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

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
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
DISCA-20210930_G1.JPG
Discovery, Inc.
(Exact name of registrant as specified in its charter)
Delaware 35-2333914
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
230 Park Avenue South 10003
New York, New York
(Zip Code)
(Address of principal executive offices)
(212) 548-5555
(Registrant’s telephone number, including area code)


Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbols Name of Each Exchange on Which Registered
Series A Common Stock DISCA The Nasdaq Global Select Market
Series B Common Stock DISCB The Nasdaq Global Select Market
Series C Common Stock DISCK The 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 every Interactive Data File required to be submitted 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 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 filer ý Accelerated filer ¨
Non-accelerated filer o 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 22, 2021:
Series A Common Stock, par value $0.01 per share 169,207,249 
Series B Common Stock, par value $0.01 per share 6,512,378 
Series C Common Stock, par value $0.01 per share 330,146,263 




DISCOVERY, INC.
FORM 10-Q
TABLE OF CONTENTS

3


PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements.
DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)
  Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Revenues:
Advertising $ 1,458  $ 1,306  $ 4,510  $ 3,981 
Distribution 1,379  1,199  4,057  3,647 
Other 313  56  437  157 
Total revenues 3,150  2,561  9,004  7,785 
Costs and expenses:
Costs of revenues, excluding depreciation and amortization 1,529  1,003  3,553  2,731 
Selling, general and administrative 944  633  2,947  1,913 
Depreciation and amortization 341  341  1,043  1,001 
Impairment of goodwill and other intangible assets —  —  —  38 
Restructuring and other charges 53  29  75 
Gain on disposition —  —  (72) — 
Total costs and expenses 2,821  2,030  7,500  5,758 
Operating income 329  531  1,504  2,027 
Interest expense, net (159) (161) (479) (485)
Loss on extinguishment of debt (6) (5) (10) (76)
Loss from equity investees, net (9) (18) (20) (62)
Other income (expense), net 78  (28) 255  (92)
Income before income taxes 233  319  1,250  1,312 
Income tax (expense) benefit (36) 11  (144) (275)
Net income 197  330  1,106  1,037 
Net income attributable to noncontrolling interests (32) (29) (116) (82)
Net income attributable to redeemable noncontrolling interests (9) (1) (22) (7)
Net income available to Discovery, Inc. $ 156  $ 300  $ 968  $ 948 
Net income per share allocated to Discovery, Inc. Series A, B and C common stockholders:
Basic
$ 0.24  $ 0.44  $ 1.47  $ 1.40 
Diluted $ 0.24  $ 0.44  $ 1.46  $ 1.40 
Weighted average shares outstanding:
Basic 506  505  503  510 
Diluted 663  672  665  677 
The accompanying notes are an integral part of these consolidated financial statements.

4


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

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 197  $ 330  $ 1,106  $ 1,037 
Other comprehensive income (loss) adjustments, net of tax:
Currency translation (144) 101  (203) 76 
Derivatives 12  22  137  (152)
Comprehensive income 65  453  1,040  961 
Comprehensive income attributable to noncontrolling interests
(32) (29) (116) (82)
Comprehensive income attributable to redeemable noncontrolling interests
(9) (1) (22) (7)
Comprehensive income attributable to Discovery, Inc.
$ 24  $ 423  $ 902  $ 872 
The accompanying notes are an integral part of these consolidated financial statements.

