. In the event that the redemption provision is triggered, the Company would be required to redeem the notesOld Notes for a price equal to 101% of the principal amount plus any accrued and unpaid interest on the notes.
On March 13, 2017, DCL issued $450 million$1.7 billion aggregate principal amount of 3.80% senior notes due March 13, 2024the New Notes (before debt discount of $318 million). The Exchange Offers were accounted for as a debt modification and, as a result, third-party issuance costs totaling $11 million were expensed as incurred.
Also, for the year ended December 31, 2020, the Company completed offers to purchase for cash (the "2017 USD Notes"“Cash Offers”) and an additional $200the Old Notes. Approximately $22 million aggregate principal amount of its existing 4.90% senior notesthe Old Notes were accepted for purchase by Discovery pursuant to the Cash Offers, for total cash consideration of $27 million, plus accrued interest. The Cash Offers resulted in an immaterial loss on extinguishment of debt.
Finally, for the year ended December 31, 2020, DCL issued $1.0 billion aggregate principal amount of Senior Notes due March 11, 2026 (the "2016 USD Notes"). Interest on the 2017 USDMay 2030 and $1.0 billion aggregate principal amount of Senior Notes is payable semi-annually on March 13 and September 13 of each year. Interest on the 2016 USD Notes is payable semi-annually on March 11 and September 11 of each year.due May 2050. The proceeds received by DCL from the 2017 USD Notes were net of a $1 million issuance discount and $4$20 million of debt issuance costs. The proceeds received by DCL from the 2016 USD Notes included a $10 million issuance premium and were net of $2 million of debt issuance costs. The 2017 USD Notes and the 2016 USD Notes are fully and unconditionally guaranteed by the Company.
DCL used the proceeds from the offerings of the 2017 USD Notes and the 2016 USD Notesoffering to repurchase $600 million$1.5 billion aggregate principal amount of DCL's 5.05%and Scripps Networks' senior notes due 2020 and 5.625% senior notes due 2019 in a cash tender offer. The repurchase resulted in a pretax loss on extinguishment of debt of $54$71 million. The Company used the remaining proceeds and cash on hand to fully repay the $500 million for the year endedthat was outstanding under its revolving credit facility.
As of December 31, 2017, which is presented as a separate line item on2021, all senior notes are fully and unconditionally guaranteed by the Company's consolidated statements of operationsCompany and recognized as a component of financing cash outflows on the consolidated statements of cash flows. The loss included $50 millionScripps Networks, except for premiums to par value, $2$23 million of non-cash write-offs of unamortized deferred financing costs, $1 million for the write-off of the original issue discount of theseun-exchanged Scripps Networks senior notes acquired in conjunction with the acquisition of Scripps Networks.
Revolving Credit Facility and $1 million accrued for other third-party fees.Commercial Paper Programs
Term Loans
On August 11, 2017,In June 2021, DCL entered into a three-year delayed draw tranche and a five-year delayed draw tranche unsecured term loan credit facility (the "Term Loans"), each with a principal amount of up to $1 billion. The term of each delayed draw loan begins when Discovery borrows the funds to finance a portion of the Scripps Networks acquisition. The Term Loans' interest rates are based, at the Company's option, on either adjusted LIBOR plus a margin, or an alternate base rate plus a margin. The Company will pay a commitment fee of 20 basis points per annum for each Term Loan, based on its current credit rating, beginning September 28, 2017 until either the funding of the Term Loans or the termination of the Scripps Networks acquisition. As of December 31, 2017, the Company has not yet borrowed the Term Loans.
Unsecured Bridge Loan Commitment
On July 30, 2017, the Company obtained a commitment letter from a financial institution for a $9.6 billion unsecured bridge term loan facility that could have been used to complete the Scripps Networks acquisition. No amounts were drawn under the bridge loan commitment and following the execution of the Term Loans and the issuance of the USD Notes and the Sterling Notes on September 21, 2017, the commitment was terminated. The Company incurred $40 million of debt issuance costs, which are fully amortized as a component of interest expense following the issuance of the senior notes on September 21, 2017. The associated cash payment has been classified as a financing activity in the consolidated statements of cash flows.
Revolving Credit Facility
On August 11, 2017, DCL amended its $2.0 billionmulticurrency revolving credit facilityagreement (the "Credit Agreement"), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. DCL has the capacity to allow DCL and certain designated foreign subsidiaries of DCL toinitially borrow up to $2.5 billion includingunder the Credit Agreement. Upon the closing of the proposed combination transaction with WarnerMedia and subject to certain conditions, the available commitments will increase by $3.5 billion, to an aggregate amount not to exceed $6 billion. The Credit Agreement includes a $100$150 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for Euro-denominated swing line loans. Borrowing capacity under this agreement is reduced by any outstanding borrowingscredit. DCL may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the commercial paper program discussed below.Credit Agreement are unsecured and are fully and unconditionally guaranteed by Discovery, Inc. and Scripps Networks Interactive, Inc., and will also be guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed combination transaction. The Credit Agreement will be available on a revolving credit facility agreement amendment extends the maturity date from February 4, 2021 to August 11, 2022,basis until June 2026, with thean option for up to two2 additional 364-day renewal periods.periods subject to the lenders' consent. The amended credit facility agreement expressly permits the incurrence of indebtedness to finance the Scripps Networks acquisition. Discovery also agreed to make Scripps Networks a guarantor under the agreement following the closing of the acquisition.
The credit agreement governing the revolving credit facilityCredit Agreement contains customary representations warranties and events of default,warranties as well as affirmative and negative covenants. In addition to the change in the revolver's capacity on August 11, 2017, the financial covenants were modified to reset the maximum consolidated leverage ratio financial covenant to 5.50 to 1.00, with step-downs to 5.00 to 1.00 and to 4.50 to 1.00, one year and two years after the closing of the Scripps Networks acquisition, respectively. As of December 31, 2017, the Company's subsidiary,2021, DCL was in compliance with all covenants and there were no events of default under the revolving credit facility.Credit Facility.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summaryAdditionally, the Company's commercial paper program is supported by the Credit Facility. Under the commercial paper program, the Company may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is reduced by any outstanding borrowings under the revolving credit facility (in millions).commercial paper program.
|
| | | | | | | | |
| | For the year ended December 31, |
| | 2017 | | 2016 |
Outstanding debt | | $ | 425 |
| | $ | 550 |
|
Outstanding debt denominated in foreign currency | | — |
| | 207 |
|
Weighted average interest rate | | 2.69 | % | | 2.05 | % |
The interest rate onAs of December 31, 2021 and 2020, the Company had no outstanding borrowings under the revolving credit facility is variable based on DCL's then-current credit ratings for its publicly traded debt and changes in financial index rates. For dollar-denominated borrowings,Credit Facility or the interest rate is based, at the Company's option, on either adjusted LIBOR plus a margin, or an alternate base rate plus a margin. For borrowings denominated in foreign currencies, the interest rate is based on adjusted LIBOR, plus a margin. The current margins are 1.30% and 0.30%, respectively, per annum for adjusted LIBOR and alternate base rate borrowings. A monthly facility fee is charged based on the total capacity of the facility, and interest is charged based on the amount borrowed on the facility. The current facility fee rate is 0.20% per annum and subject to change based on DCL's then-current credit ratings. commercial paper program.
All obligations of DCL and the other borrowers under the revolving credit facilityCredit Facility are unsecured and are fully and unconditionally guaranteed by Discovery.Discovery and Scripps.
DISCOVERY, INC.
Commercial PaperNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Agreement Financial Covenants
The Company's commercial paper program is supported byCredit Agreement includes financial covenants that require the revolving credit facility described above. The following table presentsCompany to maintain a summaryminimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 4.50 to 1.00, which increases to 5.75 to 1.00 upon the closing of the outstanding commercial paper borrowingsproposed combination transaction with maturitiesWarnerMedia, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of less than 90 days (in millions).
|
| | | | | | | | |
| | For the year ended December 31, |
| | 2017 | | 2016 |
Outstanding debt | | $ | — |
| | $ | 48 |
|
Weighted average interest rate | | — | % | | 1.2 | % |
the closing, respectively.
Long-term Debt Repayment Schedule
The following table presents a summary of scheduled and estimated debt payments, excluding the revolving credit facility and commercial paper borrowings, and capital lease obligations, for the succeedingnext five years based on the amount of the Company's debt outstanding as of December 31, 20172021 (in millions). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
Long-term debt repayments | | $ | 339 | | | $ | 988 | | | $ | 1,487 | | | $ | 800 | | | $ | 700 | | | $ | 10,873 | |
NOTE 9. LEASES
The Company has operating and finance leases for transponders, office space, studio facilities, and other equipment. The Company's leases have remaining lease terms of up to 19 years, some of which include options to extend the leases for up to 10 years. Most leases are not cancellable prior to their expiration.
The components of lease cost were as follows (in millions):
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
Operating lease cost | | $ | 103 | | | $ | 116 | |
| | | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | | $ | 61 | | | $ | 52 | |
Interest on lease liabilities | | 7 | | | 8 | |
Total finance lease cost | | $ | 68 | | | $ | 60 | |
| | | | |
Variable lease cost | | $ | 7 | | | $ | 9 | |
Supplemental cash flow information related to leases was as follows (in millions):
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | (107) | | | $ | (101) | |
Operating cash flows from finance leases | | $ | (7) | | | $ | (8) | |
Financing cash flows from finance leases | | $ | (65) | | | $ | (54) | |
| | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 53 | | | $ | 51 | |
Finance leases | | $ | 104 | | | $ | 36 | |
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Long-term debt repayments | | $ | — |
| | $ | 1,311 |
| | $ | 789 |
| | $ | 650 |
| | $ | 858 |
| | $ | 10,655 |
|
Supplemental balance sheet information related to leases was as follows (in millions):Scheduled payments for capital | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2021 | | 2020 |
Operating Leases | Location on Balance Sheet | | | | |
Operating lease right-of-use assets | Other noncurrent assets | | $ | 535 | | | $ | 575 | |
| | | | | |
Operating lease liabilities (current) | Accrued liabilities | | $ | 62 | | | $ | 71 | |
Operating lease liabilities (noncurrent) | Other noncurrent liabilities | | 567 | | | 592 | |
Total operating lease liabilities | | | $ | 629 | | | $ | 663 | |
| | | | | |
Finance Leases | | | | | |
Finance lease right-of-use assets | Property and equipment, net | | $ | 249 | | | $ | 220 | |
| | | | | |
Finance lease liabilities (current) | Accrued liabilities | | $ | 58 | | | $ | 57 | |
Finance lease liabilities (noncurrent) | Other noncurrent liabilities | | 197 | | | 184 | |
Total finance lease liabilities | | | $ | 255 | | | $ | 241 | |
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Weighted average remaining lease term (in years): | | | | |
Operating leases | | 12 | | 12 |
Finance leases | | 5 | | 5 |
| | | | |
Weighted average discount rate | | | | |
Operating leases | | 2.94 | % | | 3.37 | % |
Finance leases | | 3.57 | % | | 3.80 | % |
Maturities of lease obligations outstandingliabilities as of December 31, 2017 are disclosed2021 were as follows (in millions):
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
2022 | | $ | 84 | | | $ | 65 | |
2023 | | 75 | | | 65 | |
2024 | | 71 | | | 48 | |
2025 | | 63 | | | 35 | |
2026 | | 60 | | | 26 | |
Thereafter | | 448 | | | 38 | |
Total lease payments | | 801 | | | 277 | |
Less: Imputed interest | | (172) | | | (22) | |
Total | | $ | 629 | | | $ | 255 | |
As of December 31, 2021, the Company has additional leases that have not yet commenced with total minimum lease payments of approximately $8 million, primarily related to equipment leases. The remaining leases will commence in Note 20.fiscal year 2022, have lease terms of 4 to 5 years, and include options to extend the terms for up to 10 additional years.
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to modify its exposure to exogenous events and market risks from changes in foreign currency exchange rates and interest rates and the fair value of investments classified as AFS securities. At the inception of a derivative contract, the Company designates the derivative as one of four types based on the Company's intentions and belief as to its likely effectiveness as a hedge. These four types are: (i) a cash flow hedge, (ii) a net investment hedge, (iii) a fair value hedge, or (iv) an instrument with no hedging designation.rates. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.
Cash Flow Hedges
The Company designates foreign currency forward and option contracts as In addition to the Company's normal course of business cash flow hedges to mitigate foreign currency risk arising from third-party revenue and inter-company licensing agreements. The Company also designates interest rate contracts used to hedge the pricing for certain senior notes as cash flow hedges.
During the three months ended December 31, 2016,hedging program, the Company terminated and settled its outstanding interest rate cash flow hedges which resulted in a $40 million pretax gain. Asentered into the hedges were considered to be effective and the forecasted transactions were considered probable of occurring, the gain remained in accumulated other comprehensive loss to be amortized as a reduction to interest expense over the term of the forecasted senior notes. The Company reclassified $17 million of the gainsfollowing arrangements:
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedges
fromDuring the year ended December 31, 2021, the Company dedesignated, unwound and settled foreign exchange forward contracts with a total notional value of $374 million. An $18 million pretax accumulated other comprehensive gain was previously deferred in accumulated other comprehensive loss. In December 2021, the Company determined a portion of the hedged transactions were probable of not occurring within the defined hedge periods. As a result, the Company reclassified $16 million of the pretax gain that was previously deferred in accumulated other comprehensive loss tointo other income (expense) income,, net in the Company's consolidated statement of operations, as the forecasted transaction was considered remote following the issuance of the USD Notes on September 21, 2017.
In 2016, the Company also discontinued hedge accounting for certain foreign currency forward and option cash flow hedges with notional and fair value amounts of $125 million and $14 million, respectively. At that time, the occurrence of the forecasted intercompany transactions was no longer considered probable, but was still reasonably possible of occurring. The change in probability was the result of new tax regulations that impacted the planned intercompany transactions that were hedged. As a result of the change in probability, subsequent changes in the fair value of these hedges were reflected immediately in other (expense) income, net on the consolidated statements of operations. The resultCompany also dedesignated additional foreign exchange forward contracts that have not been settled with an aggregate notional amount of $163 million.
During the year ended December 31, 2020, the Company dedesignated, unwound and settled certain foreign exchange forward contracts designated as cash flow hedges with an aggregate notional amount of $255 million. The Company received cash of $19 million, which was a $1 million gain recognized on the consolidated statements of operations for the period until November 1, 2016, when the forecasted transactions were once again considered probable, as it was determined that no changes to the forecasted intercompany transactions would occur. Accordingly, any changes in the fair value of these hedges subsequent to that date will remaindeferred in accumulated other comprehensive loss until earnings are impacted by the forecasted transaction, at which time they will beand subsequently reclassified to other (expense) income (expense), net on the consolidated statementsin December 2021 due to a change of operations.
In 2015,assumptions in forecasted cash flows as the Company terminateddetermined that the hedged transactions were no longer probable of occurring.
Also, during the year ended December 31, 2020, the Company executed forward starting interest rate swap contracts designated as cash flow hedges with a total notional value of $1.6 billion. These contracts will mitigate interest rate risk associated with the forecasted issuance of future fixed-rate public debt. The Company also issued and settled its interest rate cash flow hedges with a total notional value of $1 billion following the pricing of its 3.45% senior notesoffering of 3.625% Senior Notes due March 15, 2025 (the "2015 USD Notes"May 2030 and 4.650% Senior Notes due May 2050. (See Note 8.). The total notional value of the interest rate forward contracts at the termination date was $490$7 million which exceeded the $300 million principal amount of the 2015 USD Notes. Of the $40 million pretax loss recorded in accumulated other comprehensive loss at the termination date $29 million was an effective cash flow hedge that will be amortized as an adjustment to interest expense, net over the ten year termrespective terms of the 2015 USD Notes consistent with amortization of the debt discount. The remaining $11 million was reclassified into other (expense) income, net on the consolidated statements of operations duringnewly issued notes.
No Hedging Designation
During the year ended December 31, 2015, because2021, in anticipation of the proposed combination transaction with WarnerMedia, the Company executed forward starting interest rate swap contracts with a total notional value of $5.0 billion, swaption collars with a total notional value of $2.5 billion, and purchase payer swaptions with a total notional value of $7.5 billion. The objective of these contracts is to mitigate interest rate risk associated with the forecasted borrowing transaction was no longer probable.
Net Investment Hedges
The Company designates cross-currency swaps and foreign currency forward contracts as hedges of net investments in foreign operations. Changes in the fair value of these instruments, including the accrual and periodic cash settlement of interest on cross-currency swaps, are reported in the same manner as translation adjustments to the extent that they are effective. Changes in the value of the investment due to changes in spot rates are offset by fair value changes in the effective portion of the derivative instruments.
On September 21, 2017, in conjunction with the Scripps Networks acquisition (see Note 3 and Note 9), DCL issued £400 million principal amount of 2.500% senior notes due 2024. The Sterling Notes were designated as net investment hedges, hedging against fluctuations in foreign currency exchange rates on a portion of the Company's investments in foreign subsidiaries. Prior to issuance of the Sterling Notes, the Company also entered into a seriesfuture fixed-rate public debt. Premiums of foreign exchange contracts designated as net investment hedges on a portion of the Company's investments in foreign subsidiaries. These foreign exchange contracts$142 million were settled on the date of issuance of the Sterling Notespaid at execution and resulted in a $12 million loss, which has been reflected as a component of currency translation adjustments on the Company's consolidated balance sheet as of December 31, 2017.
Fair Value Hedges
cash outflows from investing activities. The Company designates derivative instruments used to mitigate the risk ofcontracts did not receive hedging designation and changes in the fair value of its AFS securities as fair value hedges. On November 12, 2015,are recognized in other income (expense), net in the Company entered into the Lionsgate Collar, designed to mitigate the risk of market fluctuations with respect to 50% of the Lionsgate shares held by the Company. (See Note 4.) The collar, which qualifies for hedge accounting, settles in three tranches starting in 2019 and ending in 2022.
No Hedging Designation
The Company may also enter into derivative financial instruments that do not qualify for hedge accounting and are not designated as hedges. These instruments are intended to mitigate economic exposures due to exogenous events and changes in foreign currency exchange rates and interest rates.
During the three months ended September 30, 2017, in conjunction with the Scripps Networks acquisition (see Note 3 and Note 9), the Company entered into $4 billion notional amount of interest rate contracts used to economically hedge a portion of the pricing of the 2017 USD Notes. These interest rate contracts were settled on September 21, 2017, and did not receive hedging designation. The Company recognized a $98 million loss in connection with these interest rate contracts, which has been reflected as a component of other (expense) income, net on the Company's consolidated statementstatements of operations.
Financial Statement Presentation
The Company records all unsettled derivative contracts at their gross fair values on the consolidated balance sheets. (See Note 5.) The portion of the fair value that represents cash flows occurring within one year are classified as current, and the portion related to cash flows occurring beyond one year are classified as noncurrent.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 20172021 and 2020. The fair value of the Company's derivative financial instruments at December 31, 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| | | Fair Value | | | | Fair Value |
| Notional | | Prepaid expenses and other current assets | | Other non- current assets | | Accrued liabilities | | Other non- current liabilities | | Notional | | Prepaid expenses and other current assets | | Other non- current assets | | Accrued liabilities | | Other non- current liabilities |
Cash flow hedges: | | | | | | | | | | | | | | | | | | | |
Foreign exchange | $ | 817 |
| | $ | 7 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 677 |
| | $ | 31 |
| | $ | — |
| | $ | 18 |
| | $ | — |
|
Net investment hedges:(a) | | | | | | | | | | | | | | | | | | |
Cross-currency swaps | 1,708 |
| | — |
| | 3 |
| | 13 |
| | 98 |
| | 751 |
| | — |
| | 35 |
| | 3 |
| | 31 |
|
Foreign exchange
| 303 |
| | 2 |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Fair value hedges: | | | | | | | | | | | | | | | | | | | |
Equity (Lionsgate collar) | 97 |
| | — |
| | 13 |
| | — |
| | — |
| | 97 |
| | — |
| | 25 |
| | — |
| | — |
|
No hedging designation: | | | | | | | | | | | | | | | | | | |
Interest rate swaps | 25 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | — |
| | — |
| | — |
| | — |
|
Cross-currency swaps | 64 |
| | — |
| | — |
| | — |
| | 6 |
| | 64 |
| | — |
| | 1 |
| | — |
| | — |
|
Credit contracts | 665 |
| | — |
| | — |
| | — |
| | 1 |
| �� | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | | $ | 9 |
| | $ | 16 |
| | $ | 33 |
| | $ | 105 |
| | | | $ | 31 |
| | $ | 61 |
| | $ | 21 |
| | $ | 31 |
|
2021 and 2020 was determined using a market-based approach (Level 2). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| | | Fair Value | | | | Fair Value |
| Notional | | Prepaid expenses and other current assets | | Other non- current assets | | Accrued liabilities | | Other non- current liabilities | | Notional | | Prepaid expenses and other current assets | | Other non- current assets | | Accrued liabilities | | Other non- current liabilities |
Cash flow hedges: | | | | | | | | | | | | | | | | | | | |
Foreign exchange | $ | 777 | | | $ | 14 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 1,082 | | | $ | 2 | | | $ | 5 | | | $ | 14 | | | $ | 17 | |
Interest rate swaps | 2,000 | | | 44 | | | — | | | 11 | | | — | | | 2,000 | | | — | | | 11 | | | — | | | 89 | |
Net investment hedges: (a) | | | | | | | | | | | | | | | | | | | |
Cross-currency swaps | 3,512 | | | 54 | | | 61 | | | 20 | | | 76 | | | 3,544 | | | 34 | | | 41 | | | — | | | 154 | |
Foreign exchange | — | | | — | | | — | | | — | | | — | | | 44 | | | 2 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
No hedging designation: | | | | | | | | | | | | | | | | | | |
Foreign exchange | 1,020 | | | — | | | — | | | 34 | | | 66 | | | 1,035 | | | — | | | — | | | 2 | | | 26 | |
Interest rate swaps | 15,000 | | | 126 | | | 28 | | | 9 | | | 5 | | | — | | | — | | | — | | | — | | | — | |
Cross-currency swaps | 139 | | | 3 | | | — | | | — | | | 5 | | | 139 | | | 2 | | | — | | | — | | | 13 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total | | | $ | 241 | | | $ | 89 | | | $ | 76 | | | $ | 152 | | | | | $ | 40 | | | $ | 57 | | | $ | 16 | | | $ | 299 | |
(a) Excludes £400 million of sterling notes ($538540 million equivalent at December 31, 2017)2021) designated as a net investment hedge. (Note 9.(See Note 8.)
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the pretax impact of derivatives designated as cash flow hedges on income and other comprehensive income (loss) (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
(Losses) gains recognized in accumulated other comprehensive loss: | | | | | | |
Foreign exchange - derivative adjustments | | $ | (41 | ) | | $ | (1 | ) | | $ | 34 |
|
Interest rate swaps - derivative adjustments | | — |
| | 40 |
| | (11 | ) |
(Losses) gains reclassified into income from accumulated other comprehensive loss (effective portion): | | | | | | |
Foreign exchange - distribution revenue | | (22 | ) | | (25 | ) | | 23 |
|
Foreign exchange - advertising revenue | | (3 | ) | | (2 | ) | | 2 |
|
Foreign exchange - costs of revenues | | — |
| | 27 |
| | 9 |
|
Foreign exchange - other (expense) income, net | | — |
| | 3 |
| | 4 |
|
Interest rate - interest expense | | (1 | ) | | (3 | ) | | (3 | ) |
Gains (losses) reclassified into income from accumulated other comprehensive loss (ineffective portion): | | | | | | |
Foreign exchange - other (expense) income, net | | — |
| | 1 |
| | — |
|
Interest rate - other (expense) income, net | | 17 |
| | — |
| | (11 | ) |
Fair value excluded from effectiveness assessment: | | | | | | |
Foreign exchange - other (expense) income, net | | — |
| | (5 | ) | | — |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Gains (losses) recognized in accumulated other comprehensive loss: | | | | | | |
Foreign exchange - derivative adjustments | | $ | 57 | | | $ | 14 | | | $ | 17 | |
Interest rate - derivative adjustments | | 112 | | | (124) | | | 21 | |
Gains (losses) reclassified into income from accumulated other comprehensive loss: | | | | | | |
Foreign exchange - advertising revenue | | 1 | | | 1 | | | 6 | |
Foreign exchange - distribution revenue | | 4 | | | 30 | | | 5 | |
Foreign exchange - costs of revenues | | — | | | 2 | | | 2 | |
| | | | | | |
| | | | | | |
Interest rate - interest expense, net | | (2) | | | 1 | | | (2) | |
Foreign exchange - other expense, net | | 30 | | | — | | | 3 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
If current fair values of designated cash flow hedges as of December 31, 20172021 remained static over the next twelve months, the Company would reclassify $6$10 million of net deferred lossesgains from accumulated other comprehensive loss into income in the next twelve months. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 34 years.
