UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172021
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-34177
image1a01a10.jpgdisca-20210630_g1.jpg
Discovery, Communications, Inc.
(Exact name of Registrantregistrant as specified in its charter)
Delaware
35-2333914
Delaware
35-2333914
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
One Discovery Place
Silver Spring, Maryland
230 Park Avenue South		2091010003
New York, New York(Zip Code)
(Address of principal executive offices)(Zip Code)
(240) 662-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolsName of Each Exchange on Which Registered
Series A Common StockDISCAThe Nasdaq Global Select Market
Series B Common StockDISCBThe Nasdaq Global Select Market
Series C Common StockDISCKThe Nasdaq Global Select Market



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerýAccelerated filer¨
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company¨☐
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  ý

Total number of shares outstanding of each class of the Registrant’s common stock as of October 26, 2017:
July 23, 2021:
Series A Common Stock, par value $0.01 per share154,002,569169,086,967 
Series B Common Stock, par value $0.01 per share6,512,3796,512,378 
Series C Common Stock, par value $0.01 per share218,540,274330,146,263 






DISCOVERY, COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS

Page
Page
ITEM 1. Unaudited Financial Statements.
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016.
4
Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016..
54
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016..
65
Consolidated Balance Sheets.
6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016..
7
Consolidated StatementStatements of Equity for the nine months ended September 30, 2017..
8
Notes to Consolidated Financial Statements.
910
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
5632
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
7748
ITEM 4. Controls and Procedures.
7749
ITEM 1. Legal Proceedings.
7749
ITEM 1A. Risk Factors.
7849
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
78
ITEM 6. Exhibits.
7954
8256



3

PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements.
DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)
  September 30, 2017 December 31, 2016
ASSETS    
Current assets:    
Cash and cash equivalents $6,994
 $300
Receivables, net 1,652
 1,495
Content rights, net 382
 310
Prepaid expenses and other current assets 449
 397
Total current assets 9,477
 2,502
Noncurrent content rights, net 2,095
 2,089
Property and equipment, net 523
 482
Goodwill, net 8,242
 8,040
Intangible assets, net 1,539
 1,512
Equity method investments, including note receivable 754
 557
Other noncurrent assets 513
 490
Total assets $23,143
 $15,672
LIABILITIES AND EQUITY    
Current liabilities:    
Accounts payable $253
 $241
Accrued liabilities 1,092
 1,075
Deferred revenues 238
 163
Current portion of debt 32
 82
Total current liabilities 1,615
 1,561
Noncurrent portion of debt 14,676
 7,841
Deferred income taxes 306
 467
Other noncurrent liabilities 446
 393
Total liabilities 17,043
 10,262
Commitments and contingencies (See Note 15) 

 

Redeemable noncontrolling interests 360
 243
Equity:    
Discovery Communications, Inc. stockholders’ equity:    
Series A-1 convertible preferred stock: $0.01 par value; 8 authorized; 8 shares issued as of September 30, 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 September 30, 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 7,273
 7,046
Treasury stock, at cost (6,737) (6,356)
Retained earnings 5,785
 5,232
Accumulated other comprehensive loss (586) (762)
Total equity 5,740
 5,167
Total liabilities and equity $23,143
 $15,672
The accompanying notes are an integral part of these consolidated financial statements.

DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Revenues:
Advertising$1,637 $1,273 $3,052 $2,675 
Distribution1,368 1,225 2,678 2,448 
Other57 43 124 101 
Total revenues3,062 2,541 5,854 5,224 
Costs and expenses:
Costs of revenues, excluding depreciation and amortization1,055 810 2,024 1,728 
Selling, general and administrative952 635 2,003 1,280 
Depreciation and amortization341 334 702 660 
Impairment of goodwill and other intangible assets0 38 0 38 
Restructuring and other charges7 7 22 22 
Gain on disposition(72)0 (72)0 
Total costs and expenses2,283 1,824 4,679 3,728 
Operating income779 717 1,175 1,496 
Interest expense, net(157)(161)(320)(324)
Loss on extinguishment of debt(1)(71)(4)(71)
Loss from equity investees, net(7)(23)(11)(44)
Other income (expense), net106 (6)177 (64)
Income before income taxes720 456 1,017 993 
Income tax expense(2)(156)(108)(286)
Net income718 300 909 707 
Net income attributable to noncontrolling interests(38)(25)(84)(53)
Net income attributable to redeemable noncontrolling interests(8)(4)(13)(6)
Net income available to Discovery, Inc.$672 $271 $812 $648 
Net income per share allocated to Discovery, Inc. Series A, B and C common stockholders:
Basic$1.02 $0.40 $1.23 $0.96 
Diluted$1.01 $0.40 $1.22 $0.95 
Weighted average shares outstanding:
Basic506 508 501 513 
Diluted664 674 666 680 
The accompanying notes are an integral part of these consolidated financial statements.



4
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues:      
Distribution $881
 $806
 $2,593
 $2,420
Advertising 705
 670
 2,197
 2,170
Other 65
 80
 219
 235
Total revenues 1,651
 1,556
 5,009
 4,825
Costs and expenses:        
Costs of revenues, excluding depreciation and amortization 670
 592
 1,911
 1,787
Selling, general and administrative 457
 419
 1,261
 1,227
Depreciation and amortization 80
 80
 240
 239
Restructuring and other charges 11
 7
 43
 52
Loss (gain) on disposition —
 —
 4
 (13)
Total costs and expenses 1,218
 1,098
 3,459
 3,292
Operating income 433
 458
 1,550
 1,533
Interest expense (136) (91) (318) (267)
Loss on extinguishment of debt —
 —
 (54) —
(Loss) income from equity investees, net (27) 3
 (122) (28)
Other expense, net (106) (49) (143) (27)
Income before income taxes 164
 321
 913
 1,211
Income tax benefit (expense) 59
 (96) (89) (302)
Net income 223
 225
 824
 909
Net income attributable to noncontrolling interests —
 —
 —
 (1)
Net income attributable to redeemable noncontrolling interests (5) (6) (17) (18)
Net income available to Discovery Communications, Inc. $218
 $219
 $807
 $890
         
Net income per share available to Discovery Communications, Inc. Series A, B and C common stockholders:        
Basic $0.38
 $0.37
 $1.40
 $1.45
Diluted $0.38
 $0.36
 $1.39
 $1.44
Weighted average shares outstanding:        
Basic 381
 395
 385
 404
Diluted 571
 602
 581
 615
The accompanying notes are an integral part of these consolidated financial statements.


DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)


Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net income$718 $300 $909 $707 
Other comprehensive income (loss) adjustments, net of tax:
Currency translation108 116 (59)(25)
Derivatives(112)(15)125 (174)
Comprehensive income714 401 975 508 
Comprehensive income attributable to noncontrolling interests(38)(25)(84)(53)
Comprehensive income attributable to redeemable noncontrolling interests(8)(4)(13)(6)
Comprehensive income attributable to Discovery, Inc.$668 $372 $878 $449 
The accompanying notes are an integral part of these consolidated financial statements.


5
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net income $223
 $225
 $824
 $909
Other comprehensive income (loss) adjustments, net of tax:        
     Currency translation 33
 (16) 192
 (23)
     Available-for-sale securities 10
 50
 14
 25
     Derivatives (12) 3
 (29) (9)
Comprehensive income 254
 262
 1,001
 902
Comprehensive income attributable to noncontrolling interests —
 —
 —
 (1)
Comprehensive income attributable to redeemable noncontrolling interests (5) (6) (18) (21)
Comprehensive income attributable to Discovery Communications, Inc. $249
 $256
 $983
 $880
DISCOVERY, INC.
The accompanying notes are an integral part of these consolidated financial statements.CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)
June 30, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$2,834 $2,091 
Receivables, net2,657 2,537 
Content rights and prepaid license fees, net653 532 
Prepaid expenses and other current assets584 970 
Total current assets6,728 6,130 
Noncurrent content rights, net3,606 3,439 
Property and equipment, net1,239 1,206 
Goodwill13,013 13,070 
Intangible assets, net7,075 7,640 
Other noncurrent assets2,911 2,602 
Total assets$34,572 $34,087 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities$2,174 $2,190 
Deferred revenues806 557 
Current portion of debt585 335 
Total current liabilities3,565 3,082 
Noncurrent portion of debt14,462 15,069 
Deferred income taxes1,447 1,534 
Other noncurrent liabilities1,790 2,019 
Total liabilities21,264 21,704 
Commitments and contingencies (See Note 16)00
Redeemable noncontrolling interests357 383 
Equity:
Discovery, Inc. stockholders’ equity:
Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and outstanding0 0 
Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 4 and 5 shares issued and outstanding0 0 
Series A common stock: $0.01 par value; 1,700 shares authorized; 170 and 163 shares issued; and 169 and 162 shares outstanding2 2 
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued and outstanding0 0 
Series C common stock: $0.01 par value; 2,000 shares authorized; 559 and 547 shares issued; and 330 and 318 shares outstanding5 5 
Additional paid-in capital11,000 10,809 
Treasury stock, at cost: 230 shares(8,244)(8,244)
Retained earnings9,360 8,543 
Accumulated other comprehensive loss(585)(651)
Total Discovery, Inc. stockholders' equity11,538 10,464 
Noncontrolling interests1,413 1,536 
Total equity12,951 12,000 
Total liabilities and equity$34,572 $34,087 
The accompanying notes are an integral part of these consolidated financial statements.


6

DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)

 Six Months Ended June 30,
 20212020
Operating Activities
Net income$909 $707 
Adjustments to reconcile net income to cash provided by operating activities:
Content rights amortization and impairment1,516 1,355 
Depreciation and amortization702 660 
Deferred income taxes(242)(188)
Share-based compensation expense95 30 
Gain on sale of investments(20)0 
Equity in losses of equity method investee companies, including cash distributions38 71 
Loss on extinguishment of debt4 71 
Impairment of goodwill and other intangible assets0 38 
Gain on disposition(72)0 
Other, net(104)42 
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net(141)122 
Content rights and payables, net(1,701)(1,386)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities41 (174)
Foreign currency, prepaid expenses and other assets, net78 (22)
Cash provided by operating activities1,103 1,326 
Investing Activities
Purchases of property and equipment(167)(217)
Proceeds from sales and maturities of investments348 65 
Investments in and advances to equity investments(105)(81)
Other investing activities, net120 79 
Cash provided by (used in) investing activities196 (154)
Financing Activities
Principal repayments of debt, including premiums to par value and discount payment(339)(2,164)
Borrowings from debt, net of discount and issuance costs0 1,979 
Distributions to noncontrolling interests and redeemable noncontrolling interests(213)(202)
Repurchases of stock0 (527)
Purchase of redeemable noncontrolling interests(31)0 
Principal repayments of revolving credit facility0 (500)
Borrowings under revolving credit facility0 500 
Other financing activities, net45 (84)
Cash used in financing activities(538)(998)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(49)12 
Net change in cash, cash equivalents, and restricted cash712 186 
Cash, cash equivalents, and restricted cash, beginning of period2,1221,552 
Cash, cash equivalents, and restricted cash, end of period$2,834 $1,738 
The accompanying notes are an integral part of these consolidated financial statements.

7
 Nine Months Ended September 30,
 2017 2016
Operating Activities   
Net income$824
 $909
Adjustments to reconcile net income to cash provided by operating activities:   
Share-based compensation expense22
 49
Depreciation and amortization240
 239
Content amortization and impairment expense1,397
 1,293
Loss (gain) on disposition4
 (13)
Remeasurement gain on previously held equity interest(1) —
Equity in losses of investee companies, including cash distributions130
 33
Deferred income taxes(167) (55)
Loss on extinguishment of debt54
 —
Realized loss from derivative instruments, net98
 3
Other-than-temporary impairment of AFS investments—
 62
Other, net75
 45
Changes in operating assets and liabilities:   
Receivables, net(138) (48)
Content rights, net(1,400) (1,464)
Accounts payable and accrued liabilities24
 (37)
Share-based compensation liabilities(1) (5)
Income taxes receivable and prepaid income taxes11
 (50)
Foreign currency and other, net(5) (127)
Cash provided by operating activities1,167
 834
Investing Activities   
Payments for investments(387) (71)
Distributions from equity method investees38
 69
Purchases of property and equipment(103) (69)
Payments for derivative instruments, net(99) —
Proceeds from disposition, net of cash disposed29
 19
Business acquisitions, net of cash acquired(4) —
Other investing activities, net3
 (2)
Cash used in investing activities(523) (54)
Financing Activities   
Commercial paper repayments, net(48) (23)
Borrowings under revolving credit facility350
 445
Principal repayments of revolving credit facility(475) (672)
Borrowings from debt, net of discount and including premiums7,488
 498
Principal repayments of debt, including discount payment and premiums to par value(650) —
Payments for bridge financing commitment fees(40) —
Principal repayments of capital lease obligations(26) (23)
Repurchases of stock(603) (1,124)
Cash settlement (prepayments) of common stock repurchase contracts58
 (71)
Distributions to redeemable noncontrolling interests(22) (17)
Share-based plan payments, net15
 25
Other financing activities, net(64) (13)
Cash provided by (used in) financing activities5,983
 (975)
Effect of exchange rate changes on cash and cash equivalents67
 29
Net change in cash and cash equivalents6,694
 (166)
Cash and cash equivalents, beginning of period300
 390
Cash and cash equivalents, end of period$6,994
 $224
The accompanying notes are an integral part of these consolidated financial statements.

DISCOVERY, COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited; in millions)

Preferred StockCommon StockAdditional
Paid-In
Capital		Treasury
Stock		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Discovery, Inc.
Stockholders’ Equity		Noncontrolling
Interests		Total
Equity
SharesPar ValueSharesPar Value
December 31, 202013 $0 717 $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— — — — — — 140 — 140 46 186 
Other comprehensive income— — — — — — — 70 70 — 70 
Share-based compensation— — — — 32 — — — 32 — 32 
Preferred stock conversion(1)— 11 — — — — — — — 0 
Tax settlements associated with share-based plans— — — — (68)— — — (68)— (68)
Dividends paid to noncontrolling interests— — — — — — — — — (178)(178)
Issuance of stock in connection with share-based plans— — 8 — 186 — — — 186 — 186 
Redeemable noncontrolling interest adjustments to redemption value— — — — (8)— (1)— (9)— (9)
March 31, 202112 $0 736 $7 $10,951 $(8,244)$8,682 $(581)$10,815 $1,404 $12,219 
Net income available to Discovery, Inc. and attributable to noncontrolling interests— — — — — — 672 — 672 38 710 
Other comprehensive loss— — — — — — — (4)(4)— (4)
Share-based compensation— — — — 41 — — — 41 — 41 
Tax settlements associated with share-based plans— — — — (1)— — — (1)— (1)
Dividends paid to noncontrolling interests— — — — — — — — — (29)(29)
Issuance of stock in connection with share-based plans— — — — 9 — — — 9 — 9 
Redeemable noncontrolling interest adjustments to redemption value— — — — — — 6 — 6 — 6 
June 30, 202112 $0 736 $7 $11,000 $(8,244)$9,360 $(585)$11,538 $1,413 $12,951 
The accompanying notes are an integral part of these consolidated financial statements.

8
  Preferred Stock Common Stock Additional
Paid-In
Capital		 Treasury
Stock		 Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Total
Equity
  Shares Par Value Shares Par Value     
December 31, 2016 99
 $2
 543
 $5
 $7,046
 $(6,356) $5,232
 $(762) $5,167
Cumulative effect of accounting change - share-based payments —
 —
 —
 —
 4
 —
 (4) —
 —
Net income available to Discovery Communications, Inc. —
 —
 —
 —
 —
 —
 807
 —
 807
Other comprehensive income —
 —
 —
 —
 —
 —
 —
 176
 176
Preferred stock modification (82) (2) —
 —
 37
 —
 —
 —
 35
Repurchases of stock (3) —
 —
 —
 —
 (381) (222) —
 (603)
Excess of fair value received over book value of equity contributed to redeemable noncontrolling interest in Velocity —
 —
 —
 —
 47
 —
 —
 —
 47
Cash settlement of common stock repurchase contracts —
 —
 —
 —
 58
 —
 —
 —
 58
Share-based compensation —
 —
 —
 —
 32
 —
 —
 —
 32
Tax settlements associated with share-based compensation —
 —
 (1) —
 (30) —
 —
 —
 (30)
Issuance of stock in connection with share-based plans —
 —
 5
 —
 79
 —
 —
 —
 79
Redeemable noncontrolling interest adjustments to redemption value —
 —
 —
 —
 —
 —
 (28) —
 (28)
September 30, 2017 14
 $—
 547
 $5
 $7,273
 $(6,737) $5,785
 $(586) $5,740
DISCOVERY, INC.
The accompanying notes are an integral part of these consolidated financial statements.CONSOLIDATED STATEMENT OF EQUITY
(unaudited; in millions)
Preferred StockCommon StockAdditional
Paid-In
Capital		Treasury
Stock		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Discovery,
Inc. 
Stockholders’
Equity		Noncontrolling
Interests		Total
Equity
SharesPar ValueSharesPar Value
December 31, 201913 $0 715 $7 $10,747 $(7,374)$7,333 $(822)$9,891 $1,633 $11,524 
Cumulative effect of accounting change— — — — — — 2 — 2 — 2 
Net income available to Discovery, Inc. and attributable to noncontrolling interests— — — — — — 377 — 377 28 405 
Other comprehensive loss— — — — — — — (300)(300)— (300)
Share-based compensation— — — — 21 — — — 21 — 21 
Repurchases of stock— — — — — (523)— — (523)— (523)
Tax settlements associated with share-based plans— — — — (30)— — — (30)— (30)
Dividends paid to noncontrolling interests— — — — — — — — — (170)(170)
Issuance of stock in connection with share-based plans— — 1 — 32 — — — 32 — 32 
Other adjustments to stockholders' equity— — — — — — — — — 1 1 
March 31, 202013 $0 716 $7 $10,770 $(7,897)$7,712 $(1,122)$9,470 $1,492 $10,962 
Cumulative effect of accounting changes of an equity method investee— — — — — — (3)— (3)— (3)
Net income available to Discovery, Inc. and attributable to noncontrolling interests— — — — — — 271 — 271 25 296 
Other comprehensive income— — — — — — — 101 101 — 101 
Share-based compensation— — — — 25 — — — 25 — 25 
Tax settlements associated with share-based plans— — — — (1)— — — (1)— (1)
Dividends paid to noncontrolling interests— — — — — — — — — (27)(27)
Issuance of stock in connection with share-based plans— — — — 2 — — — 2 — 2 
Other adjustments to stockholders' equity— — — — 2 — — — 2 1 3 
June 30, 202013 $0 716 $7 $10,798 $(7,897)$7,980 $(1,021)$9,867 $1,491 $11,358 
The accompanying notes are an integral part of these consolidated financial statements.


9

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)






NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Discovery, Communications, Inc. (“Discovery”, the “Company”, "we", "us" or the “Company”"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 varioustelevision, authenticated GO applications, digital distribution platforms andarrangements, content licensing agreements.arrangements and direct-to-consumer ("DTC") subscription products. During the fourth quarter of 2020, the Company announced the global launch of its aggregated DTC product, discovery+, and in January 2021, the Company launched discovery+ in the U.S. across several streaming platforms. The Company also operates a portfolio of websites, digital direct-to-consumer products, a production studio and curriculum-based education products and services. As further discussed in Note 2, on April 28, 2017, the Company sold two of its production studios, Raw and Betty to DLG Acquisitions Limited (“All3Media”).studios. The Company presentshas organized its operations in twointo 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. In addition, Education
Principles of Consolidation and Other consists principally of curriculum-based product and service offerings and the production studio. Financial information for Discovery’s reportable segments is discussed in Note 16.
Basis of Presentation
The consolidated financial statements include the accounts of Discovery and its majority-owned subsidiaries in which a controlling interest is maintained. For each non-wholly owned subsidiary,maintained, including variable interest entities ("VIE") for which the Company evaluates its ownership and other interests to determine whether it should consolidate the entity. As part of its evaluation, the Company makes judgments in determining whether the entity is a variable interest entity ("VIE") and, if so, whether it is the primary beneficiary of the VIE and is thus required to consolidate the entity. (See Note 3.) Inter-companybeneficiary. Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation.eliminated.
Unaudited Interim Financial Statements
These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”) applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Discovery’s Annual Report on Form 10-K for the year ended December 31, 20162020 (the “2016“2020 Form 10-K”).
Use of Estimates
The preparation of financial statements in accordance with U.S. 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 evaluation could change. These estimates are sometimes complex, sensitive to changes in assumptions and may require fair value determinations using Level 3 fair value measurements. Actual results may differ materially from thosethese estimates.
EstimatesSignificant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, allowances for doubtful accounts,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 isshould consolidate certain entities.
Impact of COVID-19
On March 11, 2020, the primary beneficiaryWorld Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of entitiesits effects and associated economic disruption remain uncertain. The Company continues to closely monitor the impact of COVID-19 on all aspects of its business and geographies, including the impact on its customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.
Beginning in which it holds variable interests.
Preferred Stock Exchange
Asthe 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 Company currently does not expect the pandemic will have a resultsignificant impact on demand during fiscal year 2021. Many of the July 30, 2017, Preferred Share Exchange Agreement (the "Exchange Agreement") with Advance/Newhouse Programming Partnership ("Advance/Newhouse"),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 which Discovery agreed to issue newly designated sharesthe third quarter of Series A-12020 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 9), historical basic and diluted earnings per share available to Series C-1 preferred stockholders, previously Series C preferred stockholders, has changed. The transactions contemplated 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 atas 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,result, the Company has retrospectively recastincurred additional costs to comply with various governmental regulations and implement certain safety measures for the Company's employees, talent, and partners.Additionally, certain sporting events that the Company has rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which were rescheduled to July and August 2021. The postponement of the Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.

10

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




basic and diluted earnings per share information for Series C preferred stock for the three and nine months ended September 30, 2016 in order to conform with per share earnings that would have been available for Series C-1 preferred stock. (See Note 12). The Exchange Agreement did not impact historical basic and diluted earnings per share attributableIn response to the Company's Series A, Bimpact of the pandemic, the Company employed and C common stockholders.
Reclassificationscontinues to employ innovative production and programming strategies, including producing content filmed by its on-air talent and seeking viewer feedback on which content to air. The Company continues to pursue a number of cost savings initiatives, which began during the third quarter of 2020 through the implementation of travel, marketing, production and other operating cost reductions, including personnel reductions, restructurings and resource reallocations to align its expense structure to ongoing changes within the industry.
The nature and full extent of COVID-19’s effects on the Company’s 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. The Company adopted new accounting guidance for share-based payments, deferred income taxeswill continue to monitor COVID-19 and its impact on the Company’s business results and financial condition. These consolidated financial statements of cash flows as of January 1, 2017. The adoption ofreflect management’s latest estimates and assumptions that affect the new guidance for deferred income taxes resulted in reclassificationsreported amounts of current deferred tax assets to noncurrent deferred tax assets and liabilities in the Company's balance sheetand related disclosures as of December 31, 2016 to conform to the current period presentation. The impactdate of these reclassifications is shown within the Balance Sheet Classification of Deferred Income Taxes section below. The new accounting pronouncements adopted for share-based payments resulted in the reclassification of net tax windfall adjustments of $7 million from financing activities to operating activities in the consolidated statement of cash flows for the nine months ended September 30, 2016, to conform to the current period presentation. The impact of these reclassifications is shown within the Share-based Payments section below. The new accounting pronouncements adopted for cash flow statements did not impact the prior period amounts presented in these financial statements. The impact of the adoptions to other prior periods for the balance sheet and annual statement of operations that are not presented in these financial statements were disclosed inand reported amounts of revenue and expenses during the 2016 Form 10-K. See further discussion of new accounting pronouncements adopted below.
Accountingreporting periods presented. Actual results may differ significantly from these estimates and Reporting Pronouncements Adopted
Share-Based Payments
On January 1, 2017, the Company adopted new guidance that simplifies how share-based payments are accounted for and presented in the financial statements. The new guidance impacted the financial statements as follows:
Actual forfeitures are 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 the period in which they occur, whereas they were previously recorded in additional paid-in capital (“APIC”). This change has been applied prospectively. There were $8 million and $7 million in net tax windfall adjustments for the three and nine months ended September 30, 2016, respectively.
Expected cash flows from net 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 three and nine months ended September 30, 2016 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 is applied retrospectively, resulting in the adjustment of prior period amounts. There were $8 million and $7 million in net tax windfall adjustments for the three and nine months ended September 30, 2016, respectively, reclassified from financing activities to operating activities.
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
On January 1, 2017, the Company adopted new 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.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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)

Statement of Cash Flows
On January 1, 2017, the Company adopted new guidance that reduces diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. The topics relevant to the Company include: (1) debt prepayment or debt extinguishment costs, which prior to adoption were classified as operating activities, but are now classified as financing activities, (2) settlement and receipt 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 rate is deemed not insignificant to the effective interest rate of the borrowing, (3) contingent consideration payments not made soon after a business combination date, which must be classified 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 investees based on the nature of 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. There was no impact from the adoption of the new guidance on the prior period financial statements presented for the nine months ended September 30, 2016, as there were no transactions related to 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 listed above.assumptions.
Accounting and Reporting Pronouncements Not Yet Adopted
Targeted Improvements to Accounting for Hedging ActivitiesLIBOR
In August 2017,March 2020, the FASB issued significant amendmentsguidance providing optional expedients and exceptions for applying U.S. GAAP to hedge accounting which expandcontract modifications, hedging relationships, and other transactions associated with the eligibility for hedge accountingexpected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to more financial and nonfinancial hedging strategies.alternative reference rates. The guidance is intendedfor March 12, 2020 through December 31, 2022 and may not be applied to align hedge accountingcontract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with companies’ risk management strategies, simplify the applicationa few exceptions for certain hedging relationships existing as of hedge accounting, and increase transparency 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 new standard is effective January 1, 2019 with early adoption permitted immediately in any interim or annual period.December 31, 2022. The Company is currently evaluatingassessing the impact that the amendments willthis guidance would have on theits consolidated financial statements and the timing of adoption.related disclosures, if elected.
Goodwill
Under the current accounting guidance, 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.Convertible Instruments
In January 2017,August 2020, the FASB issued guidance that simplifies the subsequent measurement of goodwill impairments. 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 should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. Early adoption is permitted for interim or annual

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this update should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company is currently evaluating the impact that the pronouncement will have on the consolidated financial statements.
Income Taxes
In October 2016, the FASB issued guidance that simplifiessimplifying the accounting for convertible instruments by reducing the income tax consequencesnumber of intra-entity transfers of assets other than inventory. The newaccounting models available for convertible debt instruments and convertible preferred stock. This guidance includes requirements to recognizeamends the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, and therefore eliminates thederivatives scope exception for contracts in an intra-entity transferentity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of an asset other than inventory.the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance. The new standardguidance is effective for reportinginterim and annual periods beginning after December 15, 2017, with any adjustments applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.2021. The Company is currently evaluatingassessing the impact that the pronouncementthis guidance will have on theits consolidated financial statements.statements and related disclosures.
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 requires application of the new accounting guidance at the beginning of the earliest comparative period presented in the year of adoption. The Company is currently evaluating the impact 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.
Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued guidance regarding the classification and measurement of financial instruments. The standard requires equity securities, including available-for-sale ("AFS") securities, to be measured at fair value with changes in the fair value recognized through net income, superseding the guidance permitting entities to record gains and losses on equity securities with readily determinable fair values in accumulated other comprehensive income. Investments accounted for under the equity method of accounting 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 prospectively beginning after December 15, 2017.
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 new standard is effective for annual reporting periods beginning after December 15, 2017. In addition, the guidance requires new or expanded disclosures related to the judgments made by companies when following the framework. The Company has made progress toward completing its assessment of the impact of adopting this new guidance, and the Company is finalizing its implementation plan. 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 U.S. Networks' distribution or advertising revenues. The Company is still evaluating the impact of its international distribution and advertising revenue arrangements. The Company's evaluation of the expected impact of the new guidance on certain transactions could change if there are additional interpretations of the new revenue guidance that are different from the Company's preliminary conclusions. The Company will apply the new revenue standard beginning January 1, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company plans on applying the modified retrospective method of adoption for this guidance.
Concentrations Risk
Customers
The Company has long-term contracts with distributors around the world. For the U.S. Networks segment, more than 90% of distribution revenue comes from the Company's largest 10 distributors in the U.S. For the International Networks segment, approximately 43% of distribution revenue comes from the Company's largest 10 distributors outside of the U.S. Agreements in

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


place with the major cable and satellite operators in the U.S. Networks and International Networks expire at various times from 2017 through 2021. 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 the three and nine months ended September 30, 2017 or 2016. As of September 30, 2017 and December 31, 2016, the Company’s trade receivables did 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. The Company performs periodic evaluations of the relative credit standing of the financial institutions and attempts to limit exposure with any one institution.
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 September 30, 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 evaluating and monitoring 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 AFS securities, the Company has pledged shares as collateral to the derivative counterparty. (See Note 3.) 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 September 30, 2017, $2 million of collateral has been posted by the Company under these arrangements and classified as other noncurrent assets in the consolidated balance sheets. As of September 30, 2017, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $1.93 billion. (See Note 4.)
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Scripps Networks Interactive, Inc. ("Scripps")WarnerMedia
On July 31, 2017, Discovery announced that it hadIn May 2021, the Company entered into an agreement with AT&T Inc. to combine WarnerMedia’s ("WarnerMedia") entertainment, sports and plannews assets with the Company's nonfiction and international entertainment and sports businesses 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 dividend or through an exchange offer or a combination of merger (the "Merger Agreement") for Discoveryboth and immediately thereafter, combined with the Company. In connection with the combination transaction, AT&T will receive $43 billion (subject to acquire Scrippsadjustment) in a cash-and-stock transaction (the "Scripps acquisition").combination of cash, debt securities and WarnerMedia’s retention of certain debt. The estimated merger consideration forCompany is in the acquisition totals $11.5 billion, including cashprocess of $8.4 billion and stock of $3.1 billion based on stock prices as of October 20, 2017. In addition, the Company will assume Scripps' net debt of approximately $2.7 billion. The transaction is expectedestablishing an interest rate derivative program to close by early 2018.
Scripps 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 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 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 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 differencemitigate interest rate risk associated with the incremental shares in cash. Outstanding employee equity awards or share-based awards that vest upon the changeanticipated issuance of control will be acquired with a similar combination of cash andfuture fixed-rate debt.
Upon closing, all 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 DiscoveryA, Series B, and Series C common stock and the number of Scripps common shares, stock options, and other equity-based awards outstanding on the closing date. Discovery will also pay certain transaction costs incurred by Scripps, which will be recorded as a component of the opening balance sheet. The post-closing impact of the formula was intended to result in Scripps’ shareholders owning approximately 20% of Discovery’s fully diluted common shares and Discovery’s shareholders owning approximately 80%. The Company will utilize debt (see Note 6) and cash on hand to finance the cash portion of the transaction. The transaction is subject to approval by Discovery and Scripps’ shareholders, regulatory approvals and other customary closing conditions.
John C. Malone, Advance/Newhouse and members of the Scripps family have entered into voting agreements to vote in favor of the transactions (the “Advance/Newhouse Voting Agreement”). In addition, Advance/Newhouse has provided its consent, in its capacity as the holder of Discovery’s outstanding shares of Series A preferred stock, for Discovery 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 convertible preferred stock of Discovery. The exchange transaction will not change the aggregate number of shares of Discovery’s Series A common stockbe reclassified and Series C common stock that are beneficially owned by Advance/Newhouse or change voting rights or liquidation preferences affordedconverted to Advance/Newhouse. The $35 million impactone class of the modification has been recorded as a component of selling, general and administrative expense. (See Note 9 and Note 12). All of Discovery's direct costsCompany's common stock. AT&T’s shareholders will receive stock representing 71% of the Scripps acquisitionnew company and the Company's shareholders will be reflected as a componentown 29% of selling, generalthe new company. The Boards of Directors of both AT&T and administrative expense in the consolidated statements of operations.Company have approved the transaction.