5

DISCOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)
September 30, 2021 December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents $ 3,116  $ 2,091 
Receivables, net 2,462  2,537 
Content rights and prepaid license fees, net 254  532 
Prepaid expenses and other current assets 824  970 
Total current assets 6,656  6,130 
Noncurrent content rights, net 3,688  3,439 
Property and equipment, net 1,310  1,206 
Goodwill 12,957  13,070 
Intangible assets, net 6,784  7,640 
Other noncurrent assets 2,923  2,602 
Total assets $ 34,318  $ 34,087 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,361  $ 2,190 
Deferred revenues 625  557 
Current portion of debt 349  335 
Total current liabilities 3,335  3,082 
Noncurrent portion of debt 14,436  15,069 
Deferred income taxes 1,248  1,534 
Other noncurrent liabilities 1,901  2,019 
Total liabilities 20,920  21,704 
Commitments and contingencies (See Note 16)
Redeemable noncontrolling interests 358  383 
Equity:
Discovery, Inc. stockholders’ equity:
Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and outstanding
—  — 
Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 4 and 5 shares issued and outstanding
—  — 
Series A common stock: $0.01 par value; 1,700 shares authorized; 170 and 163 shares issued; and 169 and 162 shares outstanding
Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued and outstanding
—  — 
Series C common stock: $0.01 par value; 2,000 shares authorized; 559 and 547 shares issued; and 330 and 318 shares outstanding
Additional paid-in capital 11,043  10,809 
Treasury stock, at cost: 230 shares
(8,244) (8,244)
Retained earnings 9,522  8,543 
Accumulated other comprehensive loss (717) (651)
Total Discovery, Inc. stockholders' equity 11,611  10,464 
Noncontrolling interests 1,429  1,536 
Total equity 13,040  12,000 
Total liabilities and equity $ 34,318  $ 34,087 
The accompanying notes are an integral part of these consolidated financial statements.

6


DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
  Nine Months Ended September 30,
  2021 2020
Operating Activities
Net income $ 1,106  $ 1,037 
Adjustments to reconcile net income to cash provided by operating activities:
Content rights amortization and impairment 2,735  2,118 
Depreciation and amortization 1,043  1,001 
Deferred income taxes (502) (198)
Share-based compensation expense 134  62 
Gain on disposition (72) — 
Equity in losses of equity method investee companies, including cash distributions 57  96 
Gain on sale of investments (20) — 
Loss on extinguishment of debt 10  76 
Impairment of goodwill and other intangible assets —  38 
Other, net (147) 34 
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables, net 44  156 
Content rights and payables, net (2,578) (2,100)
Accounts payable, accrued liabilities, deferred revenues and other noncurrent liabilities 124  (166)
Foreign currency, prepaid expenses and other assets, net (20) 32 
Cash provided by operating activities 1,914  2,186 
Investing Activities
Purchases of property and equipment (273) (290)
Proceeds from sales and maturities of investments and dissolution of joint venture 498  67 
Investments in and advances to equity investments (137) (141)
(Payments for) proceeds from derivative instruments, net (102) 85 
Purchases of investments (103) (250)
Business acquisitions, net of cash acquired —  (26)
Other investing activities, net 87 
Cash used in investing activities (30) (550)
Financing Activities
Principal repayments of debt, including premiums to par value and discount payment (574) (2,193)
Borrowings from debt, net of discount and issuance costs —  1,979 
Distributions to noncontrolling interests and redeemable noncontrolling interests (231) (216)
Purchase of redeemable noncontrolling interests (31) — 
Repurchases of stock —  (741)
Principal repayments of revolving credit facility —  (500)
Borrowings under revolving credit facility —  500 
Other financing activities, net 25  (101)
Cash used in financing activities (811) (1,272)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (69) 40 
Net change in cash, cash equivalents, and restricted cash 1,004  404 
Cash, cash equivalents, and restricted cash, beginning of period 2,122 1,552 
Cash, cash equivalents, and restricted cash, end of period $ 3,126  $ 1,956 
The accompanying notes are an integral part of these consolidated financial statements.
7

DISCOVERY, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited; in millions)
Preferred Stock Common Stock Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Discovery, Inc.
Stockholders’ Equity
Noncontrolling
Interests
Total
Equity
Shares Par Value Shares Par Value
December 31, 2020 13  $ —  717  $ $ 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  —  —  —  —  —  —  —  — 
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
—  —  —  186  —  —  —  186  —  186 
Redeemable noncontrolling interest adjustments to redemption value
—  —  —  —  (8) —  (1) —  (9) —  (9)
March 31, 2021 12  $ —  736  $ $ 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 —  —  —  —  —  —  —  — 
Redeemable noncontrolling interest adjustments to redemption value —  —  —  —  —  —  —  — 
June 30, 2021 12  $ —  736  $ $ 11,000  $ (8,244) $ 9,360  $ (585) $ 11,538  $ 1,413  $ 12,951 
Net income available to Discovery, Inc. and attributable to noncontrolling interests
—  —  —  —  —  —  156  —  156  32  188 
Other comprehensive loss —  —  —  —  —  —  —  (132) (132) —  (132)
Share-based compensation —  —  —  —  43  —  —  —  43  —  43 
Tax settlements associated with share-based plans —  —  —  —  (1) —  —  —  (1) —  (1)
Dividends paid to noncontrolling interests —  —  —  —  —  —  —  —  —  (16) (16)
Issuance of stock in connection with share-based plans —  —  —  —  —  —  —  — 
Redeemable noncontrolling interest adjustments to redemption value —  —  —  —  —  —  —  — 
September 30, 2021 12  $ —  736  $ $ 11,043  $ (8,244) $ 9,522  $ (717) $ 11,611  $ 1,429  $ 13,040 
The accompanying notes are an integral part of these consolidated financial statements.