The following table presents the pretax impact of derivatives designated as net investment hedges on other comprehensive income (loss) (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, 2021, 2020 and 2019.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Currency translation adjustments: | | | | | | |
Cross-currency swaps - changes in fair value | | $ | (109 | ) | | $ | 1 |
| | $ | — |
|
Cross-currency swaps - interest settlements | | 13 |
| | 2 |
| | — |
|
Foreign exchange - changes in fair value
| | (18 | ) | | — |
| | — |
|
Sterling Notes - changes in foreign exchange rates
| | 2 |
| | — |
| | — |
|
Total in other comprehensive income (loss) | | $ | (112 | ) | | $ | 3 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | Amount of gain (loss) recognized in AOCI | | | | | | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) | | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) |
| | 2021 | | 2020 | | 2019 | | | | | | | | 2021 | | 2020 | | 2019 |
Cross currency swaps | | $ | 114 | | | $ | (61) | | | $ | 93 | | | | | | | | | Interest expense, net | | $ | 42 | | | $ | 43 | | | $ | 44 | |
Foreign exchange contracts | | 5 | | | (2) | | | 4 | | | | | | | | | Other income (expense), net | | — | | | — | | | — | |
Sterling notes (foreign denominated debt) | | 6 | | | (20) | | | (17) | | | | | | | | | N/A | | — | | | — | | | — | |
Total | | $ | 125 | | | $ | (83) | | | $ | 80 | | | | | | | | | | | $ | 42 | | | $ | 43 | | | $ | 44 | |
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 and amounts excluded from the assessment of effectiveness (in millions). The Company recognized $1 million of ineffectiveness on fair value hedges for the years ended December 31, 2017 and 2016.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Gains (losses) on changes in fair value of hedged AFS | | $ | 18 |
| | $ | (17 | ) | | $ | (2 | ) |
(Losses) gains on changes in the intrinsic value of equity contracts | | (17 | ) | | 16 |
| | 2 |
|
Fair value of equity contracts excluded from effectiveness assessment | | 5 |
| | (6 | ) | | 10 |
|
Total in other (expense) income, net | | $ | 6 |
| | $ | (7 | ) | | $ | 10 |
|
The following table presents the pretaxgains (losses) gains on derivatives not designated as hedges and recognized in other income (expense) income,, net in the consolidated statements of operations (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Interest rate swaps | | $ | (2) | | | $ | — | | | $ | 1 | |
Cross-currency swaps | | 8 | | | (10) | | | — | |
Foreign exchange derivatives | | (39) | | | 32 | | | (65) | |
Equity | | — | | | 7 | | | 13 | |
Total in other income (expense), net | | $ | (33) | | | $ | 29 | | | $ | (51) | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Interest rate swaps | | $ | (98 | ) | | $ | — |
| | $ | — |
|
Cross-currency swaps | | (6 | ) | | — |
| | — |
|
Foreign exchange | | — |
| | (1 | ) | | 6 |
|
Credit contracts | | (1 | ) | | — |
| | — |
|
Total in other (expense) income, net | | $ | (105 | ) | | $ | (1 | ) | | $ | 6 |
|
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. REDEEMABLE NONCONTROLLING INTERESTS
Redeemable noncontrolling interests are presented outside of permanent equity on the Company's consolidated balance sheet when the put right is outside of the Company's control. Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values including any remeasurement necessaryremeasured at the period end foreign exchange rates (i.e., the "floor").rates. Adjustments to the carrying amount of redeemable noncontrolling interests to redemption value as a result of changes in exchange rates are reflected in currency translation adjustments, a component of other comprehensive income (loss); however, such. Such currency translation adjustments to redemption value are allocated to Discovery stockholders only. Redeemable noncontrolling interest adjustments of redemptioncarrying value to the floorredemption value are reflected in retained earnings. AnyThe adjustment of redemptioncarrying value to the floorredemption value that reflects a redemption in excess of fair value is included as an adjustment to net (loss) income from continuing operations available to Discovery, Inc. stockholders in the calculation of earnings per share. There were no current period adjustments to reflect a redemption in excess of fair value. (See Note 17.19.) The table below summarizes the Company's redeemable noncontrolling interests balances (in millions).
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Discovery Family | | $ | 213 | | | $ | 206 | |
MotorTrend Group LLC ("MTG") | | 114 | | | 112 | |
Other | | 36 | | | 65 | |
Total | | $ | 363 | | | $ | 383 | |
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the reconciliation of changes in redeemable noncontrolling interests (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 | | 2019 |
Beginning balance | | $ | 383 | | | $ | 442 | | | $ | 415 | |
Initial fair value of redeemable noncontrolling interests of acquired businesses | | — | | | — | | | 25 | |
| | | | | | |
Cash distributions to redeemable noncontrolling interests | | (11) | | | (31) | | | (39) | |
Equity exchange with Harpo for step acquisition of OWN | | — | | | (50) | | | — | |
Redemption of redeemable noncontrolling interest | | (26) | | | — | | | — | |
Comprehensive income adjustments: | | | | | | |
Net income attributable to redeemable noncontrolling interests | | 53 | | | 12 | | | 16 | |
| | | | | | |
Currency translation on redemption values | | (5) | | | 3 | | | 1 | |
Retained earnings adjustments: | | | | | | |
Adjustments of carrying value to redemption value (redemption value does not equal fair value) | | (16) | | | — | | | 14 | |
Adjustments of carrying value to redemption value (redemption value equals fair value) | | (15) | | | 7 | | | 4 | |
OWN interest adjustment | | — | | | — | | | 6 | |
Ending balance | | $ | 363 | | | $ | 383 | | | $ | 442 | |
|
| | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 |
Beginning balance | | $ | 243 |
| | $ | 241 |
| | $ | 747 |
|
Initial fair value of redeemable noncontrolling interests of acquired businesses | | 137 |
| | — |
| | 60 |
|
Purchase of subsidiary shares at fair value | | — |
| | — |
| | (551 | ) |
Cash distributions to redeemable noncontrolling interests | | (30 | ) | | (22 | ) | | (42 | ) |
Comprehensive (loss) income adjustments: | | | | | | |
Net income attributable to redeemable noncontrolling interests | | 24 |
| | 23 |
| | 13 |
|
Other comprehensive income (loss) attributable to redeemable noncontrolling interests | | 1 |
| | — |
| | (23 | ) |
Currency translation on redemption values | | — |
| | 1 |
| | (36 | ) |
Retained earnings adjustments: | | | | | | |
Adjustments to redemption value | | 38 |
| | — |
| | 73 |
|
Ending balance | | $ | 413 |
| | $ | 243 |
| | $ | 241 |
|
RedeemableThe significant arrangements for redeemable noncontrolling interests consist of the arrangementsare described below:
On November 30, 2017, the Company acquired from Harpo a controlling interest in OWN, increasing Discovery’s ownership stake from 49.50% to 73.99%. Harpo has the right to require the Company to purchase its remaining non-controlling interest during 90-day windows beginning on July 1, 2018 and every two and half years thereafter through January 1, 2026. As OWN’s put right is outside the control of the Company, OWN’s noncontrolling interest is presented as redeemable noncontrolling interest outside of permanent equity on the Company's consolidated balance sheet. The Company recorded $55 million for the value of the put right for OWN. (See Note 3.)
In connection with the joint venture created between Discovery and GoldenTree on September 25, 2017, GoldenTree acquired a put right exercisable during 30 day windows beginning in March 2021, September 2022 and March 2024 that requires Discovery to either purchase all of GoldenTree's 32.5% interest in the joint venture at fair value or participate in an initial public offering for the joint venture. As the put right is outside of the Company's control, GoldenTree's 32.5% noncontrolling interest is presented as redeemable noncontrolling interest outside of permanent equity on the Company's consolidated balance sheet. The Company recorded a redeemable noncontrolling interest of $82 million and an adjustment to redemption value of $38 million for the value of the put right for VTEN. (See Note 3.)
In connection with its non-controlling interest in Discovery Family
Hasbro Inc. ("Hasbro") has the right to put the entirety of its remaining 40% non-controlling interest in Discovery Family to Discovery at any time during the Company for one year afterone-year period beginning December 31, 2021, or in the event a Discovery performance obligation related to Discovery Family is not met. Embedded in the redeemable noncontrolling interest is also a Discovery call right that is exercisable for one year after December 31, 2021. Upon the exercise of the put or call options, the price to be paid for the redeemable noncontrolling interest is a function of the then currentthen-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. As Hasbro's put right is outside the control of the Company, Hasbro's 40% noncontrolling interest is presented as redeemable noncontrolling interest outside of permanent equity on the Company's consolidated balance sheet. The Company recorded $210 million for the value of the put right for Discovery Family.
In connection with its non-controlling interest in Discovery Japan, Jupiter Telecommunications Co., Ltd ("J:COM") has the right to put all, but not less than all, of its 20% noncontrolling interest to Discovery at any time for cash. As amended, through January 10, 2018, the redemption value is the January 10, 2013, fair value denominated in Japanese yen; thereafter, as chosen by J:COM, the redemption value is the then-current fair value or the January 10, 2013, fair value denominated in Japanese yen. The Company recorded $27 million for the value of the put right for Discovery Japan.
In connection with the acquisition of a controlling interest in Eurosport France on March 31, 2015 and Eurosport International on May 30, 2014, the Company recognized $60 million and $558 million, respectively, for TF1's 49% redeemable noncontrolling interest in each entity. On July 22, 2015, TF1 exercised its right to put the entirety of its remaining 49% noncontrolling interest in both Eurosport France and Eurosport International to the Company for €491 million ($551 million as of the date redemption became mandatory, and $548 million on October 1, 2015 when the transaction closed). The difference between the carrying amount of the redeemable noncontrolling interest and its fair value at the date of exercise resulted in a €25 million ($28 million) adjustment to retained earnings, recognized as a component of redeemable noncontrolling interest adjustments to
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MTG
redemptionGoldenTree acquired a put right exercisable during 30-day windows beginning on each of March 25, 2021, September 25, 2022 and March 25, 2024, that requires Discovery to either purchase all of GoldenTree's noncontrolling 32.5% interest in the joint venture at fair value on the consolidated statements of equityor participate in an initial public offering for the year ended December 31, 2016. Upon acquisition of TF1'sjoint venture.
OWN
Harpo has the right to require the Company to purchase Harpo's remaining noncontrolling interest in OWN at fair value during 4 90-day windows beginning on OctoberJuly 1, 2015,2018 and every two and a half years thereafter through January 1, 2026. In December 2020, the Company adjustedand Harpo completed an equity exchange and amended the accumulated other comprehensive income balanceLLC agreement whereby the Company acquired an additional 20.2% ownership interest in OWN from Harpo in exchange for $35 million of $61 million attributable to TF1the Company's Series A common stock, which was issued from treasury stock. A third-party exited the joint venture during 2021, and allocated it to Discovery stockholders.as a result, the Company now owns 95% of OWN with Harpo holding 5%. Harpo's remaining put rights are currently exercisable on July 1, 2023 and January 1, 2026.
NOTE 12. EQUITY
Common Stock
The Company has three3 series of common stock authorized, issued and outstanding as of December 31, 2017:2021: Series A common stock, Series B common stock and Series C common stock. Holders of these three3 series of common stock have equal rights, powers and privileges, except as otherwise noted. Holders of Series A common stock are entitled to one1 vote per share and holders of Series B common stock are entitled to ten10 votes per share on all matters voted on by stockholders, except for directors to be elected by holders of the Company’s Series A-1 convertible preferred stock. Holders of Series C common stock are not entitled to any voting rights, except as required by Delaware law. Generally, holders of Series A common stock and Series B common stock and Series A-1 convertible preferred stock vote as one class, except for certain preferential rights afforded to holders of Series A-1 convertible preferred stock.
Holders of Series A common stock, Series B common stock and Series C common stock will participate equally in cash dividends if declared by the Board of Directors, subject to preferential rights of outstanding preferred stock.
Each share of Series B common stock is convertible, at the option of the holder, into one1 share of Series A common stock. Series A and Series C common stock are not convertible.
Generally, distributions made in shares of Series A common stock, Series B common stock or Series C common stock will be made proportionally to all common stockholders. In the event of a reclassification, subdivision or combination of any series of common stock, the shares of the other series of common stock will be equally reclassified, subdivided or combined.
In the event of a liquidation, dissolution, or winding up of Discovery, after payment of Discovery’s debts and liabilities and subject to preferential rights of outstanding preferred stock, holders of Series A common stock, Series B common stock and Series C common stock and holders of Series A-1 and Series C-1 convertible preferred stock will share equally in any assets available for distribution to holders of common stock.
On February 13, 2014, John C. Malone, a member of Discovery’s Board of Directors, entered into an agreement granting David Zaslav, the Company’s President and CEO, certain voting and purchase rights with respect to the approximately 6 million shares of the Company’s Series B common stock owned by Mr. Malone. The agreement gives Mr. Zaslav the right to vote the Series B shares if Mr. Malone is not otherwise voting or directing the vote of those shares. The agreement also provides that if Mr. Malone proposes to sell the Series B shares, Mr. Zaslav will have the first right to negotiate for the purchase of the shares. If that negotiation is not successful and Mr. Malone proposes to sell the Series B shares to a third party, Mr. Zaslav will have the exclusive right to match that offer. The rights granted under the agreement will remain in effect for as long as Mr. Zaslav is either employed as the principal executive officer of the Company or serving on its Board of Directors.
Common Stock Repurchase Program
Under the Company's stock repurchase program, management was authorized to purchase shares of the Company's common stock from time to time through open market purchases, privately negotiated transactions at prevailing prices, pursuant to one or more accelerated stock repurchase agreements, or other derivative arrangements as permitted by securities laws and other legal requirements, and subject to stock price, business and market conditions and other factors. The Company's authorization under the program expired on October 8, 2017.
All common stock repurchases, including prepaid common stock repurchase contracts, during 2017, 2016 and 2015 were made through open market transactions. As of December 31, 2017, the Company had repurchased over the life of the program 3 million and 164 million shares of Series A and Series C common stock, respectively, for the aggregate purchase price of $171 million and $6.6 billion, respectively.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents a summary of common stock repurchases (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Series C Common Stock: | | | | | | |
Shares repurchased | | 14.3 | | 34.8 | | 23.7 |
Purchase price(a) | | $ | 381 |
| | $ | 895 |
| | $ | 698 |
|
(a) The purchase price for Series C common stock in 2016 includes repurchases made pursuant to a common stock repurchase contract that was executed on August 22, 2016 and settled on December 2, 2016 at a cost of $71 million, resulting in the receipt of 2.8 million shares of Series C common stock at the then current market price equal to $75 million. See below for additional details.
Convertible Preferred Stock and Preferred Stock Modification
The Company has two2 series of preferred stock authorized, issued and outstanding as of December 31, 2017:2021: Series A-1 convertible preferred stock and Series C-1 convertible preferred stock. There are 8 million shares authorized for Series A-1 convertible preferred stock and 6 millionis convertible into 9 shares authorized forof the Company's Series A common stock and Series C-1 convertible preferred stock.
On August 7, 2017, Discovery completed the transactions contemplated by the Exchange Agreement with Advance/Newhouse. Under the Exchange Agreement, Discovery issued a number ofstock is convertible into 19.3648 shares of newly designatedthe Company's Series C common stock, subject to certain anti-dilution adjustments. Shares of Series A-1 and Series C-1 convertible preferred stock (collectively, the "New Preferred Stock") to Advance/Newhouse in exchange for all outstanding shares of Discovery Series A and Series C convertible participating preferred stock (the "Exchange"). The terms of the Exchange Agreement resulted in Advance/Newhouse's aggregate voting and economic rights before the exchange being equal to its aggregate voting and economic rights after the exchange. Immediately following the Exchange, Advance/Newhouse’s beneficial ownership of the aggregate number of shares of Discovery’s Series A common stock and Series C common stock into which the New Preferred Stock received by Advance/Newhouse in the Exchange are convertible, remained unchanged. The terms of the exchange agreement also provide that certain of the shares of Discovery Series C-1 convertible preferred stock received by Advance/Newhouse in the Exchange (including the Discovery Series C common stock into which such shares are convertible) are subject to transfer restrictions on the terms set forth in the Exchange Agreement. While subject to transfer restrictions, such shares may be pledged in certain bona fide financing transactions, but may not be pledged in connection with hedging or similar transactions.
The following table summarizes the preferred shares issued at the time of the Exchange.
|
| | | | | | | | | | | | | | |
Pre-Exchange | | Post-Exchange |
Shares Held Prior to the Amendment | | Converts into Common Stock | | Shares Issued Subsequent to the Amendment | | Converts into Common Stock |
Series A Preferred Stock | 70,673,242 |
| | Common A | 70,673,242 |
| | Series A-1 Preferred Stock | 7,852,582 |
| | Common A | 70,673,242 |
|
| Common C | 70,673,242 |
| | Series C-1 Preferred Stock | 3,649,573 |
| | Common C | 70,673,242 |
|
Series C Preferred Stock | 24,874,370 |
| | Common C | 49,748,740 |
| | Series C-1 Preferred Stock | 2,569,020 |
| | Common C | 49,748,740 |
|
Prior to the Exchange the Series A preferred stock had a carrying value of $108 million as a class of securities and each share of Series A preferred stock was convertible into one share of Series A common stock and one share of Series C common stock (referred to as the “embedded Series C common stock”). Through its ownership of the Series A convertible preferred stock, Advance/Newhouse had the right to elect three directors (the “preferred directors”) and maintained special voting rights on certain matters, including but not limited to blocking rights for material acquisitions, the issuance of debt securities and the issuance of equity securities (collectively, the “preferred rights”). Additionally, Advance/Newhouse was subject to certain transfer restrictions with respect to its governance rights. Prior to the Exchange, the Series C convertible preferred stock was considered the economic equivalent of Series C common stock.
Following the Exchange, shares of Series A-1 preferred stock and Series C-1 preferred stock are convertibleindependently converted into Series A common stock and Series C common, stock, respectively. The aforementioned preferred rights and transfer restrictions are retained as features of the Series A-1 convertible preferred stock, and holder of Series A-1 convertible preferred stock are now subject to a right of first offer in favor of Discovery should Advance/Newhouse desire to sell 80% or more of such shares in a “Permitted Transfer” (as defined in the Discovery charter). Following the Exchange, Series C-1 convertible preferred stock is considered the economic equivalent of Series C common stock and is subject to certain transfer restrictions.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discovery considers the Exchange of the Series A convertible preferred stock for Series A-1 convertible preferred stock and Series C-1 convertible preferred stock to be a modification to the conversion option of the Series A convertible preferred stock. Previously, conversion of Series A preferred stock required simultaneous conversion into Series A common stock and Series C common stock. The Exchange, however, allows for the independent conversion of the Series C-1 convertible preferred stock into Series C common stock without the conversion of Series A-1 convertible preferred stock. Advance/Newhouse’s aggregate voting, economic and preferred rights before the Exchange are equal to its aggregate voting, economic and preferred rights after the Exchange.
Discovery valued the securities immediately prior to and immediately after the Exchange and determined that the Exchange increased the fair value of Advance/Newhouse’s preferred stock by $35 million from $3.340 billion to $3.375 billion, or 1.05%, which was not considered significant in the context of the total value of the Company's preferred stock. On the basis of the qualitative and quantitative factors noted above, Discovery does not believe the Exchange is considered significant and does not reflect an extinguishment of the previously issued preferred stock for accounting purposes. Accordingly, Discovery has accounted for the exchange of the previously issued preferred stock as a modification, which is measured as the increase in fair value of the preferred stock held by Advance/Newhouse, or $35 million.
In connection with the Exchange Agreement, Advance/Newhouse also entered into the Advance/Newhouse Voting Agreement. The Advance/Newhouse Voting Agreement requires that Advance/Newhouse vote its shares of Discovery Series A-1 convertible preferred stock to approve the issuance of shares of Series C common stock in connection with the Scripps Networks acquisition as contemplated by the Merger Agreement. As the $35 million of incremental value was transferred to Advance/Newhouse in exchange for consent with respect to the Scripps Networks acquisition, the Company determined that the incremental amount should be expensed as acquisition transaction costs, which are reported as a component of selling, general and administrative expense.
As of December 31, 2017,2021, all outstanding shares of Series A-1 and Series C-1 convertible preferred stock arewere held by Advance/Newhouse. Consistent with the terms of the arrangement prior to the Exchange, holdersHolders of Series A-1 and Series C-1 convertible preferred stock have equal rights, powers and privileges, except as otherwise noted. Except for the election of common stock directors, the holders of Series A-1 convertible preferred stock are entitled to vote on matters to which holders of Series A and Series B common stock are entitled to vote, and holders of Series C-1 convertible preferred stock are entitled to vote on matters to which holders of Series C common stock, which is generally non-voting, are entitled to vote pursuant to Delaware law. Series A-1 convertible preferred stockholders vote on an as converted to common stock basis together with the Series A and Series B common stockholders as a single class on all matters except the election of directors. Series C-1 convertible preferred stock is considered the economic equivalent of Series C common stock and is subject to certain transfer restrictions.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, through its ownership of the Series A-1 convertible preferred stock, Advance/Newhouse has special voting rights on certain matters and the right to elect three3 directors. Holders of the Company’s common stock are not entitled to vote in the election of such directors. Advance/Newhouse retains these rights so long as it or its permitted transferees own or have the right to vote such shares that equal at least 80% of the shares of Series A-1A convertible preferred stock issued to Advance/Newhouse in connection with the formation of Discovery, as converted to Series A-1 convertible preferred stock, plus any Series A-1 convertible preferred stock released from escrow, as may be adjusted for certain capital transactions. Holders of Series A-1 convertible preferred stock are subject to a right of first offer in favor of Discovery should Advance/Newhouse desire to sell 80% or more of the Series A-1 convertible preferred stock in a “Permitted Transfer” (as defined in the Discovery charter).
Subject to the prior preferences and other rights of any senior stock, holders of Series A-1 and Series C-1 convertible preferred stock will participate equally with common stockholders on an as converted to common stock basis in any cash dividends declared by the Board of Directors.
In the event of a liquidation, dissolution or winding up of Discovery, after payment of Discovery’s debts and liabilities and subject to the prior payment with respect to any stock ranking senior to Series A-1 and Series C-1 convertible preferred stock, the holders of Series A-1 and Series C-1 convertible preferred stock will receive, before any payment or distribution is made to the holders of any common stock or other junior stock, an amount (in cash or property) equal to $0.01 per share. Following payment of such amount and the payment in full of all amounts owing to the holders of securities ranking senior to Discovery’s common stock, holders of Series A-1 and Series C-1 convertible preferred stock will share equally on an as converted to common stock basis with the holders of common stock with respect to any assets remaining for distribution to such holders.
Preferred Stock ConversionDuring the years ended December 31, 2021, 2020 and Repurchases
2019, no Series CA-1 convertible preferred stock held by Advance/was converted. During the years ended December 31, 2021 and 2019, Advance Newhouse was,Programming Partnership converted 0.6 million and the1.1 million shares of its Series C-1 preferred stock held by Advance/Newhouse is, convertible, at the option of the holder, into shares of Series C common stock. Prior to the Exchange, the Company had an agreement with Advance/Newhouse to repurchase, on a quarterly basis, a number of shares of Series C convertible preferred stock convertible into Series C common stock based on the number of11.0 million and 22.0 million shares of Series C common stock, purchased under the Company’s stock repurchase program during the then most recently completed fiscal quarter. The price paid per share is calculated as 99% of the average price paid for the Series C common shares repurchased by the Company during the applicable fiscal quarter multiplied by the Series C conversion rate. The Advance/Newhouse repurchases are made outside of the Company’s publicly announced common stock repurchase program. The repurchase transactions are recorded as a decrease in par value of preferred stock and retained
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings upon settlement as there is no remaining APIC for this class of stock and the shares are retired upon repurchase. The Advance/Newhouse repurchase agreement was amended on August 7, 2017 to conform the terms of the previous agreement, as detailed above, to the conversion ratio of the newly issued Series C-1 convertible preferred stock.
The preferred stock repurchase made during the third quarter of 2017 occurred after the Exchange and, as such, was a repurchase of the newly issued Series C-1 convertible preferred stock. The total price paid for the repurchase of $102 million was the planned amount subject to repurchase under the previous repurchase agreement with Advance/Newhouse, as determined and disclosed in the previous quarter. The number of shares repurchased reflect the post-exchange repurchase of Seriesrespectively. No series C-1 convertible preferred stock was converted during the year ended December 31, 2020.
Repurchase Programs
Common Stock
Under the Company's stock repurchase program, management is authorized to purchase shares of the Company's common stock from time to time through open market purchases, privately negotiated transactions at prevailing prices, pursuant to one or more accelerated stock repurchase agreements, or other derivative arrangements as permitted by securities laws and therefore differs fromother legal requirements, and subject to stock price, business and market conditions and other factors.
In February 2020, the previously disclosed plannedCompany'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. Over the life of the Company's repurchase programs and as of December 31, 2021, the Company had repurchased 3 million and 229 million shares of Series A and Series C convertible preferred shares. There were no additional repurchasescommon stock, respectively, for the aggregate purchase price of Series C-1 convertible preferred stock during the fourth quarter of 2017.