11

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




The following table summarizestransaction is anticipated to close in mid-2022, subject to approval by the componentsCompany's shareholders and customary closing conditions, including receipt of regulatory approvals. Agreements are in place with Dr. John Malone and Advance/Newhouse Programming Partnership to vote in favor of the estimated merger consideration (in millionstransaction. The transaction requires, among other things, the consent of dollarsAdvance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder the Series A-1 Preferred Stock. In exchange for Advance/Newhouse Programming Partnership providing its consent to the proposed combination transaction, which will result in the forfeiture of its significant approval rights pursuant to the terms of the Series A-1 Preferred Stock and reclassification of the shares except for per share amounts, share conversion ratio,of Series A-1 Preferred Stock into common stock, option conversion ratio, average cash consideration and average equity consideration). The estimated merger consideration is based onit will receive a premium in the form of an increase to the number of Scripps shares outstanding as of June 30, 2017, and utilizes an October 20, 2017 transaction closing date to compute the equity portioncommon stock of the purchase price.
Outstanding Scripps equity  
Scripps shares outstanding 130
Cash consideration per share $63.00
Estimated cash portion of purchase price $8,177
   
Scripps shares outstanding 130
Share conversion ratio 1.2096
Discovery Series C common stock assumed to be issued 157
Discovery Series C common stock price per share $19.26
Estimated equity portion of purchase price $3,024
   
Outstanding shares under Scripps share-based compensation programs  
Shares under Scripps share-based compensation programs 3
Scripps share-based compensation converting to cash (70%)

 2
Average cash consideration (per share less applicable exercise price) $46.27
Estimated cash portion of purchase price $112
   
Scripps share-based compensation converting to Discovery Series C common stock (30%)

 1
Stock option conversion ratio (based on intrinsic value per award) 4
Discovery Series C common stock (1) or options (3) assumed to be issued 4
Average equity consideration (intrinsic value of Discovery Series C common stock or options to be issued as consideration) $9.93
Estimated equity portion of purchase price for share awards $44
   
Scripps transaction costs required to be paid by Discovery $105
   
Total estimated consideration to be paid $11,462
Balances reflect rounding of dollar and share amounts to millions,Company into which may result in differences for recalculated amounts compared with the amounts presented above.
The merger willSeries A-1 Preferred Stock would be accounted for as a business combination usingconverted. Upon 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 acquireclosing, 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 acquiredpremium will be recorded as goodwill.a transaction expense. No vote by AT&T shareholders is required.
The Enthusiast Network,merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee of $720 million or AT&T to pay Discovery a termination fee of $1.8 billion.
In anticipation of this combination, in June 2021, Magallanes, Inc.
On September 25, 2017,, a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by 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 will not be contributing 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% ownershipcertain material subsidiaries of the new joint venture, respectively.
Discovery consolidated the joint venture under the voting interest consolidation modelCompany upon the closing of the transaction. As
Other
During 2020 and 2021, we completed other immaterial acquisitions.
Dispositions
Great American Country
In June 2021, the Company controlled Velocity and continuescompleted the sale of its Great American Country network to control Velocity after the transaction, the change in the valueHicks Equity Partners for a sale price of the Company's$90 million. The Company recorded a gain of $76 million, based on net assets disposed of $14 million.

12

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




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 11 years.
The preliminary opening balance sheet is subject to adjustment based on the final assessment of the fair values of the acquired identifiable assets and liabilities. Although most items in the valuation process remain open, the items with the highest likelihood of changing upon finalization of the valuation process include intangible assets. The Company used discounted cash flow ("DCF") analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation. The fair value of the assets acquired and liabilities assumed is presented in the table below (in millions).
  September 25, 2017
Goodwill $59
Intangible assets 71
Property plant and equipment, net 16
Other assets acquired 6
Liabilities assumed (8)
Net assets acquired $144
Discovery has a fair value call right exercisable during 30 day windows beginning September 2022 and March 2024 to require GoldenTree to sell their 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 $93 million, based on GoldenTree's ownership interest in the book value of Velocity and the preliminary fair value of GoldenTree's contribution. The balance was subsequently increased by $27 million to adjust the redemption value to fair value of $120 million as of the balance sheet date (see Note 8).
Other
On September 1, 2017, the Company exercised its call right for the remaining outstanding equity in an equity method investment in a FTA company in Poland for $4 million. The operations of the entity were consolidated beginning September 1, 2017.
Dispositions
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 nine months ended September 30, 2017. The loss on disposition of Raw and Betty included $38 million in net assets, including $30 million of goodwill. The impact to the Company's income before income taxes for Raw and Betty through the date of sale was a loss of $4 million for the nine months ended September 30, 2017 and income of $1 million and $4 million for the three and nine months ended September 30, 2016, respectively. 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. ("Group Nine Media"), on December 2, 2016 ("Group Nine Transaction"). Group Nine Media includes Thrillist Media Group, NowThis Media and TheDodo.com. As a result of the transaction, Discovery obtained a 39% ownership interest in the preferred stock of Group Nine Media, which is accounted for under the cost method of accounting. (See

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 3.) The gain on contribution of the digital networks business included the disposition of $32 million in net assets, including $22 million of goodwill allocated 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.
Radio
On June 30, 2015, Discovery sold its radio business in the Nordics to Bauer Media Group ("Bauer") for total consideration, net of cash disposed, of €72 million ($80 million), which included €54 million ($61 million) in cash and €18 million ($19 million) of contingent consideration. The cumulative gain on the disposal is $1 million. Based on the final resolution and receipt of contingent consideration payable, Discovery recorded a pre-tax gain of $13 million for the three months ended March 31, 2016. The Company had previously recorded a $12 million loss including estimated contingent consideration as disclosed for the quarter ended December 31, 2015.
The Company determined that the disposals noted above did not meet the definition of discontinued operations, because the dispositions do not represent strategic shifts that have a significant impact on the Company's operations and consolidated financial results.
NOTE 3. INVESTMENTS
The Company’s equity investments consisted of the following (in millions).
Category Balance Sheet Location September 30, 2017 December 31, 2016
Cash equivalents:      
Time deposits Cash and cash equivalents $1,900
 $—
Trading securities:      
Money market funds Cash and cash equivalents 2,000
 —
Mutual funds Prepaid expenses and other current assets 178
 160
Equity method investments Equity method investments, including note receivable 754
 557
AFS securities:      
U.S. Treasury securities Cash and cash equivalents 599
 —
Common stock Other noncurrent assets 81
 64
Common stock - pledged Other noncurrent assets 81
 64
Cost method investments Other noncurrent assets 265
 245
Total investments   $5,858
 $1,090
Money Market Funds, Time Deposits and U.S. Treasury Securities
During the three months ended September 30, 2017, the Company issued $6.8 billion in senior notes to fund the anticipated Scripps acquisition (See Note 2 and Note 6). Of these total proceeds, $2.0 billion were invested in money market funds, $1.9 billion were invested in time deposit accounts, $599 million were invested in U.S. Treasury securities, 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 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 acquisition has not closed prior to August 30, 2018. While the Company expects to complete the Scripps 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 4.)

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


CategoryBalance Sheet LocationOwnershipJune 30, 2021December 31, 2020
Equity method investments:
nC+Other noncurrent assets32%$156 $164 
Discovery Solar Ventures, LLC (a)
Other noncurrent assetsN/A80 83 
All3MediaOther noncurrent assets50%83 76 
OtherOther noncurrent assets240 184 
Total equity method investments (b)
559 507 
Investments with readily determinable fair valuesPrepaid expenses and other current assets5 32 
Investments with readily determinable fair valuesOther noncurrent assets97 54 
Equity investments without readily determinable fair values:
Group Nine Media (c)
Other noncurrent assets25%276 276 
SharecareOther noncurrent assets2%82 0 
Formula E (d)
Other noncurrent assets25%65 65 
OtherOther noncurrent assets209 200 
Total equity investments without readily determinable fair values632 541 
Total investments$1,293 $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 variable interest entities ("VIEs") of the Company and are accounted for under the equity method of accounting using the Hypothetical Liquidation at Book Value methodology for allocating earnings.
(b) Total equity method investments at June 30, 2021 presented above includes a $9 million investment recorded in other noncurrent liabilities.
(c) 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 within Prepaid expenses and other current assets on the Company's consolidated balance sheets.
(d) 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. The Company had 0 impairment losses for the six months ended June 30, 2021 and 2020.
With the exception of nC+, the carrying values of the Company’s equity method investments are consistent with its ownership in the underlying net assets of the investees, exceptinvestees. 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 $5 million for Oprah Winfrey Network ("OWN"), becauseeach of the Company has recorded lossessix months ended June 30, 2021 and 2020. Amortization that reduces the Company's equity in excessearnings of its ownership interest, and certain investments in renewable energy projects accountednC+ for using the Hypothetical Liquidation at Book Value ("HLBV") methodology under the equity method of accounting. future periods is expected to be $45 million.
13

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Certain of the Company's other equity method investments are VIEs, for which the Company is not the primary beneficiary. As of SeptemberJune 30, 2017,2021, the Company’s maximum exposure for all its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments and guarantees made on behalf of VIEs, was approximately $642$208 million. The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $598 million and $426$111 million as of SeptemberJune 30, 20172021 and $123 million as of December 31, 2016, respectively.2020. The Company recognized its portion of VIE operating results with net losses of $21$7 million and net income of $10$13 million generated by VIEs for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and net losses of $99$15 million and net income of $13$22 million generated by VIEs for the ninesix months ended SeptemberJune 30, 20172021 and 2016, respectively.2020, respectively, in loss from equity investees, net on the consolidated statements of operations.
OWNInvestments with Readily Determinable Fair Value
OWN is a pay-TV network and website that provides adult lifestyle content,Investments in entities or other securities in which is focused on self-discovery, self-improvement and entertainment. Since the initial equity was not sufficient to fund OWN's activities without additional subordinated financial support in the form of a note receivable held by the Company, OWN is a VIE. While the Company and Harpo, Inc. ("Harpo") are partners who share equally in voting control, power is not shared because Harpo holds operational rights related to programming and marketing, as well as selection and retention of key management personnel, that significantly impact OWN’s economic performance. Accordingly, the Company has determined that itno control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of OWNunits held without consideration of transaction costs (Level 1). Gains and accountslosses are recorded in other income (expense), net on the consolidated statements of operations.
The gains and losses related to the Company's investments with readily determinable fair values for the three and six months ended June 30, 2021 and 2020 are summarized in the table below (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net gains (losses) recognized during the period on equity securities$29 $7 $62 $(15)
Less: Net gains recognized on equity securities sold0 0 16 0 
Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date$29 $7 $46 $(15)

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 six months ended June 30, 2021, the Company invested$10 million in various equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had increased $81 million, net in fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This change was primarily related to the write-up of the Company's investment in OWN using the equity method. However, the Company provides OWN content licenses and services, such as distribution, sales and administrative support, for a fee and has provided OWN funding. (See Note 14.)
The carrying valueSharecare. As of the Company’s investment in OWN of $348 million and $320 million as of SeptemberJune 30, 2017 and December 31, 2016, respectively, includes the Company's note receivable and accumulated investment balance. The Company's combined advances to and note receivable from OWN, including accrued interest, were $283 million and $311 million as of September 30, 2017 and December 31, 2016, respectively. The interest on the note, compounded annually, is 5.0%. During the nine months ended September 30, 2017, the Company received net principal repayments of $39 million from OWN and accrued interest on the note receivable of $11 million. The note receivable is secured by the net assets of OWN. While the Company has no further funding commitments, the Company will provide additional funding to OWN, if necessary, and expects to recoup amounts funded. There can be no event of default on the borrowing until 2023. However, borrowings are scheduled for repayment four years after the borrowing date to the extent that OWN has excess cash to repay the borrowings then due. Following such repayment, OWN’s subsequent cash distributions will be shared equally between the Company and Harpo. The Company monitors the financial results of OWN along with other relevant business information to assess the recoverability of the OWN note receivable. There has been no impairment of the OWN note receivable.
In accordance with the venture agreement, losses generated by OWN are generally allocated to both investors based on their proportionate ownership interests. However, the Company has recorded its portion of OWN’s losses based upon accounting rules for equity method investments. Prior to the contribution of the Discovery Health network to OWN at its launch,2021, the Company had recognized $104recorded cumulative upward adjustments of $90 million or 100%,and cumulative impairments of OWN’s net losses. During the three months ended March 31, 2012, accumulated operating losses at OWN exceeded the$1 million for its equity contributed to OWN, and Discovery began again to record 100% of OWN’s net losses. Although OWN has become profitable, the Company will record 100% of any net losses to the extent they result from OWN's operations as long as Discovery has provided all funding to OWN and OWN’s accumulated losses continue to exceed the equity contributed. All of OWN's net income has been and will continue to be recorded by the Company until the Company recovers losses absorbed in excess of the Company's equity ownership interest.
Based on the joint venture agreement, as amended on April 1, 2016, Harpo has the right to require the Company to purchase all or part of Harpo’s interest in OWN atinvestments without readily determinable fair market value up to a maximum put amount during 90-day windows beginning on April 1, 2017 and every two and a half years commencing July 1, 2018 through January 1, 2026. The maximum put amount ranges from $100 million on the first put exercise date up to a cumulative cap of $400 million on the fifth put exercise date. On June 16, 2017, Harpo delivered its put notice for up to $100 million in value of its OWN membership interests to the Company. Harpo may withdraw its put exercise notice during the valuation process, which has been extended until December 15, 2017. Harpo and Discovery are following a series of protocols specified in the joint venture agreement to determine an agreed upon fair value for the put. The number of common units subject to the put exercise represents the proportion of common units held by Harpo that equate to the fair value of the Harpo put purchase price. As of September 30, 2017, the Company has not recorded a liability in connection with the exercise of Harpo's put as the valuation has not been finalized and Harpo may withdraw its put exercise notice.values.

14

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




Renewable Energy Investments
During three and nine months ended September 30, 2017, the Company invested $104 million and $300 million, respectively in limited liability companies that sponsor renewable energy projects related to solar energy. During the three months ended September 30, 2017, the Company invested $39 million and $9 million into two new solar energy projects. 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. Once a stipulated return on investment is garnered 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 share of the investments' net earnings or losses.
During the three and nine months ended September 30, 2017, the Company recognized $41 million and $167 million, respectively of losses on these investments as part of (loss) gain from equity investees, net in the consolidated statements of operations. The Company recorded benefits of $96 million and $208 million associated with these investments during the three and nine months ended September 30, 2017, respectively, that were recorded as a component of income tax expense and operating cash flows. These benefits are comprised of $14 million from the entities' passive losses and $82 million from the investment tax credits for the three months ended September 30, 2017. For the nine months ended September 30, 2017, the benefits are comprised of $60 million from the entities' passive losses and $148 million from investment tax credits. The Company accounts for investment tax credits utilizing the flow through method. No investments in renewable energy projects were held by the Company for the three or nine months ended September 30, 2016. As of September 30, 2017 and December 31, 2016, the Company's carrying value of renewable energy investments was $160 million and $39 million, respectively. The Company has $42 million of future funding commitments for these investments as of September 30, 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 September 30, 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 and Germany. 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 $68 million during the nine months ended September 30, 2017.
AFS Securities
On November 12, 2015, the Company acquired 5 million shares, or approximately 3%, of Lions Gate Entertainment Corp. ("Lionsgate"), an entertainment company, for $195 million. Lionsgate operates in the motion picture production and distribution, television programming and syndication, home entertainment and digital distribution business. 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 (in millions).
   
  September 30, 2017 December 31, 2016
Cost $195
 $195
Accumulated change in the value of:    
Hedged AFS recognized in other expense, net (2) (19)
Unhedged AFS recorded in other comprehensive income (loss) 31
 14
Other-than-temporary impairment of AFS securities (62) (62)
Carrying value $162
 $128
The Company hedged 50% of the shares with an equity collar (the “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 intrinsic value, the Company records the gains or losses on the Lionsgate AFS securities as a

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


component of other comprehensive income (loss). When the share price 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, net. (See Note 7.)
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 had 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 was included as a component of other expense, net for the quarter ended September 30, 2016. Since the impairment charge in 2016, the changes in fair value as a 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 September 30, 2017 primarily include its 39% minority interest in Group Nine Media valued at $182 million. (See Note 2.) Although Discovery has significant influence through its voting rights in the preferred stock of Group Nine Media, the Company applies the cost method for its ownership interest, which does not meet the definition of in-substance common stock. The Company also has investments in an educational website, an electric car racing series and certain investments to enhance the Company's digital distribution strategies. For the nine months ended September 30, 2017, the Company invested $21 million in various cost method investments.
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:
Level 1–Quoted prices for identical instruments in active markets.
Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3–Valuations derived from techniques in which one or more significant inputs are unobservable.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).
  June 30, 2021
CategoryBalance Sheet LocationLevel 1Level 2Level 3Total
Assets
Cash equivalents:
Time depositsCash and cash equivalents$0 $29 $0 $29 
Equity securities:
Money market fundsCash and cash equivalents40 0 0 40 
Time depositsPrepaid expenses and other current assets0 150 0 150 
Mutual fundsPrepaid expenses and other current assets13 0 0 13 
Company-owned life insurance contractsPrepaid expenses and other current assets0 1 0 1 
Mutual fundsOther noncurrent assets212 0 0 212 
Company-owned life insurance contractsOther noncurrent assets0 31 0 31 
Total$265 $211 $0 $476 
Liabilities
Deferred compensation planAccounts payable and accrued liabilities$24 $0 $0 $24 
Deferred compensation planOther noncurrent liabilities235 0 0 235 
Total$259 $0 $0 $259 
December 31, 2020
CategoryBalance Sheet LocationLevel 1Level 2Level 3Total
Assets
Cash equivalents:
Time depositsCash and cash equivalents$0 $7 $0 $7 
Treasury securitiesCash and cash equivalents500 0 0 500 
Equity securities:
Money market fundsCash and cash equivalents0 150 0 150 
Time depositsPrepaid expenses and other current assets0 250 0 250 
Mutual fundsPrepaid expenses and other current assets14 0 0 14 
Company-owned life insurance contractsPrepaid expenses and other current assets0 4 0 4 
Mutual fundsOther noncurrent assets200 0 0 200 
Company-owned life insurance contractsOther noncurrent assets0 48 0 48 
Total$714 $459 $0 $1,173 
Liabilities
Deferred compensation planAccounts payable and accrued liabilities$28 $0 $0 $28 
Deferred compensation planOther noncurrent liabilities220 0 0 220 
Total$248 $0 $0 $248 
15
    September 30, 2017
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets          
Cash equivalents:          
Time deposits Cash and cash equivalents $—
 $1,900
 $—
 $1,900
Trading securities:          
Money market funds Cash and cash equivalents 2,000
 —
 —
 2,000
Mutual funds Prepaid expenses and other current assets 178
 —
 —
 178
AFS securities:          
U.S. Treasury securities Cash and cash equivalents 599
 —
 —
 599
Common stock Other noncurrent assets 81
 —
 —
 81
Common stock - pledged Other noncurrent assets 81
 —
 —
 81
Derivatives:          
  Cash flow hedges:          
Foreign exchange Prepaid expenses and other current assets —
 6
 —
 6
Foreign exchange Other noncurrent assets —
 1
 —
 1
  Net investment hedges:          
Cross-currency swaps Other noncurrent assets —
 9
 —
 9
  Fair value hedges:          
Equity (Lionsgate Collar) Other noncurrent assets —
 14
 —
 14
Total   $2,939
 $1,930
 $—
 $4,869
Liabilities          
Deferred compensation plan Accrued liabilities $178
 $—
 $—
 $178
Derivatives:          
  Cash flow hedges:          
Foreign exchange Accrued liabilities —
 23
 —
 23
Foreign exchange Other noncurrent liabilities —
 2
 —
 2
  Net investment hedges:          
Cross-currency swaps Accrued liabilities —
 9
 —
 9
Cross-currency swaps Other noncurrent liabilities —
 93
 —
 93
Foreign exchange Accrued liabilities —
 7
 —
 7
No hedging designation:          
Cross-currency swaps Other noncurrent liabilities —
 4
 —
 4
Total   $178
 $138
 $—
 $316


DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)





    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
AFS 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
Equity securities include money market funds, time deposits, investments in mutual funds held in separate trusts, which are owned as part of the Company's supplemental retirement plans, and company-owned life insurance contracts. 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 3). 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 3).
Derivative financial instruments are comprised of foreign exchange, interest rate and equity contracts. (See Note 7). The fair value of Level 2 derivative financial instruments was determined using a market-based approach.the deferred compensation obligation. 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 holdshas other financial instruments, including cash deposits, accounts receivable, accounts payable, commercial paper, borrowings under the revolving credit facility and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of SeptemberJune 30, 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 $14.7$17.7 billion and $7.4$18.7 billion as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.

The Company's derivative financial instruments are discussed in Note 8 and its investments with readily determinable fair value are discussed in Note 3.
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 5. CONTENT RIGHTS
The table below presents the components of content rights (in millions).
June 30, 2021December 31, 2020
Produced content rights:
Completed$9,401 $8,576 
In-production674 731 
Coproduced content rights:
Completed940 888 
In-production97 78 
Licensed content rights:
Acquired1,198 1,312 
Prepaid683 556 
Content rights, at cost12,993 12,141 
Accumulated amortization(8,734)(8,170)
Total content rights, net4,259 3,971 
Current portion(653)(532)
Noncurrent portion$3,606 $3,439 
  September 30, 2017 December 31, 2016
Produced content rights:    
Completed $4,203
 $3,920
In-production 473
 420
Coproduced content rights:    
Completed 633
 632
In-production 30
 57
Licensed content rights:    
Acquired 1,092
 1,090
Prepaid(a)
 159
 129
Content rights, at cost 6,590
 6,248
Accumulated amortization (4,113) (3,849)
Total content rights, net 2,477
 2,399
Current portion (382) (310)
Noncurrent portion $2,095
 $2,089
(a) Prepaid licensed content rights includes prepaid rights to the Olympic games of $64 million and Bundesliga matches of $13 million that are reflected as current content rights assets on the consolidated balance sheet as of September 30, 2017.
Content expense is included in costs of revenues on the consolidated statements of operations and consisted of the following (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Content amortization$772 $645 $1,515 $1,348 
Other production charges103 22 183 106 
Content impairments1 6 1 7 
Total content expense$876 $673 $1,699 $1,461 

As of June 30, 2021, the Company expects to amortize approximately58%, 26% and 12% of its produced and co-produced content, excluding content in-production, and 50%, 22% and 10% of its licensed content rights in the next three twelve-month operating cycles ending June 30, 2022, 2023 and 2024, respectively.
16
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Content amortization $485
 $424
 $1,386
 $1,279
Other production charges 80
 67
 221
 205
Content impairments(a)
 2
 5
 11
 14
Total content expense $567
 $496
 $1,618
 $1,498

(a) Content impairments are generally recorded as a component of costs of revenue. However, during the three and nine months ended September 30, 2016, $3 million in content impairments 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 three and nine months ended September 30, 2017.DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 6. GOODWILL
Goodwill
The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows (in millions).
U.S.
Networks		International
Networks		Total
December 31, 202010,813$2,257 $13,070 
Dispositions0 (3)(3)
Foreign currency translation and other0 (54)(54)
June 30, 2021$10,813 $2,200 $13,013 
The carrying amount of goodwill at the U.S. Networks segment included accumulated impairments of $20 million as of June 30, 2021 and December 31, 2020. The carrying amount of goodwill at the International Networks segment included accumulated impairments of $1.6 billion as of June 30, 2021 and December 31, 2020.
Impairment Analysis
During the second quarter of 2020, the Company performed a quantitative goodwill impairment analysis for the Asia-Pacific reporting unit and determined that the estimated fair value did not exceed its carrying value, which resulted in a pre-tax impairment charge to write-off the remaining $36 million goodwill balance.
During the 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 associated goodwill.
During the fourth quarter of 2020, the Company performed its annual goodwill impairment assessment for all reporting units, and based on the quantitative impairment analysis for the Company’s Asia-Pacific reporting unit the 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 Europe reporting unit, which had headroom of approximately 20%, was the only reporting unit with fair value in excess of carrying value that was 20% or lower. During the six months ended June 30, 2021, management concluded there were no triggering events. Management will continue to monitor this reporting unit for changes in the business environment that could impact recoverability.

17

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 7. DEBT
The table below presents the components of outstanding debt (in millions).
June 30, 2021December 31, 2020
4.375% Senior Notes, semi-annual interest, due June 2021$0 $335 
2.375% Senior Notes, euro denominated, annual interest, due March 2022357 369 
3.300% Senior Notes, semi-annual interest, due May 2022168 168 
3.500% Senior Notes, semi-annual interest, due June 202262 62 
2.950% Senior Notes, semi-annual interest, due March 2023796 796 
3.250% Senior Notes, semi-annual interest, due April 2023192 192 
3.800% Senior Notes, semi-annual interest, due March 2024450 450 
2.500% Senior Notes, sterling denominated, annual interest, due September 2024554 545 
3.900% Senior Notes, semi-annual interest, due November 2024497 497 
3.450% Senior Notes, semi-annual interest, due March 2025300 300 
3.950% Senior Notes, semi-annual interest, due June 2025500 500 
4.900% Senior Notes, semi-annual interest, due March 2026700 700 
1.900% Senior Notes, euro denominated, annual interest, due March 2027713 739 
3.950% Senior Notes, semi-annual interest, due March 20281,700 1,700 
4.125% Senior Notes, semi-annual interest, due May 2029750 750 
3.625% Senior Notes, semi-annual interest, due May 20301,000 1,000 
5.000% Senior Notes, semi-annual interest, due September 2037548 548 
6.350% Senior Notes, semi-annual interest, due June 2040664 664 
4.950% Senior Notes, semi-annual interest, due May 2042285 285 
4.875% Senior Notes, semi-annual interest, due April 2043516 516 
5.200% Senior Notes, semi-annual interest, due September 20471,250 1,250 
5.300% Senior Notes, semi-annual interest, due May 2049750 750 
4.650% Senior Notes, semi-annual interest, due May 20501,000 1,000 
4.000% Senior Notes, semi-annual interest, due September 20551,732 1,732 
Total debt15,484 15,848 
Unamortized discount, premium and debt issuance costs, net (a)
(437)(444)
Debt, net of unamortized discount, premium and debt issuance costs15,047 15,404 
Current portion of debt(585)(335)
Noncurrent portion of debt$14,462 $15,069 
  September 30, 2017 December 31, 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 353
 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 537
 —
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 706
 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 167
 151
Total debt 14,838
 7,990
Unamortized discount and debt issuance costs (130) (67)
Debt, net 14,708
 7,923
Current portion of debt (32) (82)
Noncurrent portion of debt $14,676
 $7,841
(a) Current portion of unamortized discount, premium, and debt issuance costs, net is$1 million.
Senior Notes
On September 21, 2017,In July 2021, Discovery Communications, LLC (“DCL”) and Scripps Networks Interactive, Inc. ("DCL"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 on July 31, 2021 (the “Redemption Date”), at a wholly-owned subsidiaryredemption price with respect to each Note equal to the greater of (i) 100% of the Company, issued $500 million principal amount of 2.200% senior notes due 2019 (the “2019 Notes”), $1.20 billionthe Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal amountand interest thereon (exclusive 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, togetherinterest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis at a comparable treasury rate (determined in accordance with the 2019applicable indenture) plus 25 basis points, plus accrued interest thereon to the Redemption Date. The 2022 Notes were redeemed for an aggregate redemption price of $235 million, plus accrued interest. The redemption included $5 million for premium over par on the 2023 Notes, the 2028 Notes, the 20372022 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”). Interestresulted in a loss 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 millionextinguishment of debt issuance costs. The Sterling Notes are fully and unconditionally guaranteed by the Company.of $6 million.