8

DISCOVERY, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited; in millions)
Preferred Stock Common Stock Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Discovery,
Inc. 
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
Shares Par Value Shares Par Value
December 31, 2019 13  $ —  715  $ $ 10,747  $ (7,374) $ 7,333  $ (822) $ 9,891  $ 1,633  $ 11,524 
Cumulative effect of accounting change
—  —  —  —  —  —  —  — 
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
—  —  —  32  —  —  —  32  —  32 
Other adjustments to stockholders' equity —  —  —  —  —  —  —  —  — 
March 31, 2020 13  $ —  716  $ $ 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
—  —  —  —  —  —  —  — 
Other adjustments to stockholders' equity —  —  —  —  —  —  — 
June 30, 2020 13  $ —  716  $ $ 10,798  $ (7,897) $ 7,980  $ (1,021) $ 9,867  $ 1,491  $ 11,358 
Net income available to Discovery, Inc. and attributable to noncontrolling interests
—  —  —  —  —  —  300  —  300  29  329 
Other comprehensive income —  —  —  —  —  —  —  123  123  —  123 
Share-based compensation —  —  —  —  26  —  —  —  26  —  26 
Repurchases of stock
—  —  —  —  —  (228) —  —  (228) —  (228)
Dividends paid to noncontrolling interests
—  —  —  —  —  —  —  —  —  (10) (10)
Issuance of stock in connection with share-based plans
—  —  —  —  —  —  —  — 
Redeemable noncontrolling interest adjustments to redemption value —  —  —  —  —  —  (2) —  (2) —  (2)
September 30, 2020 13  $ —  716  $ $ 10,825  $ (8,125) $ 8,278  $ (898) $ 10,087  $ 1,510  $ 11,597 
The accompanying notes are an integral part of these consolidated financial statements.

9


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



NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Discovery, Inc. (“Discovery”, the “Company”, "we", "us" or "our") is a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air and broadcast television, authenticated GO applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer ("DTC") subscription products. 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 production studios. The Company has organized its operations into 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.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Discovery and its majority-owned subsidiaries in which a controlling interest is maintained, including variable interest entities ("VIE") for which the Company is the primary beneficiary. Intercompany accounts and transactions between consolidated entities have been 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, 2020 (the “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 reported in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
Significant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, estimated credit losses, content rights, leases, depreciation and amortization, business combinations, share-based compensation, income taxes, other financial instruments, contingencies, and the determination of whether the Company should consolidate certain entities.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 (“COVID-19”) outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its 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 the second quarter of 2020, demand for the Company’s advertising products and services decreased due to economic disruptions from limitations on social and commercial activity. These economic disruptions and the resulting effect on the Company eased during the second half of 2020. The Company currently does not expect the pandemic will have a significant impact on demand during fiscal year 2021. Many of the Company’s third-party production partners that were shut down during most of the second quarter of 2020 due to COVID-19 restrictions came back online in the third quarter of 2020 and, as a result, the Company has incurred additional costs to comply with various governmental regulations and implement certain safety measures for the Company's employees, talent, and partners. Additionally, certain sporting events that the Company has rights to were cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games, which occurred in July and August 2021. The postponement of the Olympic Games deferred both Olympic-related revenues and significant expenses from fiscal year 2020 to fiscal year 2021.
10