$171 million and $8.2 billion, respectively. The table below presents a summary of Series C and Series C-1 convertible preferredcommon stock repurchases made under the repurchase agreement (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Series C Common Stock: | | | | | | |
Shares repurchased | | — | | | 41.6 | | | 23.2 | |
Purchase price | | $ | — | | | $ | 965 | | | $ | 637 | |
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Series C Convertible Preferred Stock: | | | |
Shares repurchased | 2.3 |
| | 9.1 |
|
Purchase price | $ | 120 |
| | $ | 479 |
|
Series C-1 Convertible Preferred Stock: | | | |
Shares repurchased | 0.2 |
| | — |
|
Purchase price | $ | 102 |
| | $ | — |
|
In 2019, the Company made an upfront cash payment of $96 million to enter into common stock repurchase contracts for the Company’s Series C common stock. These contracts settled in cash for a total of $100 million during the year ended December 31, 2019. The contracts were accounted for as equity transactions.Convertible Preferred Stock
There arewere no plannedconvertible stock repurchases during 2021, 2020, or 2019. Over the life of the Company's repurchase programs and as of December 31, 2021, the Company had repurchased 0.2 million shares of Series C-1 convertible preferred stock for the first quarter of 2018 as there were no repurchases of Series A or Series C common stock during the fourth quarter of 2017.
Stock Repurchases
As of December 31, 2017, total shares repurchased, on a split-adjusted and as-converted basis, under these programs were 33% of the Company's common outstanding shares on a fully-diluted basis since the repurchase programs were authorized, including offsetting adjustments for the issuance of equity for share-based compensation. Total shares repurchased excluding the impact of stock compensation, on a split-adjusted and as-converted basis, under these programs represent 38% of the Company's outstanding shares from the time the repurchase programs were authorized.
Common Stock Repurchase Contract
On March 15, 2017, the Company settled a December 15, 2016 common stock repurchase contract through the receipt of $58 million of cash. The Company had prepaid $57 million for the common stock repurchase contract in 2016 with the option to settle the contract in cash or Series C common stock in March 2017. The Company elected to receive a cash settlement inclusive of a $1 million premium, which is reflected as an adjustment to APIC.
On December 2, 2016, the Company settled an August 22, 2016 common stock repurchase contract with a net notional value of $71 million whose strike price of $25.86 was below the Series C common stock price at expiry. The Company elected to settle the contract through receipt of 2.8 million shares of Series C common stock at the then current market price equal to $75$102 million. The receipt of shares is reflected as a component of treasury stock and reclassified from additional paid-in capital at the prepaid cost of $71 million.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Comprehensive Income (Loss)
The table below presents the tax effects related to each component of other comprehensive (loss) income (loss) and reclassifications made into the consolidated statements of operations (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
|
Pretax | | Tax Benefit (Expense) | |
Net-of-tax | |
Pretax | | Tax Benefit (Expense) | |
Net-of-tax | |
Pretax | | Tax Benefit (Expense) | |
Net-of-tax |
Currency translation adjustments: | | | | | | | | | | | | | | | | | |
Unrealized gains (losses): | | | | | | | | | | | | | | | | | |
Foreign currency | $ | (404) | | | $ | 17 | | | $ | (387) | | | $ | 357 | | | $ | 33 | | | $ | 390 | | | $ | (95) | | | $ | 14 | | | $ | (81) | |
Net investment hedges | 105 | | | (8) | | | 97 | | | (109) | | | 11 | | | (98) | | | 56 | | | 4 | | | 60 | |
Reclassifications: | | | | | | | | | | | | | | | | | |
Gain on disposition | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | |
Total currency translation adjustments | (299) | | | 9 | | | (290) | | | 248 | | | 44 | | | 292 | | | (33) | | | 18 | | | (15) | |
Derivative adjustments: | | | | | | | | | | | | | | | | | |
Unrealized gains (losses) | 169 | | | (35) | | | 134 | | | (110) | | | 24 | | | (86) | | | 38 | | | (9) | | | 29 | |
Reclassifications from other comprehensive income to net income | (33) | | | 8 | | | (25) | | | (34) | | | 7 | | | (27) | | | (14) | | | 3 | | | (11) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total derivative adjustments | 136 | | | (27) | | | 109 | | | (144) | | | 31 | | | (113) | | | 24 | | | (6) | | | 18 | |
Pension plan and SERP liability: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Unrealized gains (losses) | 3 | | | (1) | | | 2 | | | (10) | | | 2 | | | (8) | | | (13) | | | 3 | | | (10) | |
Other comprehensive income (loss) adjustments | $ | (160) | | | $ | (19) | | | $ | (179) | | | $ | 94 | | | $ | 77 | | | $ | 171 | | | $ | (22) | | | $ | 15 | | | $ | (7) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
|
Pretax | | Tax Benefit (Expense) | |
Net-of-tax | |
Pretax | | Tax Benefit (Expense) | |
Net-of-tax | |
Pretax | | Tax Benefit (Expense) | |
Net-of-tax |
Currency translation adjustments: | | | | | | | | | | | | | | | | | |
Unrealized gains (losses) | | | | | | | | | | | | | | | | | |
Foreign currency | $ | 280 |
| | $ | 3 |
| | $ | 283 |
| | $ | (234 | ) | | $ | 41 |
| | $ | (193 | ) | | $ | (249 | ) | | $ | 19 |
| | $ | (230 | ) |
Net investment hedges | (112 | ) | | — |
| | (112 | ) | | 3 |
| | (1 | ) | | 2 |
| | — |
| | — |
| | — |
|
Reclassifications: | | | | | | | | | | | | | | | | | |
Loss (gain) on disposition | 12 |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| | 23 |
| | — |
| | 23 |
|
Other (expense) income, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Total currency translation adjustments | 180 |
| | 3 |
| | 183 |
| | (231 | ) | | 40 |
| | (191 | ) | | (220 | ) | | 19 |
| | (201 | ) |
| | | | | | | | | | | | | | | | | |
AFS adjustments: | | | | | | | | | | | | | | | | | |
Unrealized gains (losses) | 36 |
| | (6 | ) | | 30 |
| | (34 | ) | | 6 |
| | (28 | ) | | (33 | ) | | 6 |
| | (27 | ) |
Reclassifications to other (expense) income, net: | | | | | | | | | | | | | | | | | |
Other-than-temporary-impairment AFS securities | — |
| | — |
| | — |
| | 62 |
| | (10 | ) | | 52 |
| | — |
| | — |
| | — |
|
Hedged portion of AFS securities | (18 | ) | | 3 |
| | (15 | ) | | 17 |
| | (3 | ) | | 14 |
| | 2 |
| | — |
| | 2 |
|
Total AFS adjustments | 18 |
| | (3 | ) | | 15 |
| | 45 |
| | (7 | ) | | 38 |
| | (31 | ) | | 6 |
| | (25 | ) |
| | | | | | | | | | | | | | | | | |
Derivative adjustments: | | | | | | | | | | | | | | | | | |
Unrealized (losses) gains | (41 | ) | | 15 |
| | (26 | ) | | 39 |
| | (14 | ) | | 25 |
| | 23 |
| | (8 | ) | | 15 |
|
Reclassifications: | | | | | | | | | | | | | | | | | |
Distribution revenue | 22 |
| | (8 | ) | | 14 |
| | 25 |
| | (7 | ) | | 18 |
| | (23 | ) | | 8 |
| | (15 | ) |
Advertising revenue | 3 |
| | (1 | ) | | 2 |
| | 2 |
| | — |
| | 2 |
| | (2 | ) | | — |
| | (2 | ) |
Costs of revenues | — |
| | — |
| | — |
| | (27 | ) | | 7 |
| | (20 | ) | | (9 | ) | | 3 |
| | (6 | ) |
Interest expense | 1 |
| | — |
| | 1 |
| | 3 |
| | (1 | ) | | 2 |
| | 3 |
| | (1 | ) | | 2 |
|
Other (expense) income, net | (17 | ) | | 6 |
| | (11 | ) | | (4 | ) | | 1 |
| | (3 | ) | | 7 |
| | (2 | ) | | 5 |
|
Total derivative adjustments | (32 | ) | | 12 |
| | (20 | ) | | 38 |
| | (14 | ) | | 24 |
| | (1 | ) | | — |
| | (1 | ) |
Other comprehensive income (loss) | $ | 166 |
| | $ | 12 |
| | $ | 178 |
| | $ | (148 | ) | | $ | 19 |
| | $ | (129 | ) | | $ | (252 | ) | | $ | 25 |
| | $ | (227 | ) |
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Loss
The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Currency Translation | | Derivative Adjustments | | Pension Plan and SERP Liability | | Accumulated Other Comprehensive Income (Loss) |
December 31, 2018 | | $ | (804) | | | $ | 16 | | | $ | 3 | | | $ | (785) | |
Other comprehensive income (loss) before reclassifications | | (20) | | | 29 | | | (10) | | | (1) | |
Reclassifications from accumulated other comprehensive loss to net income | | 6 | | | (11) | | | — | | | (5) | |
Other comprehensive income (loss) | | (14) | | | 18 | | | (10) | | | (6) | |
Other comprehensive loss attributable to redeemable noncontrolling interests | | (1) | | | — | | | — | | | (1) | |
Reclassifications to retained earnings resulting from the adoption of ASU 2018-02 | | (28) | | | (2) | | | — | | | (30) | |
December 31, 2019 | | (847) | | | 32 | | | (7) | | | (822) | |
Other comprehensive income (loss) before reclassifications | | 292 | | | (86) | | | (8) | | | 198 | |
Reclassifications from accumulated other comprehensive loss to net income | | — | | | (27) | | | — | | | (27) | |
Other comprehensive income (loss) | | 292 | | | (113) | | | (8) | | | 171 | |
| | | | | | | | |
| | | | | | | | |
December 31, 2020 | | (555) | | | (81) | | | (15) | | | (651) | |
Other comprehensive income (loss) before reclassifications | | (290) | | | 134 | | | 2 | | | (154) | |
Reclassifications from accumulated other comprehensive loss to net income | | — | | | (25) | | | — | | | (25) | |
Other comprehensive income (loss) | | (290) | | | 109 | | | 2 | | | (179) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
December 31, 2021 | | $ | (845) | | | $ | 28 | | | $ | (13) | | | $ | (830) | |
NOTE 13. NONCONTROLLING INTEREST
The Company has a controlling interest in the TV Food Network Partnership (the "Partnership"), which includes the Food Network and Cooking Channel. Food Network and Cooking Channel are operated and organized under the terms of the Partnership. The Company holds 80% of the voting interest and 68.7% of the economic interest in the Partnership. During the fourth quarter of 2020, the Partnership agreement was extended and specifies a dissolution date of December 31, 2022. If the term of the Partnership is not extended prior to the dissolution date of December 31, 2022, the Partnership agreement permits the Company, as holder of 80% of the applicable votes, to reconstitute the Partnership and continue its business. If for some reason the Partnership is not continued, it will be required to limit its activities to winding up, settling debts, liquidating assets and distributing proceeds to the partners in proportion to their partnership interests. Ownership interests attributable to the noncontrolling owner are presented as noncontrolling interests on the Company's consolidated financial statements. Under the terms of the Partnership agreement, the noncontrolling owner cannot force a redemption outside of the Company's control. As such, the noncontrolling interests in the Partnership are reflected as a component of permanent equity in the Company's consolidated financial statements.
|
| | | | | | | | | | | | | | | | |
| | Currency Translation Adjustments | | AFS | | Derivative Adjustments | | Accumulated Other Comprehensive Loss |
December 31, 2014 | | $ | (367 | ) | | $ | (2 | ) | | $ | 1 |
| | $ | (368 | ) |
Other comprehensive (loss) income before reclassifications | | (230 | ) | | (27 | ) | | 15 |
| | (242 | ) |
Reclassifications from accumulated other comprehensive loss to net income | | 29 |
| | 2 |
| | (16 | ) | | 15 |
|
Other comprehensive loss | | (201 | ) | | (25 | ) | | (1 | ) | | (227 | ) |
Purchase of redeemable noncontrolling interest
| | (61 | ) | | — |
| | — |
| | (61 | ) |
Other comprehensive loss attributable to redeemable noncontrolling interests | | 23 |
| | — |
| | — |
| | 23 |
|
December 31, 2015 | | (606 | ) | | (27 | ) | | — |
| | (633 | ) |
Other comprehensive (loss) income before reclassifications | | (191 | ) | | (28 | ) | | 25 |
| | (194 | ) |
Reclassifications from accumulated other comprehensive loss to net income | | — |
| | 66 |
| | (1 | ) | | 65 |
|
Other comprehensive (loss) income | | (191 | ) | | 38 |
| | 24 |
| | (129 | ) |
December 31, 2016 | | (797 | ) | | 11 |
| | 24 |
| | (762 | ) |
Other comprehensive income (loss) before reclassifications | | 171 |
| | 30 |
| | (26 | ) | | 175 |
|
Reclassifications from accumulated other comprehensive loss to net loss | | 12 |
| | (15 | ) | | 6 |
| | 3 |
|
Other comprehensive income (loss) | | 183 |
| | 15 |
| | (20 | ) | | 178 |
|
Other comprehensive income attributable to redeemable noncontrolling interests | | (1 | ) | | — |
| | — |
| | (1 | ) |
December 31, 2017 | | $ | (615 | ) | | $ | 26 |
| | $ | 4 |
| | $ | (585 | ) |
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. REVENUES AND ACCOUNTS RECEIVABLE
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by revenue source (in millions). Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| U.S. Networks | | International Networks | | Corporate, inter-segment eliminations, and other | | Total |
Revenues: | | | | | | | |
Advertising | $ | 4,188 | | | $ | 2,027 | | | $ | — | | | $ | 6,215 | |
Distribution | 3,297 | | | 2,112 | | | — | | | 5,409 | |
Other | 177 | | | 400 | | | (10) | | | 567 | |
Totals | $ | 7,662 | | | $ | 4,539 | | | $ | (10) | | | $ | 12,191 | |
| | | | | | | |
| Year Ended December 31, 2020 |
| U.S. Networks | | International Networks | | Corporate, inter-segment eliminations, and other | | Total |
Revenues: | | | | | | | |
Advertising | $ | 4,012 | | | $ | 1,571 | | | $ | — | | | $ | 5,583 | |
Distribution | 2,852 | | | 2,014 | | | — | | | 4,866 | |
Other | 85 | | | 128 | | | 9 | | | 222 | |
Totals | $ | 6,949 | | | $ | 3,713 | | | $ | 9 | | | $ | 10,671 | |
| | | | | | | |
| Year Ended December 31, 2019 |
| U.S. Networks | | International Networks | | Corporate, inter-segment eliminations, and other | | Total |
Revenues: | | | | | | | |
Advertising | $ | 4,245 | | | $ | 1,799 | | | $ | — | | | $ | 6,044 | |
Distribution | 2,739 | | | 2,096 | | | — | | | 4,835 | |
Other | 108 | | | 146 | | | 11 | | | 265 | |
Totals | $ | 7,092 | | | $ | 4,041 | | | $ | 11 | | | $ | 11,144 | |
Accounts Receivable and Credit Losses
Receivables include amounts currently due from customers and are presented net of an estimate for lifetime expected credit losses. Allowance for credit losses is measured using historical loss rates for the respective risk categories and incorporating forward-looking estimates. To assess collectability, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks, and records a provision for estimated credit losses expected over the lifetime of receivables. The corresponding expense for the expected credit losses is reflected in selling, general and administrative expenses.
The Company’s accounts receivable balances and the related credit losses arise primarily from distribution and advertising revenue. The Company monitors ongoing credit exposure through active review of customers’ financial conditions, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectability. The allowance for credit losses decreased from $59 million at December 31, 2020 to $54 million at December 31, 2021. The activity in the allowance for credit losses for the twelve months ended December 31, 2021 was not material.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract Liability
A contract liability, such as deferred revenue, is recorded when cash is received in advance of the Company's performance. Total deferred revenues, including both current and noncurrent, were $573 million and $649 million at December 31, 2021 and December 31, 2020, respectively. Noncurrent deferred revenue is a component of other noncurrent liabilities on the consolidated balance sheets. The change in deferred revenue for the year ended December 31, 2021 was primarily due to cash payments received for which the performance obligation was not satisfied prior to the end of the period, partially offset by revenue recognized during the period, of which $456 million was included in the deferred revenue balance at December 31, 2020. Revenue recognized for the year ended December 31, 2020 related to the deferred revenue balance at December 31, 2019 was $309 million.
Transaction Price Allocated to Remaining Performance Obligations
Most of the Company's distribution contracts are licenses of functional intellectual property where revenue is derived from royalty-based arrangements, for which the guidance allows the application of a practical expedient to record revenues as a function of royalties earned to date instead of estimating incremental royalty contract revenue. Accordingly, in these instances revenue is recognized based upon the royalties earned to date. However, there are certain other distribution arrangements that are fixed price or contain minimum guarantees that extend beyond one year. The Company recognizes revenue for fixed fee distribution contracts on a monthly basis based on minimum monthly fees; by calculating one twelfth of annual license fees specified in its distribution contracts; or based on the pro-rata fees earned calculated on the license fees specified in the distribution contract. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $1.3 billion as of December 31, 2021 and is expected to be recognized over the next five years.
The Company's content licensing contracts and sports sublicensing deals are licenses of functional intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $712 million as of December 31, 2021 and is expected to be recognized over the next five years.
The Company's brand licensing contracts are licenses of symbolic intellectual property. Certain of these arrangements extend beyond one year. The transaction price allocated to remaining performance obligations on these long-term contracts was $94 million as of December 31, 2021 and is expected to be recognized over the next 11 years.
The value of unsatisfied performance obligations disclosed above does not include: (i) contracts involving variable consideration for which revenues are recognized in accordance with the usage-based royalty exception, and (ii) contracts with an original expected length of one year or less, such as advertising contracts.
Capitalized Contract Costs
Sales commissions are generally expensed as incurred because contracts for which the sales commissions are generated are one year or less or are not material. Sales commissions are recorded as a component of cost of revenues on the consolidated statements of operations. The financing component of content licensing arrangements is not capitalized, because the period between delivery of the license and customer payment is one year or less or is not material.
NOTE 13.15. SHARE-BASED COMPENSATION
The Company has various incentive plans under which PRSUs, RSUs, stock options RSUs, PRSUs and SARs have been issued. As of December 31, 2017,2021, the Company has reserved a total of 11787 million shares of its Series A and Series C common stock for future exercises, of outstandingvestings and future grants of stock options, and stock-settled SARs, and future vesting of outstanding and future grants of PRSUs and RSUs. Upon exercise of stock options and stock-settled SARs or vesting of PRSUs and RSUs,stock awards, the Company issues new shares from its existing authorized but unissued shares. There were 9742 million shares of common stock in reserves that were available for future grantissuance under the incentive plans as of December 31, 2017.2021.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shared-BasedShare-Based Compensation Expense
The table below presents the components of share-based compensation expense (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
PRSUs | | $ | 10 | | | $ | 8 | | | $ | 46 | |
RSUs | | 110 | | | 76 | | | 41 | |
Stock options | | 58 | | | 30 | | | 33 | |
SARs | | — | | | (4) | | | 22 | |
| | | | | | |
Total share-based compensation expense | | $ | 178 | | | $ | 110 | | | $ | 142 | |
Tax benefit recognized | | $ | 29 | | | $ | 18 | | | $ | 17 | |
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
RSUs | | $ | 23 |
| | $ | 17 |
| | $ | 17 |
|
Stock options | | 12 |
| | 13 |
| | 17 |
|
PRSUs | | 6 |
| | 34 |
| | 16 |
|
SARs | | (3 | ) | | 4 |
| | (14 | ) |
ESPP | | 1 |
| | 1 |
| | 1 |
|
Unit awards | | — |
| | — |
| | (2 | ) |
Total share-based compensation expense | | $ | 39 |
| | $ | 69 |
| | $ | 35 |
|
Tax benefit recognized | | $ | 9 |
| | $ | 25 |
| | $ | 13 |
|
Compensation expense for all awards was recorded in selling, general and administrative expense on the consolidated statements of operations. Liability-classified equity-basedshare-based compensation awards include certain SARSPRSUs and PRSUs.SARs. The Company recorded total liabilities for cash-settled and other liability-classified equity-basedshare-based compensation awards of $47$22 million and $83$55 million as of December 31, 20172021 and 2016,2020, respectively. The current portion of the liability for cash-settled and other liability-classified awards was $12$17 million and $31$37 million as of December 31, 20172021 and 2016,2020, respectively.
Share-Based Award Activity
RSUs
The table below presents RSU activity (in millions, except years and weighted-average grant price).
|
| | | | | | | | | | | | | |
| |
RSUs | | Weighted-Average Grant Price | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Fair Value |
Outstanding as of December 31, 2016 | | 2.6 |
| | $ | 30.03 |
| | | | |
Granted | | 1.6 |
| | $ | 28.81 |
| | | | |
Converted | | (0.4 | ) | | $ | 35.91 |
| | | | $ | 12 |
|
Forfeited | | (0.4 | ) | | $ | 29.61 |
| | | | |
Outstanding as of December 31, 2017 | | 3.4 |
| | $ | 28.78 |
| | 2.6 | | $ | 77 |
|
Vested and expected to vest as of December 31, 2017 | | 3.4 |
| | $ | 28.78 |
| | 2.6 | | $ | 77 |
|
RSUs represent the contingent right to receive shares of the Company's Series A and C common stock, substantially all of which vest ratably each year over periods of one to four years based on continuous service. As of December 31, 2017, there was $61 million of unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.7 years.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
The table below presents stock option activity (in millions, except years and weighted-average exercise price).
|
| | | | | | | | | | | | | |
| | Stock Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of December 31, 2016 | | 13.7 |
| | $ | 26.05 |
| | | | |
Granted | | 2.6 |
| | $ | 28.74 |
| | | | |
Exercised | | (2.5 | ) | | $ | 17.54 |
| | | | $ | 26 |
|
Forfeited | | (1.5 | ) | | $ | 33.46 |
| | | | |
Outstanding as of December 31, 2017 | | 12.3 |
| | $ | 27.46 |
| | 3.5 | | 14 |
|
Vested and expected to vest as of December 31, 2017 | | 12.3 |
| | $ | 27.46 |
| | 3.5 | | 14 |
|
Exercisable as of December 31, 2017 | | 6.7 |
| | $ | 26.26 |
| | 2.1 | | 14 |
|
Stock options are granted with an exercise price equal to or in excess of the closing market price of the Company’s Series A or Series C common stock on the date of grant. Substantially all stock options vest ratably over three to four years from the grant date based on continuous service and expire seven to ten years from the date of grant. Stock option awards generally provide for accelerated vesting upon retirement or after reaching a specified age and years of service. The Company received cash payments from the exercise of stock options totaling $42 million, $46 million and $16 million during 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $32 million of unrecognized compensation cost, net of actual forfeitures, related to stock options, which is expected to be recognized over a weighted-average period of 2.0 years.
The fair value of stock options is estimated using the Black-Scholes option-pricing model. The weighted-average assumptions used to determine the fair value of stock options as of the date of grant during 2017, 2016 and 2015 were as follows.
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Risk-free interest rate | | 1.87 | % | | 1.26 | % | | 1.54 | % |
Expected term (years) | | 5.0 |
| | 5.0 |
| | 5.0 |
|
Expected volatility | | 27.52 | % | | 28.74 | % | | 26.78 | % |
Dividend yield | | — |
| | — |
| | — |
|
The weighted-average grant date fair value of options granted during 2017, 2016 and 2015 was $7.99, $7.09 and $8.44, respectively, per option. The total intrinsic value of options exercised during 2017, 2016 and 2015 was $26 million, $42 million and $28 million, respectively.
PRSUs
The table below presents PRSU activity (in millions, except years and weighted-average grant price). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | PRSUs | | Weighted- Average Grant Date Fair Value | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Fair Value |
Outstanding as of December 31, 2020 | | 1.5 | | | $ | 26.57 | | | 0.0 | | $ | 45 | |
Granted | | 0.2 | | | $ | 58.18 | | | | | |
Converted | | (0.8) | | | $ | 26.56 | | | | | $ | 35 | |
| | | | | | | | |
Outstanding as of December 31, 2021 | | 0.9 | | | $ | 34.84 | | | 0.0 | | $ | 20 | |
Vested and expected to vest as of December 31, 2021 | | 0.9 | | | $ | 34.84 | | | 0.0 | | $ | 20 | |
Convertible as of December 31, 2021 | | 0.6 | | | $ | 26.58 | | | 0.0 | | $ | 15 | |
|
| | | | | | | | | | | | | | |
| | PRSUs | | Weighted-Average Grant Price | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Fair Value |
Outstanding as of December 31, 2016 | | 4.5 |
| | $ | 34.44 |
| | | | |
Granted | | 0.7 |
| | $ | 29.50 |
| | | | |
Converted | | (1.7 | ) | | $ | 34.62 |
| | | | $ | 49 |
|
Forfeited | | — |
| | $ | — |
| | | | |
Outstanding as of December 31, 2017 | | 3.5 |
| | $ | 33.41 |
| | 0.9 |
| | 76 |
|
Vested and expected to vest as of December 31, 2017 | | 3.5 |
| | $ | 33.41 |
| | 0.9 |
| | 76 |
|
Convertible as of December 31, 2017 | | 1.5 |
| | $ | 40.42 |
| | — |
| | 33 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has granted PRSUs to certain senior level executives. PRSUs represent the contingent right to receive shares of the Company’s Series A andor C common stock, substantially all of which vest over three to four years based on continuous service and whether the Company achieves certain operating performance targets. The performance targets for substantially all PRSUs are cumulative measures of the Company’s adjusted operating income before depreciation and amortization (as defined in Note 21)23), free cash flows and revenues over a three yearthree-year period. The number of PRSUs that vest principally range from 0% to 100% based on a sliding scale where achieving or exceeding the performance target will result in 100% of the PRSUs vesting and achieving less than 80% of the target will result in no portion of the PRSUs vesting. Additionally, for certain PRSUs, the Company’s Compensation Committee has discretion in determining the final amount of units that vest, but may not increase the amount of any PRSU award above 100%. Upon vesting, each PRSU becomes convertible into one share of the Company’s Series A or Series C common stock as applicable. Holders of PRSUs do not receive payments of dividends in the event the Company pays a cash dividend until such PRSUs are converted into shares of the Company’s common stock.