18

DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




WithIn February 2021, DCL issued a notice for the exceptionredemption 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 redemption included $3 million for premium over par and resulted in a loss on extinguishment of debt of $3 million.
In the third quarter of 2020, Discovery, Inc. commenced 5 separate private offers to exchange (the “Exchange Offers”) any and all of DCL's outstanding 5.000% Senior Floating Rate 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 USD“Old Notes”) for one new series of DCL 4.000% Senior Notes, and Sterling Notes include a redemption requirement following a termination ofsemi-annual interest, due September 2055 (the “New Notes”). Discovery, Inc. completed the Scripps 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 the special mandatory redemption will be classified as noncurrent until either of the contingent events which would trigger the redemption has occurred. As of September 30, 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 have 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, in the third quarter of 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 validly tendered and accepted for purchase by Discovery pursuant to the Cash Offers, for total cash consideration of $27 million, plus accrued interest. The Cash Offers resulted in a loss on extinguishment of debt of $5 million.
In the second quarter of 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 million for the nine months ended September 30, 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.$71 million. The loss included $50$62 million forof net premiums to par value $2and $9 million of non-cash write-offsother charges. The Company used the remaining proceeds and cash on hand to fully repay the $500 million that was outstanding under its revolving credit facility.
As of unamortized deferred financing costs, $1 millionJune 30, 2021, all senior notes are fully and unconditionally guaranteed by the Company and Scripps Networks, except for the write-offremaining$32 million 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 3-year delayed draw tranche and a 5-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 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 loans or the termination of the Scripps acquisition. As of September 30, 2017, the Company has not yet borrowed on the term loan credit facilities.
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 acquisition. No amounts were drawn under the bridge loan commitment and based on the execution of the Term Loans and following 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 during the three and nine months ended September 30, 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, the available commitments may be increased 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 $150 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 transactions. 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. The original agreement includes thebasis until June 2026, with an option for up to two2 additional 364-day renewal periods.periods subject to the lenders' consent. The amended credit facility agreement expressly permits the occurrence of indebtedness to finance the Scripps acquisition. Discovery agrees to have Scripps become 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 closingAs of the Scripps acquisition, respectively. As of

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


SeptemberJune 30, 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.
As of September 30, 2017,Additionally, the Company had outstanding U.S. dollar-denominated borrowings under the revolving credit facility of $425 million at a weighted average interest rate of 2.53%. As of December 31, 2016, the Company had outstanding U.S. dollar-denominated borrowings under the revolving credit facility of $550 million at a weighted average interest rate of 2.05%. The interest rate on 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 U.S. dollar-denominated borrowings, 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. The Company may also borrow in foreign currencies under the credit facility, at an interest rate 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. The Company had no borrowings under the credit facility in foreign currencies as of September 30, 2017 or December 31, 2016. 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. All obligations of DCL and the other borrowers under the revolving credit facility are unsecured and are fully and unconditionally guaranteed by Discovery.
Commercial Paper
The Company's commercial paper program is supported by the revolving credit facility described above. There were no outstandingCredit 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 as of September 30, 2017. under the commercial paper program.
As of June 30, 2021 and December 31, 2016, there were2020, the Company had 0 outstanding borrowings under the Credit Facility or the commercial paper borrowingsprogram.
Credit Agreement Financial Covenants
The Credit Agreement includes financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of $48 million3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 4.50 to 1.00, which increases to 5.75 to 1.00 upon the closing of the proposed combination transaction with a weighted average interest rateWarnerMedia, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of approximately 1.20%.the closing, respectively.
19

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 7.8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates and interest rates 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: (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"), (2) a hedge of net investments in foreign operations ("net investment hedge"), (3) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), or (4) an instrument with no hedging designation.rates. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.
Unsettled derivative contracts are recorded at their gross fair values on the consolidated balance sheets. (See Note 4.) 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. Gains and losses on the effective portions of designated cash flow and net investment hedges are initially recognized as components of accumulated other comprehensive loss on the consolidated balance sheets and reclassified into the statements of operations in the same line item in which the hedged item is recorded and in the same period as the hedged item affects earnings. The ineffective portion of any previous gains and losses recorded in accumulated other comprehensive loss on the consolidated balance sheets are reclassified immediately to other expense, net on the consolidated statements of operations. The Company records gains and losses from the Lionsgate Collar, designated as a fair value hedge, and instruments that receive no hedging designation, as a component of other expense, net on the consolidated statements of operations. The cash flows from the effective portion of derivative instruments used as hedges are classified in the consolidated statements of cash flows in the same section as the cash flows of the hedged item.
During the three months ended September 30, 2017, in conjunction with the Scripps acquisition (see Note 2 and Note 6), the Company executed a number of new derivative transactions. In August 2017, the Company entered into $4 billion notional amount of interest rate contracts used to economically hedge a portion of the pricing of the 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, net on the Company's consolidated statement of operations. Additionally, the Company reclassified $17 million of cash flow hedge gains on previously settled interest rate contracts from accumulated other comprehensive loss to other expense, net, in the Company's consolidated statement of operations during the three months ended September 30, 2017, as the forecasted transaction was considered remote following the issuance of the USD Notes.
On September 21, 2017, 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 series of foreign exchange contracts designated as net investment hedges on a portion of the Company's investments in foreign subsidiaries. These foreign exchange contracts were settled on the date of issuance of the Sterling Notes and resulted in a $12 million loss,

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


which has been reflected as a component of currency translation adjustments on the Company's consolidated balance sheet as of September 30, 2017.
The following table summarizes the impact of derivative financial instruments on the Company's consolidated balance sheets (in millions). There were no0 amounts eligible to be offset under master netting agreements as of SeptemberJune 30, 20172021 and December 31, 2016.2020. The fair value of the Company's derivative financial instruments at June 30, 2021 and December 31, 2020 was determined using a market-based approach (Level 2).
June 30, 2021December 31, 2020
Fair ValueFair Value
NotionalPrepaid expenses and other current assetsOther non-
current assets		Accounts payable and accrued liabilitiesOther non-
current liabilities		NotionalPrepaid expenses and other current assetsOther non-
current assets		Accounts payable and accrued liabilitiesOther non-
current liabilities
Cash flow hedges:
Foreign exchange$1,200 $12 $13 $7 $11 $1,082 $2 $5 $14 $17 
Interest rate swaps2,000 55 0 8 0 2,000 0 11 0 89 
Net investment hedges: (a)
Cross-currency swaps3,557 46 47 29 115 3,544 34 41 0 154 
Foreign exchange37 0 0 0 0 44 2 0 0 0 
No hedging designation:
Foreign exchange941 0 0 16 37 1,035 0 0 2 26 
Cross-currency swaps139 3 0 0 6 139 2 0 0 13 
Total$116 $60 $60 $169 $40 $57 $16 $299 
 September 30, 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$1,057
 $6
 $1
 $23
 $2
 $677
 $31
 $—
 $18
 $—
Net investment hedges:(a)
                   
Cross-currency swaps1,709
 —
 9
 9
 93
 751
 —
 35
 3
 31
Foreign exchange

303
 —
 —
 7
 —
 —
 —
 —
 —
 —
Fair value hedges:                   
Equity (Lionsgate collar)97
 —
 14
 —
 —
 97
 —
 25
 —
 —
No hedging designation:                  
Interest rate swaps25
 —
 —
 —
 —
 25
 —
 —
 —
 —
Cross-currency swaps64
 —
 —
 —
 4
 64
 —
 1
 —
 —
Total

 $6
 $24
 $39
 $99
 

 $31
 $61
 $21
 $31
(a) Excludes £400 million of sterling notes ($537554 million equivalent at SeptemberJune 30, 2017)2021) designated as a net investment hedge. (See Note 7.)
The following table presents the pretax impact of derivatives designated as cash flow hedges on income and other comprehensive income (loss) (in millions).
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments$(7)$(7)$30 $69 
Interest rate - derivative adjustments(134)0 126 (272)
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - advertising revenue0 0 0 1 
Foreign exchange - distribution revenue2 12 (1)20 
Foreign exchange - costs of revenues0 1 0 2 
Interest rate - interest expense, net(1)1 (1)1 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
(Losses) gains recognized in accumulated other comprehensive loss:        
Foreign exchange - derivative adjustments $(15) $—
 $(46) $(18)
Interest rate swaps - derivative adjustments —
 2
 —
 2
(Losses) gains reclassified into income from accumulated other comprehensive loss (effective portion):        
Foreign exchange - distribution revenue (9) (11) (16) (15)
Foreign exchange - advertising revenue (1) (1) (2) (2)
Foreign exchange - costs of revenues (2) 8
 2
 15
Foreign exchange - other expense, net —
 1
 —
 3
Interest rate swaps - interest expense —
 (1) (1) (3)
Gains reclassified into income from accumulated other comprehensive loss (ineffective portion):        
Interest rate swaps - other expense, net 17
 —
 17
 —
Fair value excluded from effectiveness assessment:        
Foreign exchange - other expense, net —
 (1) —
 (5)

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


If current fair valuesvalues of designated cash flow hedges as of SeptemberJune 30, 20172021 remained static over the next twelve months, the Company would reclassify $18$3 million of net deferred losses 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.
20

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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 three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30,
Amount of gain (loss) recognized in AOCILocation 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)
2021202020212020
Cross currency swaps$(5)$(33)Interest expense, net$11 $11 
Foreign exchange contracts0 (2)Other income (expense), net0 0 
Sterling notes (foreign denominated debt)(3)3 N/A0 0 
Total$(8)$(32)$11 $11 

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Currency translation adjustments:        
Cross-currency swaps - changes in fair value $(46) $(21) $(94) $(29)
Cross-currency swaps - interest settlements 8
 2
 13
 2
Foreign exchange - changes in fair value

 (19) —
 (19) —
Sterling Notes - changes in foreign exchange rates

 3
 —
 3
 —
Total other comprehensive loss $(54) $(19)
$(97) $(27)
Six Months Ended June 30,
Amount of gain (loss) recognized in AOCILocation 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)
2021202020212020
Cross currency swaps$47 $104 Interest expense, net$21 $23 
Foreign exchange contracts0 4 Other income (expense), net0 0 
Sterling notes (foreign denominated debt)(8)33 N/A0 0 
Total$39 $141 $21 $23 
The following table presents the pretax impact of derivatives designated as fair value hedgesgains (losses) on income, including offsetting changes in fair value of the hedged items and amounts excluded from the assessment of effectiveness (in millions). There were no amounts of ineffectiveness recognized on fair value hedges for the three and nine months ended September 30, 2017 and nine months ended September 30, 2016. The Company recognized $2 million of ineffectiveness during the three months ended September 30, 2016.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Gains (losses) on changes in fair value of hedged AFS $13
 $(1) $17
 $(31)
(Losses) gains on changes in the intrinsic value of equity contracts (13) 3
 (17) 31
Fair value of equity contracts excluded from effectiveness assessment 5
 (3) 6
 (10)
Total in other expense, net $5
 $(1) $6
 $(10)
The following table presents the pretax impact of derivatives not designated as hedges and recognized in other expense,income (expense), net in the consolidated statements of operations (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cross-currency swaps$1 (3)6 7 
Equity0 0 0 7 
Foreign exchange derivatives(2)7 (27)(37)
Total in other income (expense), net$(1)$4 $(21)$(23)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Interest rate swaps $(98) $—
 $(98) $—
Cross-currency swaps (1) —
 (4) —
Foreign exchange —
 1
 —
 (1)
Total in other expense, net $(99) $1
 $(102) $(1)

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 8. REDEEMABLE NONCONTROLLING INTERESTS
The table below presents the reconciliation of changes in redeemable noncontrolling interests (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Beginning balance $237
 $241
 $243
 $241
Cash distributions to redeemable noncontrolling interests (2) —
 (22) (17)
Initial fair value of redeemable noncontrolling interest 93
 —
 93
 —
Comprehensive income adjustments:        
Net income attributable to redeemable noncontrolling interests 5
 6
 17
 18
Other comprehensive income attributable to redeemable noncontrolling interests —
 —
 1
 3
Currency translation on redemption values —
 —
 —
 4
Retained earnings adjustments:        
Adjustments of redemption values to the floor 27
 —
 28
 (2)
Ending balance $360
 $247
 $360
 $247
Redeemable noncontrolling interests consist of the following arrangements:
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 initial value recognized for the redeemable noncontrolling interest was based on the book value of Velocity and the preliminary fair value of GoldenTree's noncontrolling interest and was subsequently adjusted to a preliminary redemption value of $120 million as of the balance sheet date. (See Note 2.)
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 to the Company for one year after 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 generally a function of the then-current fair market value of the redeemable noncontrolling interest, to which certain discounts and 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 $212 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 $28 million for the value of the put right for Discovery Japan.
Redeemable noncontrolling interests reflected as of the balance sheet date are the greater of the noncontrolling interest balances adjusted for comprehensive income items and distributions or the redemption values remeasured at the period end foreign exchange rates (i.e., the "floor"). Adjustments to the carrying amount of redeemable noncontrolling interests to redemption value as a result of changes in exchange rates are reflected in currency translation adjustments, a component of other comprehensive income (loss); however, such currency translation adjustments to redemption value are allocated to Discovery stockholders only. Redeemable noncontrolling interest adjustments of redemption value to the floor are reflected in retained earnings.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 9. EQUITY
Common Stock Repurchase ProgramPrograms
On August 3, 2010,In February 2020, the Company implemented aCompany'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. Under the stock repurchase program. Under the Company's stock repurchase program,authorization, management is authorized to purchase shares of the Company's common stock from time to time through open market purchases privately negotiated transactions at prevailing prices pursuant to one or more accelerated stock repurchase agreements, or other derivative arrangements as permitted by securities laws and other legal requirements, andprivately negotiated purchases subject to stock price, business and market conditions and other factors. As of September 30, 2017, the total amount that had been authorized under the stock repurchase program was $7.5 billion. The Company's authorization under the program expired on October 8, 2017.
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 sheet. AsOver the life of Septemberthe Company's repurchase programs and as of June 30, 2017,2021, the Company had repurchased over the life of the program 3 million and 164229 million shares of Series A and Series C common stock, respectively, for an aggregate purchase price of $171 million and $6.6$8.2 billion, respectively. The table below presents a summaryThere were 0 stock repurchases during the three and six months ended June 30, 2021 or during the three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repurchased 19.4 million shares of its common stock repurchases (in millions).for $523 million.
21
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Series C Common Stock:        
Shares repurchased —
 10.4
 14.3
 29.2
Purchase price $—
 $253
 $381
 $753
Preferred Stock Modification
On August 7, 2017, Discovery completed the transactions contemplated by the Exchange Agreement with Advance/Newhouse. Under the Exchange Agreement, Discovery issued a number of shares of newly designated Series A-1 and Series C-1 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 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 Stock70,673,242
 Common A70,673,242
 Series A-1 Preferred Stock7,852,582
 Common A70,673,242
 Common C70,673,242
 Series C-1 Preferred Stock3,649,573
 Common C70,673,242
Series C Preferred Stock24,874,370
 Common C49,748,740
 Series C-1 Preferred Stock2,569,020
 Common C49,748,740
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 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 preferred stock was considered the economic equivalent of


DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




Preferred Stock
Series C common stock.
FollowingDuring the Exchange, sharessix months ended June 30, 2021, Advance Newhouse Programming Partnership converted 0.6 million of Series A-1 preferred stock andits Series C-1 preferred stock are convertible into Series A common stock and Series C common stock, respectively, independently by class of security. The aforementioned preferred rights and transfer restrictions are retained as features of the Series A-1 preferred stock, and holder of Series A-1 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 preferred stock is considered the economic equivalent of Series C common stock and is subject to certain transfer restrictions.
Discovery considers the Exchange of the Series A preferred stock for Series A-1 preferred stock and Series C-1 preferred stock to be a modification to the conversion option of the Series A 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 preferred stock into Series C common stock without the conversion of Series A-1 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 $3511.0 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 preferred stock to approve the issuance of shares of Series C common stock in connection with the Scripps 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 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.
Preferred Stock Repurchase Program
Series C convertible preferred stock held by Advance/Newhouse was, and the 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 of 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 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 for the three months ended September 30, 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 Series C-1 convertible preferred stock and therefore differs from the previously disclosed planned repurchase of Series C convertible preferred shares. Prior period repurchases of Series C convertible preferred stock have not been recast to reflect the reverse stock split.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below presents a summary of Series C and Series C-1 convertible preferred stock repurchases (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Series C Convertible Preferred Stock:        
Shares repurchased —
 2.2
 2.3
 6.9
Purchase price $—
 $121
 $120
 $371
Series C-1 Convertible Preferred Stock:        
Shares repurchased 0.2
 —
 0.2
 —
Purchase price $102
 $—
 $102
 $—
There are no planned repurchases of Series C-1 convertible preferred stock for the fourth quarter of 2017 as there were no repurchases of Series A or Series C common stock during the three months ended September 30, 2017.
Stock Repurchases
As of September 30, 2017, total shares repurchased, on a split-adjusted and as-converted basis, under these programs represent 38% of the Company's outstanding shares since the repurchase programs were authorized. 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.
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.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Other Comprehensive Income (Loss) Adjustments
The table below presents the tax effects related to each component of other comprehensive income (loss) and reclassifications made in the consolidated statements of operations (in millions).
Three Months Ended June 30, 2021Three Months Ended June 30, 2020

Pretax
Tax benefit (expense)

Net-of-tax

Pretax
Tax benefit (expense)

Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency$121 $(2)$119 $145 $10 $155 
Net investment hedges(13)2 (11)(38)(1)(39)
Total currency translation adjustments108 0 108 107 9 116 
Derivative adjustments:
Unrealized gains (losses)(141)29 (112)(7)4 (3)
Reclassifications from other comprehensive income to net income(1)1 0 (14)2 (12)
Total derivative adjustments(142)30 (112)(21)6 (15)
Other comprehensive income (loss) adjustments$(34)$30 $(4)$86 $15 $101 

Six Months Ended June 30, 2021Six Months Ended June 30, 2020
PretaxTax benefit (expense)Net-of-taxPretaxTax benefit (expense)Net-of-tax
Currency translation adjustments:
Unrealized gains (losses):
Foreign currency$(109)$14 $(95)$(164)$57 $(107)
Net investment hedges29 7 36 129 (47)82 
Total currency translation adjustments(80)21 (59)(35)10 (25)
Derivative adjustments:
Unrealized gains (losses)156 (33)123 (203)49 (154)
Reclassifications from other comprehensive income to net income2 0 2 (24)4 (20)
Total derivative adjustments158 (33)125 (227)53 (174)
Other comprehensive income (loss) adjustments$78 $(12)$66 $(262)$63 $(199)
22
 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
 

Pretax
 Tax
Benefit (Expense)		 

Net-of-tax
 

Pretax
 Tax
Benefit (Expense)		 

Net-of-tax
Currency translation adjustments:           
Unrealized gains (losses)

           
  Foreign currency$95
 $(8) $87
 $(10) $10
 $—
  Net investment hedges(54) 1
 (53) (19) 3
 (16)
Reclassifications:           
Other expense, net(1) —
 (1) —
 —
 —
Total currency translation adjustments40
 (7) 33
 (29) 13
 (16)
            
AFS adjustments:           
Unrealized gains (losses)26
 (6) 20
 (2) 2
 —
Reclassifications to other expense, net:           
Other-than-temporary-impairment AFS securities—
 —
 —
 62
 (12) 50
Hedged portion of AFS securities(13) 3
 (10) 1
 (1) —
Total AFS adjustments13
 (3) 10
 61
 (11) 50
            
Derivative adjustments:           
Unrealized (losses) gains(15) 7
 (8) 2
 (2) —
Reclassifications:           
Distribution revenue9
 (4) 5
 11
 (4) 7
Advertising revenue1
 (1) —
 1
 —
 1
Costs of revenues2
 —
 2
 (8) 3
 (5)
Interest expense—
 —
 —
 1
 —
 1
Other expense, net(17) 6
 (11) (1) —
 (1)
Total derivative adjustments(20) 8
 (12) 6
 (3) 3
Other comprehensive income (loss)$33
 $(2) $31
 $38
 $(1) $37



DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
 

Pretax
 
Tax
Benefit (Expense)
 

Net-of-tax
 

Pretax
 
Tax
Benefit (Expense)
 

Net-of-tax
Currency translation adjustments:           
  Unrealized gains (losses)           
Foreign currency$275
 $2
 $277
 $(34) $35
 $1
Net investment hedges(97) 1
 (96) (27) 3
 (24)
Reclassifications:           
Loss on disposition12
 —
 12
 —
 —
 —
Other expense, net(1) —
 (1) —
 —
 —
Total currency translation adjustments189
 3
 192
 (61) 38
 (23)
            
AFS adjustments:           
Unrealized gains (losses)34
 (6) 28
 (62) 12
 (50)
Reclassifications to other expense, net:           
Other-than-temporary-impairment AFS securities—
 —
 —
 62
 (12) 50
Hedged portion of AFS securities(17) 3
 (14) 31
 (6) 25
Total AFS adjustments17
 (3) 14
 31
 (6) 25
            
Derivative adjustments:           
Unrealized losses(46) 17
 (29) (16) 5
 (11)
Reclassifications:           
Distribution revenue16
 (6) 10
 15
 (5) 10
Advertising revenue2
 (1) 1
 2
 —
 2
Costs of revenues(2) 1
 (1) (15) 5
 (10)
Interest expense1
 —
 1
 3
 (1) 2
Other expense, net(17) 6
 (11) (3) 1
 (2)
Total derivative adjustments(46) 17
 (29) (14) 5
 (9)
Other comprehensive income (loss)$160
 $17
 $177
 $(44) $37
 $(7)

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Accumulated Other Comprehensive Loss
The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes (in millions).
Three Months Ended June 30, 2021
Currency TranslationDerivativesPension Plan and SERP LiabilityAccumulated
Other
Comprehensive Loss
Beginning balance$(722)$156 $(15)$(581)
Other comprehensive income (loss)108 (112)0 (4)
Ending balance$(614)$44 $(15)$(585)

Three Months Ended June 30, 2020
Currency TranslationDerivativesPension Plan and SERP LiabilityAccumulated
Other
Comprehensive Loss
Beginning balance$(988)$(127)$(7)$(1,122)
Other comprehensive income (loss) before reclassifications116 (3)0 113 
Reclassifications from accumulated other comprehensive loss to net income0 (12)0 (12)
Other comprehensive income (loss)116 (15)0 101 
Ending balance$(872)$(142)$(7)$(1,021)

Six Months Ended June 30, 2021
Currency TranslationDerivativesPension Plan and SERP LiabilityAccumulated Other Comprehensive Loss
Beginning balance$(555)$(81)$(15)$(651)
Other comprehensive income (loss) before reclassifications(59)123 0 64 
Reclassifications from accumulated other comprehensive loss to net income0 2 0 2 
Other comprehensive income (loss)(59)125 0 66 
Ending balance$(614)$44 $(15)$(585)

Six Months Ended June 30, 2020
Currency TranslationDerivativesPension Plan and SERP LiabilityAccumulated Other Comprehensive Loss
Beginning balance$(847)$32 $(7)$(822)
Other comprehensive income (loss) before reclassifications(25)(154)0 (179)
Reclassifications from accumulated other comprehensive loss to net income0 (20)0 (20)
Other comprehensive income (loss)(25)(174)0 (199)
Ending balance$(872)$(142)$(7)$(1,021)
23
 Three Months Ended September 30, 2017
 Currency Translation AFS Derivatives 
Accumulated
Other
Comprehensive Loss
Beginning balance$(639) $15
 $7
 $(617)
Other comprehensive income (loss) before reclassifications34
 20
 (8) 46
Reclassifications from accumulated other comprehensive loss to net income(1) (10) (4) (15)
Other comprehensive income (loss)33
 10
 (12) 31
Ending balance$(606) $25
 $(5) $(586)
 Three Months Ended September 30, 2016
 Currency Translation AFS Derivatives 
Accumulated
Other
Comprehensive Loss
Beginning balance$(616) $(52) $(12) $(680)
Other comprehensive loss before reclassifications(16) —
 —
 (16)
Reclassifications from accumulated other comprehensive loss to net income—
 50
 3
 53
Other comprehensive (loss) income(16) 50
 3
 37
Ending balance$(632) $(2) $(9) $(643)
 Nine Months Ended September 30, 2017
 Currency Translation AFS Derivatives 
Accumulated
Other
Comprehensive Loss
Beginning balance$(797) $11
 $24
 $(762)
Other comprehensive income (loss) before reclassifications181
 28
 (29) 180
Reclassifications from accumulated other comprehensive loss to net income11
 (14) —
 (3)
Other comprehensive income (loss)192
 14
 (29) 177
Other comprehensive income attributable to redeemable noncontrolling interests(1) —
 —
 (1)
Ending balance$(606) $25
 $(5) $(586)



DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




 Nine Months Ended September 30, 2016
 Currency Translation AFS Derivatives 
Accumulated
Other
Comprehensive Loss
Beginning balance$(606) $(27) $—
 $(633)
Other comprehensive loss before reclassifications(23) (50) (11) (84)
Reclassifications from accumulated other comprehensive loss to net income—
 75
 2
 77
Other comprehensive (loss) income(23) 25
 (9) (7)
Other comprehensive income attributable to redeemable noncontrolling interests(3) —
 —
 (3)
Ending balance$(632) $(2) $(9) $(643)
NOTE 10. 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.
Three Months Ended June 30,
20212020
U.S. NetworksInternational NetworksCorporate, inter-segment eliminations, and otherTotalU.S. NetworksInternational NetworksCorporate, inter-segment eliminations, and otherTotal
Revenues:
Advertising$1,119 $518 $0 $1,637 $997 $276 $0 $1,273 
Distribution828 540 0 1,368 739 486 0 1,225 
Other26 35 (4)57 20 21 2 43 
Total$1,973 $1,093 $(4)$3,062 $1,756 $783 $2 $2,541 
Six Months Ended June 30,
20212020
U.S. NetworksInternational NetworksCorporate, inter-segment eliminations, and otherTotalU.S. NetworksInternational NetworksCorporate, inter-segment eliminations, and otherTotal
Revenues:
Advertising$2,099 $953 $0 $3,052 $2,023 $652 $0 $2,675 
Distribution1,624 1,054 0 2,678 1,447 1,001 0 2,448 
Other56 73 (5)124 42 53 6 101 
Total$3,779 $2,080 $(5)$5,854 $3,512 $1,706 $6 $5,224 

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 does not require collateral with respect to trade receivables.
The Company’s accounts receivable balances and the related credit losses arise primarily from distribution and advertising revenue. The Company monitors ongoing credit exposure through active review of customers’ financial conditions, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectability. The allowance for credit losses increased from $59 million at December 31, 2020 to $63 million at June 30, 2021. The activity in the allowance for credit losses for the six months ended June 30, 2021 was not material.
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 $820 million and $649 million at June 30, 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 six months ended June 30, 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 $162 million was included in the deferred revenue balance at December 31, 2020. Revenue recognized for the six months ended June 30, 2020 related to the deferred revenue balance at December 31, 2019 was $244 million.
24

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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 or by calculating one twelfth of annual license fees specified in its distribution contracts. The transaction price allocated to remaining performance obligations within these fixed price or minimum guarantee distribution revenue contracts was $1.4 billion as of June 30, 2021 and is expected to be recognized over the next six 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 $962 million as of June 30, 2021 and is expected to be recognized over the next four 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 $95 million as of June 30, 2021 and is expected to be recognized over the next twelve 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.
NOTE 11. SHARE-BASED PAYMENTSCOMPENSATION
The Company has various incentive plans under which performance-based restricted stock options, time-basedunits ("PRSUs"), service-based restricted stock units ("RSUs"), performance-based restricted stock units ("PRSUs")options, and stock appreciation rights ("SARs") have been issued. During the nine months ended September 30, 2017, the vesting and service requirements of share-based awards granted were consistent with the arrangements disclosed in the 2016 Form 10-K.
The table below presents the components of share-based compensation expense (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
PRSUs $(8) $12
 $(1) $21
RSUs 6
 4
 17
 14
Stock options 4
 4
 8
 11
SARs (3) 2
 (3) 3
ESPP 1
 —
 1
 —
Total share-based compensation expense $—
 $22
 $22
 $49
Tax benefit recognized $—
 $8
 $8
 $18
Compensation expense for all awards was, which is recorded in selling, general and administrative expense onin the consolidated statements of operations. Liability-classified
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
PRSUs$(7)$5 $12 $(12)
RSUs29 20 51 37 
Stock options16 7 26 16 
SARs(7)2 6 (11)
Total share-based compensation expense$31 $34 $95 $30 
Tax benefit recognized$7 $5 $15 $7 
The Company recorded total liabilities for cash-settled and other liability-settled share-based compensation awards include certain PRSUsof $30 million and SARs.$55 million as of June 30, 2021 and December 31, 2020, respectively. The Company records expensecurrent portion of the liability for the fair value of cash-settled and other liability-classified share-based compensationliability-settled awards ratably overwas $27 million and $37 million as of June 30, 2021 and December 31, 2020, respectively.
During the graded vesting service period based on changes in fair valuesix months ended June 30, 2021, 5.9 million stock options were exercised and the probability that performance targets will be met, if applicable. Company received proceeds of $159 million from these transactions.
The table below presents current and non-current portions of liability-classified share-based compensation awards granted (in millions)millions, except weighted-average grant price).
Six Months Ended June 30, 2021
AwardsWeighted-Average Grant Price
Awards granted:
PRSUs0.2 $58.18 
RSUs2.7 $55.83 
Stock options15.5 $40.25 
25
  September 30, 2017 December 31, 2016
Current portion of liability-classified awards:    
     PRSUs $11
 $29
     SARs 1
 2
Non-current portion of liability-classified awards:    
     PRSUs 29
 47
     SARs 2
 5
Total liability-classified share-based compensation award liability $43
 $83


DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




The table below presents award activity (in millions, except weighted-average grant price) for PRSUs, RSUs and SARs.
  Nine Months Ended September 30, 2017
  Awards Weighted-Average Grant Price
Awards granted:    
     PRSUs 0.7
 $29.50
     RSUs 1.6
 $29.11
     SARs 3.0
 $27.40
Awards converted or settled:    
     PRSUs 1.7
 $34.62
     RSUs 0.4
 $35.92
     SARs 0.6
 $25.72
The table below presents stock option activity (in millions, except weighted-average exercise price).
  Stock Options Weighted-Average
Exercise
Price
Outstanding as of December 31, 2016 13.7
 $26.05
Granted 2.5
 $29.07
Exercised (2.5) $17.52
Forfeited/cancelled (1.4) $33.72
Outstanding as of September 30, 2017 12.3
  
The table below presents unrecognized compensation cost related to non-vested share-based awards and the
weighted-average amortization period over which these expenses will be recognized as of SeptemberJune 30, 2017
2021 (in millions, except years).
Unrecognized Compensation CostWeighted-Average Amortization Period
(years)
PRSUs$4 0.5
RSUs290 2.6
Stock options258 2.9
SARs1 0.5
Total unrecognized compensation cost$553 
Of the $290 million of unrecognized compensation cost related to RSUs, $53 million is related to cash settled RSUs. Stock settled RSUs are expected to be recognized over a weighted-average period of 1.4 years and cash settled RSUs are expected to be recognized over a weighted-average period of 2.7 years.
  Unrecognized Compensation Cost 
Weighted-Average Amortization Period
(years)
RSUs $68
 3.0
PRSUs 24
 1.9
Stock options 36
 2.3
SARs 5
 1.1
Total unrecognized compensation cost $133
 

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 11.12. INCOME TAXES
The Company's income tax benefit was $59 million for the three months ended September 30, 2017. The Company's incomeIncome tax expense was $89$2 million for the nine months ended September 30, 2017. The effective income tax rates were a benefit of 36% and expense of 10%$108 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively. The Company's income tax expense was $962021, respectively, and $156 million and $302$286 million and the effective income tax rates were 30% and 25%, for the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively. The following table reconcilesdecrease in income tax expense for the Company'sthree and six months ended June 30, 2021 was primarily attributable to a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021.
Income tax expense for the three and six months ended June 30, 2021 reflects an effective income tax rate tothat differs from the U.S. federal statutory income tax rate primarily attributable to a deferred tax benefit of 35%.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
U.S. federal statutory income tax rate 35 % 35 % 35 % 35 %
State and local income taxes, net of federal tax benefit 2 % 1 % 2 % (4)%
Effect of foreign operations (21)% (5)% (8)% (4)%
Domestic production activity deductions (5)% (1)% (4)% (3)%
Change in uncertain tax positions — % — % — % 1 %
Renewable energy investments tax credits (See Note 3) (50)% — % (16)% — %
Preferred stock modification 5 % — % 1 % — %
Other, net (2)% — % — % — %
Effective income tax rate (36)% 30 % 10 % 25 %
The Company$162 million as a result of the UK Finance Act 2021 that was enacted in June 2021, the effect of foreign operations, which included taxation and its subsidiaries fileallocation of income tax returns in the U.S. and variouslosses among multiple foreign jurisdictions, state and foreign jurisdictions. The Internal Revenue Service recently completed audit procedures for its 2008 to 2011local income taxes, and favorable noncontrolling interest 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 2014 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.
The Company's reserves for uncertain tax positions as of SeptemberJune 30, 20172021 and December 31, 20162020 totaled $128$383 million and $117$348 million, respectively. 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 $46$75 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had accrued approximately $18$58 million and $11$53 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.
26

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 12.13. 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 income. The Company's Series A, B and C common stock and the Series C-1 convertible preferred stock are treated as one class for purposes of applying the two-class method, because they have substantially equal rights and share equally on an as-converted basis with respect to income available to Discovery Communications, Inc.
Pursuant to the Exchange Agreement with Advance/Newhouse, Discovery issued 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 9). The Exchange is treated as a reverse stock split and the Company has recast historical basic and diluted earnings per share available to Series C-1 preferred stockholders (previously Series C preferred stockholders). 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 shares 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 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 three and nine months ended September 30, 2016. The Exchange did not impact historical basic and diluted earnings per share attributable to the Company's Series A, B and C common stockholders.    

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below sets forth the computation for income available to Discovery Communications, Inc. stockholders (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Numerator:        
Net income $223
 $225
 $824
 $909
Less:        
Allocation of undistributed income to Series A-1 convertible preferred stock (27) (26) (99) (103)
Net income attributable to noncontrolling interests —
 —
 —
 (1)
Net income attributable to redeemable noncontrolling interests (5) (6) (17) (18)
Net 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 $191
 $193
 $708
 $787
         
Allocation of net income available to Discovery Communications Inc. Series A, B and C common stockholders and Series C-1 convertible preferred stockholders for basic net income per share:        
Series A, B and C common stockholders 146
 144
 539
 587
Series C-1 convertible preferred stockholders 45
 49
 169
 200
Total 191
 193
 708
 787
Add:        
Allocation of undistributed income to Series A-1 convertible preferred stockholders 27
 26
 99
 103
Net income available to Discovery Communications, Inc. Series A, B and C common stockholders for diluted net income per share $218
 $219
 $807
 $890
Net income available to Discovery Communications, Inc. Series C-1 convertible preferred stockholders for diluted net income per share is included in net income available to Discovery Communications, Inc. Series A, B and C common stockholders for diluted net income per share. For the three months ended September 30, 2017 and 2016, net income available to Discovery Communications, Inc. Series C-1 convertible preferred stockholders used to calculate diluted net income per share was $45 million and $48 million, respectively. For the nine months ended September 30, 2017 and 2016, net income available to Discovery Communications, Inc. Series C-1 convertible preferred stockholders used to calculate diluted net income per share was $169 million and $199 million, respectively.
The table below sets forth the weighted average number of shares outstanding utilized in determining the denominator for basic and diluted earnings per share (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Denominator — weighted average:        
Series A, B and C common shares outstanding — basic 381
 395
 385
 404
Impact of assumed preferred stock conversion 189
 204
 194
 208
Dilutive effect of share-based awards 1
 3
 2
 3
Series A, B and C common shares outstanding — diluted 571
 602
 581
 615
         
Series C-1 convertible preferred stock outstanding — basic and diluted 6
 7
 6
 7

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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. 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 earnings per share.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Basic net 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 $0.38

$0.37

$1.40

$1.45
Series C-1 convertible preferred stockholders $7.41
 $7.08
 $27.06
 $28.14
         
Diluted net 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 $0.38
 $0.36
 $1.39
 $1.44
Series C-1 convertible preferred stockholders $7.40
 $7.05
 $26.96
 $27.99
Series C-1 convertible preferred earnings Earnings per share amounts may not recalculate due to rounding. The computation of the diluted earnings per share of Series A, B and C common stockholders assumes the conversion of Series A-1 and C-1 convertible preferred stock, while the diluted earnings per share amounts of Series C-1 convertible preferred stock does not assume conversion of those shares.
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Numerator:
Net income$718 $300 $909 $707 
Less:
Allocation of undistributed income to Series A-1 convertible preferred stock(72)(29)(87)(68)
Net income attributable to noncontrolling interests(38)(25)(84)(53)
Net income attributable to redeemable noncontrolling interests(8)(4)(13)(6)
Redeemable noncontrolling interest adjustments of carrying value to redemption value (redemption value does not equal fair value)0 1 0 1 
Net income allocated to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share$600 $243 $725 $581 

Allocation of net income:
Series A, B and C common stockholders$515 $205 $618 $491 
Series C-1 convertible preferred stockholders85 38 107 90 
Total600 243 725 581 
Add:
Allocation of undistributed income to Series A-1 convertible preferred stockholders72 29 87 68 
Net income allocated to Discovery, Inc. Series A, B and C common stockholders for diluted net income per share$672 $272 $812 $649 
Denominator — weighted average:
Series A, B and C common shares outstanding — basic506 508 501 513 
Impact of assumed preferred stock conversion154 165 157 165 
Dilutive effect of share-based awards4 1 8 2 
Series A, B and C common shares outstanding — diluted664 674 666 680 
Series C-1 convertible preferred stock outstanding — basic and diluted4 5 4 5 

Basic net income per share allocated to:
Series A, B and C common stockholders$1.02 $0.40 $1.23 $0.96 
Series C-1 convertible preferred stockholders$19.71 $7.83 $23.90 $18.55 

Diluted net income per share allocated to:
Series A, B and C common stockholders$1.01 $0.40 $1.22 $0.95 
Series C-1 convertible preferred stockholders$19.60 $7.81 $23.61 $18.49 

27

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below presents the details of the anticipated stock repurchases and share-based awards that were excluded from the calculation of diluted earnings per share (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Anti-dilutive share-based awards16 27 6 24 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Anti-dilutive stock options and RSUs 11
 9
 10
 8
PRSUs whose performance targets have not been achieved 2
 4
 2
 3
Anti-dilutive common stock repurchase contracts —
 3
 —
 3
Anti-dilutive preferred stock repurchase and conversion

 —
 2
 —
 2
Only outstanding PRSUs whose performance targets have been achieved as of the last day of the most recent period are included in the dilutive effect calculation.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 13.14. SUPPLEMENTAL DISCLOSURES
The following tables present supplemental information related to the consolidated financial statements (in millions).
Accrued Liabilities
  September 30, 2017 December 31, 2016
Accrued payroll and related benefits $452
 $486
Content rights payable 223
 173
Accrued interest 108
 67
Accrued income taxes 35
 34
Current portion of share-based compensation liabilities 12
 31
Other accrued liabilities 262
 284
Total accrued liabilities $1,092
 $1,075
Other Expense, net
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Foreign currency (losses) gains, net $(27) $15
 $(62) $52
Losses on derivative instruments, net (77) (1) (79) (16)
Other expense, net:        
Other-than-temporary impairment of AFS investments —
 (62) —
 (62)
Other (2) (1) (2) (1)
Other expense, net (2) (63) (2) (63)
Total other expense, net $(106) $(49) $(143) $(27)
Share-Based Plan Payments, net
Share-based plan payments, net in the statement of cash flows consisted of the following (in millions).(a)
  Nine Months Ended September 30,
  2017 2016
Tax settlements associated with share-based plans $(30) $(11)
Proceeds from issuance of common stock in connection with share-based plans 45
 36
Total share-based plan payments, net $15
 $25
(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 in net windfall tax adjustments for the nine months ended September 30, 2016, reclassified from financing activities to operating activities. (See Note 1).

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Supplemental Cash Flow Information
Six Months Ended June 30,
20212020
Cash paid for taxes, net$249 $183 
Cash paid for interest, net337 342 
Non-cash investing and financing activities:
Accrued purchases of property and equipment32 38 
Assets acquired under finance lease and other arrangements50 67 

Cash, Cash Equivalents, and Restricted Cash
 June 30, 2021December 31, 2020
Cash, cash equivalents, and restricted cash:
Cash and cash equivalents$2,834 $2,091 
Restricted cash - other current assets0 31 
Total cash, cash equivalents, and restricted cash$2,834 $2,122 
  Nine Months Ended September 30,
  2017 2016
Cash paid for taxes, net (a) 
 $232
 $427
Cash paid for interest, net 236
 207
Non-cash investing and financing activities:    
Fair value of assets and liabilities of business received in exchange for redeemable noncontrolling interests (b)
 144
 —
Accrued financing costs for debt issuance 11
 —
Renewable energy return of investment 10
 —
Receivables for exercised/unsettled incentive stock options —
 9
Accrued purchases of property and equipment 18
 7
Assets acquired under capital lease arrangements 39
 23
(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 3).
(b) Amount relates to the Company's VTEN joint venture. (See Note 2). 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 18).
NOTE 14.15. 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(collectively the “Liberty Group”). Discovery’s Board of Directors includes Mr.Dr. 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.Dr. Malone is also Chairman of the Board of Liberty Broadband and beneficially owns approximately 46%47% 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 OWN, All3Media and a Russian cable television business, or minority partners of consolidated subsidiaries, such as Hasbro. For the three and nine months ended September 30, 2017, related party transaction costs include expenses associated with the Exchange Agreement executed with Advance/Newhouse.subsidiaries.
28

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below presents a summary of the transactions with related parties (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021
2020 (a)
2021
2020 (a)
Revenues and service charges:
Liberty Group$165 $201 $340 $371 
Equity method investees68 43 124 109 
Other24 24 51 46 
Total revenues and service charges$257 $268 $515 $526 
Expenses$(57)$(16)$(114)$(90)
Distributions to noncontrolling interests and redeemable noncontrolling interests$(30)$(29)$(213)$(202)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues and service charges:        
Liberty Group(a)
 $105
 $116
 $359
 $259
Equity method investees 40
 34
 112
 91
Other 11
 7
 32
 26
Total revenues and service charges $156
 $157

$503
 $376
         
Interest income(b)
 $4
 $4
 $11
 $13
         
Expenses $(71) $(25) $(141) $(85)
(a) The increase for the nine months ended September 30, 2017 includes the May 2016 acquisition of Time Warner Cable, Inc. by Charter Communications, an equity method investee of the Liberty Group, and other changes in Liberty Group's businesses.
(b) The Company records interest earnings from loans to equity method investees, such as OWN, as a component of (loss) gain from equity investees, net, in the consolidated statements of operations. (See Note 3.)

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The table below presents receivables due from and payables due to related parties (in millions).
June 30, 2021December 31, 2020
Receivables$180 $177 
Payables$22 $43 
(a) Amounts have been revised to adjust for classification between lines and excluded balances solely within this footnote disclosure.
  September 30, 2017 December 31, 2016
Receivables $110
 $109
Note receivable (See Note 3) 283
 311
Revised amounts are not material to the previously issued financial statements.
NOTE 15.16. COMMITMENTS CONTINGENCIES, AND GUARANTEES
Commitments
In the normal course of business, the Company enters into various commitments, which primarily include programming and talent arrangements, operating and capital leases, employment contracts, arrangements to purchase various goods and services, future funding commitments to equity method investees, and the conditional obligation to issue or acquire additional shares of preferred stock. (See Note 9.)
ContingenciesCONTINGENCIES
Put Rights
The Company has granted put rights related to an equity method investment and certain consolidated subsidiaries. Harpo has the right to require the Company to purchase all or part of its interestsubsidiaries, which may be exercised in OWN for fair value at various dates. On June 16, 2017, Harpo delivered its put notice for up to $100 million in value of its OWN membership interests to the Company. No amounts have been recorded by the Company for the Harpo put right as of September 30, 2017, as the valuation for the put has not been finalized and Harpo may withdraw its put exercise notice. (See Note 3.) Hasbro, Golden Tree and J:COM have the right to require the Company to purchase their remaining noncontrolling interests in Discovery Family, VTEN and Discovery Japan, respectively. The Company recorded the value of the put rights for Discovery Family, VTEN and Discovery Japan as a component of redeemable noncontrolling interests in the amounts of $212 million, $120 million and $28 million, respectively. (See Note 8.)2021.
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 judgment about future events. Although the outcome of these matters cannot be predicted with certainty and the impact of the final resolution of these matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these matters will have a material adverse effect on the Company's future consolidated financial position, future results of operations or cash flows.
With regards to our pending acquisition of Scripps, Discovery and Scripps could be subject to litigation related to any failure to complete the transaction or related to any enforcement proceeding commenced against Discovery and Scripps to perform their respective obligations under the Merger Agreement. If the transaction is not completed, these risks may materialize and may adversely affect Discovery’s and Scripps’ businesses, financial condition, financial results and stock prices.
Additionally, three securities lawsuits related to the proposed merger have been filed by purported Scripps shareholders. 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 on September 20, 2017. 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 name as defendants Scripps, the members of the Scripps board, and in the Berg action only, Discovery and Merger Sub, and allege 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 Rule14a-9. The Wagner action seeks to enjoin the shareholder vote on the proposed merger, and all of the actions seek to enjoin the defendants from proceeding with or consummating the proposed merger or, in the event the merger is consummated, request that the court issue an order rescinding the merger and/or awarding rescissory damages. Additionally, the Inzlicht-Sprei action seeks that the Court direct the defendants to account for alleged damages, and all the actions seek attorneys’ and expert fees and expenses. On October 12, 2017, the plaintiff in the Inzlicht-Sprei action filed a notice of voluntary dismissal without prejudice. The time for the defendants to move or answer has not yet expired in any of the actions.

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Guarantees
There were no guarantees recorded as of September 30, 2017 and December 31, 2016.
The Company may provide or receive indemnities intended to allocate business transaction risks. 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 September 30, 2017 and December 31, 2016.
NOTE 16.17. 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 advertising and content purchases. The Company does not report assets by segment because this is not used to allocate resources or evaluate segment performance.
29

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The Company evaluates the operating performance of its operating segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization (“Adjusted OIBDA”).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 (vii)(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 and integration costs, directly related to the Scripps acquisition and planned integration.(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-marketemployee share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions, and Scripps transactionacquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes 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. 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 three and nine months ended September 30, 2016, deferred launch incentives of $3 million and $10 million 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 income and other measures of financial performance reported in accordance with U.S. GAAP.
The tables below present summarized financial information for each of the Company’sCompany's reportable segments, other operating segments and corporate, and inter-segment eliminations, and other (in millions).
Revenues
 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
U.S. Networks$1,973 $1,756 $3,779 $3,512 
International Networks1,093 783 2,080 1,706 
Corporate, inter-segment eliminations and other(4)2 (5)6 
Total revenues$3,062 $2,541 $5,854 $5,224 
Adjusted OIBDA
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
U.S. Networks$1,050 $1,062 $1,873 $2,078 
International Networks215 193 366 400 
Corporate, inter-segment eliminations and other(148)(128)(285)(238)
Adjusted OIBDA$1,117 $1,127 $1,954 $2,240 
30

DISCOVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
U.S. Networks $823
 $793
 $2,542
 $2,473
International Networks 796
 720
 2,354
 2,221
Education and Other 32
 43
 113
 133
Corporate and inter-segment eliminations —
 —
 —
 (2)
Total revenues $1,651
 $1,556
 $5,009
 $4,825
Adjusted OIBDA
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
U.S. Networks $480
 $458
 $1,548
 $1,475
International Networks 180
 180
 610
 607
Education and Other —
 (1) (1) (5)
Corporate and inter-segment eliminations (85) (78) (262) (242)
Total Adjusted OIBDA $575
 $559
 $1,895
 $1,835
Reconciliation of Net Income available to Discovery, Communications, Inc. to total Adjusted OIBDA
 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net income available to Discovery, Inc.$672 $271 $812 $648 
Net income attributable to redeemable noncontrolling interests8 4 13 6 
Net income attributable to noncontrolling interests38 25 84 53 
Income tax expense2 156 108 286 
Income before income taxes720 456 1,017 993 
Other (income) expense, net(106)6 (177)64 
Loss from equity investees, net7 23 11 44 
Loss on extinguishment of debt1 71 4 71 
Interest expense, net157 161 320 324 
Operating income779 717 1,175 1,496 
Gain on disposition(72)0 (72)0 
Restructuring and other charges7 7 22 22 
Impairment of goodwill and other intangible assets0 38 0 38 
Depreciation and amortization341 334 702 660 
Employee share-based compensation27 31 88 24 
Transaction and integration costs35 0 39 0 
Adjusted OIBDA$1,117 $1,127 $1,954 $2,240 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net income available to Discovery Communications, Inc. $218
 $219
 $807
 $890
Net income attributable to redeemable noncontrolling interests 5
 6
 17
 18
Net income attributable to noncontrolling interests —
 —
 —
 1
Income tax (benefit) expense (59) 96
 89
 302
Income before income taxes 164
 321
 913
 1,211
Other expense, net 106
 49
 143
 27
(Gain) loss from equity investees, net 27
 (3) 122
 28
Loss on extinguishment of debt —
 —
 54
 —
Interest expense 136
 91
 318
 267
Operating income 433
 458
 1,550
 1,533
Loss (gain) on disposition —
 —
 4
 (13)
Restructuring and other charges 11
 7
 43
 52
Depreciation and amortization 80
 80
 240
 239
Mark-to-market share-based compensation (11) 14
 (4) 24
Scripps transaction and integration costs 62
 —
 62
 —
Total Adjusted OIBDA $575
 $559
 $1,895
 $1,835
Total Assets
  September 30, 2017 December 31, 2016
U.S. Networks $3,777
 $3,412
International Networks 5,451
 4,922
Education and Other 400
 399
Corporate and inter-segment eliminations 13,515
 6,939
Total assets $23,143
 $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.
NOTE 17.18. RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges by reportable segments and corporate, inter-segment eliminations, and other were as follows (in millions).
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
U.S. Networks$1 $0 $1 $12 
International Networks5 3 20 4 
Corporate, inter-segment eliminations, and other1 4 1 6 
Total restructuring and other charges$7 $7 $22 $22 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
U.S. Networks $2
 $2
 $6
 $10
International Networks 8
 5
 29
 25
Education and Other 1
 —
 2
 3
Corporate —
 —
 6
 14
Total restructuring and other charges $11
 $7
 $43
 $52

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Restructuring charges $11
 $4
 $39
 $53
Other —
 3
 4
 (1)
Total restructuring and other charges $11
 $7
 $43
 $52

Restructuring charges for the three and six months ended June 30, 2021 and 2020 primarily include managementcharges related to employee relocation and termination costs. During 2020, the Company implemented various cost-savings initiatives including personnel reductions, restructurings and resource reallocations to align its expense structure to ongoing changes and cost reduction efforts,within the industry, including employee terminations,economic challenges resulting from the COVID-19 pandemic. These actions are intended to enable the Company to more efficiently operate in a leaner and more directed cost structure and investare expected to continue in growth initiatives, including digital services and content creation.2021; however, all such amounts cannot be reasonably estimated at this time as the restructuring plans have not been finalized.
Changes in restructuring and other liabilities recorded in accrued liabilities by major category were as follows (in millions).
U.S. NetworksInternational NetworksCorporate, inter-segment eliminations, and otherTotal
December 31, 2020$23 $20 $15 $58 
Employee termination accruals, net2 20 0 22 
Cash paid(14)(22)(9)(45)
June 30, 2021$11 $18 $6 $35 

31
  
Contract
Terminations
 
Employee
Terminations
 Total
December 31, 2016 $3
 $36
 $39
Net Accruals 1
 38
 39
Cash Paid —
 (47) (47)
September 30, 2017 $4
 $27
 $31

NOTE 18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Overview
As of September 30, 2017 and December 31, 2016, all of the outstanding senior notes have been issued by DCL, 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 6.) The Company fully and unconditionally guarantees the senior notes on an unsecured basis. Each of the Company, DCL, and/or Discovery Communications Holding LLC (“DCH”) (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, production companies, 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


DISCOVERY, COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)





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.
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
(unaudited)


Condensed Consolidating Balance Sheet
September 30, 2017
(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 $—
 $—
 $6,586
 $408
 $—
 $—
 $6,994
Receivables, net —
 —
 454
 1,198
 —
 —
 1,652
Content rights, net —
 —
 2
 380
 —
 —
 382
Prepaid expenses and other current assets 47
 44
 200
 158
 —
 —
 449
Inter-company trade receivables, net —
 —
 165
 —
 —
 (165) —
Total current assets 47
 44
 7,407
 2,144
 —
 (165) 9,477
Investment in and advances to subsidiaries 5,695
 5,652
 8,263
 —
 3,811
 (23,421) —
Noncurrent content rights, net —
 —
 646
 1,449
 —
 —
 2,095
Goodwill, net —
 —
 3,677
 4,565
 —
 —
 8,242
Intangible assets, net —
 —
 262
 1,277
 —
 —
 1,539
Equity method investments, including note receivable —
 —
 29
 725
 —
 —
 754
Other noncurrent assets, including property and equipment, net —
 20
 339
 697
 —
 (20) 1,036
Total assets $5,742
 $5,716
 $20,623
 $10,857
 $3,811
 $(23,606) $23,143
LIABILITIES AND EQUITY              
Current liabilities:              
Current portion of debt $—
 $—
 $7
 $25
 $—
 $—
 $32
Other current liabilities —
 —
 534
 1,049
 —
 —
 1,583
Inter-company trade payables, net —
 —
 —
 165
 —
 (165) —
Total current liabilities —
 —
 541
 1,239
 —
 (165) 1,615
Noncurrent portion of debt —
 —
 14,146
 530
 —
 —
 14,676
Other noncurrent liabilities 2
 —
 284
 465
 21
 (20) 752
Total liabilities 2
 —
 14,971
 2,234
 21
 (185) 17,043
Redeemable noncontrolling interests —
 —
 —
 360
 —
 —
 360
Total equity 5,740
 5,716
 5,652
 8,263
 3,790
 (23,421) 5,740
Total liabilities and equity $5,742
 $5,716
 $20,623
 $10,857
 $3,811
 $(23,606) $23,143

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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
(unaudited)



Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2017
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Revenues $—
 $—
 $493
 $1,160
 $—
 $(2) $1,651
Costs of revenues, excluding depreciation and amortization —
 —
 126
 546
 —
 (2) 670
Selling, general and administrative 39
 —
 99
 319
 —
 —
 457
Depreciation and amortization —
 —
 11
 69
 —
 —
 80
Restructuring and other charges —
 —
 2
 9
 —
 —
 11
Total costs and expenses 39
 —

238
 943
 —
 (2) 1,218
Operating (loss) income (39) —
 255
 217
 —
 —
 433
Equity in earnings of subsidiaries 252
 252
 243
 —
 168
 (915) —
Interest expense —
 —
 (130) (6) —
 —
 (136)
Loss from equity investees, net

 —
 —
 —
 (27) —
 —
 (27)
Other (expense) income, net —
 —
 (119) 13
 —
 —
 (106)
Income before income taxes 213
 252
 249
 197
 168
 (915) 164
Income tax benefit 5
 —
 3
 51
 —
 —
 59
Net income 218
 252
 252
 248
 168
 (915) 223
Net income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (5) (5)
Net income available to Discovery Communications, Inc. $218
 $252
 $252
 $248
 $168
 $(920) $218



DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2016
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Revenues $—
 $—
 $471
 $1,088
 $—
 $(3) $1,556
Costs of revenues, excluding depreciation and amortization —
 —
 109
 484
 —
 (1) 592
Selling, general and administrative 3
 —
 82
 336
 —
 (2) 419
Depreciation and amortization —
 —
 9
 71
 —
 —
 80
Restructuring and other charges —
 —
 —
 7
 —
 —
 7
Total costs and expenses 3
 —
 200
 898
 —
 (3) 1,098
Operating (loss) income (3) —
 271
 190
 —
 —
 458
Equity in earnings of subsidiaries 221
 221
 108
 —
 147
 (697) —
Interest expense —
 —
 (86) (5) —
 —
 (91)
Income from equity investees, net —
 —
 3
 —
 —
 —
 3
Other expense, net —
 —
 (13) (36) —
 —
 (49)
Income before income taxes 218
 221
 283
 149
 147
 (697) 321
Income tax benefit (expense) 1
 —
 (62) (35) —
 —
 (96)
Net income 219
 221
 221
 114
 147
 (697) 225
Net income attributable to noncontrolling interests —
 —
 —
 —
 —
 —
 —
Net income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (6) (6)
Net income available to Discovery Communications, Inc. $219
 $221
 $221
 $114
 $147
 $(703) $219



DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2017
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Revenues $—
 $—
 $1,509
 $3,509
 $—
 $(9) $5,009
Costs of revenues, excluding depreciation and amortization —
 —
 346
 1,567
 —
 (2) 1,911
Selling, general and administrative 48
 —
 229
 991
 —
 (7) 1,261
Depreciation and amortization —
 —
 34
 206
 —
 —
 240
Restructuring and other charges —
 —
 21
 22
 —
 —
 43
Loss on disposition —
 —
 —
 4
 —
 —
 4
Total costs and expenses 48
 —
 630
 2,790
 —
 (9) 3,459
Operating (loss) income (48) —
 879
 719
 —
 —
 1,550
Equity in earnings of subsidiaries 846
 846
 628
 —
 564
 (2,884) —
Interest expense —
 —
 (299) (19) —
 —
 (318)
Loss on extinguishment of debt —
 —
 (54) —
 —
 —
 (54)
Income (loss) from equity investees, net —
 —
 1
 (123) —
 —
 (122)
Other (expense) income, net —
 —
 (208) 65
 —
 —
 (143)
Income before income taxes 798
 846
 947
 642
 564
 (2,884) 913
Income tax benefit (expense) 9
 —
 (101) 3
 —
 —
 (89)
Net income 807
 846
 846
 645
 564
 (2,884) 824
Net income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (17) (17)
Net income available to Discovery Communications, Inc. $807
 $846
 $846
 $645
 $564
 $(2,901) $807


DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2016
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Revenues $—
 $—
 $1,473
 $3,362
 $—
 $(10) $4,825
Costs of revenues, excluding depreciation and amortization —
 —
 339
 1,451
 —
 (3) 1,787
Selling, general and administrative 11
 —
 211
 1,012
 —
 (7) 1,227
Depreciation and amortization —
 —
 28
 211
 —
 —
 239
Restructuring and other charges —
 —
 23
 29
 —
 —
 52
Gain on disposition —
 —
 —
 (13) —
 —
 (13)
Total costs and expenses 11
 —
 601
 2,690
 —
 (10) 3,292
Operating (loss) income (11) —
 872
 672
 —
 —
 1,533
Equity in earnings of subsidiaries 897
 897
 498
 —
 598
 (2,890) —
Interest expense —
 —
 (251) (16) —
 —
 (267)
Loss from equity investees, net —
 —
 (2) (26) —
 —
 (28)
Other (expense) income, net —
 —
 (32) 5
 —
 —
 (27)
Income before income taxes 886
 897
 1,085
 635
 598
 (2,890) 1,211
Income tax benefit (expense) 4
 —
 (188) (118) —
 —
 (302)
Net income 890
 897
 897
 517
 598
 (2,890) 909
Net income attributable to noncontrolling interests —
 —
 —
 —
 —
 (1) (1)
Net income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (18) (18)
Net income available to Discovery Communications, Inc. $890
 $897
 $897
 $517
 $598
 $(2,909) $890


DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2017
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Net income $218
 $252
 $252
 $248
 $168
 $(915) $223
Other comprehensive income (loss) adjustments, net of tax:              
Currency translation 33
 33
 33
 37
 22
 (125) 33
Available-for-sale securities 10
 10
 10
 10
 6
 (36) 10
Derivatives (12) (12) (12) (1) (8) 33
 (12)
Comprehensive income 249
 283
 283
 294
 188
 (1,043) 254
Comprehensive income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (5) (5)
Comprehensive income attributable to Discovery Communications, Inc. $249
 $283
 $283
 $294
 $188
 $(1,048) $249



DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 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 $219
 $221
 $221
 $114
 $147
 $(697) $225
Other comprehensive (loss) income adjustments, net of tax:              
Currency translation (16) (16) (16) (16) (10) 58
 (16)
Available-for-sale securities 50
 50
 50
 50
 34
 (184) 50
Derivatives 3
 3
 3
 2
 2
 (10) 3
Comprehensive income 256
 258
 258
 150
 173
 (833) 262
Comprehensive income attributable to noncontrolling interests —
 —
 —
 —
 —
 —
 —
Comprehensive income attributable to redeemable noncontrolling interests —
 —
 —
 —
 —
 (6) (6)
Comprehensive income attributable to Discovery Communications, Inc. $256
 $258
 $258
 $150
 $173
 $(839) $256



DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine Months Ended September 30, 2017
(in millions)
  Discovery DCH DCL Non-Guarantor
Subsidiaries of
DCL		 Other Non-
Guarantor
Subsidiaries of Discovery		 Reclassifications 
and
Eliminations		 Discovery and
Subsidiaries
Net income $807
 $846
 $846
 $645
 $564
 $(2,884) $824
Other comprehensive income (loss) adjustments, net of tax:              
Currency translation 192
 192
 192
 196
 128
 (708) 192
Available-for-sale securities 14
 14
 14
 14
 9
 (51) 14
Derivatives (29) (29) (29) (19) (19) 96
 (29)
Comprehensive income 984
 1,023
 1,023
 836
 682
 (3,547) 1,001
Comprehensive income attributable to redeemable noncontrolling interests (1) (1) (1) (1) (1) (13) (18)
Comprehensive income attributable to Discovery Communications, Inc. $983
 $1,022
 $1,022
 $835
 $681
 $(3,560) $983


DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine Months Ended September 30, 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 $890
 $897
 $897
 $517
 $598
 $(2,890) $909
Other comprehensive (loss) income adjustments, net of tax:              
Currency translation (23) (23) (23) (23) (15) 84
 (23)
Available-for-sale securities 25
 25
 25
 25
 17
 (92) 25
Derivatives (9) (9) (9) (11) (6) 35
 (9)
Comprehensive income 883
 890
 890
 508
 594
 (2,863) 902
Comprehensive income attributable to noncontrolling interests —
 —
 —
 —
 —
 (1) (1)
Comprehensive income attributable to redeemable noncontrolling interests (3) (3) (3) (3) (2) (7) (21)
Comprehensive income attributable to Discovery Communications, Inc. $880
 $887
 $887
 $505
 $592
 $(2,871) $880


DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 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 provided by (used in) operating activities $8
 $(9) $340
 $828
 $—
 $—
 $1,167
Investing Activities              
Payments for investments —
 —
 (12) (375) —
 —
 (387)
Distributions from equity method investees —
 —
 —
 38
 —
 —
 38
Purchases of property and equipment —
 —
 (39) (64) —
 —
 (103)
Payments for (proceeds from) derivative instruments, net —
 —
 (110) 11
 —
 —
 (99)
Proceeds from dispositions, net of cash disposed —
 —
 —
 29
 —
 —
 29
Business acquisitions, net of cash acquired —
 —
 —
 (4) —
 —
 (4)
Other investing activities, net —
 —
 —
 3
 —
 —
 3
Inter-company distributions —
 —
 30
 —
 —
 (30) —
Cash used in investing activities —
 —
 (131) (362) —
 (30) (523)
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 —
 —
 (5) (21) —
 —
 (26)
Repurchases of stock (603) —
 —
 —
 —
 —
 (603)
Cash settlement of common stock repurchase contracts 58
 —
 —
 —
 —
 —
 58
Distributions to redeemable noncontrolling interests —
 —
 —
 (22) —
 —
 (22)
Share-based plan payments, net 15
 —
 —
 —
 —
 —
 15
Inter-company distributions —
 —
 —
 (30) —
 30
 —
Inter-company contributions and other financing activities, net 522
 9
 (263) (332) —
 —
 (64)
Cash (used in) provided by financing activities (8) 9
 6,357
 (405) —
 30
 5,983
Effect of exchange rate changes on cash and cash equivalents —
 —
 —
 67
 —
 —
 67
Net change in cash and cash equivalents —
 —
 6,566
 128
 —
 —
 6,694
Cash and cash equivalents, beginning of period —
 —
 20
 280
 —
 —
 300
Cash and cash equivalents, end of period $—
 $—
 $6,586
 $408
 $—
 $—
 $6,994

DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 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 $(31) $(20) $203
 $682
 $—
 $—
 $834
Investing Activities              
Payments for investments —
 —
 (8) (63) —
 —
 (71)
Purchases of property and equipment —
 —
 (18) (51) —
 —
 (69)
Distributions from equity method investees —
 —
 —
 69
 —
 —
 69
Proceeds from dispositions, net of cash disposed —
 —
 —
 19
 —
 —
 19
Inter-company distributions —
 —
 23
 —
 —
 (23) —
Other investing activities, net —
 —
 —
 (2) —
 —
 (2)
Cash used in investing activities —
 —
 (3) (28) —
 (23) (54)
Financing Activities              
Commercial paper repayments, net —
 —
 (23) —
 —
 —
 (23)
Borrowings under revolving credit facility —
 —
 225
 220
 —
 —
 445
Principal repayments of revolving credit facility —
 —
 (200) (472) —
 —
 (672)
Borrowings from debt, net of discount and including premiums —
 —
 498
 —
 —
 —
 498
Principal repayments of capital lease obligations —
 —
 (4) (19) —
 —
 (23)
Repurchases of stock (1,124) —
 —
 —
 —
 —
 (1,124)
Prepayments for common stock repurchase contracts (71) —
 —
 —
 —
 —
 (71)
Distributions to redeemable noncontrolling interests —
 —
 —
 (17) —
 —
 (17)
Share-based plan payments, net 25
 —
 —
 —
 —
 —
 25
Inter-company distributions —
 —
 —
 (23) —
 23
 —
Inter-company contributions and other financing activities, net 1,201
 20
 (691) (543) —
 —
 (13)
Cash provided by (used in) financing activities 31
 20
 (195) (854) —
 23
 (975)
Effect of exchange rate changes on cash and cash equivalents —
 —
 —
 29
 —
 —
 29
Net change in cash and cash equivalents —
 —
 5
 (171) —
 —
 (166)
Cash and cash equivalents, beginning of period —
 —
 3
 387
 —
 —
 390
Cash and cash equivalents, end of period $—
 $—
 $8
 $216
 $—
 $—
 $224

ITEM 2. 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 Discovery, Communications, Inc.’s (“Discovery,” the “Company,” “we,” “us,” or “our”) businesses, current developments, results of operations, cash flows and financial condition. Additional context can also be found in the 2016our 2020 Annual Report on Form 10-K.
BUSINESS OVERVIEW
We are a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air, and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer ("DTC") subscription products. As one of the world’s largest pay-TV programmers, we provide original and purchased content and live events to approximately 3.7 billion cumulative subscribers and viewers worldwide through networks that we wholly or partially own. As of June 30, 2021, we had 17 million total paid DTC subscribers. We define a subscription as (i) a subscription to a direct-to-consumer product for which we have recognized subscription revenue from a direct-to-consumer platform; (ii) a subscription received through wholesale arrangements in which we receive a fee for the distribution of our direct-to-consumer platforms, as well as subscriptions provided directly or through third-party platforms; and (iii) a subscription recognized by certain joint venture partners and affiliated parties. We may refer to the aggregate number of subscriptions across our direct-to-consumer services as subscribers. A subscriber is only counted if they are on a paying status and excludes users on free trials. We distribute customized content in the U.S. and over 220 other countries and territories in nearly 50 languages. We have an extensive library of content and own most rights to our content and footage, which enables us to leverage our library to quickly launch brands and services into new markets and on new platforms. Our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world on a variety of platforms.
Our content spans genres including survival, natural history, exploration, sports, general entertainment, home, food, travel, heroes, adventure, crime and investigation, health, and kids. Our global portfolio of networks includes prominent nonfiction television brands such as Discovery Channel, our most widely distributed global brand, HGTV, Food Network, TLC, Animal Planet, Investigation Discovery, Travel Channel, Science, and MotorTrend (previously known as Velocity domestically and currently known as Turbo in most international countries). Among other networks in the U.S., Discovery also features two Spanish-language services, Discovery en Español and Discovery Familia. Our international portfolio also includes Eurosport, a leading sports entertainment provider and broadcaster of the Olympic Games (the "Olympics") across Europe (excluding Russia), TVN, a Polish media company, as well as Discovery Kids, a leading children's entertainment brand in Latin America. We participate in joint ventures including Magnolia, the recently formed multi-platform venture with Chip and Joanna Gaines, and Group Nine Media, a digital media holding company home to top digital brands including NowThis News, the Dodo, Thrillist, PopSugar, and Seeker. We also operate production studios.
During the fourth quarter of 2020, we announced the global launch of our aggregated DTC product, discovery+, a non-fiction, real life subscription service. In January 2021, we launched discovery+ in the U.S. across several streaming platforms and entered into a partnership with Verizon, which is offering access to discovery+ for up to 12 months to certain of its customers. The global rollout of discovery+ across more than 25 markets has already begun with the U.K. and Ireland, where we have partnered with Sky, and India. We also have a partnership with Vodafone, which will provide discovery+ to existing Vodafone TV and mobile customers in 12 markets across Europe. Upon launch in the U.S., discovery+ included an extensive content library comprised of more than 55,000 episodes and features a wide array of exclusive, original series from the Discovery portfolio of brands that have a strong leadership position. The service is available with ads or on an ad-free tier, providing us with dual revenue streams.
We invest in high-quality content for our networks and brands with the objective of building viewership, optimizing distribution revenue, capturing advertising revenue, and creating or repositioning branded channels and business to sustain long-term growth and occupy a desired content niche with strong consumer appeal. Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks. In addition to growing distribution and advertising revenues for our branded networks, we have extended content distribution across new platforms, including brand-aligned websites, online streaming platforms, including discovery+, mobile devices, video on demand, and broadband channels, which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue. Audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators, direct-to-home satellite operators, telecommunication service providers, and other content distributors who deliver our content to their customers.
32

Although we utilize certain brands and content globally, we classify our operations in two reportable segments: U.S. Networks, consisting principally of domestic television networks and digital content services, and International Networks, consisting primarily of international television networks and digital content services. Our segment presentation aligns with our management structure and the financial information management uses to make decisions about operating matters, such as the allocation of resources and business performance assessments.
WarnerMedia
In May 2021, we entered into an agreement with AT&T Inc. to combine WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets with our nonfiction and international entertainment and sports businesses 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 dividend or through an exchange offer or a combination of both and immediately thereafter, combined with Discovery. In connection with the combination transaction, AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. We are in the process of establishing an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of future fixed-rate debt.
Upon closing, all shares of Series A, Series B, and Series C common stock and Series A-1 and Series C-1 convertible preferred stock will be reclassified and converted to one class of Discovery common stock. AT&T’s shareholders will receive stock representing 71% of the new company and Discovery shareholders will own 29% of the new company. The Boards of Directors of both AT&T and Discovery have approved the transaction.
The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. Agreements are in place with Dr. John Malone and Advance/Newhouse Programming Partnership to vote in favor of the transaction. The transaction requires, among other things, the consent of Advance/Newhouse Programming Partnership under the Company's certificate of incorporation as the sole holder the Series A-1 Preferred Stock. In exchange for Advance/Newhouse Programming Partnership providing its consent to the proposed combination transaction, which will result in the forfeiture of its significant approval rights pursuant to the terms of the Series A-1 Preferred Stock and reclassification of the shares of Series A-1 Preferred Stock into common stock, it will receive a premium in the form of an increase to the number of shares of common stock of Discovery into which the Series A-1 Preferred Stock would be converted. Upon the closing, such premium will be recorded as a transaction expense. No vote by AT&T shareholders is required.
The merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee of $720 million or AT&T to pay Discovery a termination fee of $1.8 billion.
In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by the Company and certain material subsidiaries of the Company upon closing of the transaction.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including the impact on our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various other third parties.
Beginning in the second quarter of 2020, demand for our advertising products and services decreased due to economic disruptions from limitations on social and commercial activity. These economic disruptions and the resulting effect on the Company eased during the second half of 2020. We currently do not expect the pandemic will have a significant impact on demand during fiscal year 2021. Many of our third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and, as a result, we have incurred additional costs to comply with various governmental regulations and implement certain safety measures for our employees, talent, and partners. Additionally, certain sporting events that we have rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which were rescheduled to July and August 2021. The postponement of the Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.
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In response to the impact of the pandemic, we employed and continue to employ innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air. We continue to pursue a number of cost savings initiatives, which began during the third 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 nature and full extent of COVID-19’s effects on our operations and results is not yet known and will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19, vaccine distribution and other actions to contain the virus or treat its impact, among others. We will continue to monitor COVID-19 and its impact on our business results and financial condition. Our consolidated financial statements reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.
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RESULTS OF OPERATIONS
Foreign Exchange Impacting Comparability
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 U.S. 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 U.S. 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 “2021 Baseline Rate”), and the prior year amounts translated at the same 2021 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. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.
Consolidated Results of Operations
The table below presents our consolidated results of operations (in millions).
Three Months Ended June 30,
20212020% Change% Change (ex-FX)
Revenues:
Advertising$1,637 $1,273 29 %26 %
Distribution1,368 1,225 12 %10 %
Other57 43 33 %32 %
Total revenues3,062 2,541 21 %18 %
Costs of revenues, excluding depreciation and amortization1,055 810 30 %25 %
Selling, general and administrative952 635 50 %46 %
Depreciation and amortization341 334 2 %— %
Impairment of goodwill and other intangible assets— 38 NMNM
Restructuring and other charges7 7 — %— %
Gain on disposition(72)— NMNM
Total costs and expenses2,283 1,824 25 %21 %
Operating income779 717 9 %10 %
Interest expense, net(157)(161)(2)%
Loss on extinguishment of debt(1)(71)(99)%
Loss from equity investees, net(7)(23)(70)%
Other income (expense), net106 (6)NM
Income before income taxes720 456 58 %
Income tax expense(2)(156)(99)%
Net income718 300 NM
Net income attributable to noncontrolling interests(38)(25)52 %
Net income attributable to redeemable noncontrolling interests(8)(4)NM
Net income available to Discovery, Inc.$672 $271 NM

NM - Not meaningful

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Six Months Ended June 30,
20212020% Change% Change (ex-FX)
Revenues:
Advertising$3,052 $2,675 14 %12 %
Distribution2,678 2,448 9 %8 %
Other124 101 23 %21 %
Total revenues5,854 5,224 12 %10 %
Costs of revenues, excluding depreciation and amortization2,024 1,728 17 %13 %
Selling, general and administrative2,003 1,280 56 %53 %
Depreciation and amortization702 660 6 %4 %
Impairment of goodwill and other intangible assets— 38 NMNM
Restructuring and other charges22 22 — %— %
Gain on disposition(72)— NMNM
Total costs and expenses4,679 3,728 26 %22 %
Operating income1,175 1,496 (21)%(20)%
Interest expense, net(320)(324)(1)%
Loss on extinguishment of debt(4)(71)(94)%
Loss from equity investees, net(11)(44)(75)%
Other income (expense), net177 (64)NM
Income before income taxes1,017 993 2 %
Income tax expense(108)(286)(62)%
Net income909 707 29 %
Net income attributable to noncontrolling interests(84)(53)58 %
Net income attributable to redeemable noncontrolling interests(13)(6)NM
Net income available to Discovery, Inc.$812 $648 25 %

Revenues
Advertising revenue is dependent upon a number of factors, including the stage of development of television markets, the number of subscribers to our channels, viewership demographics, the popularity of our content, our ability to sell commercial time over a group of channels, market demand, the mix in sales of commercial time between the upfront and scatter markets, and economic conditions. These factors impact the pricing and volume of our advertising inventory.
Advertising revenue increased 29% and 14% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, advertising revenue increased 26% and 12% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021 was primarily attributable to improved overall performance in International Networks as advertising markets have recovered from the impact of COVID-19.
Distribution revenue consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from subscription video on demand content licensing and DTC subscription services.
Distribution revenue increased 12% and 9% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, distribution revenue increased 10% and 8% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021 was primarily attributable to an increase of 12% at U.S. Networks due to discovery+ and an increase in contractual affiliate rates, partially offset by a decline in linear subscribers and certain prior year non-recurring items
Other revenue increased 33% and 23% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, other revenue increased 32% and 21% for the three and six months ended June 30, 2021, respectively.
Revenue for our segments is discussed separately below under the heading “Segment Results of Operations.”
Costs of Revenues
The Company's principal component of costs of revenues is content expense. Content expense includes television series, television specials, films, sporting events and digital products. The costs of producing a content asset and bringing that asset to market consist of film costs, participation costs, exploitation costs and production costs.
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Costs of revenues increased 30% and 17% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, cost of revenues increased 25% and 13% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021, was primarily attributable to European sporting events and leagues returning to a more normalized schedule and higher content investment related to discovery+.
Selling, General and Administrative
Selling, general and administrative expenses consist principally of employee costs, marketing costs, research costs, occupancy and back office support fees.
Selling, general and administrative expenses increased 50% and 56% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses increased 46% and 53% for the three and six months ended June 30, 2021, respectively. The increase for the three and six months ended June 30, 2021 was primarily attributable to higher marketing-related expenses to support the launch discovery+ at U.S. Networks and International Networks.
Depreciation and Amortization
Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization increased 2% and 6% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, depreciation and amortization was flat and increased 4% for the three and six months ended June 30, 2021, respectively. The increase for the six months ended June 30, 2021 was primarily attributable to assets placed in service related to the launch of discovery+.
Restructuring and Other Charges
Restructuring and other charges were $7 million and $22 million for the three and six months ended June 30, 2021 and 2020, respectively. Restructuring and other charges primarily include employee relocation and termination costs during the three and six months ended June 30, 2021 and 2020. (See Note 18 to the accompanying consolidated financial statements.)
Gain on Disposition
Gain on disposition was $72 million for the three and six months ended June 30, 2021, and was attributable to the sale of our Great American Country network. (See Note 2 to the accompanying consolidated financial statements.)
Interest Expense, net
Interest expense, net decreased 2% and 1% for the three and six months ended June 30, 2021 compared to the prior year period. (See Note 7 and Note 8 to the accompanying consolidated financial statements.)
Loss from equity investees, net
We reported losses from our equity method investees of $7 million and $11 million for the three and six months ended June 30, 2021, respectively, as compared to losses of $23 million and $44 million for the three and six months ended June 30, 2020, respectively. The changes are attributable to our share of earnings and losses from our equity investees. (See Note 3 to the accompanying consolidated financial statements.)
Other Income (Expense), net
The table below presents the details of other income (expense), net (in millions).
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Foreign currency (loss) gain, net$(5)$(18)$47 $(29)
(Losses) gains on derivative instruments, net(1)4 (21)(23)
Change in the value of investments with readily determinable fair value29 7 46 (15)
Change in the value of equity investments without readily determinable fair value81 (2)81 (2)
Gain on sale of investment with readily determinable fair value— — 16 — 
(Loss) gain on sale of equity method investments(1)3 4 3 
Interest income2 1 3 5 
Other expense, net1 (1)1 (3)
Total other income (expense), net$106 $(6)$177 $(64)

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Income Tax Expense
Income tax expense was $2 million and $108 million for the three and six months ended June 30, 2021, respectively, and $156 million and $286 million for the three and six months ended June 30, 2020, respectively. The decrease in income tax expense for the three and six months ended June 30, 2021 was primarily attributable to a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021.
Income tax expense for the three and six months ended June 30, 2021 reflects an effective income tax rate that differs from the federal statutory tax rate primarily attributable to a deferred tax benefit of $162 million as a result of the UK Finance Act 2021 that was enacted in June 2021, the effect of foreign operations, which included taxation and allocation of income and losses among multiple foreign jurisdictions, state and local income taxes, and favorable noncontrolling interest tax adjustments.

Segment Results of Operations
We evaluate the operating performance of our 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 measure to assess the operating results and performance of our segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. We believe Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. We exclude employee share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions, and acquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. 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. GAAP.
The tables below present our reconciliation of consolidated net income available to Discovery, Inc. to Adjusted OIBDA and Adjusted OIBDA by segment (in millions).
 Three Months Ended June 30,
 20212020% Change
Net income available to Discovery, Inc.$672 $271 NM
Net income attributable to redeemable noncontrolling interests8 4 NM
Net income attributable to noncontrolling interests38 25 52 %
Income tax expense2 156 (99)%
Income before income taxes720 456 58 %
Other (income) expense, net(106)6 NM
Loss from equity investees, net7 23 (70)%
Loss on extinguishment of debt1 71 (99)%
Interest expense, net157 161 (2)%
Operating income779 717 9 %
Gain on disposition(72)— NM
Restructuring and other charges7 7 — %
Impairment of goodwill and other intangible assets— 38 NM
Depreciation and amortization341 334 2 %
Employee share-based compensation27 31 (13)%
Transaction and integration costs35 — NM
Adjusted OIBDA$1,117 $1,127 (1)%
Adjusted OIBDA
U.S. Networks$1,050 $1,062 (1)%
International Networks215 193 11 %
Corporate, inter-segment eliminations, and other(148)(128)(16)%
Adjusted OIBDA$1,117 $1,127 (1)%
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 Six Months Ended June 30,
 20212020% Change
Net income available to Discovery, Inc.$812 $648 25 %
Net income attributable to redeemable noncontrolling interests13 6 NM
Net income attributable to noncontrolling interests84 53 58 %
Income tax expense108 286 (62)%
Income before income taxes1,017 993 2 %
Other (income) expense, net(177)64 NM
Loss from equity investees, net11 44 (75)%
Loss on extinguishment of debt4 71 (94)%
Interest expense, net320 324 (1)%
Operating income1,175 1,496 (21)%
Gain on disposition(72)— NM
Restructuring and other charges22 22 — %
Impairment of goodwill and other intangible assets— 38 NM
Depreciation and amortization702 660 6 %
Employee share-based compensation88 24 NM
Transaction and integration costs39 — NM
Adjusted OIBDA$1,954 $2,240 (13)%
Adjusted OIBDA
U.S. Networks$1,873 $2,078 (10)%
International Networks366 400 (9)%
Corporate, inter-segment eliminations, and other(285)(238)(20)%
Adjusted OIBDA$1,954 $2,240 (13)%