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


In response to the impact of the pandemic, the Company employed 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 will continue to monitor COVID-19 and its impact on the Company’s business results and financial condition. These consolidated financial statements reflect management’s latest estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.
Accounting and Reporting Pronouncements Adopted
Business Combinations
In October 2021, the FASB issued guidance that requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as if it had originated the contracts. The guidance is effective for interim and annual periods beginning after December 15, 2022, and may be early adopted. The Company early adopted this guidance during the third quarter of 2021. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements for prior acquisitions in the current annual period, and the impact in future periods will be dependent on the contract assets and contract liabilities acquired in future business combinations.
Accounting and Reporting Pronouncements Not Yet Adopted
LIBOR
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance is for March 12, 2020 through December 31, 2022 and may not be applied to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with a few exceptions for certain hedging relationships existing as of December 31, 2022. The Company is currently assessing the impact this guidance would have on its consolidated financial statements and related disclosures, if elected.
Convertible Instruments
In August 2020, the FASB issued guidance simplifying the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This guidance amends the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions, requires the use of the if-converted method for calculating earnings per share for convertible instruments, and makes targeted improvements to the disclosures for convertible instruments and related earnings per share guidance. The guidance is effective for interim and annual periods beginning after December 15, 2021. The Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
WarnerMedia
In May 2021, the Company entered into an agreement with AT&T Inc. to combine WarnerMedia’s ("WarnerMedia") entertainment, sports and news assets with the Company's nonfiction and international entertainment and sports businesses to create a standalone, global entertainment company.
11


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


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 both, and immediately thereafter, combined with the Company. In connection with the combination transaction, AT&T will receive approximately $43 billion (subject to adjustment) in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. The Company will be considered the accounting acquirer. The Company established an interest rate derivative program to mitigate interest rate risk associated with the anticipated issuance of future fixed-rate debt by WarnerMedia, which is expected to be guaranteed by the Company upon closing of the transaction. (See Note 8.)
Immediately prior to closing, all shares of Series A, Series B, and Series C common stock and Series A-1 and Series C-1 convertible preferred stock will be reclassified and converted to one class of the Company's common stock. AT&T’s shareholders that receive WarnerMedia stock in the distribution will receive stock representing 71% of the combined company and the Company's shareholders will own 29% of the combined company, in each case on a fully diluted basis. The Boards of Directors of both AT&T and the Company have approved the transaction.
The transaction is anticipated to close in mid-2022, subject to approval by the Company'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 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 of the Series A-1 Preferred Stock, which consent was given pursuant to a consent agreement. In connection with Advance/Newhouse Programming Partnership’s entry into the consent agreement and related forfeiture of the significant rights attached to the Series A-1 Preferred Stock in the reclassification of the shares of Series A-1 Preferred Stock into common stock, it will receive an increase to the number of shares of common stock of the Company into which the Series A-1 Preferred Stock would be converted. Upon the closing, the impact the issuance of such additional shares of common stock of the Company will be recorded as a transaction expense. No vote by AT&T shareholders is required.
The merger agreement contains certain customary termination rights for Discovery and AT&T, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination under specified circumstances will require Discovery to pay AT&T a termination fee of $720 million or AT&T to pay Discovery a termination fee of $1.8 billion.
In anticipation of this combination, in June 2021, Magallanes, Inc., a wholly owned subsidiary of AT&T Inc., entered into a $10 billion term loan that will be guaranteed by the Company and certain material subsidiaries of the Company upon closing of the transaction.
Other
During 2020, we completed other immaterial acquisitions.
Dispositions
Great American Country
In June 2021, the Company completed the sale of its Great American Country network to Hicks Equity Partners for a sale price of $90 million. The Company recorded a gain of $76 million, based on net assets disposed of $14 million.
12