As of December 31, 2021, there was no unrecognized compensation cost related to PRSUs.
RSUs
The Company records compensation expense for PRSUs ratably overtable below presents RSU activity (in millions, except years and weighted-average grant price). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RSUs | | Weighted- Average Grant Date Fair Value | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Fair Value |
Outstanding as of December 31, 2020 | | 8.6 | | | $ | 26.31 | | | 2.8 | | $ | 259 | |
Granted | | 3.2 | | | $ | 51.20 | | | | | |
Vested | | (3.0) | | | $ | 26.30 | | | | | $ | 152 | |
Forfeited | | (0.7) | | | $ | 31.29 | | | | | |
Outstanding as of December 31, 2021 | | 8.1 | | | $ | 35.56 | | | 2.3 | | $ | 192 | |
Vested and expected to vest as of December 31, 2021 | | 8.1 | | | $ | 35.56 | | | 2.3 | | $ | 192 | |
RSUs represent the graded vesting service period once it is probable that the performance targets will be achieved. In any period in which the Company determines that achievementcontingent right to receive shares of the performance targets is not probable, the Company ceases recording compensation expense and all previously recognized compensation expense for the award is reversed.
Compensation expense is separately recorded for each vesting tranche of PRSUs for a particular grant. For certain PRSUs, the Company measures the fair value and related compensation cost based on the closing price of the Company’sCompany's Series A or C common stock, substantially all of which vest ratably each year over periods of one to four years based on the grant date. For PRSUs forcontinuous service. As of December 31, 2021, there was $233 million of unrecognized compensation cost related to RSUs, of which the Company’s Compensation Committee has discretion in determining the final amount$47 million is related to cash settled RSUs. Stock settled RSUs are expected to be recognized over a weighted-average period of units that vest1.0 years and cash settled RSUs are expected to be recognized over a weighted-average period of 2.5 years.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
The table below presents stock option activity (in millions, except years and weighted-average exercise price). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of December 31, 2020 | | 21.0 | | | $ | 29.00 | | | 4.0 | | $ | 41 | |
Granted | | 15.5 | | | $ | 40.25 | | | | | |
Exercised | | (5.9) | | | $ | 27.84 | | | | | $ | 145 | |
Forfeited | | (0.2) | | | $ | 31.77 | | | | | |
Outstanding as of December 31, 2021 | | 30.4 | | | $ | 34.93 | | | 5.0 | | $ | 0.4 | |
Vested and expected to vest as of December 31, 2021 | | 30.4 | | | $ | 34.93 | | | 5.0 | | $ | 0.4 | |
Exercisable as of December 31, 2021 | | 3.1 | | | $ | 27.14 | | | 3.0 | | $ | 0.4 | |
Stock options are granted with an exercise price equal to or in situations where the executive is able to withhold taxes in excess of the minimum statutory requirement, compensation cost is remeasured at each reporting date based on the closing market price of the Company’s Series A or Series C common stock.
stock on the date of grant. Substantially all stock options vest ratably over three to four years from the grant date based on continuous service and expire seven to ten years from the date of grant. Stock option awards generally provide for accelerated vesting upon retirement or after reaching a specified age and years of service. The Company received cash payments from the exercise of stock options totaling $159 million, $8 million and $17 million during 2021, 2020 and 2019, respectively. As of December 31, 2017,2021, there was $226 million of unrecognized compensation cost net of forfeitures, related to PRSUs was $21 million,stock options, which is expected to be recognized over a weighted-average period of 1.6 years based on2.5 years.
The fair value of stock options is estimated using the Company’s current assessmentBlack-Scholes option-pricing model. The weighted-average assumptions used to determine the fair value of stock options as of the PRSUs that will vest, which may differ from actual results.date of grant during 2021, 2020 and 2019 were as follows. | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Risk-free interest rate | | 1.03 | % | | 0.89 | % | | 2.67 | % |
Expected term (years) | | 5.9 | | 5.0 | | 5.5 |
Expected volatility | | 42.45 | % | | 31.86 | % | | 30.44 | % |
Dividend yield | | — | | | — | | | — | |
The weighted-average grant date fair value of options granted during 2021, 2020 and 2019 was $14.08, $7.57 and $8.43, respectively, per option. The total intrinsic value of options exercised during 2021, 2020 and 2019 was $145 million, $3 million and $4 million, respectively.
SARs
The table below presents SAR award activity (in millions, except years and weighted-average grant price).
|
| | | | | | | | | | | | | |
| | SARs | | Weighted- Average Grant Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of December 31, 2016 | | 8.6 |
| | $ | 35.29 |
| | | | |
Granted | | 3.0 |
| | $ | 27.39 |
| | | | |
Settled | | (0.6 | ) | | $ | 25.72 |
| | | | $ | 1 |
|
Forfeited | | (3.3 | ) | | $ | 38.60 |
| | | | |
Outstanding as of December 31, 2017 | | 7.7 |
| | $ | 31.58 |
| | 1.0 | | $ | — |
|
Vested and expected to vest as of December 31, 2017 | | 7.7 |
| | $ | 31.58 |
| | 1.0 | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | SARs | | Weighted- Average Grant Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of December 31, 2020 | | 2.6 | | | $ | 24.01 | | | 0.5 | | $ | 12 | |
| | | | | | | | |
Settled | | (1.7) | | | $ | 24.87 | | | | | $ | 11 | |
| | | | | | | | |
Outstanding as of December 31, 2021 | | 0.9 | | | $ | 22.46 | | | 0.1 | | $ | 1 | |
Vested and expected to vest as of December 31, 2021 | | 0.9 | | | $ | 22.46 | | | 0.1 | | $ | 1 | |
SAR award grants include cash-settled SARs and stock-settled SARs. Cash-settled SARs entitle the holder to receive a cash payment for the amount by which the price of the Company’s Series A or Series C common stock exceeds the base price established on the grant date. Cash-settled SARs are granted with a base price equal to or greater than the closing market price of the Company’s Series A or Series C common stock on the date of grant. Stock-settled SARs entitle the holder to shares of Series A or Series C common stock in accordance with the award agreement terms.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of outstanding SARs is estimated using the Black-Scholes option-pricing model. The weighted-average assumptions used to determine the fair value of outstanding SARs were as follows.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Risk-free interest rate | | 1.74 | % | | 0.95 | % | | 0.83 | % |
Expected term (years) | | 1.0 |
| | 0.9 |
| | 0.9 |
|
Expected volatility | | 31.37 | % | | 29.46 | % | | 31.59 | % |
Dividend yield | | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Risk-free interest rate | | 0.22 | % | | 0.10 | % | | 1.60 | % |
Expected term (years) | | 0.1 | | 0.5 | | 0.8 |
Expected volatility | | 41.12 | % | | 42.13 | % | | 30.54 | % |
Dividend yield | | — | | | — | | | — | |
As of December 31, 20172021 and 2016,2020, the weighted-average fair value of SARs outstanding was $1.01$1.77 and $1.79$5.48 per award. The Company made cash payments of $1$8 million, $5$11 million, and $11$2 million to settle exercised SARs during 2017, 20162021, 2020, and 2015,2019 respectively. As of December 31, 2017, there was $4 million of2021, unrecognized compensation cost net of actual forfeitures, related to SARs which is expected to be recognized over a weighted-average period of 0.9 years.was immaterial.
Employee Stock Purchase Plan
The ESPP enables eligible employees to purchase shares of the Company’s common stock through payroll deductions or other permitted means. Unless otherwise determined by the Company’s Compensation Committee, the purchase price for shares offered under the ESPP is 85% of the closing price of the Company’s Series A common stock on the purchase date. The Company recognizes the fair value of the discount associated with shares purchased in selling, general and administrative expense on the consolidated statement of operations. The Company’s Board of Directors has authorized 98 million shares of the Company’s common stock to be issued under the ESPP. During the years ended December 31, 2017, 20162021, 2020 and 20152019 the Company issued 179203 thousand, 191254 thousand and 208142 thousand shares under the ESPP, respectively, and received cash totaling $4$6 million, $4$5 million and $5$3 million, respectively.
Unit Awards
Unit awards represented the contingent right to receive a cash payment for the amount by which the vesting price exceeded the grant price. Because unit awards were cash-settled, the Company remeasured the fair value and compensation expense of outstanding unit awards each reporting date until settlement. During the year ended December 31, 2015, the Company made cash payments of $14 million to settle all 1.2 million remaining unit awards, which had a weighted-average grant price of $20.59.
NOTE 14.16. RETIREMENT SAVINGS PLANS
The Company has defined contribution, defined benefit, and other savings plans for the benefit of its employees that meet eligibility requirements.
Defined Contribution Plans
Eligible employees may contribute a portion of their compensation to the plans, which may be subject to certain statutory limitations. For these plans, the Company also makes contributions, including discretionary contributions, subject to plan provisions, which vest immediately. The Company made total contributions of $30$50 million,, $29 $47 million and $36$37 million during 2017, 2016 for the years ended December 31, 2021, 2020 and 2015,2019, respectively. The Company's contributions were recorded in cost of revenues and selling, general and administrative expense in the consolidated statements of operations.
Executive Deferred Compensation Plans
The Company’s savings plans includeCompany has a deferred compensation plan through which members of the Company’s executive team in the U.S. may elect to defer up to 50%a portion of their eligible compensation. The amounts deferred are invested in various mutual funds at the direction of the executive, which are used to finance payment of the deferred compensation obligation. Distributions from the deferred compensation plan are made upon termination or other events as specified in the plan. The Company has established a separate trustrabbi trusts to hold the investments that finance the deferred compensation obligation. The accounts of the separate trustrabbi trusts are included in the Company’s consolidated financial statements. The investments are included in prepaid expenses and other current assets and other noncurrent assets in the consolidated balance sheets. The deferred compensation obligation is included in accrued liabilities and other noncurrent liabilities in the consolidated balance sheets. The values of the investments and deferred compensation obligation are recorded at fair value. Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation.obligation and are recorded in earnings as a component of other income (expense), net, on the consolidated statements of operations. (See Note 5.5 and Note 20.)
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plans
The Company has a defined benefit pension plan (“Pension Plan”) that covers certain U.S. based employees and a non-qualified unfunded Supplemental Executive Retirement Plan (“SERP”) that provides defined pension benefits to eligible executives. Expense recognized in relation to the Pension Plan and SERP is based upon actuarial valuations. Inherent in those valuations are key assumptions including discount rates and, where applicable, expected returns on assets. Discount rates are based on a bond portfolio approach that includes high-quality debt instruments with maturities matching the Company's expected benefit payments from the plans. Expected returns on assets are based on the weighted-average expected rate of return and capital market forecasts for each asset class employed and also consider the Company's historical compounded return on plan assets for 10 and 15-year periods. Benefits are generally based on the employee’s compensation and years of service. Since December 31, 2009, no additional service benefits have been earned by participants under the Pension Plan. The amount of eligible compensation that is used to calculate a plan participant’s pension benefit includes compensation earned by the employee through December 31, 2019, after which time all plan participants have a frozen pension benefit. Net periodic pension cost was not material for the years ended December 31, 2021, 2020 and 2019.
The projected benefit obligation, fair value of plan assets and discount rate used in determining the projected benefit obligations were as follows (in millions). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plan | | SERP |
| | December 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Projected benefit obligation | | $ | 82 | | | $ | 94 | | | $ | 22 | | | $ | 25 | |
Fair value of plan assets (Level 1) | | $ | 63 | | | $ | 70 | | | $ | — | | | $ | — | |
Discount rate | | 2.42 | % | | 1.92 | % | | 2.13 | % | | 1.58 | % |
| | | | | | | | |
NOTE 15.17. RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges by reportable segment and corporate, inter-segment eliminations, and other were as follows (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
U.S. Networks | | $ | 18 |
| | $ | 15 |
| | $ | 33 |
|
International Networks | | 42 |
| | 26 |
| | 14 |
|
Education and Other | | 3 |
| | 3 |
| | 2 |
|
Corporate | | 12 |
| | 14 |
| | 1 |
|
Total restructuring and other charges | | $ | 75 |
| | $ | 58 |
| | $ | 50 |
|
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Restructuring charges | | $ | 68 |
| | $ | 55 |
| | $ | 29 |
|
Other charges | | 7 |
| | 3 |
| | 21 |
|
Total restructuring and other charges | | $ | 75 |
| | $ | 58 |
| | $ | 50 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
U.S. Networks | | $ | 4 | | | $ | 41 | | | $ | 15 | |
International Networks | | 26 | | | 29 | | | 20 | |
Corporate, inter-segment eliminations, and other | | 2 | | | 21 | | | (9) | |
Total restructuring and other charges | | $ | 32 | | | $ | 91 | | | $ | 26 | |
Restructuring charges for the years ended December 31, 2021, 2020 and 2019 primarily include management changescharges related to employee relocation and termination costs and other cost reduction efforts,efforts. During 2020, the Company implemented various cost-savings initiatives including employee terminations,personnel reductions, restructurings and resource reallocations to align its expense structure to ongoing changes within the industry, including economic challenges resulting from the COVID-19 pandemic. These actions were intended to enable the Company to more efficiently operate in a leaner and more directed cost structure and invest in growth initiatives, including digital services and content creation. Other charges during 2015 result from content impairments primarily at the Company's U.S. Networks segment due to the cancellation of certain series as a result of legal circumstances pertaining to the associated talent. (See Note 6.)continued throughout 2021.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in restructuring and other liabilities recorded in accrued liabilities by major category and by reportable segment and corporate, inter-segment eliminations, and other were as follows (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Networks | | International Networks | | Corporate, inter-segment eliminations, and other | | Total |
December 31, 2019 | | $ | 4 | | | $ | 5 | | | $ | 9 | | | $ | 18 | |
Net contract termination accruals | | — | | | — | | | 4 | | | 4 | |
Employee termination accruals, net | | 41 | | | 29 | | | 13 | | | 83 | |
Other accruals, net | | — | | | — | | | 4 | | | 4 | |
Cash paid | | (22) | | | (14) | | | (15) | | | (51) | |
December 31, 2020 | | 23 | | | 20 | | | 15 | | | 58 | |
| | | | | | | | |
Employee termination accruals, net | | 4 | | | 26 | | | 2 | | | 32 | |
| | | | | | | | |
Cash paid | | (23) | | | (33) | | | (15) | | | (71) | |
December 31, 2021 | | $ | 4 | | | $ | 13 | | | $ | 2 | | | $ | 19 | |
|
| | | | | | | | | | | | |
| | Contract Terminations | | Employee Relocations/ Terminations | | Total |
December 31, 2014 | | $ | 4 |
| | $ | 15 |
| | $ | 19 |
|
Net accruals | | 3 |
| | 26 |
| | 29 |
|
Cash paid | | (5 | ) | | (20 | ) | | (25 | ) |
December 31, 2015 | | 2 |
| | 21 |
| | 23 |
|
Net accruals | | 3 |
| | 52 |
| | 55 |
|
Cash paid | | (2 | ) | | (37 | ) | | (39 | ) |
December 31, 2016 | | 3 |
| | 36 |
| | 39 |
|
Net accruals | | 3 |
| | 65 |
| | 68 |
|
Cash paid | | (5 | ) | | (59 | ) | | (64 | ) |
December 31, 2017 | | $ | 1 |
| | $ | 42 |
| | $ | 43 |
|
NOTE 16.18. INCOME TAXES
The domestic and foreign components of income before income taxes were as follows (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Domestic | | $ | 1,598 | | | $ | 1,916 | | | $ | 1,910 | |
Foreign | | (165) | | | (188) | | | 384 | |
Income before income taxes | | $ | 1,433 | | | $ | 1,728 | | | $ | 2,294 | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Domestic | | $ | 815 |
| | $ | 1,414 |
| | $ | 1,281 |
|
Foreign | | (952 | ) | | 257 |
| | 278 |
|
Income before income taxes | | $ | (137 | ) | | $ | 1,671 |
| | $ | 1,559 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the provision for income taxes were as follows (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Current: | | | | | | |
Federal | | $ | 451 | | | $ | 422 | | | $ | 411 | |
State and local | | 130 | | | 12 | | | 42 | |
Foreign | | 166 | | | 125 | | | 132 | |
| | 747 | | | 559 | | | 585 | |
Deferred: | | | | | | |
Federal | | (250) | | | (14) | | | (54) | |
State and local | | 6 | | | (24) | | | (8) | |
Foreign | | (267) | | | (148) | | | (442) | |
| | (511) | | | (186) | | | (504) | |
Income taxes | | $ | 236 | | | $ | 373 | | | $ | 81 | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Current: | | | | | | |
Federal | | $ | 177 |
| | $ | 384 |
| | $ | 306 |
|
State and local | | 45 |
| | (56 | ) | | 57 |
|
Foreign | | 153 |
| | 152 |
| | 146 |
|
| | 375 |
| | 480 |
| | 509 |
|
Deferred: | | | | | | |
Federal | | (124 | ) | | 45 |
| | 59 |
|
State and local | | (7 | ) | | — |
| | (10 | ) |
Foreign | | (68 | ) | | (72 | ) | | (47 | ) |
| | (199 | ) | | (27 | ) | | 2 |
|
Income taxes | | $ | 176 |
| | $ | 453 |
| | $ | 511 |
|
On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law. The TCJA revised the U.S. corporate income tax by among other things, lowering the statutory corporate tax rate from 35% to 21% and reinstating bonus depreciation that will allow for full expensing of qualified property, for property placed in service before 2023, including qualified film. The TCJA also eliminated or significantly amended certain deductions (interest, domestic production activities deduction and executive compensation). The TCJA fundamentally changed taxation of multinational entities by moving from a system of worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime with current taxation of certain foreign income. Included in the international provisions was the enactment of a minimum tax on low-taxed foreign earnings, and new measures to deter base erosion and promote U.S. production. In addition, the TCJA imposed a mandatory repatriation toll tax on unremitted foreign earnings. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest most or all of these earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes related to such amounts.
To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and the TCJA provides a measurement period that should not extend beyond one year from the TCJA enactment date. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the tax laws that were in effect immediately before the enactment of the TCJA. Although not effective until January 1, 2018, the Company has calculated its best estimate of the TCJA impact in its year end income tax provision and as a result has recorded $44 million as an income tax benefit. Our federal income tax expense for periods beginning in 2018 will be based on the new rate. The mandatory repatriation toll charge resulted in a tax expense which was mostly offset by available foreign tax credits. We have recorded provisional amounts for several of the impacts of the new tax law including: the deemed repatriation tax on post-1986 accumulated earnings and profits, the deferred tax rate change effect of the new law, gross foreign tax credit carryforwards and related valuation allowances to offset foreign tax credit carryforwards. Certain items or estimates that result in impacts of the TCJA being provisional include: detailed foreign earnings calculations for the most recent period, projected foreign cash balances for certain foreign subsidiaries and finalized computations of foreign tax credit availability. In addition, our 2017 US federal income tax return will not be finalized until later in 2018, and while historically this process has resulted in offsetting changes in estimates in current and deferred taxes for items which are timing related, the reduction of the US tax rate will result in adjustments to our income tax provision when recorded. Finally, we consider it likely that further technical guidance regarding certain of the new provisions included in the TCJA, as well as clarity regarding state income tax conformity to current federal tax code, may be issued. We have reported provisional amounts for the income tax effects of the TCJA for which the accounting is incomplete but a reasonable estimate could be determined. Based on a continued analysis of the estimates and further guidance and interpretations on the application of the law, additional revisions may occur throughout the allowable measurement period.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the Company's effective income tax raterates to the U.S. federal statutory income tax rate of 35%.
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
U.S. federal statutory income tax rate | | 35 | % | | 35 | % | | 35 | % |
State and local income taxes, net of federal tax benefit | | (18 | )% | | (2 | )% | | 2 | % |
Effect of foreign operations | | 25 | % | | (1 | )% | | 1 | % |
Domestic production activity deductions | | 39 | % | | (4 | )% | | (3 | )% |
Change in uncertain tax positions | | (44 | )% | | — | % | | (1 | )% |
Preferred stock modification | | (9 | )% | | — | % | | — | % |
Goodwill impairment | | (334 | )% | | — | % | | — | % |
Renewable energy investments tax credits | | 142 | % | | (1 | )% | | — | % |
Impact of Tax Reform Act | | 32 | % | | — | % | | — | % |
Other, net | | 4 | % | | — | % | | (1 | )% |
Effective income tax rate | | (128 | )% | | 27 | % | | 33 | % |
rates. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Pre-tax income at U.S. federal statutory income tax rate | | $ | 301 | | | 21 | % | | $ | 363 | | | 21 | % | | $ | 482 | | | 21 | % |
State and local income taxes, net of federal tax benefit | | 108 | | | 7 | % | | (10) | | | — | % | | 27 | | | 1 | % |
Effect of foreign operations | | 25 | | | 2 | % | | 58 | | | 3 | % | | (21) | | | (1) | % |
UK Finance Act legislative change | | (155) | | | (11) | % | | (51) | | | (3) | % | | — | | | — | % |
Noncontrolling interest adjustment | | (40) | | | (3) | % | | (29) | | | (2) | % | | (30) | | | (1) | % |
Change in uncertain tax positions | | 12 | | | 1 | % | | 17 | | | 1 | % | | 3 | | | — | % |
Impairment of goodwill | | — | | | — | % | | 25 | | | 2 | % | | 32 | | | 1 | % |
Deferred tax adjustment | | — | | | — | % | | (22) | | | (1) | % | | — | | | — | % |
| | | | | | | | | | | | |
Legal entity restructuring, deferred tax impact | | — | | | — | % | | — | | | — | % | | (445) | | | (19) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other, net | | (15) | | | (1) | % | | 22 | | | 1 | % | | 33 | | | 2 | % |
Income tax expense | | $ | 236 | | | 16 | % | | $ | 373 | | | 22 | % | | $ | 81 | | | 4 | % |
Income tax expense was $176$236 million and $453$373 million, and ourthe Company's effective tax rate was (128)%16% and 27%22% for 20172021 and 2016,2020, respectively. During 2017, theThe decrease in income tax expense for the effective tax rateyear ended December 31, 2021 was primarily attributable to the impact of a goodwill impairment charge that is non-deductible for tax purposes. Thereafter, the decrease in pre-tax book income and an increase in the effectivedeferred tax ratebenefit from the UK Finance Act 2021 that was primarily due to investment tax credits that we receive related to our renewable energy investments, and to a lesser extent, the domestic production activity deduction benefit, the allocation and taxation of income among multiple foreign and domestic jurisdictions, and the impact of the TCJA. The benefitsenacted in June 2021. Those decreases were partially offset by an increase in reservesthe state and local income tax expense recorded in 2021.
Income tax expense was $373 million and $81 million, and the Company's effective tax rate was 22% and 4% for 2020 and 2019, respectively. The increase in income tax expense for the year ended December 31, 2020 was primarily attributable to the discrete, one-time, non-cash deferred tax benefit of $445 million from legal entity restructurings that was recorded during the year ended December 31, 2019. Additionally, the increase in income tax expense was attributable to an increase in provision for uncertain tax positions and an increase in 2017. In 2016, we favorably resolvedthe effect of foreign operations. Those increases were partially offset by a decrease in pre-tax book income, a tax benefit from a favorable multi-year state resolution, and a favorable deferred tax positionsadjustment in the U.S. that resulted in a reduction of reserves related to uncertain tax positions that did not recur in 2017.was recorded during the year ended December 31, 2020.
Components of deferred income tax assets and liabilities were as follows (in millions). | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Deferred income tax assets: | | | | |
Accounts receivable | | $ | 8 | | | $ | 7 | |
Tax attribute carry-forward | | 445 | | | 354 | |
| | | | |
Accrued liabilities and other | | 548 | | | 471 | |
Total deferred income tax assets | | 1,001 | | | 832 | |
Valuation allowance | | (305) | | | (257) | |
Net deferred income tax assets | | 696 | | | 575 | |
Deferred income tax liabilities: | | | | |
Intangible assets | | (395) | | | (654) | |
Content rights | | (138) | | | (163) | |
Equity method and other investments in partnerships | | (413) | | | (470) | |
Noncurrent portion of debt | | (87) | | | (85) | |
| | | | |
Other | | (133) | | | (140) | |
Total deferred income tax liabilities | | (1,166) | | | (1,512) | |
Net deferred income tax liabilities | | $ | (470) | | | $ | (937) | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Deferred income tax assets: | | | | |
Accounts receivable | | $ | 5 |
| | $ | 2 |
|
Tax attribute carry-forward | | 151 |
| | 67 |
|
Accrued liabilities and other | | 190 |
| | 174 |
|
Total deferred income tax assets | | 346 |
| | 243 |
|
Valuation allowance | | (105 | ) | | (25 | ) |
Net deferred income tax assets | | 241 |
| | 218 |
|
Deferred income tax liabilities: | | | | |
Intangible assets | | (315 | ) | | (384 | ) |
Content rights | | (82 | ) | | (166 | ) |
Equity method investments | | (68 | ) | | (76 | ) |
Notes receivable | | (3 | ) | | (7 | ) |
Other | | (28 | ) | | (32 | ) |
Total deferred income tax liabilities | | (496 | ) | | (665 | ) |
Net deferred income tax liabilities | | $ | (255 | ) | | $ | (447 | ) |
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s net deferred income tax assets and liabilities were reported on the consolidated balance sheets as follows (in millions).