The table below presents the calculation of Adjusted OIBDA (in millions).
 Three Months Ended June 30, Six Months Ended June 30,
 20212020% Change20212020% Change
Revenues:
U.S. Networks$1,973 $1,756 12 %$3,779 $3,512 8 %
International Networks1,093 783 40 %2,080 1,706 22 %
Corporate, inter-segment eliminations, and other(4)2 NM(5)6 NM
Total revenues3,062 2,541 21 %5,854 5,224 12 %
Costs of revenues, excluding depreciation and amortization1,055 810 30 %2,024 1,728 17 %
Selling, general and administrative (a)
890 604 47 %1,876 1,256 49 %
Adjusted OIBDA$1,117 $1,127 (1)%$1,954 $2,240 (13)%
(a) Selling, general and administrative expenses excludes employee share-based compensation and third-party transaction and integration costs.
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U.S. Networks
The table below presents, for our U.S. Networks segment, revenues by type, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
 Three Months Ended June 30,Six Months Ended June 30,
 20212020% Change20212020% Change
Revenues:
Advertising$1,119 $997 12 %$2,099 $2,023 4 %
Distribution828 739 12 %1,624 1,447 12 %
Other26 20 30 %56 42 33 %
Total revenues1,973 1,756 12 %3,779 3,512 8 %
Costs of revenues, excluding depreciation and amortization452 442 2 %880 889 (1)%
Selling, general and administrative471 252 87 %1,026 545 88 %
Adjusted OIBDA1,050 1,062 (1)%1,873 2,078 (10)%
Employee share-based compensation(1)— (1)— 
Depreciation and amortization225 225 449 451 
Restructuring and other charges1 — 1 12 
Inter-segment eliminations(2)1 (2)2 
Gain on disposition(77)— (77)— 
Operating income$904 $836 $1,503 $1,613 
Revenues
Advertising revenue increased 12% and 4% for the three and six months ended June 30, 2021, respectively. The increases were primarily attributable to higher pricing, the continued monetization of content offerings on our next generation initiatives, primarily discovery+ and TV Everywhere, and higher inventory, partially offset by lower overall ratings, and to a lesser extent, secular declines in the pay-TV ecosystem.
Distribution revenue increased 12% for the three and six months ended June 30, 2021. The increases were primarily attributable to discovery+ and an increase in contractual affiliate rates, partially offset by a decline in linear subscribers and certain prior year non-recurring items. Excluding these prior year non-recurring items, distribution revenue increased 18% and 15% for the three and six months ended June 30, 2021, respectively. Total subscribers to our linear networks at June 30, 2021 were 7% lower than at June 30, 2020, while subscribers to our fully distributed linear networks were 3% 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 June 30, 2021 were 3% lower than at June 30, 2020.
Other revenues increased $6 million and $14 million for the three and six months ended June 30, 2021, respectively.
Costs of Revenues
Costs of revenues increased 2% for the three months ended June 30, 2021 and decreased 1% for the six months ended June 30, 2021. The increase for the three months ended June 30, 2021 was primarily attributable to our growing content investment in discovery+ and a non-recurring, non-cash item in the second quarter of 2020, partially offset by more efficient content spend on our linear networks. The decrease for the six months ended June 30, 2021 was primarily attributable to more efficient content spend on our linear networks, partially offset by our growing content investment in discovery+ and a non-recurring, non-cash item in the second quarter of 2020.
Content expense was $375 million and $431 million for the three months ended June 30, 2021 and 2020, respectively, and $739 million and $818 million for the six months ended June 30, 2021 and 2020, respectively.
Selling, General and Administrative
Selling, general and administrative expenses increased 87% and 88% for the three and six months ended June 30, 2021, respectively. The increase was primarily attributable to higher marketing-related expenses to support the launch and growth of discovery+.
Adjusted OIBDA
Adjusted OIBDA decreased 1% and 10% for the three and six months ended June 30, 2021, respectively.
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International Networks
The following tables present, for our International Networks segment, revenues by type, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
 Three Months Ended June 30, Six Months Ended June 30,
 20212020% Change% Change (ex-FX)20212020% Change% Change (ex-FX)
Revenues:
Advertising$518 $276 88 %70 %$953 $652 46 %35 %
Distribution540 486 11 %6 %1,054 1,001 5 %2 %
Other35 21 67 %64 %73 53 38 %34 %
Total revenues1,093 783 40 %31 %2,080 1,706 22 %16 %
Costs of revenues, excluding depreciation and amortization603 365 65 %51 %1,146 835 37 %27 %
Selling, general and administrative275 225 22 %14 %568 471 21 %13 %
Adjusted OIBDA215 193 11 %11 %366 400 (9)%(5)%
Depreciation and amortization87 84 191 166 
Impairment of goodwill and other intangible assets— 38 — 38 
Restructuring and other charges5 3 20 4 
Transaction and integration costs— — 4 — 
Inter-segment eliminations2 — 2 — 
Loss on disposition5 — 5 — 
Operating income$116 $68 $144 $192 
Revenues
Advertising revenue increased 88% and 46% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, advertising revenue increased 70% and 35% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to improved overall performance in all regions as advertising markets continued to recover from the impact of COVID-19.
Distribution revenue increased 11% and 5% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, distribution revenue increased 6% and 2% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to an increase in next generation revenues due to subscriber growth for discovery+, partially offset by lower contractual affiliate rates in some European markets.
Other revenue increased $14 million and $20 million for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, other revenue increased $14 million and $19 million for the three and six months ended June 30, 2021, respectively.
Costs of Revenues
Costs of revenues increased 65% and 37% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, costs of revenues increased 51% and 27% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to European sporting events and leagues returning to a more normalized schedule and higher content investment related to discovery+.
Content expense, excluding the impact of foreign currency fluctuations, was $396 million and $241 million for the three months ended June 30, 2021 and 2020, respectively, and $777 million and $581 million for the six months ended June 30, 2021 and 2020, respectively.
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Selling, General and Administrative
Selling, general and administrative expenses increased 22% and 21% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses increased 14% and 13% for the three and six months ended June 30, 2021. Excluding the impact of foreign currency fluctuations, the increases were primarily attributable to higher marketing-related expenses and personnel costs to support discovery+.
Adjusted OIBDA
Adjusted OIBDA increased 11% and decreased 9% for the three and six months ended June 30, 2021, respectively. Excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased 11% and decreased 5% for the three and six months ended June 30, 2021, respectively.
Corporate, Inter-segment Eliminations, and Other
The following table presents our unallocated corporate amounts including certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating loss (in millions).
 Three Months Ended June 30, Six Months Ended June 30,
 20212020% Change20212020% Change
Revenues$(4)$2 NM$(5)$6 NM
Costs of revenues, excluding depreciation and amortization— 3 NM(2)4 NM
Selling, general and administrative144 127 13 %282 240 18 %
Adjusted OIBDA(148)(128)(16)%(285)(238)(20)%
Employee share-based compensation28 31 89 24 
Depreciation and amortization29 25 62 43 
Restructuring and other charges1 4 1 6 
Transaction and integration costs35 — 35 — 
Inter-segment eliminations— (1)— (2)
Operating loss$(241)$(187)$(472)$(309)
Corporate operations primarily consist of executive management, administrative support services, substantially all of our share-based compensation, and third-party transaction and integration costs.
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FINANCIAL CONDITION
Liquidity
Sources of Cash
Historically, we have generated a significant amount of cash from operations. During the six months ended June 30, 2021, we funded our working capital needs primarily through cash flows from operations. As of June 30, 2021, we had $2.8 billion of cash and cash equivalents on hand. We are a well-known seasoned issuer and have the ability to conduct registered offerings of securities, including debt securities, common stock, and preferred stock, on short notice, subject to market conditions. Access to sufficient capital from the public market is not assured. We also have a $2.5 billion revolving credit facility and commercial paper 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 existing $2.5 billion credit agreement, dated February 4, 2016, as amended. We have the capacity to initially borrow up to $2.5 billion under the Credit Agreement. Upon the closing of the proposed combination transactions with WarnerMedia, the available commitments may be increased by $3.5 billion, to an aggregate amount not to exceed $6 billion. The Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. We may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by Discovery, Inc. and Scripps Networks Interactive, Inc., and will also be guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed combination transactions.
The Credit Agreement will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods. The Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of June 30, 2021, DCL was in compliance with all covenants and there were no events of default under the Credit Facility.
Additionally, the Company's commercial paper program is supported by the Credit Facility. Under the commercial paper program, the Company may issue up to $1.5 billion, including up to $500 million of euro-denominated borrowings. Borrowing capacity under the Credit Facility is reduced by any outstanding borrowings under the commercial paper program.
As of June 30, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility or the commercial paper program.
•Investments
We received proceeds of $348 million during the six months ended June 30, 2021 from the sales and maturities of 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 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+. Contractual commitments to acquire content have increased less than 10% as 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 our 2020 Form 10-K.
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•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 (the "2022 Notes"). The 2022 Notes were redeemed on July 31, 2021 for an aggregate redemption price of $235 million, plus accrued interest. The redemption included $5 million for premium over par on the 2022 Notes and resulted in a loss on extinguishment of debt of $6 million.
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. The redemption included $3 million for premium over par and resulted in a loss on extinguishment of debt of $3 million.
In addition, we have $357 million of senior notes coming due in March 2022.
•Capital Expenditures and Investments in Next Generation Initiatives
We effected capital expenditures of $167 million during the six months ended June 30, 2021, including amounts capitalized to support our next generation platforms, such as discovery+. In addition, we expect to continue to incur significant costs to develop and market discovery+ in the future.
•Investments and Business Combinations
Our uses of cash have included investments in equity method investments and equity investments without readily determinable fair value. (See Note 3 to the accompanying consolidated financial statements.) We provide funding to our investees from time to time. During the six months ended June 30, 2021, we contributed $105 million for investments in and advances to our investees.
•Redeemable Noncontrolling Interest and Noncontrolling Interest
Due to business combinations, we also have redeemable equity balances of $357 million, which may require the use of cash in the event holders of noncontrolling interests put their interests to us, which may be exercised in 2021. Distributions to noncontrolling interests and redeemable noncontrolling interests totaled $213 million and $202 million for the six months ended June 30, 2021 and 2020, respectively.
•Common Stock Repurchases
Historically, we have funded our stock repurchases through a combination of cash on hand, cash generated by operations, and the issuance of debt. In February 2020, our Board of Directors authorized additional stock repurchases of up to $2 billion upon completion of our existing $1 billion authorization announced in May 2019. Under the new stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors. (See Note 9 to the accompanying consolidated financial statements.) During the six months ended June 30, 2021, we did not repurchase any of our 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 six months ended June 30, 2021, we made cash payments of $249 million and $337 million for income taxes and interest on our outstanding debt, respectively.
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Cash Flows
The following table presents changes in cash and cash equivalents (in millions).
 Six Months Ended June 30,
 20212020
Cash, cash equivalents, and restricted cash, beginning of period$2,122 $1,552 
Cash provided by operating activities1,103 1,326 
Cash provided by (used in) investing activities196 (154)
Cash used in financing activities(538)(998)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(49)12 
Net change in cash, cash equivalents, and restricted cash712 186 
Cash, cash equivalents, and restricted cash, end of period$2,834 $1,738 
Operating Activities
Cash provided by operating activities was $1.1 billion and $1.3 billion during the six months ended June 30, 2021 and 2020, respectively. The decrease in cash provided by operating activities was primarily attributable to a negative fluctuation in working capital activity, partially offset by an increase in net income excluding non-cash items.
Investing Activities
Cash provided by (used in) investing activities was $196 million and $(154) million during the six months ended June 30, 2021 and 2020, respectively. The increase in cash provided by investing activities was primarily attributable to proceeds received from the sales and maturities of investments and a reduction in purchases of property and equipment during the six months ended June 30, 2021.
Financing Activities
Cash used in financing activities was $538 million and $998 million during the six months ended June 30, 2021 and 2020, respectively. The decrease in cash used in financing activities was primarily attributable to a reduction in repurchases of stock during the six months ended June 30, 2021.
Capital Resources
As of June 30, 2021, capital resources were comprised of the following (in millions).
 June 30, 2021
 Total
Capacity		Outstanding
Letters of
Credit		Outstanding
Indebtedness		Unused
Capacity
Cash and cash equivalents$2,834 $— $— $2,834 
Revolving credit facility and commercial paper program2,500 — — 2,500 
Senior notes (a)
15,484 — 15,484 — 
Total$20,818 $— $15,484 $5,334 
(a) Interest on the senior notes is paid annually or semi-annually. Our senior notes outstanding as of June 30, 2021 had interest rates that ranged from 1.90% to 6.35% and will mature between 2022 and 2055.

We expect that our cash balance, cash generated from operations and availability under the Credit Agreement will be sufficient to fund our cash needs for the next twelve months. Our borrowing costs and access to capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.
As of June 30, 2021, we held $434 million of our $2.8 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 non-U.S. taxes to repatriate them. The determination of the amount of unrecognized deferred income tax liability with respect to these undistributed foreign earnings is not practicable.
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Summarized Guarantor Financial Information
Basis of Presentation
Each of the Company, DCL, Discovery Communications Holding LLC (“DCH”), and/or Scripps Networks has the ability to conduct registered offerings of debt securities under the Company’s shelf registration statement. As of June 30, 2021 and December 31, 2020, 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 $32 million of senior notes outstanding as of June 30, 2021 that have been issued by Scripps Networks and are not guaranteed. (See Note 7.) DCL primarily includes the Discovery Channel and TLC networks in the U.S. DCL is a wholly owned subsidiary of DCH. The Company wholly owns DCH through a 33 1/3% direct ownership interest and a 66 2/3% indirect ownership interest through Discovery Holding Company (“DHC”), a wholly owned subsidiary of the Company. Scripps Networks is 100% owned by the Company.
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. DCH currently is not an issuer or guarantor of any securities and therefore is not included in the summarized financial information included herein.
Note Guarantees issued by Scripps Networks or any subsidiary of the Parent that in the future issues a Note Guarantee (each, a “Subsidiary Guarantor”) may be released and discharged (i) concurrently with any direct or indirect sale or disposition of such Subsidiary Guarantor or any interest therein, (ii) at any time that such Subsidiary Guarantor is released from all of its obligations under its guarantee of payment by DCL, (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into DCL or the Parent or another Subsidiary Guarantor, or upon the liquidation of such Subsidiary Guarantor and (iv) other customary events constituting a discharge of the Obligors’ obligations.
Summarized Financial Information
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).
June 30, 2021December 31, 2020
Current assets$3,390 $2,308 
Non-guarantor intercompany trade receivables, net$185 $217 
Noncurrent assets$5,997 $5,905 
Current liabilities$1,131 $915 
Noncurrent liabilities$15,863 $16,500 
Six months ended June 30, 2021
Revenues$1,054 
Operating income$578 
Net income$286 
Net income available to Discovery, Inc.$275 
COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. The nature of our contractual commitments is evolving with the launch and our support of discovery+. Total contractual commitments have increased less than 10% as 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 our 2020 Annual Report on Form 10-K.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, we enter into transactions with related parties, primarily the Liberty Group and our equity method investees. (See Note 15 to the accompanying consolidated financial statements.)
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates have not changed since December 31, 2020. For a discussion of each of our critical accounting estimates listed below, including information and analysis of estimates and assumptions involved in their application, see "Critical Accounting Policies and Estimates" included in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K:
•Uncertain tax positions;
•Goodwill and intangible assets;
•Content rights;
•Consolidation; and
•Revenue recognition
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects, and anticipated sources and uses of capital and our proposed acquisition of Scripps.transaction to combine our business with AT&T's WarnerMedia business. Words such as “anticipates,“anticipate,” “estimates,“assume,” “expects,“believe,” “projects,“continue,” “intends,“estimate,” “plans,“expect,” “believes,“forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would,” among other terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be accomplished. The following is a list of some, but not all, of the factors that could cause actual results or events to differ materially from those anticipated:
•the occurrence of any event, change or other circumstance that could give rise to the termination of, or prevent or delay our ability to consummate, our proposed transaction to combine with WarnerMedia;
•the effects of the announcement, pendency or completion of our proposed transaction to combine with WarnerMedia on our ongoing business operations;
•changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders, subscription video on demand, (“SVOD”), internet protocol television, mobile personal devices and personal tablets and their impact on television advertising revenue;
•continued consolidation of distribution customers and production studios;
•a failure to secure affiliate agreements or the renewal of such agreements on less favorable terms;
•rapid technological changes;
•the inability of advertisers or affiliates to remit payment to us in a timely manner or at all;
•general economic and business conditions; conditions, including the impact of the ongoing COVID-19 pandemic;
•industry trends, including the timing of, and spending on, feature film, television and television commercial production;
•spending on domestic and foreign television advertising;
•disagreements with our distributors or other business partners over contract interpretation;
•fluctuations in foreign currency exchange rates, and political unrest and regulatory changes in international markets, from events including Brexit; any proposed or adopted regulatory changes that impact the operations of our international media properties and/or modify the terms under which we offer our services and operate in international markets;
•market demand for foreign first-run and existing content libraries;
•the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate;
•uncertainties inherent in the development of new business lines and business strategies;
•uncertainties regarding the financial performance of our equity method investees; investments in unconsolidated entities;
47

•our ability to complete, integrate, maintain and obtain the anticipated benefits and synergies from our proposed business combinations and acquisitions, including our proposed acquisition of Scripps,transaction to combine with WarnerMedia, on a timely basis or at all;
•uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies; technologies, and the success of our new discovery+ streaming product;
•future financial performance, including availability, terms, and deployment of capital;
•the ability of suppliers and vendors to deliver products, equipment, software, and services;
•our ability to achieve the efficiencies, savings and other benefits anticipated from our cost-reduction initiative; initiatives;
•the outcome of any pending or threatened litigation;
•availability of qualified personnel;
•the possibility or duration of an industry-wide strike or other job action affecting a major entertainment industry union;
•changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission and data privacy regulations and adverse outcomes from regulatory proceedings;
•changes in income taxes due to regulatory changes such as U.S. tax reform, or changes in our corporate structure;
•changes in the nature of key strategic relationships with partners, distributors and equity method investee partners;
•competitor responses to our products and services and the products and services of the entities in which we have interests;
•threatened or actual cyber-attacks and cybersecurity breaches;
•threatened or actual terrorist attacks and military action;
•our significant level of debt;
•reduced access to capital markets or significant increases in costs to borrow; and
•a reduction of advertising revenue associated with unexpected reductions in the number of subscribers.
These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill or other intangibles. Additionally, many of these risks are currently amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. For additional risk factors, refer to Item 1A, “Risk Factors,” in the 2016our 2020 Annual Report on Form 10-K.10-K and Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
BUSINESS OVERVIEW
We are a global media company that provides content across multiple distribution platforms, including pay-TV, FTA and broadcast television, authenticated applications, digital distribution arrangements and content licensing agreements. Our portfolio of networks includes prominent television brands such as Discovery Channel, our most widely distributed global brand, TLC, Animal Planet, Investigation Discovery ("ID") and 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 a production studio.

Our objectives are to invest in content for our networks to build viewership, optimize distribution revenue, capture advertising sales, and create or reposition branded channels and businesses that can sustain long-term growth and occupy a desired content niche with strong consumer appeal. Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks. In addition to growing distribution and advertising revenues for our branded networks, we are extending content distribution across new platforms, including brand-aligned websites, on-line streaming, mobile devices, VOD and broadband channels, which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue. Audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators, direct-to-home ("DTH") satellite operators, telecommunication service providers, and other content distributors, who deliver our content to their customers.
Our content spans genres including survival, exploration, sports, lifestyle, general entertainment, heroes, adventure, crime and investigation, health and kids. We have an extensive library of high-definition content and own rights to much of our content and footage, which enables us to exploit our library to launch brands and services into new markets quickly. Our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world on a variety of platforms.
Although the Company utilizes certain brands and content globally, we classify our operations in two reportable segments: U.S. Networks, consisting principally of domestic television network brands, and International Networks, consisting primarily of international television network brands. In addition, Education and Other consists principally of curriculum-based product and service offerings and the production studio. Our segment presentation aligns with our management structure and the financial information management uses to make strategic and operating decisions, such as the allocation of resources and business performance assessments.
Scripps Networks Interactive, Inc.
On July 31, 2017, Discovery announced that it had entered into an agreement and plan of merger (the "Merger Agreement") for Discovery to acquire Scripps in a cash-and-stock transaction (the "Scripps acquisition"). The estimated merger consideration for the acquisition totals $11.5 billion, including cash of $8.4 billion and stock of $3.1 billion based on stock prices as of October 20, 2017. In addition, the Company will assume Scripps' net debt of approximately $2.7 billion. The transaction is expected to close by early 2018.
Scripps 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 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 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 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 common shares, stock options, and other equity-based awards outstanding on the closing date. Discovery will also pay certain transaction costs incurred by Scripps, which will be recorded as a component of the opening balance sheet. The post-closing impact of the formula was intended to result in, Scripps’ shareholders owning approximately 20% of Discovery’s fully diluted common shares and Discovery’s shareholders owning approximately 80%. The Company will utilize debt (see Note 6) and cash on hand to finance the cash portion of the transaction. The transaction is subject to approval by Discovery and Scripps’ shareholders, regulatory approvals and other customary closing conditions.
John C. Malone, Advance/Newhouse and members of the Scripps family have entered into voting agreements to vote in favor of the transactions (the “Advance/Newhouse Voting Agreement”). In addition, Advance/Newhouse has provided its consent, in its capacity as the holder of Discovery’s outstanding shares of Series A preferred stock, for Discovery 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 will not change the aggregate number of shares of Discovery’s Series A common stock and Series C common stock that are beneficially owned by Advance/Newhouse or change voting rights or liquidation preferences afforded to Advance/Newhouse. The $35 million

impact of the modification has been recorded as a component of selling, general and administrative expense. (See Note 9 and Note 12). All of Discovery's direct costs of the Scripps acquisition will be reflected as a component of selling, general and administrative expense in the consolidated statements of operations.
On September 21, 2017, DCL issued a series of senior notes to partially fund the acquisition of Scripps totaling $6.8 billion. With the exception of the senior notes which mature in 2019, the senior notes contain a special mandatory redemption clause requiring the Company to redeem the notes for a price equal to 101% of the principal amount plus any accrued and unpaid interest on the senior notes in the event that the Scripps acquisition has not closed prior to August 30, 2018. While the Company expects to complete the acquisition by the required date, unanticipated developments could delay or prevent the acquisition. As such, the Company cannot ensure that it will complete the acquisition by August 30, 2018. (See Note 6).
U.S. Networks
U.S. Networks generated revenues of $2,542 million and Adjusted OIBDA of $1,548 million during the nine months ended September 30, 2017, which represented 51% and 82% of our total consolidated revenues and Adjusted OIBDA, respectively. Our U.S. Networks segment owns and operates ten national television networks, including fully distributed television networks such as Discovery Channel, TLC and Animal Planet. In addition, this segment holds an equity method investment interest in OWN and a cost method investment in Group Nine Media described below.
U.S. Networks generates revenues from fees charged to distributors of our television networks’ first run content, which include cable, DTH satellite and telecommunication service providers, referred to as affiliate fees; fees from distributors for licensed content and content to equity method investee networks, referred to as other distribution revenue; fees from advertising sold on our television networks and digital products, which include our GO suite of applications and our virtual reality product, Discovery VR; fees from providing sales representation, network distribution services; and revenue from licensing our brands for consumer products.
Typically, our television networks are aired pursuant to multi-year carriage agreements that provide for the level of carriage that our networks will receive and for annual graduated rate increases. Carriage of our networks depends on package inclusion, such as whether networks are on the more widely distributed, broader packages or lesser-distributed, specialized packages, also referred to as digital tiers. We provide authenticated U.S. TV Everywhere products that are available to certain subscribers and connect viewers through GO applications with live and on-demand access to award-winning shows and series from nine U.S. networks in the Discovery portfolio: Discovery Channel, TLC, Animal Planet, ID, Science Channel, Velocity, Destination America, American Heroes Channel and Discovery Life.
Advertising revenue is generated across multiple platforms and is based on the price received for available advertising spots and is dependent upon a number of factors including the number of subscribers to our channels, viewership demographics, the popularity of our programming, our ability to sell commercial time over a portfolio of channels and leverage multiple platforms to connect advertisers to target audiences. In the U.S., advertising time is sold in the upfront and scatter markets. In the upfront market, advertisers buy advertising time for upcoming seasons and, by committing to purchase in advance, lock in the advertising rates they will pay for the upcoming year. Many upfront advertising commitments include options whereby advertisers may reduce purchase commitments. In the scatter market, advertisers buy advertising closer to the time when the commercials will be run, which often results in a pricing premium compared to the upfront rates. The mix of upfront and scatter market advertising time sold is based upon the economic conditions at the time that upfront sales take place, impacting the sell-out levels management is willing or able to obtain. The demand in the scatter market then impacts the pricing achieved for our remaining advertising inventory. Scatter market pricing can vary from upfront pricing and can be volatile.
During the nine months ended September 30, 2017, distribution, advertising and other revenues were 48%, 50% and 2%, respectively, of total revenues for this segment.
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 VTEN included businesses from The Enthusiast Network, Inc. ("TEN"), primarily MotorTrend.com, Motor Trend YouTube channel and the Motor Trend OnDemand OTT service. The joint venture will establish a portfolio of digital content, social groups and 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.
On December 2, 2016, the Company acquired a 39% minority interest in Group Nine Media, a joint venture with Thrillist Media Group, NowThis Media, and TheDodo.com. Group Nine Media is a millennial-focused, digital-first enterprise that seeks to create a dynamic publishing platform and content creation engine across the unique brands of the contributing investors. In exchange for our interest in the new venture, we contributed $100 million and certain digital businesses, comprising our digital network Seeker and production studio SourceFed. We recorded a pre-tax gain of $50 million upon disposition of Seeker and SourceFed Studios in connection with the transaction in the fourth quarter of 2016. (See Note 2 to the accompanying consolidated

financial statements.) The investment is accounted for under the cost method. (See Note 3 to the accompanying consolidated financial statements.)
International Networks
International Networks generated revenues of $2,354 million and Adjusted OIBDA of $610 million during the nine months ended September 30, 2017, which represented 47% and 32% of our total consolidated revenues and Adjusted OIBDA, respectively. Our International Networks segment principally consists of national and pan-regional television networks and brands that are delivered across multiple distribution platforms. This segment generates revenue from operations in virtually every pay-TV market in the world through an infrastructure that includes operational centers in London, Warsaw, Milan, Singapore and Miami. Global brands include Discovery Channel, Animal Planet, TLC, ID, Science Channel and Turbo (known as Velocity in the U.S.), along with brands exclusive to International Networks, including Eurosport, Real Time, DMAX and Discovery Kids. As of September 30, 2017, International Networks operated over 400 unique distribution feeds in over 40 languages with channel feeds customized according to language needs and advertising sales opportunities. International Networks also has FTA networks in Europe and the Middle East and broadcast networks in Denmark, Norway and Sweden, and continues to pursue further international expansion. FTA networks generate a significant portion of International Network's revenue. The penetration and growth rates of television services vary across countries and territories depending on numerous factors including the dominance of different television platforms in local markets. While pay-TV services have greater penetration in certain markets, FTA or broadcast television is dominant in others. International Networks has a large international distribution platform for its 37 networks, with as many as 14 networks distributed in any particular country or territory across approximately 220 countries and territories around the world. International Networks pursues distribution across all television and other delivery platforms based on the specific dynamics of local markets and relevant commercial agreements. Effective January 1, 2017, we realigned our International Networks management reporting structure into the following regions: the Nordics; the U.K.; Southern Europe; Central and Eastern Europe, the Middle East, and Africa (“CEEMEA”), which was expanded to include Belgium, the Netherlands, and Luxembourg; Latin America; and Asia-Pacific. Previously, International Networks’ regional operations reporting structure was segregated into the following regions: Northern Europe, which included primarily the Nordics and U.K.; Southern Europe; CEEMEA; Latin America; and Asia-Pacific. This realignment did not impact our consolidated financial statements other than to change the regions in which we describe our operating results for the International Networks segment.
Similar to U.S. Networks, a significant source of revenue for International Networks relates to fees charged to operators who distribute our linear networks. Such operators primarily include cable and DTH satellite service providers, internet protocol television ("IPTV") and over-the-top operators (“OTT”). International television markets vary in their stages of development. Some markets, such as the U.K., are more advanced digital television markets, while others remain in the analog environment with varying degrees of investment from operators to expand channel capacity or convert to digital technologies. Common practice in international markets results in long-term contractual distribution relationships with terms generally shorter than similar customers in the U.S. Distribution revenue for our International Networks segment is largely dependent on the number of subscribers that receive our networks or content, the rates negotiated in the distributor agreements, and the market demand for the content that we provide.
The other significant source of revenue for International Networks relates to advertising sold on our television networks and across other distribution platforms, similar to U.S. Networks. Advertising revenue is dependent upon a number of factors, including the development of pay and FTA television markets, the number of subscribers to and viewers of our channels, viewership demographics, the popularity of our programming, and our ability to sell commercial time over all media platforms. In certain markets, our advertising sales business operates with in-house sales teams, while we rely on external sales representation services in other markets.
During the nine months ended September 30, 2017, distribution, advertising and other revenues were 59%, 39% and 2%, respectively, of total net revenues for this segment. For the nine months ended September 30, 2017, FTA or broadcast networks generated 54% of International Networks' advertising revenue and pay-TV networks generated 46% of International Networks' advertising revenue.
International Networks’ largest cost is content expense for localized programming disseminated via our 400 unique distribution feeds. While our International Networks segment maximizes the use of programming from U.S. Networks, we also develop local programming that is tailored to individual market preferences and license the rights to air films, television series and sporting events from third parties. International Networks amortizes the cost of capitalized content rights based on the proportion of current estimated revenue relative to the estimated remaining total lifetime revenue, which results in either an accelerated method or a straight-line method over the estimated useful lives of the content of up to five years. Content acquired from U.S. Networks and content developed locally airing on the same network is amortized similarly, as amortization rates vary by network. More than half of International Networks' content is amortized using an accelerated amortization method, while the remainder is

amortized on a straight-line basis. The costs for multi-year sports programming arrangements are expensed when the event is broadcast based on the estimated relative value of each component of the arrangement.
While the International Networks and U.S. Networks have similarities with respect to the nature of operations, the generation of revenue and the categories of expense, the International Networks have lower segment margins due to lower economies of scale from being in over 220 markets requiring additional cost for localization to satisfy market variations.  The International Networks also include sports and FTA broadcast channels, which drive higher costs from sports rights and production and investment in broad entertainment programming for broadcast networks.
On June 24, 2016, we acquired a 27.5% interest in Mega TV, a FTA channel in Chile owned by Bethia Comunicaciones, for $53 million, which we account for using the equity method.
On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” Consequently, on March 29, 2017, the U.K. government officially notified the E.U. of its intention to leave the E.U. This started a negotiation process of two years between the U.K. and the E.U. that ends on March 29, 2019, when the U.K. will no longer be an E.U. Member State. The negotiations, which are ongoing, will determine the terms under which the U.K. will leave the E.U.; the principles of a new trading relationship between the U.K. and the E.U.; and a transitional agreement to cover the period between the U.K.’s official departure on March 29, 2019 and the formalization of the U.K.'s new trading relationship with the E.U. It is expected that after “Brexit,” the U.K. will no longer have access to the E.U.’s single market for goods and services, including broadcast services. As much remains unclear, we continue to evaluate the potential impact to our distribution and licensing agreements, foreign currency exchange rates, the legal and regulatory landscape, our business and our employees. In this changing environment, we continue to monitor the potential effects and evaluate options to adequately manage and mitigate any adverse impacts.
On June 30, 2015, we sold our radio businesses in the Nordics to Bauer for total consideration, net of cash disposed, of €72 million ($80 million), which included €54 million ($61 million) in cash and €18 million ($19 million) of contingent consideration paid on April 1, 2016. The cumulative gain on the disposal of the radio business is $1 million. Based on a change in estimate of the fair value of contingent consideration, we recorded a pre-tax gain of $13 million for the three months ended March 31, 2016. For the year ended December 31, 2015, we recorded an estimated loss on disposal of $12 million using then available projected results. We determined that the disposal did not meet the definition of a discontinued operation because it does not represent a strategic shift that has a significant impact on our operations and consolidated financial results. (See Note 2 to the accompanying consolidated financial statements.)
Education and Other
Education and Other generated revenues of $113 million during the nine months ended September 30, 2017, which represented 3% of our consolidated revenues. Education is comprised of curriculum-based product and service offerings and generates revenues primarily from subscriptions charged to K-12 schools for access to an online suite of curriculum-based VOD tools, professional development services, digital textbooks and, to a lesser extent, student assessments and publication of hardcopy curriculum-based content. Other is comprised of our wholly-owned production studio, which provides services to our U.S. Networks and International Networks segments at cost.
On April 28, 2017, the Company sold Raw and Betty, its production studios, to All3Media. All3Media is a U.K. based television, film and digital production and distribution company. (See Note 3 to the accompanying consolidated financial statements.) The Company owns 50% of All3Media and accounts for its investment in All3Media under the equity method of accounting. (See Note 2 to the accompanying consolidated financial statements.)