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


NOTE 3. INVESTMENTS
The Company’s equity investments consisted of the following (in millions).
Category Balance Sheet Location Ownership September 30, 2021 December 31, 2020
Equity method investments:
nC+ Other noncurrent assets 32% $ 153  $ 164 
Discovery Solar Ventures, LLC (a)
Other noncurrent assets N/A 77  83 
All3Media Other noncurrent assets 50% 79  76 
Other Other noncurrent assets 236  184 
Total equity method investments (b)
545  507 
Investments with readily determinable fair values:
Sharecare Prepaid expenses and other current assets 73  — 
Lionsgate Entertainment Corp. Other noncurrent assets 68  54 
fuboTV Inc. Prepaid expenses and other current assets 32 
Total investments with readily determinable fair values 145  86 
Equity investments without readily determinable fair values:
Group Nine Media (c)
Other noncurrent assets 25% 276  276 
Formula E (d)
Other noncurrent assets 25% 65  65 
Other Other noncurrent assets 212  200 
Total equity investments without readily determinable fair values 553  541 
Total investments $ 1,243  $ 1,134 
(a) Discovery Solar Ventures, LLC invests in limited liability companies that sponsor renewable energy projects related to solar energy. These investments are considered VIEs of the Company and are accounted for under the equity method of accounting using the Hypothetical Liquidation at Book Value methodology for allocating earnings.
(b) Total equity method investments at September 30, 2021 presented above includes a $5 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 other noncurrent 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
Investments in equity method investees are those for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. The Company had no impairment losses for the nine months ended September 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. 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 $8 million for each of the nine months ended September 30, 2021 and 2020. Amortization that reduces the Company's equity in earnings of nC+ for future periods is expected to be $40 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 September 30, 2021, the Company’s maximum exposure for all its unconsolidated VIEs, including the investment carrying values and unfunded contractual commitments made on behalf of VIEs, was approximately $195 million. The Company's maximum estimated exposure excludes the non-contractual future funding of VIEs. The aggregate carrying values of these VIE investments were $114 million as of September 30, 2021 and $123 million as of December 31, 2020. The Company recognized its portion of VIE operating results with net losses of $6 million and $17 million for the three months ended September 30, 2021 and 2020, respectively, and net losses of $21 million and $39 million for the nine months ended September 30, 2021 and 2020, respectively, in loss from equity investees, net on the consolidated statements of operations.
Investments with Readily Determinable Fair Value
Investments in entities or other securities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other income (expense), net on the consolidated statements of operations.
During the three months ended September 30, 2021, Sharecare, an investment that was formerly determined to not have a readily determinable fair value, was listed on the Nasdaq stock exchange and reclassified as an investment with readily determinable fair value. Prior to this reclassification, the Company recorded a gain of $77 million during the nine months ended September 30, 2021 as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The gains and losses related to the Company's investments with readily determinable fair values for the three and nine months ended September 30, 2021 and 2020 are summarized in the table below (in millions).
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net gains (losses) recognized during the period on equity securities $ (31) $ $ 31  $ (6)
Less: Net gains recognized on equity securities sold —  —  16  — 
Unrealized gains (losses) recognized during reporting period on equity securities still held at the reporting date $ (31) $ $ 15  $ (6)

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 nine months ended September 30, 2021, the Company invested $15 million in various equity investments without readily determinable fair values and concluded that its other equity investments without readily determinable fair values had decreased $7 million in fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of September 30, 2021, the Company had recorded cumulative upward adjustments of $9 million and cumulative impairments of $1 million for its equity investments without readily determinable fair values.
14


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


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.
The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).
    September 30, 2021
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ —  $ 173  $ —  $ 173 
Treasury securities Cash and cash equivalents 100  —  —  100 
Equity securities:
Time deposits Prepaid expenses and other current assets —  101  —  101 
Mutual funds Prepaid expenses and other current assets 12  —  —  12 
Company-owned life insurance contracts Prepaid expenses and other current assets —  — 
Mutual funds Other noncurrent assets 210  —  —  210 
Company-owned life insurance contracts Other noncurrent assets —  31  —  31 
Total $ 322  $ 306  $ —  $ 628 
Liabilities
Deferred compensation plan Accounts payable and accrued liabilities $ 23  $ —  $ —  $ 23 
Deferred compensation plan Other noncurrent liabilities 232  —  —  232 
Total $ 255  $ —  $ —  $ 255 
December 31, 2020
Category Balance Sheet Location Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Time deposits Cash and cash equivalents $ —  $ $ —  $
Treasury securities Cash and cash equivalents 500  —  —  500 
Equity securities:
Money market funds Cash and cash equivalents —  150  —  150 
Time deposits Prepaid expenses and other current assets —  250  —  250 
Mutual funds Prepaid expenses and other current assets 14  —  —  14 
Company-owned life insurance contracts Prepaid expenses and other current assets —  — 
Mutual funds Other noncurrent assets 200  —  —  200 
Company-owned life insurance contracts Other noncurrent assets —  48  —  48 
Total $ 714  $ 459  $ —  $ 1,173 
Liabilities
Deferred compensation plan Accounts payable and accrued liabilities $ 28  $ —  $ —  $ 28 
Deferred compensation plan Other noncurrent liabilities 220  —  —  220 
Total $ 248  $ —  $ —  $ 248 
15