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Noncurrent deferred income tax assets (included within other noncurrent assets) | | $ | 755 | | | $ | 597 | |
Deferred income tax liabilities | | (1,225) | | | (1,534) | |
Net deferred income tax liabilities | | $ | (470) | | | $ | (937) | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Noncurrent deferred income tax assets (included within other noncurrent assets)
| | $ | 64 |
| | $ | 20 |
|
Deferred income tax liabilities (classified on the balance sheet) | | (319 | ) | | (467 | ) |
Net deferred income tax liabilities | | $ | (255 | ) | | $ | (447 | ) |
The Company’s loss carry-forwards were reported on the consolidated balance sheets as follows (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Federal | | State | | Foreign |
Loss carry-forwards | | $ | 9 | | | $ | 418 | | | $ | 1,528 | |
Deferred tax asset related to loss carry-forwards | | 2 | | | 20 | | | 367 | |
Valuation allowance against loss carry-forwards | | — | | | (17) | | | (192) | |
Earliest expiration date of loss carry-forwards | | 2034 | | 2022 | | 2022 |
|
| | | | | | | | |
| | State | | Foreign |
Loss carry-forwards | | $ | 176 |
| | $ | 1,109 |
|
Deferred tax asset related to loss carry-forwards | | 12 |
| | 61 |
|
Valuation allowance against loss carry-forwards | | (11 | ) | | (17 | ) |
Earliest expiration date of loss carry-forwards | | 2018 |
| | 2018 |
|
A reconciliation of the beginning and ending amounts of unrecognized tax benefits (without related interest and penalty amounts) is as follows (in millions). | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Beginning balance | | $ | 348 | | | $ | 375 | | | $ | 378 | |
Additions based on tax positions related to the current year | | 68 | | | 31 | | | 54 | |
Additions for tax positions of prior years | | 64 | | | 4 | | | 11 | |
Additions for tax positions acquired in business combinations | | — | | | — | | | 47 | |
Reductions for tax positions of prior years | | (27) | | | (5) | | | (47) | |
Settlements | | (5) | | | (9) | | | (19) | |
Reductions due to lapse of statutes of limitations | | (25) | | | (51) | | | (50) | |
Changes due to foreign currency exchange rates | | (3) | | | 3 | | | 1 | |
Ending balance | | $ | 420 | | | $ | 348 | | | $ | 375 | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Beginning balance | | $ | 117 |
| | $ | 173 |
| | $ | 176 |
|
Additions based on tax positions related to the current year | | 27 |
| | 13 |
| | 30 |
|
Additions for tax positions of prior years | | 57 |
| | 19 |
| | 17 |
|
Additions for tax positions acquired in business combinations | | — |
| | — |
| | 3 |
|
Reductions for tax positions of prior years | | — |
| | (60 | ) | | (21 | ) |
Settlements | | (8 | ) | | (16 | ) | | (16 | ) |
Reductions due to lapse of statutes of limitations | | (6 | ) | | (9 | ) | | (13 | ) |
Changes due to foreign currency exchange rates | | 2 |
| | (3 | ) | | (3 | ) |
Ending balance | | $ | 189 |
| | $ | 117 |
| | $ | 173 |
|
The balances as of December 31, 2017, 20162021, 2020 and 20152019 included $189$420 million,, $117 $348 million and $173$375 million,, respectively, of unrecognized tax benefits that, if recognized, would reduce the Company’s income tax expense and effective tax rate after giving effect to interest deductions and offsetting benefits from other tax jurisdictions. For the year ended December 31, 2017,2021, increases in unrecognized tax benefits related to the uncertainty of allocation and taxation of income among multiple jurisdictions waspartially offset by the movements of tax positions as a result of multiple audit resolutions and the lapse of statutes of limitations.
The Company and its subsidiaries file income tax returns in the U.S. and various state and foreign jurisdictions. The Internal Revenue Service recently completed audit procedures for its 2008 to 2011 tax years, the results of which should be finalized in the coming year. The Company is currently under audit by the Internal Revenue Service for its 2012 to 20142019 consolidated federal income tax returns. It is difficult to predict the final outcome or timing of resolution of any particular tax matter. Accordingly, an estimate of any related impact to the reserve for uncertain tax positions cannot currently be determined. With few exceptions, the Company is no longer subject to audit by any jurisdiction for years prior to 2006. Adjustments that arose from the completion of audits for certain tax years have been included in the change in uncertain tax positions in the table above.
It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $53$125 million within the next twelve months as a result of ongoing audits, foreign judicial proceedings, lapses of statutes of limitations or regulatory developments.
As of December 31, 2017, 20162021, 2020 and 2015,2019, the Company had accrued approximately $21$60 million, $11$53 million, and $20$58 million, respectively, of total interest and penalties payable related to unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17.19. EARNINGS PER SHARE
In calculating earnings per share, the Company follows the two-class method, which distinguishes between the classes of securities based on the proportionate participation rights of each security type in the Company's undistributed (loss) income. The Company's Series A, B and C common stock is treated as one class and the Series C-1 convertible preferred stock areis treated as onea separate class for purposes of applying the two-class method, because they havemethod. The Company's Series C-1 convertible preferred stock is an in-substance common stock equivalent as it has substantially equal rights and shareshares equally on an as convertedas-converted basis with respect to (loss) income available to Discovery, Communications, Inc.
Pursuant to The Company's Series A-1 convertible preferred stock is also a separate class but is not considered a common stock equivalent and therefore is not presented separately in the Exchange Agreement with Advance/Newhouse, Discovery issued newly designatedcalculation of earnings per share. Series A-1 convertible preferred stock is currently convertible into 9 shares of the Company's Series A-1A common stock and Series C-1 convertible preferred stock in exchange for all outstandingis convertible into 19.3648 shares of Discovery's Series A andthe Company's Series C convertible participating preferredcommon stock, (see Note 12). The Exchange is treated as a reverse stock splitsubject to certain anti-dilution adjustments. During the years ended December 31, 2021, 2020 and the Company has recast historical basic and diluted earnings per share available to2019, no Series C-1 preferred stockholders (previously Series C preferred stockholders). Prior to the Exchange Agreement, Series CA-1 convertible preferred stock was converted. During the years ended December 31, 2021 and 2019, Advance Newhouse Programming Partnership converted 0.6 million and 1.1 million shares of its Series C-1 convertible preferred stock into Series C common stock at a conversion rate of 2.011.0 million and 22.0 million shares of Series C common stock, for each shares ofrespectively. No Series CC-1 convertible preferred stock. Followingstock was converted during the Exchange, the Series C-1 preferred stock may be converted into Series C common stock at a conversion rate of 19.3648 shares of Series C common stock for each share of Series C-1 preferred stock. As such, the Company has retrospectively restated basic and diluted earnings per share information for Discovery's Series C-1 preferred stock for the yearsyear ended December 31, 2016 and December 31, 2015. The Exchange did not impact historical basic and diluted earnings per share attributable to the Company's Series A, B and C common stockholders.
The table below sets forth the computation for (loss) income available to Discovery Communications, Inc. stockholders (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Numerator: | | | | | | |
Net (loss) income | | $ | (313 | ) | | $ | 1,218 |
| | $ | 1,048 |
|
Less: | | | | | | |
Allocation of undistributed income to Series A-1 convertible preferred stock | | 41 |
| | (139 | ) | | (113 | ) |
Net income attributable to noncontrolling interests | | — |
| | (1 | ) | | (1 | ) |
Net income attributable to redeemable noncontrolling interests | | (24 | ) | | (23 | ) | | (13 | ) |
Net (loss) income available to Discovery Communications, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share | | $ | (296 | ) | | $ | 1,055 |
| | $ | 921 |
|
| | | | | | |
Allocation of net (loss) income available to Discovery Communications Inc. Series A, B and C common stockholders and Series C-1 convertible preferred stockholders for basic net (loss) income per share: | | | | | | |
Series A, B and C common stockholders | | (225 | ) | | 789 |
| | 686 |
|
Series C-1 convertible preferred stockholders | | (71 | ) | | 266 |
| | 235 |
|
Total | | (296 | ) | | 1,055 |
| | 921 |
|
Add: | | | | | | |
Allocation of undistributed income to Series A-1 convertible preferred stockholders | | (41 | ) | | 139 |
| | 113 |
|
Net (loss) income available to Discovery Communications, Inc. Series A, B and C common stockholders for diluted net (loss) income per share | | $ | (337 | ) | | $ | 1,194 |
| | $ | 1,034 |
|
2020.Net (loss) income availableallocated to Discovery, Communications, Inc. Series C-1 convertible preferred stockholders for diluted net (loss) income per share is included in net (loss) income availableallocated to Discovery, Communications, Inc. Series A, B and C common stockholders for diluted net (loss) income per share. For the year ended December 31, 2017 net loss available to Discovery Communications, Inc. Series C-1 convertible preferred stockholders for diluted loss per share was $71 million. For the years ended December 31, 2016 and December 31, 2015 net income available to Discovery Communications, Inc. Series C-1 convertible preferred stockholders for diluted earnings per share was $265 million and $234 million, respectively.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth the weighted average number of shares outstanding utilized in determining the denominator for basic and diluted (loss) earnings per share (in millions).
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Denominator - weighted average: | | | | | | |
Series A, B and C common shares outstanding — basic
| | 384 |
| | 401 |
| | 432 |
|
Impact of assumed preferred stock conversion
| | 192 |
| | 206 |
| | 219 |
|
Dilutive effect of share-based awards | | — |
| | 3 |
| | 5 |
|
Series A, B and C common shares outstanding — diluted
| | 576 |
| | 610 |
| | 656 |
|
| | | | | | |
Series C-1 convertible preferred stock outstanding — basic and diluted
| | 6 |
| | 7 |
| | 8 |
|
The weighted average number of diluted shares outstanding adjusts the weighted average number of shares of Series A, B and C common stock outstanding for the potential dilution that would occur if common stock equivalents, including convertible preferred stock and share-based awards, were converted into common stock or exercised, calculated using the treasury stock method. Series A, B and C diluted common stock includes the impact of the conversion of Series A-1 preferred stock, the impact of the conversion of Series C-1 preferred stock, and the impact of share-based compensation to the extent it is not anti-dilutive. For 2017, the weighted average number of shares outstanding for the computation of diluted loss per share does not include 2 million of share-based awards, as the effects of these potentially outstanding shares would have been anti-dilutive. Prior to the Exchange, Series C convertible preferred stock was convertible into Series C common stock at a conversion rate of 2.0 shares of Series C common stock for each share of Series C convertible preferred stock. Following the exchange, the Series C-1 preferred stock may be converted into Series C common stock at a conversion rate of 19.3648 shares of Series C common stock for each shares of Series C-1 preferred stock.
The table below sets forth the Company's calculated (loss) earnings per share.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Basic net (loss) income per share available to Discovery Communications, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders: | | | | | | |
Series A, B and C common stockholders | | $ | (0.59 | ) | | $ | 1.97 |
| | $ | 1.59 |
|
Series C-1 convertible preferred stockholders | | $ | (11.33 | ) | | $ | 38.07 |
| | $ | 30.74 |
|
| | | | | | |
Diluted net (loss) income per share available to Discovery Communications, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders: | | | | | | |
Series A, B and C common stockholders | | $ | (0.59 | ) | | $ | 1.96 |
| | $ | 1.58 |
|
Series C-1 convertible preferred stockholders | | $ | (11.33 | ) | | $ | 37.88 |
| | $ | 30.54 |
|
(Loss) earnings per share amounts may not recalculate due to rounding. The computation of the diluted (loss) earnings per share of Series A, B and C common stockholders assumes the conversion of Series A-1 and C-1 convertible preferred stock, while the diluted earnings per share amounts of Series C-1 convertible preferred stock does not assume conversion of those shares.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth the Company's calculated earnings per share (in millions). Earnings per share amounts may not recalculate due to rounding. | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Numerator: | | | | | | |
Net income | | $ | 1,197 | | | $ | 1,355 | | | $ | 2,213 | |
Less: | | | | | | |
Allocation of undistributed income to Series A-1 convertible preferred stock | | (110) | | | (128) | | | (204) | |
Net income attributable to noncontrolling interests | | (138) | | | (124) | | | (128) | |
Net income attributable to redeemable noncontrolling interests | | (53) | | | (12) | | | (16) | |
Redeemable noncontrolling interest adjustments of carrying value to redemption value (redemption value does not equal fair value) | | 16 | | | — | | | (20) | |
Net income available to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share | | $ | 912 | | | $ | 1,091 | | | $ | 1,845 | |
Allocation of net income: | | | | | | |
Series A, B and C common stockholders | | 780 | | | 919 | | | 1,531 | |
Series C-1 convertible preferred stockholders | | 132 | | | 172 | | | 314 | |
Total | | 912 | | | 1,091 | | | 1,845 | |
Add: | | | | | | |
Allocation of undistributed income to Series A-1 convertible preferred stockholders | | 110 | | | 128 | | | 204 | |
Net income available to Discovery, Inc. Series A, B and C common stockholders for diluted net income per share | | $ | 1,022 | | | $ | 1,219 | | | $ | 2,049 | |
| | | | | | |
Denominator — weighted average: | | | | | | |
Series A, B and C common shares outstanding — basic | | 503 | | | 505 | | | 529 | |
Impact of assumed preferred stock conversion | | 156 | | | 165 | | | 179 | |
Dilutive effect of share-based awards | | 5 | | | 2 | | | 3 | |
Series A, B and C common shares outstanding — diluted | | 664 | | | 672 | | | 711 | |
Series C-1 convertible preferred stock outstanding — basic and diluted | | 4 | | | 5 | | | 6 | |
| | | | | | |
Basic net income per share allocated to: | | | | | | |
Series A, B and C common stockholders | | $ | 1.55 | | | $ | 1.82 | | | $ | 2.90 | |
Series C-1 convertible preferred stockholders | | $ | 30.01 | | | $ | 35.24 | | | $ | 56.07 | |
| | | | | | |
Diluted net income per share allocated to: | | | | | | |
Series A, B and C common stockholders | | $ | 1.54 | | | $ | 1.81 | | | $ | 2.88 | |
Series C-1 convertible preferred stockholders | | $ | 29.80 | | | $ | 35.12 | | | $ | 55.80 | |
The table below presents the details of the anticipated stock repurchases and share-based awards and that were excluded from the calculation of diluted (loss) earnings per share (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Anti-dilutive share-based awards | | 17 | | | 24 | | | 17 | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Anti-dilutive share-based awards | | 19 |
| | 8 |
| | 6 |
|
PRSUs whose performance targets have not yet been achieved | | 2 |
| | 4 |
| | 3 |
|
Anti-dilutive common stock repurchase contracts | | — |
| | 2 |
| | — |
|
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Only outstanding PRSUs whose performance targets have been achieved as of the last day of the most recent period are included in the dilutive effect calculation.
NOTE 18.20. SUPPLEMENTAL DISCLOSURES
ValuationProperty and Qualifying Accountsequipment
Changes in valuationProperty and qualifying accountsequipment consisted of the following (in millions).
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| Useful Lives | | 2021 | | 2020 |
Broadcast equipment (a) | 3 - 5 years | | $ | 672 | | | $ | 744 | |
Office equipment, furniture, fixtures and other | 3 - 5 years | | 467 | | | 510 | |
Capitalized software costs | 2 - 5 years | | 904 | | | 696 | |
Land, buildings and leasehold improvements (b) | 15- 39 years | | 481 | | | 334 | |
Property and equipment, at cost | | | 2,524 | | | 2,284 | |
Accumulated depreciation | | | (1,329) | | | (1,363) | |
| | | 1,195 | | | 921 | |
Assets under construction | | | 141 | | | 285 | |
Property and equipment, net | | | $ | 1,336 | | | $ | 1,206 | |
| | | | | |
| | | | | |
(a) Property and equipment includes assets acquired under finance lease arrangements, primarily satellite transponders classified as broadcast equipment. 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. (See Note 9.) |
| | | | | |
(b) Land has an indefinite life and is not depreciated. Leasehold improvements generally have an estimated useful life equal to the lease term. |
|
| | | | | | | | | | | | | | | | | | | | |
| | Beginning of Year | | Additions | | Write-offs | | Utilization | | End of Year |
2017 | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 47 |
| | $ | 12 |
| | $ | (4 | ) | | $ | — |
| | $ | 55 |
|
Deferred tax valuation allowance | | 25 |
| | 84 |
| | (4 | ) | | — |
| | 105 |
|
2016 | | | | | | | | | | |
Allowance for doubtful accounts | | 40 |
| | 13 |
| | (6 | ) | | — |
| | 47 |
|
Deferred tax valuation allowance | | 19 |
| | 9 |
| | (3 | ) | | — |
| | 25 |
|
2015 | | | | | | | | | | |
Allowance for doubtful accounts | | 39 |
| | 8 |
| | (7 | ) | | — |
| | 40 |
|
Deferred tax valuation allowance | | 13 |
| | 6 |
| | — |
| | — |
| | 19 |
|
Capitalized software costs are for internal use. The net book value of capitalized software costs was $371 million and $247 million as of December 31, 2021 and 2020, respectively. The related accumulated amortization was $533 million and $448 million as of December 31, 2021 and 2020, respectively.Depreciation expense for property and equipment totaled $311 million,$267 million and $207 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in millions).:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Accrued payroll and related benefits | $ | 533 | | | $ | 494 | |
Content rights payable | 772 | | | 528 | |
Other accrued liabilities | 925 | | | 771 | |
Total accrued liabilities | $ | 2,230 | | | $ | 1,793 | |
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Accrued payroll and related benefits | $ | 535 |
| | $ | 486 |
|
Content rights payable | 219 |
| | 173 |
|
Accrued interest | 148 |
| | 67 |
|
Accrued income taxes | 45 |
| | 34 |
|
Current portion of share-based compensation liabilities | 12 |
| | 31 |
|
Other accrued liabilities | 350 |
| | 284 |
|
Total accrued liabilities | $ | 1,309 |
| | $ | 1,075 |
|
DISCOVERY, INC.
Other (Expense) Income, netNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other income (expense), net
Other income (expense), net, consisted of the following (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Foreign currency (losses) gains, net | | $ | (83 | ) | | $ | 75 |
| | $ | (103 | ) |
(Losses) gains on derivative instruments, net | | (82 | ) | | (12 | ) | | 5 |
|
Remeasurement gain on previously held equity interest | | 33 |
| | — |
| | 2 |
|
Interest income(a) | | 21 |
| | — |
| | — |
|
Other-than-temporary impairment of AFS investments | | — |
| | (62 | ) | | — |
|
Other | | 1 |
| | 3 |
| | (1 | ) |
Total other (expense) income, net | | $ | (110 | ) | | $ | 4 |
| | $ | (97 | ) |
(a) Interest income for 2017 is comprised of interest on proceeds from issuance of senior notes to fund the anticipated Scripps Networks acquisition. Of the $6.8 billion in senior notes issued, $2.7 billion were invested in money market funds, $1.3 billion were invested in time
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
deposit accounts, and the remainder was invested in highly liquid, short-term instruments with original maturities of 90 days or less. (See Note 4 and Note 9.)
Share-Based Plan Payments, net
Share-based plan payments, net in the statement of cash flows consisted of the following (in millions). (a)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Tax settlements associated with share-based plans | | $ | (30 | ) | | $ | (11 | ) | | $ | (27 | ) |
Proceeds from issuance of common stock in connection with share-based plans | | 46 |
| | 50 |
| | 21 |
|
Total share-based plan payments, net | | $ | 16 |
| | $ | 39 |
| | $ | (6 | ) |
(a) Share-based plan payments, net includes the retrospective reclassification of windfall tax benefits or deficiencies from financing activities to operating activities in the statement of cash flows presentation pursuant to the adoption of the new guidance on share-based payments on January 1, 2017. There were $7 million and $12 million in net windfall tax adjustments for the years ended December 31, 2016 and December 31, 2015, respectively, reclassified from financing activities to operating activities. (See Note 2.): | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Foreign currency gains (losses), net | | $ | 93 | | | $ | (115) | | | $ | 17 | |
(Losses) gains on derivative instruments, net | | (33) | | | 29 | | | (52) | |
Interest income | | 18 | | | 10 | | | 22 | |
Gain on sale of investment with readily determinable fair value | | 15 | | | 101 | | | — | |
Change in the value of equity investments without readily determinable fair value | | (13) | | | — | | | — | |
Change in the value of investments with readily determinable fair value | | (6) | | | 28 | | | (26) | |
Expenses from debt modification | | — | | | (11) | | | — | |
Other income, net | | 8 | | | — | | | 31 | |
Total other income (expense), net | | $ | 82 | | | $ | 42 | | | $ | (8) | |
Supplemental Cash Flow Information
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Cash paid for taxes, net | | $ | 643 | | | $ | 641 | | | $ | 562 | |
Cash paid for interest | | 664 | | | 673 | | | 708 | |
Non-cash investing and financing activities: | | | | | | |
Receivable from sale of fuboTV Inc. shares | | — | | | 124 | | | — | |
| | | | | | |
Disposal of UKTV investment and acquisition of Lifestyle Business | | — | | | — | | | 291 | |
Accrued purchases of property and equipment | | 34 | | | 48 | | | 47 | |
Assets acquired under finance lease and other arrangements | | 134 | | | 91 | | | 38 | |
Equity exchange with Harpo for step acquisition of OWN | | — | | | 59 | | | — | |
Unsettled stock repurchases | | — | | | — | | | 4 | |
Cash, Cash Equivalents, and Restricted Cash
| | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2021 | | December 31, 2020 |
Cash and cash equivalents | | | | | | $ | 3,905 | | | $ | 2,091 | |
Restricted cash - other current assets (a) | | | | | | — | | | 31 | |
Total cash, cash equivalents, and restricted cash | | | | | | $ | 3,905 | | | $ | 2,122 | |
| | | | | | | | |
(a) Restricted cash includes cash posted as collateral related to forward starting interest rate swap contracts. |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Cash paid for taxes, net(a) | | $ | 274 |
| | $ | 527 |
| | $ | 653 |
|
Cash paid for interest | | 357 |
| | 343 |
| | 312 |
|
Noncash investing and financing activities: | | | | | | |
Contributions of business and assets of strategic ventures | | | | | | |
Fair value of assets and liabilities of business received in exchange for redeemable noncontrolling interests (b) | | 144 |
| | — |
| | — |
|
Fair value of investment received, net of cash paid | | — |
| | 82 |
| | — |
|
Net asset value of contributed business | | — |
| | 32 |
| | — |
|
Contingent consideration obligations from business acquisitions | | — |
| | — |
| | 13 |
|
Accrued purchases of property and equipment | | 24 |
| | 42 |
| | 12 |
|
Contingent consideration receivable from business dispositions | | — |
| | — |
| | 6 |
|
Assets acquired under capital lease arrangements | | 103 |
| | 37 |
| | 5 |
|
(a) The decrease in cash paid for taxes, net, is mostly due to the tax benefits from the Company's investments in limited liability companies that sponsor renewable energy projects. (See Note 4.)
(b) Amount relates to the Company's VTEN joint venture. (See Note 3.) The joint venture was affected via DCL's contribution of the Velocity network to a newly formed entity, VTEN, which is a non-guarantor subsidiary of the Company and is reflected as a non-cash contribution in the condensed consolidating financial statements. (See Note 23.)
The table above does not include the November 30, 2017 acquisition of a controlling interest in OWN from Harpo. The Company increased its ownership stake from 49.50% to 73.99%. The table above does not include the March 31, 2015 acquisition of an additional 31% interest in Eurosport France. The Company increased its ownership stake from 20% to 51%. Upon consolidation a cash payment for a portion of these businesses resulted in inclusion of the fair value of all of the net assets and liabilities of OWN and Eurosport France in Discovery's consolidated financial statements. (See Note 3.)
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19.21. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company enters into transactions with related parties. Related parties include entities that share common directorship, such as Liberty Global plc (“Liberty Global”), Liberty Broadband Corporation ("Liberty Broadband") and their subsidiaries and equity method investees (together the “Liberty Group”). Discovery’s Board of Directors includes Mr. Malone, who is Chairman of the Board of Liberty Global and beneficially owns approximately 26%30% of the aggregate voting power with respect to the election of directors of Liberty Global. Mr. Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 46%49% of the aggregate voting power with respect to the election of directors of Liberty Broadband. The majority of the revenue earned from the Liberty Group relates to multi-year network distribution arrangements. Related party transactions also include revenues and expenses for content and services provided to or acquired from equity method investees such as All3Media and a Russian cable television business, or minority partners of consolidated subsidiaries, such as Hasbro. For the year ended December 31, 2017, related party transaction costs include expenses associated with the Exchange Agreement executed with Advance/Newhouse. subsidiaries.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents a summary of the transactions with related parties including OWN prior to the November 30, 2017 acquisition (in millions).