RESULTS OF OPERATIONS
Consolidated Results of Operations
The table below presents our consolidated results of operations (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenues:            
Distribution $881
 $806
 9 % $2,593
 $2,420
 7 %
Advertising 705
 670
 5 % 2,197
 2,170
 1 %
Other 65
 80
 (19)% 219
 235
 (7)%
Total revenues 1,651
 1,556
 6 % 5,009
 4,825
 4 %
Costs of revenues, excluding depreciation and amortization 670
 592
 13 % 1,911
 1,787
 7 %
Selling, general and administrative 457
 419
 9 % 1,261
 1,227
 3 %
Depreciation and amortization 80
 80
 — % 240
 239
 — %
Restructuring and other charges 11
 7
 57 % 43
 52
 (17)%
Loss (gain) on disposition —
 —
 NM
 4
 (13) NM
Total costs and expenses 1,218
 1,098
 11 % 3,459
 3,292
 5 %
Operating income 433
 458
 (5)% 1,550
 1,533
 1 %
Interest expense (136) (91) 49 % (318) (267) 19 %
Loss on extinguishment of debt —
 —
 — % (54) —
 NM
(Loss) income from equity investees, net (27) 3
 NM
 (122) (28) NM
Other expense, net (106) (49) NM
 (143) (27) NM
Income before income taxes 164
 321
 (49)% 913
 1,211
 (25)%
Income tax benefit (expense) 59
 (96) NM
 (89) (302) (71)%
Net income 223
 225
 (1)% 824
 909
 (9)%
Net income attributable to noncontrolling interests —
 —
 NM
 —
 (1) NM
Net income attributable to redeemable noncontrolling interests (5) (6) (17)% (17) (18) (6)%
Net income available to Discovery Communications, Inc. $218
 $219
 — % $807
 $890
 (9)%
NM - Not meaningful
Revenues
Distribution revenue consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from SVOD content licensing and other emerging forms of digital distribution. Distribution revenue increased 9% and 7% for the three and nine months ended September 30, 2017, respectively. Distribution revenue increased 6% and 5% for the three and nine months ended September 30, 2017, respectively, at our U.S. Networks segment. Excluding the impact of foreign currency fluctuations, distribution revenue increased 9% for the three and nine months ended September 30, 2017, at our International Networks segment. U.S. Networks distribution revenue increases were driven by increases in affiliate fee rates and increases in SVOD revenue, particularly in the third quarter, partially offset by a decline in affiliate subscribers. Total portfolio subscribers declined 5% for the three and nine months ended September 30, 2017, while subscribers to our fully distributed networks declined 3% for the same periods. SVOD revenue can fluctuate period-to-period due to the timing of content deliveries. International Networks' distribution revenue increases were mostly due to increases in contractual rates in Europe following further investment in sports content, and increases in rates in Latin America, primarily due to the continued development of the pay-TV markets in Latin America, partially offset by lower subscribers in Latin America and decreases in contractual rates in Asia Pacific.
Advertising revenue is dependent upon a number of factors, including the stage of development of television markets, the number of subscribers to our channels, viewership demographics, the popularity of our content, our ability to sell commercial time over a group of channels, market demand, the mix of sales of commercial time between the upfront and scatter markets, and economic conditions. These factors impact the pricing and volume of our advertising inventory. Advertising revenue increased 5%

and 1% for the three and nine months ended September 30, 2017, respectively. Excluding the impact of the Group Nine Transaction and foreign currency fluctuations, advertising revenue increased 4% and 2%, for the three and nine months ended September 30, 2017, respectively. For the three months ended September 30, 2017, U.S. Networks increased 4% primarily due to pricing increases and continued monetization of our GO platform, partially offset by lower audience delivery due to continued universe declines, and International Networks increased 5% mostly due to increases in ratings in Southern Europe and ratings and pricing in Latin America and CEEMEA. For the nine months ended September 30, 2017, U.S. Networks increased 2% primarily due to pricing increases and continued monetization of our GO platform, partially offset by lower audience delivery and, International Networks increased 3% primarily due to pricing in CEEMEA, ratings in Southern Europe, and ratings and volume in Latin America, partially offset by lower ratings in Asia Pacific.
Other revenue decreased compared with the prior year, primarily as a result of the sale of the Raw and Betty production studios.
Costs of Revenues
Costs of revenue increased 13% and 7% for the three and nine months ended September 30, 2017, respectively. Excluding the impact of the Group Nine Transaction and foreign currency fluctuations, costs of revenue increased 10% and 8% for the three and nine months ended September 30, 2017, respectively. The increase for the three months ended September 30, 2017 was primarily attributable to increased spending for content, particularly for Shark Week, at our U.S. Networks segment, which aired in the third quarter of 2017 compared to the second quarter of 2016 and Manhunt: Unabomber which also aired in the third quarter 2017, as well as increased spending for sports rights and associated production costs at our International Networks segment. The increase for the nine months ended September 30, 2017 was mostly attributable to increased spending on content at our International Networks segment, particularly sports rights and associated production costs. Content amortization was $485 million and $424 million for the three months ended September 30, 2017 and 2016, respectively. Content amortization was $1,386 million and $1,279 million for the nine months ended September 30, 2017 and 2016, respectively.
Selling, General and Administrative
Selling, general and administrative expenses consist principally of employee costs, marketing costs, research costs, occupancy and back office support fees. Selling, general and administrative expenses increased 9% and 3% for the three and nine months ended September 30, 2017, respectively. Excluding the impact of the Group Nine Transaction and foreign currency fluctuations, selling, general and administrative expenses increased 9% and 5% for the three and nine months ended September 30, 2017. The increases were primarily due to transactions costs for the Scripps acquisition and integration costs of $62 million, including the $35 million charge associated with the modification of Advance/Newhouse's preferred stock. (See Note 9 to the accompanying consolidated financial statements.)
Depreciation and Amortization
Depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets. Depreciation and amortization was consistent for the three and nine months ended September 30, 2017, compared with the prior year periods as capital spending over the last twelve months was consistent with the prior year periods impacting the three and nine months ended September 30, 2016.
Restructuring and Other Charges
Restructuring and other charges increased slightly by $4 million and decreased $9 million for the three and nine months ended September 30, 2017, respectively. The decrease for the nine months ended September 30, 2017 was primarily due to higher personnel-related termination costs for voluntary and involuntary severance actions in the prior year. (See Note 17 to the accompanying consolidated financial statements.)
Loss (Gain) on Disposition
We recorded a $4 million loss for the nine months ended September 30, 2017 due to the sale of the Raw and Betty production studios on April 28, 2017, compared with a gain of $13 million for the nine months ended September 30, 2016 due to the disposition of our radio businesses in the Nordics. (See Note 2 to the accompanying consolidated financial statements.)
Interest Expense
Interest expense increased $45 million and $51 million for the three and nine months ended September 30, 2017, respectively. The increases were primarily due to costs incurred for the unsecured bridge loan commitment for the Scripps

acquisition, as well as interest accrued on the senior notes issued on September 21, 2017. (See Note 6 to the accompanying consolidated financial statements.)
Loss on Extinguishment of Debt
On March 13, 2017, we issued new senior notes in an aggregate principal amount of $650 million and used the proceeds to fund the repurchase of $600 million of combined aggregate principal of our existing senior notes through a cash tender offer that also closed on March 13, 2017. As a result, we recognized a $54 million loss on extinguishment of debt, which 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 6 to the accompanying consolidated financial statements.)
(Loss) income from equity investees, net
Losses from our equity method investees increased $30 million and $94 million for the three and nine months ended September 30, 2017, respectively, primarily due to losses from investments in limited liability companies that sponsor renewable energy projects related to solar energy, partially offset by decreases in losses at All3Media and increases in earnings at OWN. (See Note 3 to the accompanying consolidated financial statements.)
Other Expense, net
The table below presents the details of other expense, net (in millions).
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Foreign currency (losses) gains, net $(27) $15
 $(62) $52
Losses on derivative instruments (77) (1) (79) (16)
Other-than-temporary impairment of AFS investments —
 (62) —
 (62)
Other expense, net (2) (1) (2) (1)
Total other expense, net $(106) $(49) $(143) $(27)
Other expense, net increased $57 million and $116 million for the three and nine months ended September 30, 2017, respectively. We recorded foreign currency losses during 2017 compared to foreign currency gains during 2016, mostly due to exchange rate changes on the U.S. dollar compared with the British pound that impacted foreign currency monetary assets. Increases in losses from derivative instruments primarily resulted from losses of $98 million on interest rate contracts used to economically hedge the pricing for the issuance of a portion of the dollar-denominated senior notes, which were settled on September 21, 2017. The interest rate contracts did not receive hedging designation. The losses were partially offset by gains of $17 million on previously settled interest rate contracts for which the hedged issuance of debt is considered remote following the issuance of the senior notes on September 21, 2017. (See Note 6 and Note 7 to the accompanying consolidated financial statements.)

Income Tax Expense
The following table reconciles the Company's effective income tax rate to the U.S. federal statutory income tax rate of 35%.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
U.S. federal statutory income tax rate 35 % 35 % 35 % 35 %
State and local income taxes, net of federal tax benefit 2 % 1 % 2 % (4)%
Effect of foreign operations (21)% (5)% (8)% (4)%
Domestic production activity deductions (5)% (1)% (4)% (3)%
Change in uncertain tax positions — % — % — % 1 %
Renewable energy investments tax credits (50)% — % (16)% — %
Preferred stock modification 5 % — % 1 % — %
Other, net (2)% — % — % — %
Effective income tax rate (36)% 30 % 10 % 25 %
Income tax benefit was $59 million and income tax expense was $89 million, and the effective income tax benefit was 36% and expense was 10% for the three and nine months ended September 30, 2017, respectively. Income tax expense was $96 million and $302 million, and the effective income tax rates were 30% and 25% for the three and nine months ended September 30, 2016, respectively. During 2017, the decrease in the effective tax rate was primarily attributable to the investment tax credits that we receive related to our renewable energy investments, and to a lesser extent, taxation of income among multiple foreign jurisdictions. The impact to the effective tax rate for these items is more pronounced than expected due to lower than anticipated net income as a result of costs associated with the Scripps acquisition (see Note 2 to the accompanying consolidating financial statements). In 2016, we had a favorable resolution of multi-year state tax positions that resulted in a reduction of reserves related to uncertain tax positions that did not recur in 2017.
Segment Results of Operations
We evaluate the operating performance of our operating segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) mark-to-market 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. Additionally, beginning with the quarter ended September 30, 2017, Adjusted OIBDA also excludes material incremental third-party transaction costs directly related to the Scripps acquisition and planned integration. We use this measure to assess the operating results and performance of our segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. We believe Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. We exclude mark-to-market share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and Scripps 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. As of January 1, 2017, the Company no longer excludes amortization of deferred launch incentives in calculating total Adjusted OIBDA as this expense is not material. For the three and nine months ended September 30, 2016, deferred launch incentives of $3 million and $10 million, respectively, were not reflected as an adjustment to the calculation of total Adjusted OIBDA in order to conform to the current presentation.
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 GAAP.
Additional financial information for our reportable segments is set forth in Note 16 to the accompanying consolidated financial statements.
The table below presents the calculation of total Adjusted OIBDA (in millions).

  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenue:            
U.S. Networks $823
 $793
 4 % $2,542
 $2,473
 3 %
International Networks 796
 720
 11 % 2,354
 2,221
 6 %
Education and Other 32
 43
 (26)% 113
 133
 (15)%
Corporate and inter-segment eliminations —
 —
 NM
 —
 (2) NM
Total revenue 1,651
 1,556
 6 % 5,009
 4,825
 4 %
Costs of revenues, excluding depreciation and amortization (670) (592) 13 % (1,911) (1,787) 7 %
Selling, general and administrative(a)
 (406) (405) — % (1,203) (1,203) — %
Adjusted OIBDA $575
 $559
 3 % $1,895
 $1,835
 3 %
(a) Selling, general and administrative expenses exclude mark-to-market share-based compensation and third-party transaction costs directly related to the Scripps acquisition and planned integration.



The table below presents our reconciliation of consolidated net income available to Discovery Communications, Inc. to total Adjusted OIBDA and Adjusted OIBDA by segment (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Net income available to Discovery Communications, Inc. $218
 $219
 — % $807
 $890
 (9)%
Net income attributable to redeemable noncontrolling interests 5
 6
 (17)% 17
 18
 (6)%
Net income attributable to noncontrolling interests —
 —
 NM
 —
 1
 NM
Income tax (benefit) expense (59) 96
 NM
 89
 302
 (71)%
Other expense (income), net 106
 49
 NM
 143
 27
 NM
Loss (income) from equity investees, net 27
 (3) NM
 122
 28
 NM
Loss on extinguishment of debt —
 —
 NM
 54
 —
 NM
Interest expense 136
 91
 49 % 318
 267
 19 %
Operating income 433
 458
 (5)% 1,550
 1,533
 1 %
Loss (gain) on disposition —
 —
 NM
 4
 (13) NM
Restructuring and other charges 11
 7
 57 % 43
 52
 (17)%
Depreciation and amortization 80
 80
 — % 240
 239
 — %
Mark-to-market share-based compensation (11) 14
 NM
 (4) 24
 NM
Scripps transaction and integration costs 62
 —
 NM
 62
 —
 NM
Total Adjusted OIBDA $575
 $559
 3 % $1,895
 $1,835
 3 %
    
        
Adjusted OIBDA:           

U.S. Networks $480
 $458
 5 % $1,548
 $1,475
 5 %
International Networks 180
 180
 — % 610
 607
 — %
Education and Other —
 (1) NM
 (1) (5) 80 %
Corporate and inter-segment eliminations (85) (78) 9 % (262) (242) 8 %
Total Adjusted OIBDA $575
 $559
 3 % $1,895
 $1,835
 3 %
U.S. Networks
The table below presents, for our U.S. Networks segment, revenues by type, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenues:            
Distribution $402
 $381
 6 % $1,210
 $1,157
 5 %
Advertising 407
 396
 3 % 1,284
 1,269
 1 %
Other 14
 16
 (13)% 48
 47
 2 %
Total revenues 823
 793
 4 % 2,542
 2,473
 3 %
Costs of revenues, excluding depreciation and amortization (226) (214) 6 % (652) (652) — %
Selling, general and administrative (117) (121) (3)% (342) (346) (1)%
Adjusted OIBDA 480
 458
 5 % 1,548
 1,475
 5 %
Depreciation and amortization (7) (7) — % (21) (19) 11 %
Restructuring and other charges (2) (2) — % (6) (10) (40)%
Inter-segment eliminations (2) (4) (50)% (10) (9) 11 %
Operating income $469
 $445
 5 % $1,511
 $1,437
 5 %

Revenues
Distribution revenue, which consists principally of fees from affiliates for distributing our linear networks, supplemented by revenue earned from SVOD content licensing and other emerging forms of digital distribution, increased 6% and 5% for the three and nine months ended September 30, 2017, respectively. The increases were driven by increases in affiliate fee rates and increases in SVOD revenue, particularly in the third quarter, partially offset by a decline in affiliate subscribers. Total portfolio subscribers declined 5% for the three and nine months ended September 30, 2017, while subscribers to our fully distributed networks declined 3% for the same periods. SVOD revenue can fluctuate period-to-period due to the timing of content deliveries.
Advertising revenue for the three and nine months ended September 30, 2017 increased 3% and 1%, respectively. Excluding the impact of the Group Nine Transaction, advertising revenue increased 4% and 2% for the three and nine months ended September 30, 2017. The increases were primarily due to pricing increases and continued monetization of our GO platform, partially offset by lower audience delivery due to continued universe declines.
Other revenue for the three and nine months ended September 30, 2017 remained consistent with the prior year.
Costs of Revenues
Costs of revenues for the three and nine months ended September 30, 2017 increased 6% and remained consistent with the prior year, respectively. Excluding the impact of the Group Nine Transaction, costs of revenue increased 7% and 1% for the three and nine months ended September 30, 2017, respectively. The increase for the three months ended September 30, 2017 was primarily attributable to increased spending for content on our networks, specifically related to Shark Week, which aired in the third quarter of 2017 compared to the second quarter of 2016, and Manhunt: Unabomber which also aired in the third quarter of 2017. Content amortization was $190 million and $177 million for the three months ended September 30, 2017 and 2016, respectively. Content amortization was $544 million and $539 million for the nine months ended September 30, 2017 and 2016, respectively.
Selling, General and Administrative
Selling, general and administrative expenses decreased 3% and 1% for the three and nine months ended September 30, 2017, respectively. Excluding the impact of the Group Nine Transaction, selling, general and administrative expenses remained consistent and increased 2% for the three and nine months ended September 30, 2017, respectively. During the three and nine months ended September 30, 2017 there was increased spending on viewer research, offset by decreases in personnel and marketing costs.
Adjusted OIBDA
Adjusted OIBDA for the three and nine months ended September 30, 2017 increased 5%. The increase for the three months ended September 30, 2017 was mostly due to increases in distribution and advertising revenue, partially offset by increases in costs of revenue. The increase for the nine months ended September 30, 2017 was mostly due to increases in distribution revenue.

International Networks
The following table presents, for our International Networks segment, revenues by type, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenues:            
Distribution $479
 $425
 13 % $1,383
 $1,263
 10 %
Advertising 298
 273
 9 % 913
 900
 1 %
Other 19
 22
 (14)% 58
 58
 — %
Total revenues 796
 720
 11 % 2,354
 2,221
 6 %
Costs of revenues, excluding depreciation and amortization (433) (360) 20 % (1,214) (1,076) 13 %
Selling, general and administrative (183) (180) 2 % (530) (538) (1)%
Adjusted OIBDA 180
 180
 — % 610
 607
 — %
Depreciation and amortization (56) (55) 2 % (165) (165) — %
Restructuring and other charges (7) (5) 40 % (28) (25) 12 %
Gain on disposition —
 —
 NM
 —
 13
 NM
Inter-segment eliminations —
 —
 NM
 —
 (2) NM
Operating income $117
 $120
 (3)% $417
 $428
 (3)%
Revenues
Distribution revenue for the three and nine months ended September 30, 2017 increased 13% and 10%, respectively. Excluding the impact of foreign currency fluctuations, distribution revenue increased 9% for the three and nine months ended September 30, 2017. The increases were mostly due to increases in contractual rates in Europe following further investment in sports content, and increases in rates in Latin America, primarily due to the continued development of the pay-TV markets in that region, partially offset by lower subscribers in Latin America and decreases in contractual rates in Asia Pacific.
Advertising revenue for the three and nine months ended September 30, 2017 increased 9% and 1%, respectively. Excluding the impact of foreign currency fluctuations, advertising revenue increased 5% and 3% for the three and nine months ended September 30, 2017, respectively. The increase for the three and nine months ended September 30, 2017 was due to increases in ratings in Southern Europe and ratings and pricing in Latin America and CEEMEA in equivalent amounts. The increase for the nine months ended September 30, 2017 was partially offset by declines in ad sales due to lower ratings in Asia Pacific.
Other revenue for the three and nine months ended September 30, 2017 remained consistent with the prior year.
Costs of Revenues
Costs of revenues for the three and nine months ended September 30, 2017 increased 20% and 13%, respectively. Excluding the impact of foreign currency fluctuations, costs of revenues increased 14% and 13% for the three and nine months ended September 30, 2017, respectively. The increases were mostly attributable to increased spending on content, particularly sports rights and associated production costs. Content amortization was $292 million and $241 million for the three months ended September 30, 2017 and 2016, respectively. Content amortization was $834 million and $714 million for the nine months ended September 30, 2017 and 2016, respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the three and nine months ended September 30, 2017 increased 2% and decreased 1%, respectively. Excluding the impact of foreign currency fluctuations, selling, general and administrative expenses decreased 2% and remained consistent when compared with the prior year for the three and nine months ended September 30, 2017, respectively.

Adjusted OIBDA
Adjusted OIBDA remained consistent when compared with the prior year for the three and nine months ended September 30, 2017. Excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased 1% and decreased 1% for the three and nine months ended September 30, 2017, respectively, as increases in distribution and advertising revenues were offset by increases in costs of revenues, related to content expense.
Education and Other
The following table presents, for our Education and Other segments, revenues, certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating income (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenues $32
 $43
 (26)% $113
 $133
 (15)%
Costs of revenues, excluding depreciation and amortization (11) (19) (42)% (44) (60) (27)%
Selling, general and administrative (21) (25) (16)% (70) (78) (10)%
Adjusted OIBDA —
 (1) NM
 (1) (5) (80)%
Depreciation and amortization (2) (3) (33)% (4) (6) (33)%
Restructuring and other charges (2) —
 NM
 (3) (3) — %
Loss on disposition —
 —
 NM
 (4) —
 NM
Inter-segment eliminations 2
 4
 (50)% 10
 11
 (9)%
Operating income $(2) $—
 NM
 $(2) $(3) (33)%
Adjusted OIBDA for the three and nine months ended September 30, 2017 increased $1 million and $4 million, respectively. The increases were mostly due to a reduction in expenses partially offset by a reduction in revenues as a result of the sale of the Raw and Betty production studios.
Corporate and Inter-segment Eliminations
The following table presents our unallocated corporate amounts including certain operating expenses, Adjusted OIBDA and a reconciliation of Adjusted OIBDA to operating loss (in millions).
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 % Change 2017 2016 % Change
Revenues $—
 $—
 NM
 $—
 $(2) NM
Costs of revenues, excluding depreciation and amortization —
 1
 NM
 (1) 1
 NM
Selling, general and administrative (85) (79) 8% (261) (241) 8 %
Adjusted OIBDA (85) (78) 9% (262) (242) 8 %
Mark-to-market share-based compensation 11
 (14) NM
 4
 (24) NM
Depreciation and amortization (15) (15) —% (50) (49) 2 %
Restructuring and other charges —
 —
 NM
 (6) (14) (57)%
Scripps transaction and integration costs (62) —
 NM
 (62) —
 NM
Operating loss $(151) $(107) 41% $(376) $(329) 14 %
Corporate operations primarily consist of executive management, administrative support services, substantially all of our share-based compensation and transaction and integration costs related to the Scripps acquisition.
Adjusted OIBDA decreased 9% and 8% for the three and nine months ended September 30, 2017, respectively, primarily due to increased personnel and legal costs.

Items Impacting Comparability
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 “2017 Baseline Rate”), and the prior year amounts translated at the same 2017 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. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies. Selling, general and administrative expense, as presented below, excludes mark-to-market based compensation and Scripps transaction and integration costs due to their impact on comparability between periods.
The impact of foreign currency on the comparability of our consolidated results is as follows (dollar amounts in millions):
  Three Months Ended September 30,
  2017 2016 
% Change
(Reported)
 
% Change
(ex-FX)
Revenues:        
Distribution $881
 $806
 9 % 7 %
Advertising 705
 670
 5 % 4 %
Other 65
 80
 (19)% (16)%
Total revenues 1,651
 1,556
 6 % 4 %
Costs of revenue, excluding depreciation and amortization 670
 592
 13 % 10 %
Selling, general and administrative expense 406
 405
 — % (1)%
Adjusted OIBDA $575
 $559
 3 % 3 %


  Nine Months Ended September 30,
  2017 2016 
% Change
(Reported)
 
% Change
(ex-FX)
Revenues:        
Distribution $2,593
 $2,420
 7 % 7 %
Advertising 2,197
 2,170
 1 % 2 %
Other 219
 235
 (7)% (3)%
Total revenues 5,009
 4,825
 4 % 4 %
Costs of revenue, excluding depreciation and amortization 1,911
 1,787
 7 % 7 %
Selling, general and administrative expense 1,203
 1,203
 — % 1 %
Adjusted OIBDA $1,895
 $1,835
 3 % 3 %


The impact of foreign currency on the comparability of our financial results for International Networks for the three and nine months ended September 30, 2017 is as follows (dollar amounts in millions).
  Three Months Ended September 30,
  2017 2016 
% Change
(Reported)
 
% Change
(ex-FX)
Revenues:        
Distribution $479
 $425
 13 % 9 %
Advertising 298
 273
 9 % 5 %
Other 19
 22
 (14)% (14)%
Total revenues 796
 720
 11 % 7 %
Costs of revenue, excluding depreciation and amortization 433
 360
 20 % 14 %
Selling, general and administrative expenses 183
 180
 2 % (2)%
Adjusted OIBDA $180
 $180
 — % 1 %
  Nine Months Ended September 30,
  2017 2016 
% Change
(Reported)
 
% Change
(ex-FX)
Revenues:        
Distribution $1,383
 $1,263
 10 % 9 %
Advertising 913
 900
 1 % 3 %
Other 58
 58
 — % — %
Total revenues 2,354
 2,221
 6 % 6 %
Costs of revenue, excluding depreciation and amortization 1,214
 1,076
 13 % 13 %
Selling, general and administrative expenses 530
 538
 (1)% — %
Adjusted OIBDA $610
 $607
 — % (1)%

FINANCIAL CONDITION
Liquidity
Sources of Cash
Historically, we have generated a significant amount of cash from operations. During the nine months ended September 30, 2017, we funded our working capital needs primarily through cash flows from operations. As of September 30, 2017, we had $6,994 million of cash and cash equivalents on hand. We maintain an effective Registration Statement on Form S-3 that allows us to conduct registered offerings of securities, including debt securities, common stock and preferred stock. Access to sufficient capital from the public market is not assured.
Debt
Debt Incurred for the Scripps 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 acquisition. Using exchange rates as of September 30, 2017, the senior notes had a weighted average effective interest rate of 3.9% without including the impact of debt issuance costs. On September 21, 2017, DCL issued $500 million principal amount of 2.200% senior notes due 2019, $1.20 billion principal amount of 2.950% senior notes due 2023, $1.70 billion principal amount of 3.950% senior notes due 2028, $1.25 billion principal amount of 5.000% senior notes due 2037, and $1.25 billion principal amount of 5.200% senior notes due 2047 (together, the "Senior Fixed Rate Notes"). In addition to the Senior Fixed Rate Notes, the Company issued $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. On September 21, 2017, DCL issued £400 million principal amount 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 USD Notes and Sterling 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 is subject to repayment by the Company to satisfy provisions related to the special mandatory redemption provision attached to certain USD Notes and Sterling Notes issued by the Company. The special mandatory redemption provision requires the Company to redeem the notes for a price equal to 101% of the principal amount plus any accrued and unpaid interest on the applicable USD Notes and Sterling Notes, following a termination of the Scripps 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 September 30, 2017, neither of the contingent events have occurred and therefore these senior notes are classified as noncurrent.
On August 11, 2017, Discovery Communications, LLC ("DCL"), a wholly-owned subsidiary of the Company, entered into a 3-year delayed draw tranche and a 5-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 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 loans or the termination of the Scripps acquisition. As of September 30, 2017, the Company has not yet borrowed on the term loan credit facilities.
Existing Senior Notes
On March 13, 2017, DCL issued $450 million principal amount of 3.80% senior notes due March 13, 2024 (the "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").
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 have access to a $2.5 billion revolving credit facility, as amended on August 11, 2017. (See Note 6 to the accompanying consolidated financial statements). Borrowing capacity under this agreement is reduced by the outstanding borrowings under our commercial paper program. As of September 30, 2017, the Company had outstanding borrowings under the revolving credit facility of $425 million at a weighted average interest rate of 2.53%. The revolving credit facility agreement provides for a maturity date of August 11, 2022 and the option for up to two additional 364-day renewal periods. All obligations of DCL and the other borrowers under the revolving credit facility are unsecured and are fully and unconditionally guaranteed by Discovery. Borrowings may be used for general corporate purposes.
The credit agreement governing the revolving credit facility (the “Credit Agreement”) contains customary representations, warranties and events of default, as well as affirmative and negative covenants, 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. As of September 30, 2017, Discovery, DCL and the other borrowers were in compliance with all covenants and there were no events of default under the Credit Agreement.
Commercial Paper
Under our commercial paper program and subject to market conditions, DCL may issue unsecured 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 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. As of September 30, 2017, we had no commercial paper borrowings outstanding. Borrowings under the commercial paper program reduce the borrowing capacity under the revolving credit facility arrangement referenced above.
We repay our senior notes, revolving credit facility and commercial paper as required, and accordingly these sources of cash also require use of our cash.