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



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 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation. 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 has other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of September 30, 2021 and December 31, 2020. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $17.4 billion and $18.7 billion as of September 30, 2021 and December 31, 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.
NOTE 5. CONTENT RIGHTS
The table below presents the components of content rights (in millions). 
September 30, 2021 December 31, 2020
Produced content rights:
Completed $ 9,861  $ 8,576 
In-production 737  731 
Coproduced content rights:
Completed 994  888 
In-production 65  78 
Licensed content rights:
Acquired 1,225  1,312 
Prepaid 254  556 
Content rights, at cost 13,136  12,141 
Accumulated amortization (9,194) (8,170)
Total content rights, net 3,942  3,971 
Current portion (254) (532)
Noncurrent portion $ 3,688  $ 3,439 

Content expense consisted of the following (in millions).
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Content amortization $ 1,217  $ 762  $ 2,732  $ 2,110 
Other production charges 150  96  333  202 
Content impairments
Total content expense $ 1,369  $ 859  $ 3,068  $ 2,320 

As of September 30, 2021, the Company expects to amortize approximately 57%, 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 September 30, 2022, 2023 and 2024, respectively.
16


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, 2020 $ 10,813  $ 2,257  $ 13,070 
Dispositions —  (3) (3)
Foreign currency translation and other —  (110) (110)
September 30, 2021 $ 10,813  $ 2,144  $ 12,957 
The carrying amount of goodwill at the U.S. Networks segment included accumulated impairments of $20 million as of September 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 September 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 nine months ended September 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).
September 30, 2021 December 31, 2020
4.375% Senior Notes, semi-annual interest, due June 2021
$ —  $ 335 
2.375% Senior Notes, euro denominated, annual interest, due March 2022
349  369 
3.300% Senior Notes, semi-annual interest, due May 2022
—  168 
3.500% Senior Notes, semi-annual interest, due June 2022
—  62 
2.950% Senior Notes, semi-annual interest, due March 2023
796  796 
3.250% Senior Notes, semi-annual interest, due April 2023
192  192 
3.800% Senior Notes, semi-annual interest, due March 2024
450  450 
2.500% Senior Notes, sterling denominated, annual interest, due September 2024
539  545 
3.900% Senior Notes, semi-annual interest, due November 2024
497  497 
3.450% Senior Notes, semi-annual interest, due March 2025
300  300 
3.950% Senior Notes, semi-annual interest, due June 2025
500  500 
4.900% Senior Notes, semi-annual interest, due March 2026
700  700 
1.900% Senior Notes, euro denominated, annual interest, due March 2027
699  739 
3.950% Senior Notes, semi-annual interest, due March 2028
1,700  1,700 
4.125% Senior Notes, semi-annual interest, due May 2029
750  750 
3.625% Senior Notes, semi-annual interest, due May 2030
1,000  1,000 
5.000% Senior Notes, semi-annual interest, due September 2037
548  548 
6.350% Senior Notes, semi-annual interest, due June 2040
664  664 
4.950% Senior Notes, semi-annual interest, due May 2042
285  285 
4.875% Senior Notes, semi-annual interest, due April 2043
516  516 
5.200% Senior Notes, semi-annual interest, due September 2047
1,250  1,250 
5.300% Senior Notes, semi-annual interest, due May 2049
750  750 
4.650% Senior Notes, semi-annual interest, due May 2050
1,000  1,000 
4.000% Senior Notes, semi-annual interest, due September 2055
1,732  1,732 
Total debt 15,217  15,848 
Unamortized discount, premium and debt issuance costs, net (a)
(432) (444)
Debt, net of unamortized discount, premium and debt issuance costs 14,785  15,404 
Current portion of debt (349) (335)
Noncurrent portion of debt $ 14,436  $ 15,069 
(a) Current portion of unamortized discount, premium, and debt issuance costs, net is not material.
.Senior Notes
In the third quarter of 2021, Discovery Communications, LLC (“DCL”) and Scripps Networks Interactive, Inc. ("Scripps"), wholly owned subsidiaries of Discovery Inc., issued notices for the redemption in full of all $168 million aggregate principal amount outstanding of DCL's 3.300% Senior Notes due May 2022 and $62 million aggregate principal amount outstanding of DCL's and Scripps' 3.500% Senior Notes due June 2022 (collectively, the "2022 Notes"). The 2022 Notes were redeemed in July 2021 for an aggregate redemption price of $235 million, plus accrued interest. 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 the first quarter of 2021, DCL issued a notice for the redemption in full of all $335 million aggregate principal amount outstanding of its 4.375% Senior Notes due June 2021 (the “2021 Notes”) in accordance with the terms of the indenture governing the 2021 Notes. The 2021 Notes were redeemed in March 2021 for an aggregate redemption price of $339 million, plus accrued interest. The redemption included $3 million for premium over par and resulted in a loss on extinguishment of debt of $3 million.
18