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Revenues and service charges: | | | | | | |
Liberty Group(a) | | $ | 476 |
| | $ | 387 |
| | $ | 171 |
|
Equity method investees(b) | | 145 |
| | 129 |
| | 62 |
|
Other | | 46 |
| | 32 |
| | 35 |
|
Total revenues and service charges | | $ | 667 |
| | $ | 548 |
| | $ | 268 |
|
Interest income(c) | | $ | 13 |
| | $ | 17 |
| | $ | 23 |
|
Expenses | | $ | (178 | ) | | $ | (102 | ) | | $ | (67 | ) |
(a) The increase for the year ended December 31, 2017 reflects the May 2016 acquisition of Time Warner Cable, Inc. by Charter Communications, an equity method investee of the Liberty Group and other changes in the Liberty Group's businesses.
(b) The increases to revenue from equity method investees for the years ended December 31, 2017 and 2016 relate to the joint venture agreement with the New Russian Business which began in October 2015. (See Note 3.)
(c) The Company records interest earnings from loans to equity method investees as a component of income from equity method investees, net, in the consolidated statements of operations. (See Note 4.) | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Revenues and service charges: | | | | | | |
Liberty Group | | $ | 671 | | | $ | 686 | | | $ | 668 | |
Equity method investees | | 253 | | | 223 | | | 210 | |
Other | | 169 | | | 103 | | | 111 | |
Total revenues and service charges | | $ | 1,093 | | | $ | 1,012 | | | $ | 989 | |
Interest income | | $ | — | | | $ | — | | | $ | 1 | |
Expenses | | $ | (238) | | | $ | (244) | | | $ | (224) | |
Distributions to noncontrolling interests and redeemable noncontrolling interests | | $ | (251) | | | $ | (254) | | | $ | (250) | |
The table below presents receivablesamounts due from and to related parties (in millions).
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Receivables | | $ | 172 | | | $ | 177 | |
Payables | | $ | 23 | | | $ | 43 | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Receivables | | $ | 105 |
| | $ | 109 |
|
Note receivable(a) | | — |
| | 311 |
|
(a) The decrease for the year ended December 31, 2017 reflects the November 2017 acquisition of OWN by Discovery (See Note 3.) The receivable is recorded as a component of Discovery's consolidated financial statements.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20.22. COMMITMENTS, CONTINGENCIES, AND CONTINGENCIESGUARANTEES
Contractual Commitments
AsIn the normal course of December 31, 2017,business, the Company’s significant contractual commitments, including related payments due by period, were as follows (in millions).
|
| | | | | | | | | | | | | | | | | | | | |
| | Leases | | | | | | |
Year Ending December 31, | | Operating | | Capital | | Content | | Other | | Total |
2018 | | $ | 61 |
| | $ | 48 |
| | $ | 1,075 |
| | $ | 332 |
| | $ | 1,516 |
|
2019 | | 52 |
| | 36 |
| | 558 |
| | 241 |
| | 887 |
|
2020 | | 36 |
| | 33 |
| | 750 |
| | 175 |
| | 994 |
|
2021 | | 28 |
| | 30 |
| | 342 |
| | 54 |
| | 454 |
|
2022 | | 17 |
| | 23 |
| | 350 |
| | 29 |
| | 419 |
|
Thereafter | | 36 |
| | 95 |
| | 771 |
| | 89 |
| | 991 |
|
Total minimum payments | | 230 |
| | 265 |
| | 3,846 |
| | 920 |
| | 5,261 |
|
Amounts representing interest | | — |
| | (40 | ) | | — |
| | — |
| | (40 | ) |
Total | | $ | 230 |
| | $ | 225 |
| | $ | 3,846 |
| | $ | 920 |
| | $ | 5,221 |
|
The Company enters into multi-year leasevarious commitments, which primarily include programming and talent arrangements, for transponders, office space, studio facilities,operating and other equipment. Leases are not cancelable priorfinance leases (See Note 9), arrangements to their expiration. On January 9, 2018, we issued a press release announcing a new real estate strategy with planspurchase various goods and services, and future funding commitments to relocate the Company's global headquarters from Silver Spring, Maryland to New York City in 2019. As of December 31, 2017, we did not meet the held for sale classification criteria, as defined in GAAP as it is uncertain that the sale of the Silver Spring property will be completed within the next twelve months.equity method investees.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ending December 31, | | Content | | Other Purchase Obligations | | Pension and Other Employee Obligations | | Total |
2022 | | $ | 1,798 | | | $ | 704 | | | $ | 3 | | | $ | 2,505 | |
2023 | | 697 | | | 443 | | | 2 | | | 1,142 | |
2024 | | 985 | | | 209 | | | 2 | | | 1,196 | |
2025 | | 466 | | | 132 | | | 2 | | | 600 | |
2026 | | 289 | | | 71 | | | 2 | | | 362 | |
Thereafter | | 1,117 | | | 52 | | | 6 | | | 1,175 | |
Total | | $ | 5,352 | | | $ | 1,611 | | | $ | 17 | | | $ | 6,980 | |
Content purchase obligations include commitments areand liabilities associated with third-party producers and sports associations for content that airs on theour television networks. Production contracts generally require therequire: purchase of a specified number of episodes withepisodes; payments over the term of the license. Production contractslicense; 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, the Company'sour commitments expire without obligation. The commitments disclosed above exclude content liabilities recognized on the consolidated balance sheet.
Other purchase obligations include agreements with certain vendors and suppliers for the purchase of goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. Significant purchase obligations include transmission services, television rating services, marketing commitments and research, employment contracts, equipment purchases, and information technology and other services. Some of these contracts do not require the purchase of fixed or minimum quantities and generally may be terminated with a 30-day to 60-day advance notice without penalty, and are not included in the table above past the 30-day to 60-day advance notice period. Amounts related
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and other employee obligations include payments to employment contracts include base compensation, but domeet minimum funding requirements of our Pension Plan in 2022 and estimated benefit payments for our SERP that exceed plan assets. Payments for the SERP have been estimated over a ten-year period. While benefit payments under these plans are expected to continue beyond 2031, we believe it is not include compensation contingent on future events.practicable to estimate payments beyond this period. (See Note 16.)
Although the Company had funding commitments to equity method investees as of December 31, 2017,2021, the Company may also provide uncommitted additional funding to its equity method investments in the future. (See Note 4.)
Contingencies
Put Rights
The Company has granted put rights related to certain consolidated subsidiaries. Harpo, Golden Tree, Hasbro and J:COM have the right to require the Company to purchase their remaining noncontrolling interests in OWN, VTEN, Discovery Family and Discovery Japan, respectively. The Company recorded the value of the put rights for OWN, VTEN, Discovery Family and Discovery Japan as a component of redeemable noncontrolling interests in the amounts of $55 million, $120 million, $210 million and $27 million, respectively. (See Note 11.)
Legal Matters
TheFrom time to time, in the normal course of its operations, the Company is partysubject to various lawsuitslitigation matters and claims, in the ordinary course of business.including claims related to employees, vendors, other business partners or patent issues. However, a determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgmentsjudgment 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
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
resolution of these matters will have a material adverse effect on ourthe Company's future consolidated financial position, future results of operations or liquidity.
On September 20, 2017, a putative class action lawsuit captioned Inzlicht-Sprei v. Scripps Networks Interactive, et al. (Case No. 3:17-cv-00420), which we refer to as the “Inzlicht-Sprei action”, was filed in the United States District Court for the Eastern District of Tennessee. A putative class action lawsuit captioned Berg v. Scripps Networks Interactive, et al. (Case No. 2:17-cv-848), which we refer to as the “Berg action”, and a lawsuit captioned Wagner v. Scripps Networks Interactive, et al. (Case No. 2:17-cv-859), which we refer to as the “Wagner action”, were filed in the United States District Court for the Southern District of Ohio on September 27, 2017 and September 29, 2017, respectively. We refer to the Inzlicht-Sprei action, Berg action and Wagner action collectively as the “actions”. The actions alleged that the defendants filed a materially incomplete and misleading Form S-4 in violation of Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9. On October 12, 2017, the plaintiff in the Inzlicht-Sprei action filed a notice of voluntary dismissal without prejudice. On November 21, 2017, the plaintiffs in both the Berg action and the Wagner action filed notices of voluntary dismissal.cash flows.
Guarantees
There were no guarantees recorded under ASC 460 as of December 31, 20172021 and December 31, 2016.2020.
TheIn the normal course of business, the Company may provide or receive indemnities that are intended to allocate certain risks associated with business transaction risks.transactions. Similarly, the Company may remain contingently liable for certain obligations of a divested business in the event that a third party does not fulfill its obligations under an indemnification obligation. The Company records a liability for its indemnification obligations and other contingent liabilities when probable and estimable. There were no material amounts for indemnifications or other contingencies recorded as of December 31, 20172021 and 2016.2020.
NOTE 21.23. REPORTABLE SEGMENTS
The Company’s operating segments are determined based onon: (i) financial information reviewed by its chief operating decision maker ("CODM"), the Chief Executive Officer ("CEO"), (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions.
The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level. Inter-segment transactions primarily include the purchase of advertising and content between segments.purchases. The Company does not report assets by segment because this is not used to allocate resources or evaluate segment performance.
The Company evaluates the operating performance of its segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization (“Adjusted OIBDA”). Adjusted OIBDA is defined as operating income excluding: (i) mark-to-marketemployee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, and (vi) certain inter-segment eliminations related to production studios. In addition, beginning with the quarter ended September 30, 2017, Adjusted OIBDA also excludes incremental third partystudios, (vii) third-party transaction costs directly related to the Scripps Networks acquisition and planned integration.integration, and (viii) other items impacting comparability. The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment. The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes mark-to-market share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and Scripps Networks transactionacquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. As of January 1, 2017, the Company no longer excludes amortization of deferred launch incentives in calculating total Adjusted OIBDA as it is not material. For the years ended December 31, 2017, 2016 and 2015, deferred launch incentives of $3 million, $13 million and $16 million, respectively, were not reflected as an adjustment to the calculation of total Adjusted OIBDA in order to conform to the current presentation. Total Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net (loss) income and other measures of financial performance reported in accordance with U.S. GAAP.
DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tables below present summarized financial information for each of the Company’s reportable segments other operating segments and corporate, and inter-segment eliminations, and other (in millions).
Revenues
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
U.S. Networks | | $ | 7,662 | | | $ | 6,949 | | | $ | 7,092 | |
International Networks | | 4,539 | | | 3,713 | | | 4,041 | |
Corporate, inter-segment eliminations, and other | | (10) | | | 9 | | | 11 | |
Total revenues | | $ | 12,191 | | | $ | 10,671 | | | $ | 11,144 | |
Reconciliation of Net Income Available to Discovery, Inc. to Adjusted OIBDA
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
Net income available to Discovery, Inc. | | $ | 1,006 | | | $ | 1,219 | | | $ | 2,069 | |
Net income attributable to redeemable noncontrolling interests | | 53 | | | 12 | | | 16 | |
Net income attributable to noncontrolling interests | | 138 | | | 124 | | | 128 | |
Income tax expense | | 236 | | | 373 | | | 81 | |
Income before income taxes | | 1,433 | | | 1,728 | | | 2,294 | |
Other (income) expense, net | | (82) | | | (42) | | | 8 | |
Loss from equity investees, net | | 18 | | | 105 | | | 2 | |
Loss on extinguishment of debt | | 10 | | | 76 | | | 28 | |
Interest expense, net | | 633 | | | 648 | | | 677 | |
Operating income | | 2,012 | | | 2,515 | | | 3,009 | |
Depreciation and amortization | | 1,582 | | | 1,359 | | | 1,347 | |
Impairment of goodwill and other intangible assets | | — | | | 124 | | | 155 | |
Employee share-based compensation | | 167 | | | 99 | | | 137 | |
Restructuring and other charges | | 32 | | | 91 | | | 26 | |
Transaction and integration costs | | 95 | | | 6 | | | 26 | |
Loss (gain) on disposition | | (71) | | | 2 | | | — | |
Settlement of a withholding tax claim | | — | | | — | | | (29) | |
Adjusted OIBDA | | $ | 3,817 | | | $ | 4,196 | | | $ | 4,671 | |
Adjusted OIBDA
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
U.S. Networks | | $ | 3,940 | | | $ | 3,975 | | | $ | 4,117 | |
International Networks | | 494 | | | 723 | | | 1,057 | |
Corporate, inter-segment eliminations, and other | | (617) | | | (502) | | | (503) | |
Adjusted OIBDA | | $ | 3,817 | | | $ | 4,196 | | | $ | 4,671 | |
DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
U.S. Networks | | $ | 3,434 |
| | $ | 3,285 |
| | $ | 3,131 |
|
International Networks | | 3,281 |
| | 3,040 |
| | 3,092 |
|
Education and Other | | 158 |
| | 174 |
| | 173 |
|
Corporate and inter-segment eliminations | | — |
| | (2 | ) | | (2 | ) |
Total revenues | | $ | 6,873 |
| | $ | 6,497 |
| | $ | 6,394 |
|
Adjusted OIBDA
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
U.S. Networks | | $ | 2,026 |
| | $ | 1,922 |
| | $ | 1,774 |
|
International Networks | | 859 |
| | 835 |
| | 945 |
|
Education and Other | | 6 |
| | (10 | ) | | (2 | ) |
Corporate and inter-segment eliminations | | (360 | ) | | (334 | ) | | (335 | ) |
Total Adjusted OIBDA | | $ | 2,531 |
| | $ | 2,413 |
| | $ | 2,382 |
|
Reconciliation of Net (Loss) Income available to Discovery Communications, Inc. to total Adjusted OIBDA
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Net (loss) income available to Discovery Communications, Inc. | | $ | (337 | ) | | $ | 1,194 |
| | $ | 1,034 |
|
Net income attributable to redeemable noncontrolling interests | | 24 |
| | 23 |
| | 13 |
|
Net income attributable to noncontrolling interests | | — |
| | 1 |
| | 1 |
|
Income tax expense | | 176 |
| | 453 |
| | 511 |
|
(Loss) income before income taxes | | (137 | ) | | 1,671 |
| | 1,559 |
|
Other expense (income), net | | 110 |
| | (4 | ) | | 97 |
|
Loss (income) from equity investees, net | | 211 |
| | 38 |
| | (1 | ) |
Loss on extinguishment of debt | | 54 |
| | — |
| | — |
|
Interest expense | | 475 |
| | 353 |
| | 330 |
|
Operating income | | 713 |
| | 2,058 |
| | 1,985 |
|
Loss (gain) on disposition | | 4 |
| | (63 | ) | | 17 |
|
Restructuring and other charges | | 75 |
| | 58 |
| | 50 |
|
Depreciation and amortization | | 330 |
| | 322 |
| | 330 |
|
Impairment of goodwill | | 1,327 |
| | — |
| | — |
|
Mark-to-market equity-based compensation | | 3 |
| | 38 |
| | — |
|
Scripps Networks transaction and integration costs | | 79 |
| | — |
| | — |
|
Total Adjusted OIBDA | | $ | 2,531 |
| | $ | 2,413 |
| | $ | 2,382 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total Assets
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
U.S. Networks | | $ | 4,127 |
| | $ | 3,412 |
|
International Networks | | 5,187 |
| | 4,922 |
|
Education and Other | | 394 |
| | 399 |
|
Corporate and inter-segment eliminations | | 12,847 |
| | 6,939 |
|
Total assets | | $ | 22,555 |
| | $ | 15,672 |
|
Total assets for corporate and inter-segment eliminations include goodwill that is allocated to the Company's segments to account for goodwill. The presentation of segment assets in the table above is consistent with the financial reports that are reviewed by the Company's CEO. The goodwill allocated from corporate assets to U.S. Networks and International Networks to account for goodwill is included in the goodwill balances disclosed in Note 8.
Content Amortization and Impairment Expense
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
U.S. Networks | | $ | 776 |
| | $ | 756 |
| | $ | 771 |
| U.S. Networks | | $ | 1,565 | | | $ | 1,647 | | | $ | 1,548 | |
International Networks | | 1,126 |
| | 1,008 |
| | 931 |
| International Networks | | 1,934 | | | 1,307 | | | 1,303 | |
Education and Other | | 8 |
| | 9 |
| | 7 |
| |
Corporate, inter-segment eliminations, and other | | Corporate, inter-segment eliminations, and other | | 2 | | | 2 | | | 2 | |
Total content amortization and impairment expense | | $ | 1,910 |
| | $ | 1,773 |
| | $ | 1,709 |
| Total content amortization and impairment expense | | $ | 3,501 | | | $ | 2,956 | | | $ | 2,853 | |
Content amortization and impairment expenses areexpense is generally included ina component of costs of revenuesrevenue on the consolidated statements of operations (see Note 6).
Revenues by Geography
| | | | Year Ended December 31, | | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | | 2021 | | 2020 | | 2019 |
U.S. | | $ | 3,560 |
| | $ | 3,411 |
| | $ | 3,261 |
| U.S. | | $ | 7,728 | | | $ | 7,025 | | | $ | 7,152 | |
Non-U.S. | | 3,313 |
| | 3,086 |
| | 3,133 |
| Non-U.S. | | 4,463 | | | 3,646 | | | 3,992 | |
Total revenues | | $ | 6,873 |
| | $ | 6,497 |
| | $ | 6,394 |
| Total revenues | | $ | 12,191 | | | $ | 10,671 | | | $ | 11,144 | |
Distribution and advertising revenues are attributed to each country based on viewer location. Other revenues are attributed to each country based on customer location.
Property and Equipment by Geography
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
U.S. | | $ | 834 | | | $ | 645 | |
Poland | | 176 | | | 180 | |
U.K. | | 164 | | | 149 | |
Other non-U.S. | | 162 | | | 232 | |
Total property and equipment, net | | $ | 1,336 | | | $ | 1,206 | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
U.S. | | $ | 309 |
| | $ | 258 |
|
U.K. | | 173 |
| | 107 |
|
Other | | 115 |
| | 117 |
|
Total property and equipment, net | | $ | 597 |
| | $ | 482 |
|
Property and equipment balances are allocated to each country based on the location of the asset.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| | 2017(a, b, c,) |
| | 1st quarter | | 2nd quarter | | 3rd quarter | | 4th quarter |
| | | | | | | | |
Revenues | | $ | 1,613 |
| | $ | 1,745 |
| | $ | 1,651 |
| | $ | 1,864 |
|
Operating income (loss) | | 487 |
| | 630 |
| | 433 |
| | (837 | ) |
Net income (loss) | | 221 |
| | 380 |
| | 223 |
| | (1,137 | ) |
Net income (loss) available to Discovery Communications, Inc. | | 215 |
| | 374 |
| | 218 |
| | (1,144 | ) |
| | | | | | | | |
Earnings per share available to Discovery Communications, Inc. Series A, B and C common stockholders | | | | | | | | |
Basic | | $ | 0.37 |
| | $ | 0.65 |
| | $ | 0.38 |
| | $ | (1.99 | ) |
Diluted(e) | | $ | 0.37 |
| | $ | 0.64 |
| | $ | 0.38 |
| | $ | (1.99 | ) |
| | | | | | | | |
| | 2016(d) |
| | 1st quarter | | 2nd quarter | | 3rd quarter | | 4th quarter |
| | | | | | | | |
Revenues | | $ | 1,561 |
| | $ | 1,708 |
| | $ | 1,556 |
| | $ | 1,672 |
|
Operating income | | 489 |
| | 586 |
| | 458 |
| | 525 |
|
Net income | | 269 |
| | 415 |
| | 225 |
| | 309 |
|
Net income available to Discovery Communications, Inc. | | 263 |
| | 408 |
| | 219 |
| | 304 |
|
| | | | | | | | |
Earnings per share available to Discovery Communications, Inc. Series A, B and C common stockholders | | | | | | | | |
Basic | | $ | 0.42 |
| | $ | 0.66 |
| | $ | 0.37 |
| | $ | 0.52 |
|
Diluted | | $ | 0.42 |
| | $ | 0.66 |
| | $ | 0.36 |
| | $ | 0.52 |
|
(a)Goodwill impairment expense of $1.3 billion was recognized during the fourth quarter of 2017. (See Note 8.)
(b)On September 25, 2017, the Company acquired a 67.5% controlling interest in VTEN, a new joint venture with GoldenTree, in exchange for its contribution of the Velocity network. On November 30, 2017, the Company acquired a controlling interest in OWN from Harpo, increasing Discovery’s ownership stake from 49.50% to 73.99%. Discovery paid $70 million in cash and recognized a gain of $33 million to account for the difference between the carrying value and the fair value of the previously held 49.50% equity interest. On April 28, 2017, the Company sold Raw and Betty to All3Media and recorded a loss of $4 million upon disposition. (See Note 3.) As of December 31, 2017, the Company has incurred transaction and integration costs for the Scripps Networks acquisition of $79 million, including the $35 million charge associated with the modification of Advance/Newhouse's preferred stock. (See Note 12.)
(c) In March 2017, DCL completed a cash tender offer for $600 million aggregate principal amount of DCL's 5.05% senior notes due 2020 and 5.625% senior notes due 2019. This transaction resulted in a pretax loss on extinguishment of debt of $54 million for the year ended December 31, 2017, which is presented as a separate line item on the Company's consolidated statements of operations and recognized as a component of financing cash outflows on the consolidated statements of cash flows. The loss included $50 million for premiums to par value, $2 million of non-cash write-offs of unamortized deferred financing costs, $1 million for the write-off of the original issue discount of these senior notes and $1 million accrued for other third-party fees. (See Note 10.)
(d) On September 30, 2016, the Company recorded an other-than-temporary impairment of $62 million related to its investment in Lionsgate. On December 2, 2016, the Company acquired a 39% minority interest in Group Nine Media, a newly formed media holding company, in exchange for contributions of $100 million and the Company's digital businesses Seeker and SourceFed, resulting in a gain of $50 million upon deconsolidation of the businesses. (See Note 3.)
(e)Amounts may not sum to annual total due to rounding.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Overview
As of December 31, 2017 and 2016, all of the outstanding senior notes have been issued by DCL, a wholly-owned subsidiary of Discovery Communications Holding LLC (“DCH”), which is a wholly-owned subsidiary of the Company, pursuant to one or more Registration Statements on Form S-3 filed with the U.S. Securities and Exchange Commission ("SEC"). (See Note 9.) The Company fully and unconditionally guarantees the senior notes on an unsecured basis. Each of the Company, DCH, and/or DCL (collectively the “Issuers”) may issue additional debt securities under the Company's current Registration Statement on Form S-3 that are fully and unconditionally guaranteed by the other Issuers.
Set forth below are condensed consolidating financial statements presenting the financial position, results of operations and comprehensive income and cash flows of (i) the Company, (ii) DCH, (iii) DCL, (iv) the non-guarantor subsidiaries of DCL on a combined basis, (v) the other non-guarantor subsidiaries of the Company on a combined basis, and (vi) reclassifications and eliminations necessary to arrive at the consolidated financial statement balances for the Company. DCL and the non-guarantor subsidiaries of DCL are the primary operating subsidiaries of the Company. DCL primarily includes the Discovery Channel and TLC networks in the U.S. The non-guarantor subsidiaries of DCL include substantially all of the Company’s other U.S. and international networks, education businesses, and most of the Company’s websites and digital distribution arrangements. The non-guarantor subsidiaries of DCL are wholly-owned subsidiaries of DCL with the exception of certain equity method investments. DCL is a wholly-owned subsidiary of DCH. The Company wholly owns DCH through a 33 1/3% direct ownership interest and a 66 2/3% indirect ownership interest through Discovery Holding Company (“DHC”), a wholly-owned subsidiary of the Company. DHC is included in the other non-guarantor subsidiaries of the Company.
On September 25, 2017, the Company acquired a 67.5% controlling interest in VTEN, a new joint venture with GoldenTree, in exchange for its contribution of the Velocity network. The VTEN non-cash transaction and all related financial activity is included within the non-guarantor subsidiaries of DCL. (See Note 3.) The Company's 2016 minority investment in Group Nine Media and all related financial activity is included within the DCL issuer entity in the accompanying condensed consolidated financial statements. (See Note 4.)
Basis of Presentation
Solely for purposes of presenting the condensed consolidating financial statements, investments in the Company’s subsidiaries have been accounted for by their respective parent company using the equity method. Accordingly, in the following condensed consolidating financial statements the equity method has been applied to (i) the Company’s interests in DCH and the other non-guarantor subsidiaries of the Company, (ii) DCH’s interest in DCL, and (iii) DCL’s interests in the non-guarantor subsidiaries of DCL. Inter-company accounts and transactions have been eliminated to arrive at the consolidated financial statement amounts for the Company. The Company’s accounting bases in all subsidiaries, including goodwill and recognized intangible assets, have been pushed down to the applicable subsidiaries.