Notes Receivable
We have an outstanding note receivable from OWN, our equity method investee, which totals $283 million including accrued interest. During the nine months ended September 30, 2017, the Company received net repayments on the note receivable of $39 million. Borrowings are scheduled for repayment four years after the borrowing date to the extent that OWN has excess cash to repay the borrowings then due.
Cash Settlement of Common Stock Repurchase Contract
We elected to settle our outstanding prepaid common stock repurchase contract in cash during the nine months ended September 30, 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.)
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, principal and interest on our outstanding senior notes, and funding for various equity method and other investments.
Investments and Business Combinations
Scripps Acquisition
On July 31, 2017, Discovery announced that it had entered into an agreement and plan of merger for Discovery to acquire Scripps in a cash-and-stock transaction. The estimated merger consideration for the acquisition totals $11.5 billion, including cash of $8.4 billion and stock of $3.1 billion based on stock prices as of October 20, 2017. In addition, the Company will assume Scripps' net debt of approximately $2.7 billion. The transaction is expected to close by early 2018.
Scripps 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 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 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 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 common shares, stock options, and other equity-based awards outstanding on the closing date. Discovery will also pay certain transaction costs incurred by Scripps, which will be recorded as a component of the opening balance sheet. The post-closing impact of the formula was intended to result in, Scripps’ 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) 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 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, issuance of the USD Notes and issuance of the Sterling Notes. The Company incurred $40 million of debt issuance costs related to the bridge term loan facility.
Other Investments and Business Combinations
Our uses of cash have included investment in equity method investments, AFS securities, cost method investments (see Note 3 to the accompanying consolidated financial statements) and business combinations. During the nine months ended

September 30, 2017, the Company invested $300 million in limited liability companies that sponsor renewable energy projects related to solar energy. The Company has $42 million of future funding commitments for these investments as of September 30, 2017. We provide funding to our equity method investees from time to time. During the nine months ended September 30, 2017, 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 $68 million.
As of September 30, 2017, we have outstanding advances to and a note receivable from OWN, our equity method investee, which totals $283 million including interest. On June 16, 2017, Harpo delivered its put notice for up to $100 million in value of its OWN membership interests to the Company. Harpo may withdraw its put exercise notice during the valuation process, which has been extended until December 15, 2017. Harpo and Discovery are following a series of protocols specified in the joint venture agreement to determine an agreed upon fair value for the put. The number of common units subject to the put exercise represents the proportion of common units held by Harpo that equate to the fair value of the Harpo put purchase price. As of September 30, 2017, the Company has not recorded a liability in connection with the exercise of Harpo's put as the valuation has not been finalized and Harpo may withdraw its put exercise notice. (See Note 3 to the accompanying consolidated financial statements).
Our cost method investments as of September 30, 2017 primarily include a 39% minority interest in Group Nine Media for $182 million. The Company also has investments in an educational website, an electric car racing series and certain investments to enhance our digital distribution strategies. For the nine months ended September 30, 2017, we invested $21 million in various cost method investments.
Due to business combinations, we also have redeemable equity balances of $360 million, which may require the use of cash in the event holders of noncontrolling interests put their interests to the Company. (See Note 8 to the accompanying consolidated financial statements).
Repayment of Debt
We used the net proceeds from our issuance of the 2017 USD Notes and 2016 USD Notes to fund the purchase of $600 million of combined aggregate principal amount of our then-outstanding senior notes through a cash tender offer made on March 13, 2017. We recognized a pretax loss on extinguishment of debt of $54 million, which included $50 million for premiums to par value, $2 million of noncash write-offs of unamortized deferred financing costs, $1 million for the repayment of the original issue discount from our senior notes and $1 million in other third-party fees.
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 our 2016 Form 10-K.
Common Stock Repurchase Program
Under the stock repurchase program, management is authorized to purchase shares of the Company's common stock from time to time through open market purchases or privately negotiated transactions at prevailing market 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 September 30, 2017, the Company had repurchased 3 million and 164 million shares of our 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. Over the life of the program, authorization under the stock repurchase program has totaled $7.5 billion. The Company's authorization under the program expired on October 8, 2017. We have been funding 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 fund our stock repurchase program through borrowings under our revolving credit facility and future financing transactions.
Preferred Stock Conversion and Repurchase
Prior to 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’s 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 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 stock repurchase program. 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. During the nine months ended September 30, 2017, we converted 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. During the three months ended September 30, 2017 we repurchased 0.2 million shares of Series C-1 convertible preferred stock, following the Exchange Agreement with Advance/Newhouse, for a purchase price of $102 million. The aggregate purchase price paid during the nine months ended September 30, 2017, including Series C convertible preferred stock and Series C-1 convertible preferred stock, was $222 million (See Note 9 to the accompanying consolidated financial statements.)
Income Taxes and Interest
We expect to continue to make payments for income taxes and interest on our outstanding senior notes. During the nine months ended September 30, 2017, we made cash payments of $232 million and $236 million for income taxes and 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 September 30, 2017, we have restructuring liabilities of $27 million related to employee terminations. (See Note 17 to the accompanying consolidated financial statements).
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 the nine months ended September 30, 2017, we paid $1 million for cash-settled share-based awards. As of September 30, 2017, liabilities totaled $43 million for outstanding liability-classified share-based compensation awards, of which $12 million was classified as current. (See Note 10 to the accompanying consolidated financial statements.)
Cash Flows
The following table presents changes in cash and cash equivalents (in millions).
  Nine Months Ended September 30,
  2017 2016
Cash and cash equivalents, beginning of period $300
 $390
Cash provided by operating activities 1,167
 834
Cash used in investing activities (523) (54)
Cash provided by (used in) financing activities 5,983
 (975)
Effect of exchange rate changes on cash and cash equivalents 67
 29
Net change in cash and cash equivalents 6,694
 (166)
Cash and cash equivalents, end of period $6,994
 $224
Operating Activities
Cash provided by operating activities increased $333 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was attributable to a $195 million decrease in cash paid for taxes, improved operating results and a decrease in the net negative effect of foreign currency, offset by declines in working capital, primarily due to changes in accounts receivable. The decrease in cash paid for taxes, net, for the nine months ended September 30, 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 3 and Note 13 to the accompanying consolidated financial statements).
Investing Activities
Cash flows used in investing activities increased $469 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was primarily attributable to an increase in payments for investments of $316 million, including $300 million in 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.
Financing Activities
Cash flows provided by financing activities increased $7.0 billion for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was primarily attributable to proceeds from the issuance of

senior notes which will be used to finance the Scripps Acquisition (see Note 6) and a decrease in repurchases of stock of $521 million, offset by an increase in principal repayments of debt.

Capital Resources
As of September 30, 2017, capital resources were comprised of the following (in millions).
  September 30, 2017
  
Total
Capacity
 
Outstanding
Letters of
Credit
 
Outstanding
Indebtedness
 
Unused
Capacity
Cash and cash equivalents $6,994
 $—
 $—
 $6,994
Revolving credit facility 2,500
 1
 425
 2,074
Senior notes(a)
 14,246
 —
 14,246
 —
Total $23,740
 $1
 $14,671
 $9,068
(a) Interest on the senior notes is paid annually, semi-annually or quarterly. Our senior notes outstanding as of September 30, 2017 had interest rates that ranged from 1.90% to 6.35% and will mature between 2019 and 2047.
We expect that our cash balance, cash generated from operations and availability under our revolving credit agreement will be sufficient to fund our cash needs for the next twelve months, including any potential required payments related to the special mandatory redemption provision associated with certain senior notes issued on September 21, 2017. Our borrowing costs and access to capital markets can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.
As of September 30, 2017, we held $89 million of our $6,994 million of cash and cash equivalents in our foreign subsidiaries. We intend to permanently 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 U.S. taxes to repatriate them. The determination of the amount of unrecognized U.S. deferred income tax liability with respect to these undistributed foreign earnings is not practicable.
COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we enter into commitments for the purchase of goods or services that require us to make payments or provide funding in the event certain circumstances occur. (See Note 15 to the accompanying consolidated financial statements.)
RELATED PARTY TRANSACTIONS
In the ordinary course of business, we enter into transactions with related parties, primarily Liberty Global, Liberty Broadband, our equity method investees and minority partners of our consolidated subsidiaries. (See Note 14 to the accompanying consolidated financial statements.) From time to time, we also enter into equity-related transactions and repurchases with Advance/Newhouse. (See Note 9 to the accompanying consolidated financial statements.)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates have not changed since December 31, 2016. For a discussion of each of our critical accounting policies listed below, including information and analysis of estimates and assumptions involved in their application, and other significant accounting policies, see Note 2 to the consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” in the 2016 Form 10-K:
•Revenue recognition;
•Goodwill and intangible assets;
•Income taxes;
•Content rights;
•Share-based compensation; and
•Equity and cost method investments.

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS
We adopted certain new accounting and reporting standards during the nine months ended September 30, 2017. (See Note 1 to the accompanying consolidated financial statements.)
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about our existing market risk are set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the 20162020 Form 10-K. Our exposures to market risk have not changed materially since December 31, 2016.2020.
48

ITEM 4. 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 SeptemberJune 30, 2017.2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities 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 SeptemberJune 30, 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.
Changes in Internal Control Over Financial Reporting
During the three months ended SeptemberJune 30, 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.

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the normal course of business, we experience routine claims and legal proceedings. It is the opinion of our management, based on information available at this time, that none of the current claims and proceedings will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Scripps Acquisition
With regards to our pending acquisition of Scripps, Discovery and Scripps could be subject to litigation related to any failure to complete the transaction or related to any enforcement proceeding commenced against Discovery and Scripps to perform their respective obligations under the Merger Agreement. If the transaction is not completed, these risks may materialize and may adversely affect Discovery’s and Scripps’ businesses, financial condition, financial results and stock prices. Additionally, three securities lawsuits related See Note 16 to the proposed merger have been filed by purported Scripps shareholders. 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 on September 20, 2017. 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 name as defendants Scripps, the members of the Scripps board, and in the Berg action only, Discovery and Merger Sub, and allege 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. The Wagner action seeks to enjoin the shareholder vote on the proposed merger, and all of the actions seek to enjoin the defendants from proceeding with or consummating the proposed merger or, in theaccompanying consolidated financial statements.

event the merger is consummated, request that the court issue an order rescinding the merger and/or awarding rescissory damages. Additionally, the Inzlicht-Sprei action seeks that the Court direct the defendants to account for alleged damages, and all the actions seek attorneys’ and expert fees and expenses. On October 12, 2017, the plaintiff in the Inzlicht-Sprei action filed a notice of voluntary dismissal without prejudice. The time for the defendants to move or answer has not yet expired in any of the actions.
ITEM 1A. Risk Factors
Disclosure aboutInvestors should carefully review and consider the information regarding certain factors that could materially affect our existingbusiness, results of operations, financial condition and cash flows as set forth under Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and as supplemented by the updated and additional risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.
Risk Factors Related to the Combination of Discovery and AT&T’s WarnerMedia Business
On May 17, 2021, the Company, our wholly owned subsidiary Drake Subsidiary, Inc., AT&T Inc. (“AT&T”) and AT&T’s wholly owned subsidiary Magallanes, Inc. entered into definitive agreements pursuant to which and subject to the terms and conditions therein (1) AT&T will transfer the business, operations and activities that constitute the WarnerMedia segment of AT&T, subject to certain exceptions (the “WarnerMedia Business”) to Magallanes, Inc. (such transfer, the “Separation”), (2) AT&T will distribute to its stockholders the issued and outstanding shares of common stock of Magallanes, Inc. held by AT&T (such distribution, the “Distribution”) and (3) Drake Subsidiary, Inc. will merge with and into Magallanes, Inc. with Magallanes, Inc. as the surviving entity and wholly owned subsidiary of the Company (such merger, the “Merger” and the Separation, Distribution and Merger collectively, the “Combination”).
49

The pendency of the proposed Combination may cause disruption in our business.
The definitive agreement and plan of merger (the “Merger Agreement”) related to the Combination restricts us from taking specified actions without AT&T’s consent until the Combination is set forthcompleted or the Merger Agreement is terminated, including making certain significant acquisitions or investments, entering into certain new lines of business, incurring certain indebtedness in Item 1A, “Risk Factors,”excess of certain thresholds, making non-ordinary course capital expenditures, amending or modifying certain material contracts, divesting certain assets (including certain intellectual property rights), and making certain non-ordinary course changes to personnel and employee compensation. These restrictions and others more fully described in the 2016 Form 10-K. Our risk factorsMerger Agreement may affect our ability to execute our business strategies and attain our financial and other goals and may impact our financial condition, results of operations and cash flows.
The pendency of the proposed Combination could cause disruptions to our business or business relationships, which could have not changed materially since December 31, 2016, exceptan adverse impact on our results of operations. Parties with which we have business relationships, including distributors, advertisers and content providers, may be uncertain as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.
The pursuit of the Combination and the preparation for the following:
DCLintegration of the WarnerMedia Business is not obligatedexpected to place a significant burden on our management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the net proceedstransition and integration process could adversely affect our financial results.
We have incurred and will continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Combination. We may also incur unanticipated costs in the integration of the offeringWarnerMedia Business with the business of Discovery. The substantial majority of these costs will be non-recurring expenses relating to the Combination, and many of these costs are payable regardless of whether or not the Combination is consummated. We also could be subject to litigation related to the proposed Combination, which could prevent or delay the consummation of the senior notesCombination and result in escrow priorsignificant costs and expenses.
Failure to complete the Combination in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.
We currently anticipate the Combination will be completed in mid-2022, but the Combination cannot be completed until conditions to closing are satisfied or (if permissible under applicable law) waived. The Combination is subject to numerous closing conditions, including approval by Discovery’s stockholders, receipt of certain regulatory approvals, AT&T’s receipt of a private letter ruling from the Internal Revenue Service regarding the qualification of the Distribution and certain related transactions for tax-free treatment under the Internal Revenue Code and AT&T's receipt of a special cash payment in accordance with the terms of the Separation and Distribution Agreement by and among Discovery, AT&T and Magallanes, Inc.
The satisfaction of the required conditions could delay the completion of the Scripps acquisition and,Combination for a significant period of time or prevent it from occurring. Further, there can be no assurance that the conditions to the closing of the Combination will be satisfied or waived or that the Combination will be completed.
If the Combination is not completed in a timely manner or at all, our ongoing business may be adversely affected as a result, follows:
•we may not be able to redeemexperience negative reactions from the 2023 notes, 2028 notes, 2037 notesfinancial markets, and 2047 notes upon a special mandatory redemption.
We are not obligated to place the net proceeds of the offering of the senior notes in escrow priorour stock price could decline to the completion ofextent that the Scripps acquisition or to provide a security interest in those proceeds, andcurrent market price reflects an assumption that the indenture governing the senior notes imposes no other restrictions on our use of these proceeds during that time. Accordingly, the source of funds for any redemption of the Senior Fixed Rate Notes or Sterling Notes upon a special mandatory redemption wouldCombination will be the proceeds that completed;
•we have voluntarily retainedmay experience negative reactions from employees, customers, suppliers or other sources of liquidity, including available cash, borrowings, sales of assets or sales of equity. We may not be able to satisfy our obligation to redeem these senior notes upon a special mandatory redemption, because third parties;
•we may not have sufficient financial resourcesbe subject to pay the aggregate redemption price on such senior notes. Our failure to redeem these senior notes as required under the indenture would result in a default under the indenture,litigation, which could result in defaultssignificant costs and expenses;
•management’s focus may have been diverted from day-to-day business operations and pursuing other opportunities that could have been beneficial to Discovery; and
•our costs of pursuing the Combination may be higher than anticipated.
In addition to the above risks, we may be required, under certain circumstances, to pay AT&T a termination fee equal to $720 million and/or to reimburse or indemnify AT&T for certain of its expenses. If the Combination is not consummated, there can be no assurance that these risks will not materialize and will not materially adversely affect our stock price, business, financial condition, results of operations or cash flows.
50

In order to complete the Combination, Discovery and AT&T must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, completion of the Combination may be jeopardized or the anticipated benefits of the Combination could be reduced.
Although Discovery and AT&T have agreed to use reasonable best efforts, subject to certain limitations, to make certain governmental filings and obtain the required governmental approvals or expiration or earlier termination of relevant waiting periods, as the case may be, there can be no assurance that the relevant waiting periods will expire or be terminated or that the relevant approvals will be obtained. As a condition to approving the Combination, these governmental authorities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after completion of the Combination. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying or preventing completion of the Combination or imposing additional material costs on or materially limiting the revenues of the combined company following the Combination, or otherwise adversely affecting, including to a material extent, our businesses and results of operations after completion of the Combination. If we or the WarnerMedia Business are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental authorities will approve the terms of such divestitures. We can provide no assurance that these conditions, terms, obligations or restrictions will not result in the abandonment of the Combination.
Although we expect that the Combination will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of such synergies, and other challenges.
Discovery and the WarnerMedia Business have operated and, until completion of the Combination, will continue to operate, independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. If we are not able to successfully integrate the WarnerMedia Business with ours or pursue our direct-to-consumer strategy successfully, including coordinating our streaming services for global customers, the anticipated benefits, including synergies, of the Combination may not be realized fully or may take longer than expected to be realized. Specifically, the following issues, among others, must be addressed in combining the operations of Discovery and the WarnerMedia Business in order to realize the anticipated benefits of the Combination:
•combining the businesses of Discovery and the WarnerMedia Business in a manner that permits us to achieve the synergies anticipated to result from the Combination, the failure of which would result in the anticipated benefits of the Combination not being realized in the time frame currently anticipated or at all;
•maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors;
•combining certain of the businesses’ corporate functions;
•determining whether and how to address possible differences in corporate cultures and management philosophies;
•integrating the businesses’ administrative and information technology infrastructure;
•integrating employees and attracting and retaining key personnel, including talent;
•managing the expanded operations of a significantly larger and more complex company;
•coordinating the businesses’ direct-to-consumer streaming services for global customers; and
•resolving potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Combination.
Even if the operations of our business and the business of the WarnerMedia Business are integrated successfully, the full benefits of the Combination may not be realized, including, among others, the synergies that are expected. These benefits may not be achieved within the anticipated time frame or at all. Additional unanticipated costs may also be incurred in the integration of our business and the business of the WarnerMedia Business. Further, it is possible that there could be loss of key Discovery or WarnerMedia Business employees, loss of customers, disruption of either or both of Discovery’s or WarnerMedia Business’ ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated. All of these factors could materially adversely affect our stock price, business, financial condition, results of operations or cash flows.
51

Our consolidated indebtedness will increase substantially following completion of the Combination. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.
Our consolidated indebtedness as of June 30, 2021 was approximately $15.5 billion. Upon completion of the Combination, we expect to assume or incur up to $43.0 billion of additional debt, including existing debt of the existing WarnerMedia Business, debt that may be issued by Magallanes, Inc. to AT&T and debt that Magallanes, Inc. may incur to fund a special cash payment to AT&T. In addition, subject to certain conditions, availability under our revolving credit facility will increase from $2.5 billion to $6.0 billion. The increased indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions, increasing our subsidiaries’ other debt agreementsvulnerability to general adverse economic and have material adverse consequences for usindustry conditions and the holders of the senior notes. In addition,limiting our ability to redeemobtain additional financing in the senior notesfuture. In addition, the amount of cash required to pay interest on our indebtedness levels will increase following completion of the Combination, and thus the demands on our cash resources will be greater than prior to the Combination. The increased levels of indebtedness following completion of the Combination could also reduce funds available for cashcapital expenditures, share repurchases, investments, mergers and acquisitions, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels.
Following consummation of the Combination, our corporate or debt-specific credit rating could be downgraded, which may increase our borrowing costs or give rise to a need to refinance existing indebtedness. If a ratings downgrade occurs, we may need to refinance existing debt or be subject to higher borrowing costs and more restrictive covenants when we incur new debt in the future, which could reduce profitability and diminish operational flexibility.
Risk Factors Related to our International Operations
We are subject to risks related to our international operations.
We have operations through which we distribute programming outside the United States. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks include:
•laws and policies affecting trade and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;
•changes in local regulatory requirements, including restrictions on content, imposition of local content quotas and restrictions or prohibitions on foreign ownership;
•our ability to obtain the appropriate licenses and other regulatory approvals we need to broadcast content in foreign countries;
•differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;
•significant fluctuations in foreign currency value;
•currency exchange controls;
•the instability of foreign economies and governments;
•war and acts of terrorism;
•anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K. Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations;
•foreign privacy and data protection laws and regulation and changes in these laws; and
•shifting consumer preferences regarding the viewing of video programming.
Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-U.S. sources, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. Acts of terrorism, hostilities, or financial, political, economic or other uncertainties could lead to a reduction in revenue or loss of investment, which could adversely affect our results of operations. Furthermore, some foreign markets where we and our partners operate may be limitedmore adversely affected by lawcurrent economic conditions than the U.S. We also may incur substantial expense as a result of changes, including the imposition of new restrictions, in the existing economic or political environment in the regions where we do business.This is of particular concern in Poland, where we operate TVN, a key component of our international business, and where the government currently has under consideration, and may adopt in the future, new regulations that would prohibit non-European Union ownership of Polish licensed free-to-air and pay-TV channels.If such regulations are adopted, it could impact the ownership structure and licensing of TVN, and could, directly or indirectly, affect the operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market.
52

General Risks
Domestic and foreign laws and regulations could adversely impact our operating results.
Programming services like ours, and the distributors of our services, including cable operators, satellite operators and other agreements relatingmulti-channel video programming distributors, are regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC, as well as by state and local governments, in ways that affect the daily conduct of our video content business. See the discussion under “Business – Regulatory Matters” that appears in our Annual Report on Form 10-K for the year ended December 31, 2020. The U.S. Congress, the FCC and the courts currently have under consideration, and may adopt or interpret in the future, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations of our U.S. media properties or modify the terms under which we offer our services and operate.
Similarly, the foreign jurisdictions in which our networks are offered have, in varying degrees, laws and regulations governing our businesses. Programming businesses are subject to regulation on a country-by-country basis. Changes in regulations imposed by foreign governments could also adversely affect our indebtedness outstanding atbusiness, results of operations and ability to expand our operations beyond their current scope. The Polish government currently has under consideration, and may adopt in the time.future, new regulations that would prohibit non-European Union ownership of Polish licensed free-to-air and pay-TV channels. If such regulations are adopted, it could impact the ownership structure and licensing of TVN, which is a key component of our international business, and could, directly or indirectly, affect the operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market.
ITEM 2. Unregistered SalesThe market price of Equity Securities and Use of Proceeds
The following table presents information about our repurchases of common stock has been highly volatile and may continue to be volatile due to circumstances beyond our control.
The market price of our common stock has fluctuated, and may continue to fluctuate, widely, due to many factors, some of which may be beyond our control. These factors include, without limitation:
•large stockholders exiting their position in our common stock;
•an increase or decrease in the short interest in our common stock;
•comments by securities analysts or other third parties, including blogs, articles, message boards, and social and other media;
•actual or anticipated fluctuations in our financial and operating results;
•risks and uncertainties associated with the ongoing COVID-19 pandemic;
•development and provision of programming for new television and telecommunications technologies and the success of our new discovery+ streaming product;
•spending on domestic and foreign television advertising;
•changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, and personal tablets and their impact on television advertising revenue;
•fluctuations in foreign currency exchange rates;
•public perception of us, our competitors, or industry; and
•overall general market fluctuations.
Stock markets in general and our stock price in particular have recently experienced extreme price and volume fluctuations that were made through openhave been unrelated or disproportionate to the operating performance of those companies and our company. For example, on March 26, 2021, our Series A common stock experienced an intra-day trading high of $58.21 per share and a low of $34.60 per share while our Series C common stock experienced an intra-day trading high of $51.36 and a low of $30.99 per share. In addition, from July 1, 2020 to June 30, 2021, the closing price of our Series A common stock and our Series C common stock on the Nasdaq ranged from as low as $19.25 and $17.25 to as high as $77.27 and $66.00, respectively, and daily trading volume ranged from approximately 1.8 million and 0.6 million shares to 106.1 million and 45.7 million shares, respectively. During this time, we have not experienced any material changes in our financial condition or results of operations that would explain such price volatility or trading volume. In particular, sales of large blocks of our Series A common stock and Series C common stock on and after March 26, 2021, reportedly conducted by financial institutions unwinding hedge positions associated with margin calls against Archegos Management put pressure on the supply and demand for our common stock, further influencing volatility in its market transactions duringprice. These market fluctuations and trading activities have caused and may in the three months ended September 30, 2017.future cause the market price and demand for our common stock to fluctuate substantially, which may negatively affect the price and liquidity of our common stock.
53
Period Total Number
of Series C Shares
Purchased		 
Average
Price
Paid per
Share: Series C (a)
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(b)(c)
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or Programs(a)(b)
July 1, 2017 - July 31, 2017 —
 $—
 —
 $764,615,880
August 1, 2017 - August 31, 2017 —
 $—
 —
 $764,615,880
September 1, 2017 - September 30, 2017 —
 $—
 —
 $764,615,880
Total —
 $—
 —
 $764,615,880


ITEM 6. Exhibits.
Exhibit No.
(a) The amounts do not give effect to any fees, commissions or other costs associated with repurchases of shares.
(b) Under the stock repurchase program, management is 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 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. As of September 30, 2017, the total amount authorized under the stock repurchase program was $7.5 billion. The Company's authorization under the program expired on October 8, 2017. There were no repurchases of our Series A and B common stock during the three months ended September 30, 2017. The Company first announced its stock repurchase program on August 3, 2010.
(c) Prior to the Exchange Agreement with Advance/Newhouse entered into on July 30, 2017, we had an agreement with Advance/Newhouse to repurchase from Advance/Newhouse, on a quarterly basis, a number of its shares of Series C convertible preferred stock based on the number of shares of Series C common stock purchased under our stock repurchase program during the then most recently completed fiscal quarter. The repurchase settlement with Advance/Newhouse with respect to shares of Series C common stock repurchased in the quarter ended June 30, 2017 occurred after the Exchange and, as such, was a repurchase of the newly issued Series C-1 convertible preferred stock. The total repurchase price paid of $102 million was the same amount we would have paid under the previous repurchase agreement with Advance/Newhouse, as determined and disclosed by the Company in the previous quarter. The number of shares repurchased of 0.2 million reflects the post-Exchange repurchase of Series C-1 convertible preferred stock and therefore the number of preferred shares repurchased differs from the number of shares of Series C convertible preferred stock we previously disclosed. The Advance/Newhouse repurchase agreement was amended on August 7, 2017 to conform the terms of the previous agreement to the conversion ratio of the newly issued Series C-1 convertible preferred stock. There are no planned repurchases of Series C common stock for the fourth quarter of 2017.

ITEM 6. Exhibits.
Description
2.1
Exhibit No.Description
2.1

3.12.2

3.210.1

4.110.2
4.210.3
10.4
10.5
10.6
10.7
10.8
4.3
Term Loan Credit Agreement, dated as of August 11, 2017, among Discovery Communications, LLC, as the Company, Discovery Communications, Inc., as the Facility Guarantor, the lenders party hereto, Goldman Sachs Bank USA, as Administrative Agent (filed herewith)
4.4
Eleventh Supplemental Indenture, dated as of September 21, 2017, among Discovery Communications, LLC, Discovery Communications, Inc.administrative agent, swing line lender and U.S. Bank National Association, as TrusteeL/C issuer. (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on September 21, 2017June 10, 2021 (SEC File No. 001-34177))

4.510.9

4.6
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))

10.1
VotingCredit Agreement, dated as of July 30, 2017, by and2021, among Discovery Communications, LLC, Discovery, Inc., Scripps Networks Interactive, Inc., Discovery Communications, Inc.certain lenders party thereto and John C. Malone (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

10.2
Voting Agreement, dated asBank of July 30, 2017, by and among Scripps Networks Interactive, Inc., Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))America, N.A. (filed herewith).


10.322

10.431.1

10.5
Commitment Letter, dated as of July 30, 2017, by and between Discovery Communications, Inc., Discovery Communications, LLC, Goldman Sachs Bank USA and Goldman Sachs Lending Partners, LLC (incorporated by reference to Exhibit 10.5 to the Form 8-K filed on July 31, 2017 (SEC No. File 001-34177))

10.6
Amendment No. 1 to Registration Rights Agreement, dated as of August 7, 2017, by and between Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (filed herewith)
10.7
Amendment No. 2 to Share Repurchase Agreement, dated as of August 7, 2017, by and between Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (filed herewith)
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
54

32.1
32.2
101.INS
XBRL Instance Document (filed herewith)†
- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith)†
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)†
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)†
104Cover 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 Quarterly Report on Form 10-Q are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of SeptemberJune 30, 20172021 and December 31, 2016,2020, (ii) Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, (iii) Consolidated Statements of Comprehensive Income for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, (iv) Consolidated Statements of Cash

Flows for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, (v) Consolidated Statement of Equity for the ninethree and six months ended SeptemberJune 30, 2017,2021 and 2020, and (vi) Notes to Consolidated Financial Statements.

55

SIGNATURES
Pursuant to the requirements 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: November 2, 2017August 3, 2021By:/s/ David M. Zaslav
David M. Zaslav
President and Chief Executive Officer
Date: November 2, 2017By:/s/ Gunnar Wiedenfels
Gunnar Wiedenfels
Chief Financial Officer


EXHIBIT INDEX
Exhibit No.Date: August 3, 2021Description
2.1By:
Agreement and Plan of Merger, dated as of July 30, 2017, among Discovery Communications, Inc., Skylight Merger Sub, Inc. and Scripps Networks Interactive, Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

3.1
Certificate of Designation of Series A-1 Convertible Participating Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on August 7, 2017 (SEC File No. 001-34177))



3.2
Certificate of Designation of Series C-1 Convertible Participating Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.2 to the Form 8-K filed on August 7, 2017 (SEC File No. 001-34177))

4.1
Amendment No. 2 to Rights Agreement, dated as of July 30, 2017, by and between Discovery Communications, Inc. and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

4.2
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 (filed herewith)

4.3
Term Loan Credit Agreement, dated as of August 11, 2017, among Discovery Communications, LLC, as the Company, Discovery Communications, Inc., as the Facility Guarantor, the lenders party hereto, Goldman Sachs Bank USA, as Administrative Agent (filed herewith)

4.4
Eleventh Supplemental Indenture, dated as of September 21, 2017, among Discovery Communications, LLC, Discovery Communications, 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, 2017 (SEC File No. 001-34177))

4.5
Twelfth Supplemental Indenture, dated as of September 21, 2017, among Discovery Communications, LLC, Discovery Communications, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on September 21, 2017 (SEC File No. 001-34177))


4.6
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))

10.1
Voting Agreement, dated as of July 30, 2017, by and among Scripps Networks Interactive, Inc., Discovery Communications, Inc. and John C. Malone (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

10.2
Voting Agreement, dated as of July 30, 2017, by and among Scripps Networks Interactive, Inc., Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))


/s/ Gunnar Wiedenfels
Gunnar Wiedenfels
10.3
Voting Agreement, dated as of July 30, 2017, by and among Scripps Networks Interactive, Inc., Discovery Communications, Inc. and the person whose names are set forth on the signature pages thereto under the caption “Stockholders” (incorporated by reference to Exhibit 10.3 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

10.4
Preferred Share Exchange Agreement, dated as of July 30, 2017, by and between Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (incorporated by reference to Exhibit 10.4 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

10.5
Commitment Letter, dated as of July 30, 2017, by and between Discovery Communications, Inc., Discovery Communications, LLC, Goldman Sachs Bank USA and Goldman Sachs Lending Partners, LLC (incorporated by reference to Exhibit 10.5 to the Form 8-K filed on July 31, 2017 (SEC File No. 001-34177))

10.6
Amendment No. 1 to Registration Rights Agreement, dated as of August 7, 2017, by and between Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (filed herewith)
10.7
Amendment No. 2 to Share Repurchase Agreement, dated as of August 7, 2017, by and between Discovery Communications, Inc. and Advance/Newhouse Programming Partnership (filed herewith)
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS
XBRL Instance Document (filed herewith)†
101.SCH
XBRL Taxonomy Extension Schema Document (filed herewith)†
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)†
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)†
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (filed herewith)†
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)†


†Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, (v) Consolidated Statement of Equity for the nine months ended September 30, 2017, and (vi) Notes to Consolidated Financial Statements.


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