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


In the third quarter of 2020, Discovery, Inc. commenced five separate private offers to exchange (the “Exchange Offers”) any and all of DCL's outstanding 5.000% Senior Notes due 2037, 6.350% Senior Notes due 2040, 4.950% Senior Notes due 2042, 4.875% Senior Notes due 2043 and 5.200% Senior Notes due 2047 (collectively, the “Old Notes”) for one new series of DCL 4.000% Senior Notes, semi-annual interest, due September 2055 (the “New Notes”). Discovery, Inc. completed the Exchange Offers in September 2020, by exchanging $1.4 billion aggregate principal amount of the Old Notes for $1.7 billion aggregate principal amount of the New Notes (before debt discount of $318 million). The Exchange Offers were accounted for as a debt modification and, as a result, third-party issuance costs totaling $11 million were expensed as incurred.
Also, in the third quarter of 2020, the Company completed offers to purchase for cash (the “Cash Offers”) the Old Notes. Approximately $22 million aggregate principal amount of the Old Notes were validly tendered and accepted for purchase by Discovery pursuant to the Cash Offers, for total cash consideration of $27 million, plus accrued interest. The Cash Offers resulted in a loss on extinguishment of debt of $5 million.
In the second quarter of 2020, DCL issued $1.0 billion aggregate principal amount of Senior Notes due May 2030 and $1.0 billion aggregate principal amount of Senior Notes due May 2050. The proceeds received by DCL were net of a $1 million issuance discount and $20 million of debt issuance costs. DCL used the proceeds from the offering to repurchase $1.5 billion aggregate principal amount of DCL's and Scripps Networks' senior notes in a cash tender offer. The repurchase resulted in a loss on extinguishment of debt of $71 million. The loss included $62 million of net premiums to par value and $9 million of other 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 September 30, 2021, all senior notes are fully and unconditionally guaranteed by the Company and Scripps Networks, except for the remaining $23 million of un-exchanged Scripps Networks senior notes acquired in conjunction with the acquisition of Scripps Networks.
Revolving Credit Facility and Commercial Paper Programs
In June 2021, DCL entered into a multicurrency revolving credit agreement (the "Credit Agreement"), replacing the existing $2.5 billion credit agreement, dated February 4, 2016, as amended. DCL has the capacity to initially borrow up to $2.5 billion under the Credit Agreement. Upon the closing of the proposed combination transaction with WarnerMedia, 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. DCL may also request additional commitments up to $1 billion from the lenders upon satisfaction of certain conditions. Obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by Discovery, Inc. and Scripps Networks Interactive, Inc., and will also be guaranteed by the holding company of the WarnerMedia business upon the closing of the proposed combination transaction. The Credit Agreement will be available on a revolving basis until June 2026, with an option for up to two additional 364-day renewal periods subject to the lenders' consent. The Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. As of September 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 September 30, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility or the commercial paper program.
Credit Agreement Financial Covenants
The Credit Agreement includes financial covenants that require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 to 1.00 and a maximum adjusted consolidated leverage ratio of 4.50 to 1.00, which increases to 5.75 to 1.00 upon the closing of the proposed combination transaction with WarnerMedia, with step-downs to 5.00 to 1.00 and 4.50 to 1.00 on the first and second anniversaries of the closing, respectively.
NOTE 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. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.
19