The operations of certain of the Company’s international subsidiaries are excluded from the Company’s consolidated U.S. income tax return. Tax expense related to permanent differences has been allocated to the entity that created the difference. Tax expense related to temporary differences has been allocated to the entity that created the difference, where identifiable. The remaining temporary differences are allocated to each entity included in the Company’s consolidated U.S. income tax return based on each entity’s relative pretax income. Deferred taxes have been allocated based upon the temporary differences between the carrying amounts of the respective assets and liabilities of the applicable entities.
The condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of the Company.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
ASSETS | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | $ | — |
| | $ | 6,800 |
| | $ | 509 |
| | $ | — |
| | $ | — |
| | $ | 7,309 |
|
Receivables, net | | — |
| | — |
| | 410 |
| | 1,428 |
| | — |
| | — |
| | 1,838 |
|
Content rights, net | | — |
| | — |
| | 4 |
| | 406 |
| | — |
| | — |
| | 410 |
|
Prepaid expenses and other current assets | | 49 |
| | 32 |
| | 204 |
| | 149 |
| | — |
| | — |
| | 434 |
|
Inter-company trade receivables, net | | — |
| | — |
| | 205 |
| | — |
| | — |
| | (205 | ) | | — |
|
Total current assets | | 49 |
| | 32 |
| | 7,623 |
| | 2,492 |
| | — |
| | (205 | ) | | 9,991 |
|
Investment in and advances to subsidiaries | | 4,563 |
| | 4,532 |
| | 6,951 |
| | — |
| | 3,056 |
| | (19,102 | ) | | — |
|
Noncurrent content rights, net | | — |
| | — |
| | 672 |
| | 1,541 |
| | — |
| | — |
| | 2,213 |
|
Goodwill, net | | — |
| | — |
| | 3,677 |
| | 3,396 |
| | — |
| | — |
| | 7,073 |
|
Intangible assets, net | | — |
| | — |
| | 259 |
| | 1,511 |
| | — |
| | — |
| | 1,770 |
|
Equity method investments | | — |
| | — |
| | 25 |
| | 310 |
| | — |
| | — |
| | 335 |
|
Other noncurrent assets, including property and equipment, net | | — |
| | 20 |
| | 364 |
| | 809 |
| | — |
| | (20 | ) | | 1,173 |
|
Total assets | | $ | 4,612 |
| | $ | 4,584 |
| | $ | 19,571 |
| | $ | 10,059 |
| | $ | 3,056 |
| | $ | (19,327 | ) | | $ | 22,555 |
|
LIABILITIES AND EQUITY | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | |
Current portion of debt | | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 23 |
| | $ | — |
| | $ | — |
| | $ | 30 |
|
Other current liabilities | | — |
| | — |
| | 572 |
| | 1,269 |
| | — |
| | — |
| | 1,841 |
|
Inter-company trade payables, net | | — |
| | — |
| | — |
| | 205 |
| | — |
| | (205 | ) | | — |
|
Total current liabilities | | — |
| | — |
| | 579 |
| | 1,497 |
| | — |
| | (205 | ) | | 1,871 |
|
Noncurrent portion of debt | | — |
| | — |
| | 14,163 |
| | 592 |
| | — |
| | — |
| | 14,755 |
|
Other noncurrent liabilities | | 2 |
| | — |
| | 297 |
| | 606 |
| | 21 |
| | (20 | ) | | 906 |
|
Total liabilities | | 2 |
| | — |
| | 15,039 |
| | 2,695 |
| | 21 |
| | (225 | ) | | 17,532 |
|
Redeemable noncontrolling interests | | — |
| | — |
| | — |
| | 413 |
| | — |
| | — |
| | 413 |
|
Total equity | | 4,610 |
| | 4,584 |
| | 4,532 |
| | 6,951 |
| | 3,035 |
| | (19,102 | ) | | 4,610 |
|
Total liabilities and equity | | $ | 4,612 |
| | $ | 4,584 |
| | $ | 19,571 |
| | $ | 10,059 |
| | $ | 3,056 |
| | $ | (19,327 | ) | | $ | 22,555 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2016
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
ASSETS | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | $ | — |
| | $ | 20 |
| | $ | 280 |
| | $ | — |
| | $ | — |
| | $ | 300 |
|
Receivables, net | | — |
| | — |
| | 421 |
| | 1,074 |
| | — |
| | — |
| | 1,495 |
|
Content rights, net | | — |
| | — |
| | 8 |
| | 302 |
| | — |
| | — |
| | 310 |
|
Prepaid expenses and other current assets | | 62 |
| | 36 |
| | 180 |
| | 119 |
| | — |
| | — |
| | 397 |
|
Inter-company trade receivables, net | | — |
| | — |
| | 195 |
| | — |
| | — |
| | (195 | ) | | — |
|
Total current assets | | 62 |
| | 36 |
| | 824 |
| | 1,775 |
| | — |
| | (195 | ) | | 2,502 |
|
Investment in and advances to subsidiaries | | 5,106 |
| | 5,070 |
| | 7,450 |
| | — |
| | 3,417 |
| | (21,043 | ) | | — |
|
Noncurrent content rights, net | | — |
| | — |
| | 663 |
| | 1,426 |
| | — |
| | — |
| | 2,089 |
|
Goodwill, net | | — |
| | — |
| | 3,769 |
| | 4,271 |
| | — |
| | — |
| | 8,040 |
|
Intangible assets, net | | — |
| | — |
| | 272 |
| | 1,240 |
| | — |
| | — |
| | 1,512 |
|
Equity method investments, including note receivable | | — |
| | — |
| | 30 |
| | 527 |
| | — |
| | — |
| | 557 |
|
Other noncurrent assets, including property and equipment, net | | — |
| | 20 |
| | 306 |
| | 666 |
| | — |
| | (20 | ) | | 972 |
|
Total assets | | $ | 5,168 |
| | $ | 5,126 |
| | $ | 13,314 |
| | $ | 9,905 |
| | $ | 3,417 |
| | $ | (21,258 | ) | | $ | 15,672 |
|
LIABILITIES AND EQUITY | | | | | | | | | | | | | |
|
|
Current liabilities: | | | | | | | | | | | | | |
|
|
Current portion of debt | | $ | — |
| | $ | — |
| | $ | 52 |
| | $ | 30 |
| | $ | — |
| | $ | — |
| | $ | 82 |
|
Other current liabilities | | — |
| | — |
| | 516 |
| | 963 |
| | — |
| | — |
| | 1,479 |
|
Inter-company trade payables, net | | — |
| | — |
| | — |
| | 195 |
| | — |
| | (195 | ) | | — |
|
Total current liabilities | | — |
| | — |
| | 568 |
| | 1,188 |
| | — |
| | (195 | ) | | 1,561 |
|
Noncurrent portion of debt | | — |
| | — |
| | 7,315 |
| | 526 |
| | — |
| | — |
| | 7,841 |
|
Other noncurrent liabilities | | 1 |
| | — |
| | 361 |
| | 498 |
| | 20 |
| | (20 | ) | | 860 |
|
Total liabilities | | 1 |
| | — |
| | 8,244 |
| | 2,212 |
| | 20 |
| | (215 | ) | | 10,262 |
|
Redeemable noncontrolling interests | | — |
| | — |
| | — |
| | 243 |
| | — |
| | — |
| | 243 |
|
Total equity | | 5,167 |
| | 5,126 |
| | 5,070 |
| | 7,450 |
| | 3,397 |
| | (21,043 | ) | | 5,167 |
|
Total liabilities and equity | | $ | 5,168 |
| | $ | 5,126 |
| | $ | 13,314 |
| | $ | 9,905 |
| | $ | 3,417 |
| | $ | (21,258 | ) | | $ | 15,672 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Revenues | | $ | — |
| | $ | — |
| | $ | 1,988 |
| | $ | 4,897 |
| | $ | — |
| | $ | (12 | ) | | $ | 6,873 |
|
Costs of revenues, excluding depreciation and amortization | | — |
| | — |
| | 467 |
| | 2,191 |
| | — |
| | (2 | ) | | 2,656 |
|
Selling, general and administrative | | 53 |
| | — |
| | 309 |
| | 1,416 |
| | — |
| | (10 | ) | | 1,768 |
|
Impairment of goodwill | | — |
| | — |
| | — |
| | 1,327 |
| | — |
| | — |
| | 1,327 |
|
Depreciation and amortization | | — |
| | — |
| | 42 |
| | 288 |
| | — |
| | — |
| | 330 |
|
Restructuring and other charges | | — |
| | — |
| | 35 |
| | 40 |
| | — |
| | — |
| | 75 |
|
Loss on disposition | | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
Total costs and expenses | | 53 |
| | — |
| | 853 |
| | 5,266 |
| | — |
| | (12 | ) | | 6,160 |
|
Operating (loss) income | | (53 | ) | | — |
| | 1,135 |
| | (369 | ) | | — |
| | — |
| | 713 |
|
Equity in loss of subsidiaries | | (288 | ) | | (288 | ) | | (541 | ) | | — |
| | (192 | ) | | 1,309 |
| | — |
|
Interest expense | | — |
| | — |
| | (448 | ) | | (27 | ) | | — |
| | — |
| | (475 | ) |
Loss on extinguishment of debt | | — |
| | — |
| | (54 | ) | | — |
| | — |
| | — |
| — |
| (54 | ) |
Loss from equity investees, net | | — |
| | — |
| | (3 | ) | | (208 | ) | | — |
| | — |
| | (211 | ) |
Other (expense) income, net | | — |
| | — |
| | (204 | ) | | 94 |
| | — |
| | — |
| | (110 | ) |
Loss before income taxes | | (341 | ) | | (288 | ) | | (115 | ) | | (510 | ) | | (192 | ) | | 1,309 |
| | (137 | ) |
Income tax benefit (expense) | | 4 |
| | — |
| | (173 | ) | | (7 | ) | | — |
| | — |
| | (176 | ) |
Net loss | | (337 | ) | | (288 | ) | | (288 | ) | | (517 | ) | | (192 | ) | | 1,309 |
| | (313 | ) |
Net income attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (24 | ) | | (24 | ) |
Net loss available to Discovery Communications, Inc. | | $ | (337 | ) | | $ | (288 | ) | | $ | (288 | ) | | $ | (517 | ) | | $ | (192 | ) | | $ | 1,285 |
| | $ | (337 | ) |
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Revenues | | $ | — |
| | $ | — |
| | $ | 1,963 |
| | $ | 4,547 |
| | $ | — |
| | $ | (13 | ) | | $ | 6,497 |
|
Costs of revenues, excluding depreciation and amortization | | — |
| | — |
| | 466 |
| | 1,970 |
| | — |
| | (4 | ) | | 2,432 |
|
Selling, general and administrative | | 14 |
| | — |
| | 292 |
| | 1,393 |
| | — |
| | (9 | ) | | 1,690 |
|
Depreciation and amortization | | — |
| | — |
| | 41 |
| | 281 |
| | — |
| | — |
| | 322 |
|
Restructuring and other charges | | — |
| | — |
| | 28 |
| | 30 |
| | — |
| | — |
| | 58 |
|
Gain on disposition | | — |
| | — |
| | (50 | ) | | (13 | ) | | — |
| | — |
| | (63 | ) |
Total costs and expenses | | 14 |
| | — |
| | 777 |
| | 3,661 |
| | — |
| | (13 | ) | | 4,439 |
|
Operating (loss) income | | (14 | ) | | — |
| | 1,186 |
| | 886 |
| | — |
| | — |
| | 2,058 |
|
Equity in earnings of subsidiaries | | 1,203 |
| | 1,203 |
| | 602 |
| | — |
| | 802 |
| | (3,810 | ) | | — |
|
Interest expense | | — |
| | — |
| | (332 | ) | | (21 | ) | | — |
| | — |
| | (353 | ) |
Loss from equity investees, net | | — |
| | — |
| | (3 | ) | | (35 | ) | | — |
| | — |
| | (38 | ) |
Other income (expense), net | | — |
| | — |
| | 40 |
| | (36 | ) | | — |
| | — |
| | 4 |
|
Income before income taxes | | 1,189 |
| | 1,203 |
| | 1,493 |
| | 794 |
| | 802 |
| | (3,810 | ) | | 1,671 |
|
Income tax benefit (expense) | | 5 |
| | — |
| | (290 | ) | | (168 | ) | | — |
| | — |
| | (453 | ) |
Net income | | 1,194 |
| | 1,203 |
| | 1,203 |
| | 626 |
| | 802 |
| | (3,810 | ) | | 1,218 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Net income attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (23 | ) | | (23 | ) |
Net income available to Discovery Communications, Inc. | | $ | 1,194 |
| | $ | 1,203 |
| | $ | 1,203 |
| | $ | 626 |
| | $ | 802 |
| | $ | (3,834 | ) | | $ | 1,194 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2015
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Revenues | | $ | — |
| | $ | — |
| | $ | 1,909 |
| | $ | 4,498 |
| | $ | — |
| | $ | (13 | ) | | $ | 6,394 |
|
Costs of revenues, excluding depreciation and amortization | | — |
| | — |
| | 500 |
| | 1,847 |
| | — |
| | (4 | ) | | 2,343 |
|
Selling, general and administrative | | 15 |
| | — |
| | 265 |
| | 1,398 |
| | — |
| | (9 | ) | | 1,669 |
|
Depreciation and amortization | | — |
| | — |
| | 35 |
| | 295 |
| | — |
| | — |
| | 330 |
|
Restructuring and other charges | | — |
| | — |
| | 28 |
| | 22 |
| | — |
| | — |
| | 50 |
|
Loss on disposition | | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
| | 17 |
|
Total costs and expenses | | 15 |
| | — |
| | 828 |
| | 3,579 |
| | — |
| | (13 | ) | | 4,409 |
|
Operating (loss) income | | (15 | ) | | — |
| | 1,081 |
| | 919 |
| | — |
| | — |
| | 1,985 |
|
Equity in earnings of subsidiaries | | 1,044 |
| | 1,044 |
| | 505 |
| | — |
| | 696 |
| | (3,289 | ) | | — |
|
Interest expense | | — |
| | — |
| | (318 | ) | | (12 | ) | | — |
| | — |
| | (330 | ) |
Income (loss) from equity investees, net | | — |
| | — |
| | 4 |
| | (3 | ) | | — |
| | — |
| | 1 |
|
Other income (expense), net | | — |
| | — |
| | 9 |
| | (106 | ) | | — |
| | — |
| | (97 | ) |
Income before income taxes | | 1,029 |
| | 1,044 |
| | 1,281 |
| | 798 |
| | 696 |
| | (3,289 | ) | | 1,559 |
|
Income tax benefit (expense) | | 5 |
| | — |
| | (237 | ) | | (279 | ) | | — |
| | — |
| | (511 | ) |
Net income | | 1,034 |
| | 1,044 |
| | 1,044 |
| | 519 |
| | 696 |
| | (3,289 | ) | | 1,048 |
|
Net income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Net loss attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (13 | ) | | (13 | ) |
Net income available to Discovery Communications, Inc. | | $ | 1,034 |
| | $ | 1,044 |
| | $ | 1,044 |
| | $ | 519 |
| | $ | 696 |
| | $ | (3,303 | ) | | $ | 1,034 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the Year Ended to December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Net loss | | $ | (337 | ) | | $ | (288 | ) | | $ | (288 | ) | | $ | (517 | ) | | $ | (192 | ) | | $ | 1,309 |
| | $ | (313 | ) |
Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | |
Currency translation | | 183 |
| | 183 |
| | 183 |
| | 186 |
| | 122 |
| | (674 | ) | | 183 |
|
Available-for-sale securities | | 15 |
| | 15 |
| | 15 |
| | 15 |
| | 10 |
| | (55 | ) | | 15 |
|
Derivatives | | (20 | ) | | (20 | ) | | (20 | ) | | (9 | ) | | (13 | ) | | 62 |
| | (20 | ) |
Comprehensive loss | | (159 | ) | | (110 | ) | | (110 | ) | | (325 | ) | | (73 | ) | | 642 |
| | (135 | ) |
Comprehensive income attributable to redeemable noncontrolling interests | | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (20 | ) | | (25 | ) |
Comprehensive loss attributable to Discovery Communications, Inc. | | $ | (160 | ) | | $ | (111 | ) | | $ | (111 | ) | | $ | (326 | ) | | $ | (74 | ) | | $ | 622 |
| | $ | (160 | ) |
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended to December 31, 2016
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Net income | | $ | 1,194 |
| | $ | 1,203 |
| | $ | 1,203 |
| | $ | 626 |
| | $ | 802 |
| | $ | (3,810 | ) | | $ | 1,218 |
|
Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | |
Currency translation | | (191 | ) | | (191 | ) | | (191 | ) | | (190 | ) | | (127 | ) | | 699 |
| | (191 | ) |
Available-for-sale securities | | 38 |
| | 38 |
| | 38 |
| | 38 |
| | 25 |
| | (139 | ) | | 38 |
|
Derivatives | | 24 |
| | 24 |
| | 24 |
| | 22 |
| | 16 |
| | (86 | ) | | 24 |
|
Comprehensive income | | 1,065 |
| | 1,074 |
| | 1,074 |
| | 496 |
| | 716 |
| | (3,336 | ) | | 1,089 |
|
Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Comprehensive income attributable to redeemable noncontrolling interests | | (23 | ) | | (23 | ) | | (23 | ) | | (23 | ) | | (15 | ) | | 84 |
| | (23 | ) |
Comprehensive income attributable to Discovery Communications, Inc. | | $ | 1,042 |
| | $ | 1,051 |
| | $ | 1,051 |
| | $ | 473 |
| | $ | 701 |
| | $ | (3,253 | ) | | $ | 1,065 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended to December 31, 2015
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Net income | | $ | 1,034 |
| | $ | 1,044 |
| | $ | 1,044 |
| | $ | 519 |
| | $ | 696 |
| | $ | (3,289 | ) | | $ | 1,048 |
|
Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | |
Currency translation | | (201 | ) | | (201 | ) | | (201 | ) | | (199 | ) | | (134 | ) | | 735 |
| | (201 | ) |
Available-for-sale securities | | (25 | ) | | (25 | ) | | (25 | ) | | (25 | ) | | (17 | ) | | 92 |
| | (25 | ) |
Derivatives | | (1 | ) | | (1 | ) | | (1 | ) | | (3 | ) | | (1 | ) | | 6 |
| | (1 | ) |
Comprehensive income | | 807 |
| | 817 |
| | 817 |
| | 292 |
| | 544 |
| | (2,456 | ) | | 821 |
|
Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Comprehensive loss attributable to redeemable noncontrolling interests | | 23 |
| | 23 |
| | 23 |
| | 23 |
| | 15 |
| | (97 | ) | | 10 |
|
Comprehensive income attributable to Discovery Communications, Inc. | | $ | 830 |
| | $ | 840 |
| | $ | 840 |
| | $ | 315 |
| | $ | 559 |
| | $ | (2,554 | ) | | $ | 830 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Operating Activities | | | | | | | | | | | | | | |
Cash (used in) provided by operating activities | | $ | (3 | ) | | $ | 3 |
| | $ | 476 |
| | $ | 1,153 |
| | $ | — |
| | $ | — |
| | $ | 1,629 |
|
Investing Activities | | | | | | | | | | | | | | |
Payments for investments | | — |
| | — |
| | (45 | ) | | (399 | ) | | — |
| | — |
| | (444 | ) |
Purchases of property and equipment | | — |
| | — |
| | (43 | ) | | (92 | ) | | — |
| | — |
| | (135 | ) |
Distributions from equity method investees | | — |
| | — |
| | — |
| | 77 |
| | — |
| | — |
| | 77 |
|
Proceeds from dispositions, net of cash disposed | | — |
| | — |
| | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Payments for derivative instruments, net | | — |
| | — |
| | (111 | ) | | 10 |
| | — |
| | — |
| | (101 | ) |
Business acquisitions, net of cash acquired | | — |
| | — |
| | — |
| | (60 | ) | | — |
| | — |
| | (60 | ) |
Inter-company distributions | | — |
| | — |
| | 42 |
| | — |
| | — |
| | (42 | ) | | — |
|
Other investing activities, net | | — |
| | — |
| | (1 | ) | | 2 |
| | — |
| | — |
| | 1 |
|
Cash used in investing activities | | — |
| | — |
| | (158 | ) | | (433 | ) | | — |
| | (42 | ) | | (633 | ) |
Financing Activities | | | | | | | | | | | | | | |
Commercial paper repayments, net | | — |
| | — |
| | (48 | ) | | — |
| | — |
| | — |
| | (48 | ) |
Borrowings under revolving credit facility | | — |
| | — |
| | 350 |
| | — |
| | — |
| | — |
| | 350 |
|
Principal repayments of revolving credit facility | | — |
| | — |
| | (475 | ) | | — |
| | — |
| | — |
| | (475 | ) |
Borrowings from debt, net of discount and including premiums
| | — |
| | — |
| | 7,488 |
| | — |
| | — |
| | — |
| | 7,488 |
|
Principal repayments of debt, including discount payment and premiums to par value
| | — |
| | — |
| | (650 | ) | | — |
| | — |
| | — |
| | (650 | ) |
Payments for bridge financing commitment fees | | — |
| | — |
| | (40 | ) | | — |
| | — |
| | — |
| | (40 | ) |
Principal repayments of capital lease obligations | | — |
| | — |
| | (7 | ) | | (26 | ) | | — |
| | — |
| | (33 | ) |
Repurchases of stock | | (603 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (603 | ) |
Cash settlement of common stock repurchase contracts | | 58 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 58 |
|
Distributions to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | (30 | ) | | — |
| | — |
| | (30 | ) |
Share-based plan proceeds, net | | 16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16 |
|
Inter-company distributions | | — |
| | — |
| | — |
| | (42 | ) | | — |
| | 42 |
| | — |
|
Inter-company contributions and other financing activities, net | | 532 |
| | (3 | ) | | (156 | ) | | (455 | ) | | — |
| | — |
| | (82 | ) |
Cash provided by (used in) financing activities | | 3 |
| | (3 | ) | | 6,462 |
| | (553 | ) | | — |
| | 42 |
| | 5,951 |
|
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | — |
| | 62 |
| | — |
| | — |
| | 62 |
|
Net change in cash and cash equivalents | | — |
| | — |
| | 6,780 |
| | 229 |
| | — |
| | — |
| | 7,009 |
|
Cash and cash equivalents, beginning of period | | — |
| | — |
| | 20 |
| | 280 |
| | — |
| | — |
| | 300 |
|
Cash and cash equivalents, end of period | | $ | — |
| | $ | — |
| | $ | 6,800 |
| | $ | 509 |
| | $ | — |
| | $ | — |
| | $ | 7,309 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2016
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Operating Activities | | | | | | | | | | | | | | |
Cash (used in) provided by operating activities | | $ | (20 | ) | | $ | (9 | ) | | $ | 249 |
| | $ | 1,160 |
| | $ | — |
| | $ | — |
| | $ | 1,380 |
|
Investing Activities | | | | | | | | | | | | | | |
Payments for investments | | — |
| | — |
| | (124 | ) | | (148 | ) | | — |
| | — |
| | (272 | ) |
Purchases of property and equipment | | — |
| | — |
| | (18 | ) | | (70 | ) | | — |
| | — |
| | (88 | ) |
Proceeds from dispositions, net of cash disposed | | — |
| | — |
| | — |
| | 19 |
| | — |
| | — |
| | 19 |
|
Distributions from equity method investees | | — |
| | — |
| | — |
| | 87 |
| | — |
| | — |
| | 87 |
|
Inter-company distributions | | — |
| | — |
| | 30 |
| | — |
| | — |
| | (30 | ) | | — |
|
Other investing activities, net
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
Cash used in investing activities | | — |
| | — |
| | (112 | ) | | (114 | ) | | — |
| | (30 | ) | | (256 | ) |
Financing Activities | | | | | | | | | | | | | | |
Commercial paper repayments, net
| | — |
| | — |
| | (45 | ) | | — |
| | — |
| | — |
| | (45 | ) |
Borrowings under revolving credit facility | | — |
| | — |
| | 350 |
| | 263 |
| | — |
| | — |
| | 613 |
|
Principal repayments of revolving credit facility | | — |
| | — |
| | (225 | ) | | (610 | ) | | — |
| | — |
| | (835 | ) |
Borrowings from debt, net of discount and including premiums
| | — |
| | — |
| | 498 |
| | — |
| | — |
| | — |
| | 498 |
|
Principal repayments of capital lease obligations | | — |
| | — |
| | (5 | ) | | (23 | ) | | — |
| | — |
| | (28 | ) |
Repurchases of stock | | (1,374 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,374 | ) |
Prepayments of common stock repurchase contracts | | (57 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (57 | ) |
Distributions to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | (22 | ) | | — |
| | — |
| | (22 | ) |
Share-based plan proceeds, net
| | 39 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 39 |
|
Hedge of borrowings from debt instruments | | — |
| | — |
| | 40 |
| | — |
| | — |
| | — |
| | 40 |
|
Inter-company distributions | | — |
| | — |
| | — |
| | (30 | ) | | — |
| | 30 |
| | — |
|
Inter-company contributions and other financing activities, net | | 1,412 |
| | 9 |
| | (733 | ) | | (701 | ) | | — |
| | — |
| | (13 | ) |
Cash provided by (used in) financing activities | | 20 |
| | 9 |
| | (120 | ) | | (1,123 | ) | | — |
| | 30 |
| | (1,184 | ) |
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | — |
| | (30 | ) | | — |
| | — |
| | (30 | ) |
Net change in cash and cash equivalents | | — |
| | — |
| | 17 |
| | (107 | ) | | — |
| | — |
| | (90 | ) |
Cash and cash equivalents, beginning of period | | — |
| | — |
| | 3 |
| | 387 |
| | — |
| | — |
| | 390 |
|
Cash and cash equivalents, end of period | | $ | — |
| | $ | — |
| | $ | 20 |
| | $ | 280 |
| | $ | — |
| | $ | — |
| | $ | 300 |
|
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2015
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Discovery | | DCH | | DCL | | Non-Guarantor Subsidiaries of DCL | | Other Non- Guarantor Subsidiaries of Discovery | | Reclassifications and Eliminations | | Discovery and Subsidiaries |
Operating Activities | | | | | | | | | | | | | | |
Cash (used in) provided by operating activities | | $ | (122 | ) | | $ | (15 | ) | | $ | 427 |
| | $ | 1,004 |
| | $ | — |
| | $ | — |
| | $ | 1,294 |
|
Investing Activities | | | | | | | | | | | | | | |
Payments for investments | | — |
| | — |
| | (10 | ) | | (262 | ) | | — |
| | — |
| | (272 | ) |
Purchases of property and equipment | | — |
| | — |
| | (17 | ) | | (86 | ) | | — |
| | — |
| | (103 | ) |
Distributions from equity method investees | | — |
| | — |
| | — |
| | 87 |
| | — |
| | — |
| | 87 |
|
Proceeds from disposition, net of cash disposed | | — |
| | — |
| | — |
| | 61 |
| | — |
| | — |
| | 61 |
|
Payments for derivative instruments, net | | — |
| | — |
| | (11 | ) | | 2 |
| | — |
| | — |
| | (9 | ) |
Business acquisitions, net of cash acquired | | — |
| | — |
| | — |
| | (80 | ) | | — |
| | — |
| | (80 | ) |
Inter-company distributions | | — |
| | — |
| | 37 |
| | — |
| | — |
| | (37 | ) | | — |
|
Other investing activities, net | | — |
| | — |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
Cash used in investing activities | | — |
| | — |
| | (1 | ) | | (263 | ) | | — |
| | (37 | ) | | (301 | ) |
Financing Activities | | | | | | | | | | | | | | |
Commercial paper repayments, net
| | — |
| | — |
| | (136 | ) | | — |
| | — |
| | — |
| | (136 | ) |
Borrowings under revolving credit facility | | — |
| | — |
| | — |
| | 1,016 |
| | — |
| | — |
| | 1,016 |
|
Principal repayments of revolving credit facility | | — |
| | — |
| | (13 | ) | | (252 | ) | | — |
| | — |
| | (265 | ) |
Borrowings from debt, net of discount and including premiums | | — |
| | — |
| | 936 |
| | — |
| | — |
| | — |
| | 936 |
|
Principal repayments of debt, including discount payment and premiums to par value
| | — |
| | — |
| | (854 | ) | | — |
| | — |
| | — |
| | (854 | ) |
Principal repayments of capital leases obligations | | — |
| | — |
| | (5 | ) | | (22 | ) | | — |
| | — |
| | (27 | ) |
Repurchases of stock | | (951 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (951 | ) |
Purchase of redeemable noncontrolling interests | | — |
| | — |
| | — |
| | (548 | ) | | — |
| | — |
| | (548 | ) |
Distributions to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | (42 | ) | | — |
| | — |
| | (42 | ) |
Share-based plan payments, net
| | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) |
Hedge of borrowings from debt distributions | | — |
| | — |
| | (29 | ) | | — |
| | — |
| | — |
| | (29 | ) |
Inter-company distributions | | — |
| | — |
| | — |
| | (37 | ) | | — |
| | 37 |
| | — |
|
Inter-company contributions and other financing activities, net | | 1,079 |
| | 15 |
| | (330 | ) | | (777 | ) | | — |
| | — |
| | (13 | ) |
Cash provided by (used in) financing activities | | 122 |
| | 15 |
| | (431 | ) | | (662 | ) | | — |
| | 37 |
| | (919 | ) |
Effect of exchange rate changes on cash and cash equivalents | | — |
| | — |
| | — |
| | (51 | ) | | — |
| | — |
| | (51 | ) |
Net change in cash and cash equivalents | | — |
| | — |
| | (5 | ) | | 28 |
| | — |
| | — |
| | 23 |
|
Cash and cash equivalents, beginning of period | | — |
| | — |
| | 8 |
| | 359 |
| | — |
| | — |
| | 367 |
|
Cash and cash equivalents, end of period | | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 387 |
| | $ | — |
| | $ | — |
| | $ | 390 |
|
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
ITEM 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2017,2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting is set forth in Item 8 of this Annual Report on Form 10-K under the caption “Management’s Report on Internal Control overOver Financial Reporting,” which is incorporated herein by reference.