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


In anticipation of the proposed combination transaction with WarnerMedia, the Company executed forward starting interest rate swap contracts with a total notional value of $5.0 billion, swaption collars with a total notional value of $2.5 billion, and purchase payer swaptions with a total notional value of $7.5 billion during the three months ended September 30, 2021. The objective of these contracts is to mitigate interest rate risk associated with the forecasted issuance of future fixed-rate public debt. Premiums of $142 million were paid at execution and reflected as cash outflows from investing activities. The contracts did not receive hedging designation and changes in the fair value are recognized in other income (expense), net in the consolidated statements of operations.
During the three months ended September 30, 2021, the Company also unwound and settled foreign exchange cash flow hedges with a total notional value of $245 million. The $9 million pretax accumulated other comprehensive gain will be deferred in other comprehensive income until the hedged transaction occurs or is determined to be no longer probable of occurring within the defined hedged periods.
The following table summarizes the impact of derivative financial instruments on the Company's consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements as of September 30, 2021 and December 31, 2020. The fair value of the Company's derivative financial instruments at September 30, 2021 and December 31, 2020 was determined using a market-based approach (Level 2).
September 30, 2021 December 31, 2020
Fair Value Fair Value
Notional Prepaid expenses and other current assets Other non-
current assets
Accounts payable and accrued liabilities Other non-
current liabilities
Notional Prepaid expenses and other current assets Other non-
current assets
Accounts payable and accrued liabilities Other non-
current liabilities
Cash flow hedges:
Foreign exchange $ 969  $ $ $ $ $ 1,082  $ $ $ 14  $ 17 
Interest rate swaps 2,000  57  —  —  2,000  —  11  —  89 
Net investment hedges: (a)
Cross-currency swaps 3,509  46  51  19  86  3,544  34  41  —  154 
Foreign exchange 37  —  —  —  44  —  —  — 
No hedging designation:
Foreign exchange 929  —  25  50  1,035  —  —  26 
Interest rate swaps 15,000  157  90  —  —  —  —  —  —  — 
Cross-currency swaps 139  —  —  139  —  —  13 
Total $ 279  $ 148  $ 55  $ 145  $ 40  $ 57  $ 16  $ 299 
    
(a) Excludes £400 million of sterling notes ($539 million equivalent at September 30, 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 September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments
$ 15  $ (19) $ 45  $ 50 
Interest rate - derivative adjustments
53  129  (219)
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - advertising revenue
— 
Foreign exchange - distribution revenue
25 
Foreign exchange - costs of revenues
—  —  — 
Interest rate - interest expense, net —  —  (1)
20


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


If current fair values of designated cash flow hedges as of September 30, 2021 remained static over the next twelve months, the Company would reclassify $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.
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 nine months ended September 30, 2021 and 2020.
Three Months Ended September 30,
Amount of gain (loss) recognized in AOCI Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2021 2020 2021 2020
Cross currency swaps $ 46  $ (78) Interest expense, net $ 10  $ 10 
Foreign exchange contracts (1) Other income (expense), net —  — 
Sterling notes (foreign denominated debt) 14  (23) N/A —  — 
Total $ 64  $ (102) $ 10  $ 10 

Nine Months Ended September 30,
Amount of gain (loss) recognized in AOCI Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2021 2020 2021 2020
Cross currency swaps $ 93  $ 26  Interest expense, net $ 31  $ 33 
Foreign exchange contracts Other income (expense), net —  — 
Sterling notes (foreign denominated debt) 10  N/A —  — 
Total $ 103  $ 39  $ 31  $ 33 
    
The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in other income (expense), net in the consolidated statements of operations (in millions).
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Interest rate swaps $ 106  $ —  $ 106  $ — 
Cross-currency swaps (8) (1)
Equity —  —  — 
Foreign exchange derivatives (20) 27  (47) (10)
Total in other income (expense), net $ 88  $ 19  $ 67