Report of the Independent Registered Public Accounting Firm
The report of our independent registered public accounting firm regarding internal control over financial reporting is set forth in Item 8 of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm,” which is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
During the quarterthree months ended December 31, 2017,2021, there were no changes in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information.
None.We currently anticipate that our 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”) will be held on April 8, 2022. Because the date of the 2022 Annual Meeting represents a change of more than 30 days from the anniversary of our 2021 Annual Meeting of Stockholders, in accordance with Rule 14a-5(f) under the Exchange Act, we are informing our stockholders of this change. The time and location of the 2022 Annual Meeting will be specified in our definitive Proxy Statement for the 2022 Annual Meeting, which will be filed with the SEC pursuant to Regulation 14A of the Exchange Act within 120 days of our fiscal year end.
Pursuant to Rule 14a-8 under the Exchange Act, a stockholder intending to present a proposal to be included in the Proxy Statement for the 2022 Annual Meeting must deliver a proposal in writing to our principal executive offices no later than a reasonable time before we begin to print and mail the proxy materials for the 2022 Annual Meeting. Such proposal must also comply with the applicable requirements as to form and substance established by the SEC if those proposals are to be included in the proxy statement and form of proxy. Because the date of the 2022 Annual Meeting is more than 30 days earlier than the anniversary of our 2021 Annual Meeting of Stockholders and the previously disclosed deadline of December 31, 2021 for the submission of such proposals has expired, we have determined that the December 31, 2021 deadline constitutes a reasonable time for the submission of such proposals and that no change is needed to the deadline.
Our bylaws set forth advance notice procedures with regard to other stockholder proposals, including nominations for the election of directors and business proposals to be brought before an annual meeting of stockholders by any stockholder (other than matters included in our proxy materials in accordance with Rule 14a-8 under the Exchange Act). With respect to the 2022 Annual Meeting, such notice will be considered timely if we receive notice of such proposed director nomination or the proposal of other business at our principal executive offices not later than the close of business on March 7, 2022.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Certain information required in Item 10 through Item 14 of Part III of this Annual Report on Form 10-K is incorporated herein by reference to our definitive Proxy Statement for our 20182022 Annual Meeting of Stockholders (“20182022 Proxy Statement”), which shall be filed with the SEC pursuant to Regulation 14A of the Exchange Act within 120 days of our fiscal year end.
ITEM 10. Directors, Executive Officers and Corporate Governance.
Information regarding our directors, compliance with Section 16(a) of the Exchange Act, and our Audit Committee, including committee members and its financial expert, will be set forth in our 20182022 Proxy Statement under the captions “Proposal 1:One: Election of Directors,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” if applicable, and “Corporate Governance – Committees of the Board of DirectorsMeetings and Committees – Audit Committee,” respectively, which are incorporated herein by reference.
Information regarding our executive officers is set forth in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of Discovery, Communications, Inc.” as permitted by General Instruction G(3) to Form 10-K.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that is applicable to all of our directors, officers and employees. Our Board of Directors approved thean updated Code in September 2008January 2019 and reviews it regularly. A copy of the Code and any amendments or waivers that would be required to be disclosed under applicable SEC rules are available free of charge at the investor relations section ofour Investor Relations website at ir.corporate.discovery.com. The information contained on our website www.discoverycommunications.com.is not part of this Annual Report on Form 10-K and is not incorporated by reference herein. In addition, we will provide a printed copy of the Code, free of charge, upon written request to: Investor Relations, Discovery, Communications, Inc., 850 Third230 Park Avenue 8th Floor,South, New York, NY 10022-7225.10003.
ITEM 11. Executive Compensation.
Information regarding executive compensation will be set forth in our 20182022 Proxy Statement under the captions “Compensation“Executive Compensation – Compensation Discussion and Analysis” and “Executive Compensation – Executive Compensation Tables,” which are incorporated herein by reference.
Information regarding compensation policies and practices as they relate to our risk management, director compensation, and compensation committee interlocks and insider participation will be set forth in our 20182022 Proxy Statement under the captions “Risk“Executive Compensation – Compensation Discussion and Analysis – Other Compensation-Related Matters – Risk Considerations in our Compensation Programs,” “Board“Corporate Governance – Director Compensation,” and “Corporate Governance – Committees of the Board of DirectorsMeetings and Committees – Compensation Committee,” respectively, which are incorporated herein by reference.
Information regarding the compensation committee reportsreport will be set forth in our 20182022 Proxy Statement under the captions “Report of thecaption “Executive Compensation Committee” and “Report of the Equity– Compensation Subcommittee of the Compensation Committee” Report” which areis incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding securities authorized for issuance under equity compensation plans will be set forth in our 20182022 Proxy Statement under the caption “Securities Authorized for Issuance Under Equity Compensation Plans,” which is incorporated herein by reference.
Information regarding security ownership of certain beneficial owners and management will be set forth in our 20182022 Proxy Statement under the captions “Security Ownership Information of Certain Beneficial Owners and Management of Discovery – Security Ownership of Certain Beneficial Owners of Discovery”Owners” and “Security Ownership Information of Certain Beneficial Owners and Management of Discovery – Security Ownership of Discovery Management,” which are incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions, and director independence will be set forth in our 20182022 Proxy Statement under the captions “Certain Relationships and“Corporate Governance – Transactions with Related Person Transactions,” “Policy Governing Related Person Transactions,”Persons” and “Corporate Governance – Director Independence,” respectively, which are incorporated herein by reference.
ITEM 14. Principal Accountant Fees and Services.
Information regarding principal accountant fees and services will be set forth in our 20182022 Proxy Statement under the captions “Ratification of Appointment of Independent Registered Public Accounting“Audit Matters – Audit Firm – Description of Fees”Fees and “Ratification of Appointment of Independent Registered Public Accounting FirmServices” and “Audit Matters – Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm,Policy,” which are incorporated herein by reference.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1.(1) The following consolidated financial statements of Discovery, Communications, Inc. are filed as part of Item 8 of this Annual Report on Form 10-K:
2. (2) Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
Changes in valuation and qualifying accounts consisted of the following (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Beginning of Year | | Additions | | Other (a) | | Write-offs | | | | End of Year | |
2021 | | | | | | | | | | | | | |
Allowance for credit losses | | $ | 59 | | | 21 | | | — | | | (26) | | | | | $ | 54 | | |
Deferred tax valuation allowance | | $ | 257 | | | 80 | | | — | | | (32) | | | | | $ | 305 | | |
2020 | | | | | | | | | | | | | |
Allowance for credit losses | | $ | 54 | | | 30 | | | (2) | | | (23) | | | | | $ | 59 | | |
Deferred tax valuation allowance | | $ | 307 | | | 51 | | | — | | | (101) | | | | | $ | 257 | | |
2019 | | | | | | | | | | | | | |
Allowance for credit losses | | $ | 46 | | | 15 | | | — | | | (7) | | | | | $ | 54 | | |
Deferred tax valuation allowance | | $ | 336 | | | 37 | | | — | | | (66) | | | | | $ | 307 | | |
| | | | | | | | | | | | | |
(a) Amount relates to the impact of the adjustment recorded for adoption of ASU 2016-13. | |
All other financial statement schedules required to be filed pursuant to Item 8 and Item 15(c) of Form 10-K have been omitted as the required information is not applicable, not material, or is set forth in the consolidated financial statements or notes thereto.
3.
(3) The following exhibits are filed or furnished as part of this Annual Report on Form 10-K pursuant to Item 601 of SEC Regulation S-K and Item 15(b) of Form 10-K:
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
2.1 | | |
2.2 | | |
| | |
2.3 | | |
| | |
2.4 | | |
| | |
2.5 | | |
| | |
2.6 | | |
| | |
3.1 | | |
| | |
3.2 | | |
| |
3.3 | | |
| | |
3.4 | | |
| | |
3.5 | | |
| | |
4.1 | | |
| |
4.2 | | |
| |
4.3 | | |
| |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
4.4 | | |
| | |
4.5 | | |
| | |
4.6 | | |
| |
4.7 | | |
| | |
4.8 | | |
| | |
4.9 | | Sixth Supplemental Indenture, dated as of March 7, 2014, among Discovery Communications, LLC, Discovery Communications, Inc., U.S. Bank National Association, as trustee and Evalon Financial Services Limited, UK Branch, as London Paying Agent (incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on March 7, 2014 (SEC File No. 001-34177)) |
| | |
4.10 | | |
| | |
4.11 | | Eighth Supplemental Indenture, dated as of March 19, 2015, among Discovery Communications, LLC, Discovery Communications, Inc., U.S. Bank National Association, as Trustee, and Elavon Financial Services Limited, UK Branch, as London Paying Agent (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on March 19, 2015 (SEC File No. 001-34177)) |
| | |
4.12 | | |
| | |
4.13 | | |
| | |
4.14 | | |
| | |
4.15 | | Thirteenth Supplemental Indenture, dated as of September 21, 2017, among Discovery Communications, LLC, Discovery Communications, Inc., Elavon Financial Service DAC, UK Branch, as London Paying Agent, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Form 8-K filed on September 21, 2017 (SEC File No. 001-34177)) |
| | |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
4.16 | | Fourteenth Supplemental Indenture, dated as of April 2, 2018, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Form 8-K filed on April 4, 2018 (SEC File No. 001-34177)) |
| | |
4.17 | | Sixteenth Supplemental Indenture, dated as of June 29, 2018, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Form 10-Q filed November 9, 2018 (SEC File No. 001-34177)) |
| | |
4.18 | | Seventeenth Supplemental Indenture, dated as of May 21, 2019, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on May 21, 2019 (SEC File No. 001-34177)) |
| | |
4.19 | | Eighteenth Supplemental Indenture, dated as of May 18, 2020, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on May 18, 2020 (SEC File No. 001-34177)) |
| | |
4.20 | | Nineteenth Supplemental Indenture, dated as of September 21, 2020, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on September 21, 2020 (SEC File No. 001-34177)) |
| | |
4.21 | | |
| | |
10.1 | | Credit Agreement, dated as of June 9, 2021, among Discovery Communications, LLC, certain wholly-owned subsidiaries of Discovery Communications, LLC, Discovery, Inc., as Facility Guarantor, Scripps Networks Interactive, Inc., as subsidiary guarantor, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer. (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on June 10, 2021 (SEC File No. 001-34177)) |
| | |
10.2 | | Amendment No. 1 to Credit Agreement, dated as of July 30, 2021, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc., certain lenders party thereto and Bank of America, N.A. (incorporated by reference to Exhibit 10.9 to the Form 10-Q filed on August 3, 2021 (SEC File No. 001-34177)) |
| | |
10.3 | | |
| | |
10.4 | | |
| | |
10.5 | | |
| | |
10.6 | | |
| | |
10.7 | | |
| | |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
10.8 | | |
| | |
10.9 | | |
| | |
10.10 | | |
| | |
10.11 | | |
| |
10.12 | | |
| | |
10.13 | | |
| | |
10.14 | | |
| |
10.15 | | |
| | |
10.16 | | |
| | |
10.17 | | |
| | |
10.18 | | |
| | |
10.19 | | |
| | |
10.20 | | |
| | |
10.21 | | |
| | |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
10.22 | | |
| | |
10.23 | |
|
| | |
10.24 | | |
| | |
10.25 | | |
| | |
10.26 | | |
| | |
10.27 | | |
| | |
10.28 | | |
| | |
10.29 | | |
| | |
10.30 | | |
| | |
10.31 | | |
| | |
10.32 | | |
| | |
10.33 | | |
| | |
10.34 | | |
| | |
10.35 | | |
| | |
10.36 | | |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
| | |
10.37 | | Voting Agreement, dated as of May 17, 2021, by and among Discovery, Inc., AT&T Inc., Magallanes, Inc., John C. Malone, John C. Malone 1995 Revocable Trust, Malone Discovery 2021 Charitable Remainder Unitrust and Malone CHUB 2017 Charitable Remainder Unitrust (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 20, 2021 (SEC File No. 001-34177) |
| | |
10.38 | | |
| | |
10.39 | | |
| | |
10.40 | | |
| | |
10.41 | | |
| | |
21 | | |
| | |
22 | | |
| | |
23 | | |
| |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| |
32.2 | | |
| | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document (filed herewith)† |
| |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)† |
| |
| | | | | | | | |
EXHIBITS INDEX |
Exhibit No. | Description |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)† |
| |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)† |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)† |
| |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Indicates management contract or compensatory plan, contract or arrangement.
†Attached as Exhibit 101 to this Annual Report on Form 10-K are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020, and 2019, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020, and 2019, (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019, (v) Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020, and 2019, and (vi) Notes to Consolidated Financial Statements.
ITEM 16. Form 10-K Summary
Not Applicable.
|
| | |
2.1 | | |
| | |
3.1 | | |
| |
3.2 | | |
| |
3.3 | | |
| | |
3.4 | | |
| | |
4.1 | | |
| |
4.2 | | |
| |
4.3 | | |
| |
4.4 | | |
| |
4.5 | | |
| | |
4.6 | | |
| |
4.7 | | |
| |
4.8 | | |
| | |
4.9 | | |
| |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
4.12 |
| | |
| |
4.13 |
| |
|
| | |
4.14 |
| |
|
| | |
4.15 |
| | Sixth Supplemental Indenture, dated as of March 7, 2014, among Discovery Communications, LLC, Discovery Communications, Inc., U.S. Bank National Association, as Trustee and Evalon Financial Services Limited, UK Branch, as London Paying Agent (incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on March 7, 2014 (SEC File No. 001-34177)) |
| | |
4.16 |
| |
|
| | |
4.17 |
| | Eighth Supplemental Indenture, dated as of March 19, 2015, among Discovery Communications, LLC, Discovery Communications, Inc., U.S. Bank National Association, as Trustee, and Elavon Financial Services Limited, UK Branch, as London Paying Agent (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on March 19, 2015 (SEC File No. 001-34177)) |
| | |
4.18 |
| | |
| | |
4.19 |
| | |
| | |
4.20 |
| | |
| | |
4.21 |
| | |
| | |
4.22 |
| | Thirteenth Supplemental Indenture, dated as of September 21, 2017, among Discovery Communications, LLC, Discovery Communications, Inc., Elavon Financial Service DAC, UK Branch, as London Paying Agent, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Form 8-K filed on September 21, 2017 (SEC File No. 001-34177)) |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
| | |
4.23 |
| | Amended and Restated Credit Agreement, dated as of February 4, 2016, among Discovery Communications, LLC ("DCL"), certain wholly-owned subsidiaries of DCL, Discovery Communications, Inc., as Facility Guarantor, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Lender (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on February 5, 2016 (SEC File No. 001-34177)) |
| | |
4.24 |
| | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 11, 2017, among Discovery Communications, LLC ("DCL"), certain wholly-owned subsidiaries of DCL, Discovery Communications, Inc., as Facility Guarantor, the lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 4.2 to the Form 10-Q filed on November 2, 2017 (SEC File No. 001-34177)) |
| | |
4.25 |
| | Term Loan Credit Agreement, dated as of August 11, 2017, among Discovery Communications, LLC, as the Company, Discovery Communications, Inc., as Facility Guarantor, the lenders from time to time party thereto, Goldman Sachs Bank USA, as Administrative Agent (incorporated by reference to Exhibit 4.3 to the Form 10-Q filed on November 2, 2017 (SEC File No. 001-34177)) |
| | |
10.1 |
| | |
| |
10.2 |
| | |
| | |
10.3 |
| | |
| | |
10.4 |
| | |
| |
10.5 |
| | |
| |
10.6 |
| | |
| |
10.7 |
| | |
| |
10.8 |
| |
|
| | |
10.9 |
| |
|
| |
10.10 |
| |
|
| |
10.11 |
| |
|
| |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
10.15 |
| |
|
| |
10.16 |
| |
|
| |
10.17 |
| |
|
| |
10.18 |
| |
|
| |
10.19 |
| |
|
| |
10.20 |
| |
|
| |
10.21 |
| |
|
| |
10.22 |
| |
|
| |
10.23 |
| |
|
| |
10.24 |
| |
|
| |
10.25 |
| |
|
| |
10.26 |
| |
|
| |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
10.27 |
| |
|
| |
10.28 |
| |
|
| |
10.29 |
| |
|
| |
10.30 |
| |
|
| |
10.31 |
| | |
| | |
10.32 |
| | |
| | |
10.33 |
| | |
| | |
10.34 |
| | |
| | |
10.35 |
| | |
| | |
10.36 |
| | |
| | |
10.37 |
| | |
| | |
10.38 |
| | |
| | |
10.39 |
| | |
| | |
10.40 |
| |
|
| | |
10.41 |
| |
|
| | |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
10.42 |
| |
|
| | |
10.43 |
| |
|
| | |
10.44 |
| |
|
| | |
10.45 |
| |
|
| | |
10.46 |
| |
|
| | |
10.47 |
| |
|
| | |
10.48 |
| |
|
| | |
10.49 |
| |
|
| | |
10.50 |
| | |
| | |
10.51 |
| | |
| | |
10.52 |
| | |
| | |
10.53 |
| | |
| | |
10.54 |
| | |
| | |
EXHIBITS INDEX
Exhibit No. Description
|
| | | |
10.55 |
| | |
| | |
10.56 |
| |
|
| | |
10.57 |
| | |
| | |
10.58 |
| |
|
| | |
10.59 |
| |
|
| | |
10.60 |
| | |
| | |
10.61 |
| | |
| | |
10.62 |
| | |
| | |
10.63 |
| | |
| | |
12 |
| | |
| | |
14 |
| |
|
| |
21 |
| | |
EXHIBITS INDEX
Exhibit No. Description
|
| | |
101.INS | | XBRL Instance Document† |
| |
101.SCH | | XBRL Taxonomy Extension Schema Document† |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document† |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document† |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document† |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document† |
* Indicates management contract or compensatory plan, contract or arrangement.
†Attached as Exhibit 101 to this Annual Report on Form 10-K are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015, (iii) Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2017, 2016, and 2015, (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015, (v) Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016, and 2015, and (vi) Notes to Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| | DISCOVERY, COMMUNICATIONS, INC. (Registrant) |
| | |
Date: February 28, 201824, 2022 | | By: | | /s/ David M. Zaslav |
| | | | David M. Zaslav |
| | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
Signature | | Title | | Date |
| | |
/s/ David M. Zaslav | | President and Chief Executive Officer, and Director (Principal Executive Officer) | | February 28, 201824, 2022 |
David M. Zaslav | | | |
| | |
/s/ Gunnar Wiedenfels | | Senior Executive Vice President and Chief Financial Officer (Principal (Principal Financial Officer)
| | February 28, 201824, 2022 |
Gunnar Wiedenfels | | | |
| | | | |
/s/ Kurt T. WehnerLori C. Locke | | Executive Vice President and Chief Accounting Officer (Principal Accounting Officer)
| | February 28, 201824, 2022 |
Kurt T. WehnerLori C. Locke | | | |
| | | | |
/s/ S. Decker Anstrom | | Director | | February 28, 2018 |
S. Decker Anstrom | | | | |
| | | | |
/s/ Robert R. Beck | | Director | | February 28, 201824, 2022 |
Robert R. Beck | | | | |
| | | | |
/s/ Robert R. Bennett | | Director | | February 28, 201824, 2022 |
Robert R. Bennett | | | | |
| | |
/s/ Paul A. Gould | | Director | | February 28, 201824, 2022 |
Paul A. Gould | | | | |
| | |
/s/ Robert L. Johnson | | Director | | February 24, 2022 |
Robert L. Johnson | | | | |
| | |
/s/ Kenneth W. Lowe | | Director | | February 24, 2022 |
Kenneth W. Lowe | | | | |
| | |
/s/ John C. Malone | | Director | | February 28, 201824, 2022 |
John C. Malone | | | | |
| | | | |
/s/ Robert J. Miron | | Director | | February 28, 201824, 2022 |
Robert J. Miron | | | | |
| | |
/s/ Steven A. Miron | | Director | | February 28, 201824, 2022 |
Steven A. Miron | | | | |
| | |
/s/ Daniel E. Sanchez | | Director | | February 28, 201824, 2022 |
Daniel E. Sanchez | | | | |
| | | | |
/s/ Susan M. Swain | | Director | | February 28, 201824, 2022 |
Susan M. Swain | | | | |
| | | | |
/s/ J. David Wargo | | Director | | February 28, 201824, 2022 |
J. David Wargo | | | | |