##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
  þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    000-51205
  DISCOVERY HOLDING
    COMPANY
 (Exact name of Registrant as
    specified in its charter)
  State of Delaware

20-2471174(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)12300 Liberty Boulevard
    Englewood, Colorado

80112(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
 (720) 875-4000
  þ o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
    Series A
    common stock 268,336,850 shares; and
    Series B common stock 11,934,096 shares.




---



TABLE OF CONTENTS  Condensed Consolidated Balance SheetsCondensed Consolidated Statements of Operations and Comprehensive EarningsCondensed Consolidated Statements of Cash FlowsCondensed Consolidated Statement of Stockholders EquityItem 2.Managements Discussion and Analysis of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 6. ExhibitsSIGNATURESEXHIBIT INDEXRule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationSection 1350 Certification    Table of Contents   DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 
  Condensed
    Consolidated Balance Sheets
 (unaudited)
  March 31,


December 31,2007


2006amounts in thousandsASSETSCurrent assets:Cash and cash equivalents

$
150,477



154,775Trade receivables, net


148,634



147,436Prepaid expenses


12,516



11,522Other current assets


3,832



3,629Total current assets


315,459



317,362Investments in marketable
    securities


52,505



51,837Investment in Discovery
    Communications, Inc. (Discovery or DCI)
    (note 7)


3,150,457



3,129,157Property and equipment, net


285,172



280,775Goodwill (note 6)


2,074,882



2,074,789Other assets, net


16,759



17,062Total assets

$
5,895,234



5,870,982LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
35,232



43,656Accrued payroll and related
    liabilities


27,448



32,292Other accrued liabilities


29,164



29,924Deferred revenue


18,077



16,015Total current liabilities


109,921



121,887Deferred income tax liabilities


1,184,639



1,174,594Other liabilities


30,227



25,237Total liabilities


1,324,787



1,321,718Commitments and contingencies
    (notes 8 and 9)Stockholders equity:Preferred stock, $.01 par
    value. Authorized 50,000,000 shares; no shares issued






Series A common stock,
    $.01 par value. Authorized 600,000,000 shares; issued
    and outstanding 268,275,679 shares at March 31, 2007
    and 268,194,966 shares at December 31, 2006


2,683



2,682Series B common stock,
    $.01 par value. Authorized 50,000,000 shares; issued
    and outstanding 11,947,000 shares at March 31, 2007
    and 12,025,088 shares at December 31, 2006


119



120Series C common stock,
    $.01 par value. Authorized 600,000,000 shares; no
    shares issued






Additional paid-in capital


5,714,548



5,714,379Accumulated deficit


(1,164,627
)


(1,183,831
)Accumulated other comprehensive
    earnings


17,724



15,914Total stockholders equity


4,570,447



4,549,264Total liabilities and
    stockholders equity

$
5,895,234



5,870,982    I-1




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Condensed Consolidated Statements of Operations and
    Comprehensive Earnings
    (unaudited)
  Three Months EndedMarch 31,2007


2006amounts in thousands, except per share amountsNet revenue

$
173,882



153,568Operating expenses:Cost of services


118,026



97,599Selling, general, and
    administrative, including stock-based compensation
    (notes 2 and 10)


41,520



43,171Gain on sale of operating assets


(34
)


Depreciation and amortization


15,571



15,655175,083



156,425Operating loss


(1,201
)


(2,857
)Other income:Share of earnings of Discovery
    (note 7)


21,557



21,173Other income, net


9,297



1,95030,854



23,123Earnings before income taxes


29,653



20,266Income tax expense


(9,189
)


(8,651
)Net earnings


20,464



11,615Other comprehensive earnings, net
    of taxes:Foreign currency translation
    adjustments


1,354



2,637Unrealized holding gains arising
    during the period


456



787Other comprehensive earnings


1,810



3,424Comprehensive earnings

$
22,274



15,039Basic and diluted earnings per
    common share (note 3)

$
.07



.04    I-2




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Condensed Consolidated Statements of Cash Flows
 (unaudited)
  Three Months EndedMarch 31,2007


2006amounts in thousandsCash flows from operating
    activities:Net earnings

$
20,464



11,615Adjustments to reconcile net
    earnings to net cash provided by operating activities:Depreciation and amortization


15,571



15,655Stock-based compensation


966



546Share of earnings of Discovery


(21,557
)


(21,173
)Gain on lease buyout


(6,992
)


Deferred income tax expense


8,508



8,293Other non-cash charges (credits),
    net


(487
)


353Changes in assets and liabilities,
    net of acquisitions:Trade receivables


(1,082
)


(4,836
)Prepaid expenses and other current
    assets


(1,197
)


(4,012
)Payables and other liabilities


(11,629
)


3,827Net cash provided by operating
    activities


2,565



10,268Cash flows from investing
    activities:Capital expenditures


(13,407
)


(13,802
)Proceeds from lease buyout


7,138



Net purchases of marketable
    securities


(665
)


(49,175
)Cash paid for acquisitions, net of
    cash acquired (notes 4 and 5)






(46,793
)Other investing activities, net


90



(27
)Net cash used in investing
    activities


(6,844
)


(109,797
)Cash flows used in financing
    activities  other financing activities, net


(19
)


(2
)Net decrease in cash and cash
    equivalents


(4,298
)


(99,531
)Cash and cash equivalents at
    beginning of period


154,775



250,352Cash and cash equivalents at end
    of period

$
150,477



150,821    I-3




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Condensed Consolidated Statement of Stockholders Equity
 Three months ended March 31, 2007
    (unaudited)
  AccumulatedAdditional





Other


TotalPreferred


Common Stock


Paid-in


Accumulated


comprehensive


StockholdersStock


Series A


Series B


Series C


Capital


Deficit


Earnings


Equityamounts in thousandsBalance at January 1, 2007

$




2,682



120







5,714,379



(1,183,831
)


15,914



4,549,264Net earnings






















20,464







20,464Other comprehensive earnings


























1,810



1,810Stock compensation


















137











137Cumulative effect of accounting
    change (note 8)






















(1,260
)






(1,260
)Conversion of Series B to
    Series A






1



(1
)


















Stock option exercises


















32











32Balance at March 31, 2007

$




2,683



119







5,714,548



(1,164,627
)


17,724



4,570,447    I-4




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial Statements
 March 31, 2007
 (unaudited
  (1)  Basis
    of Presentation
          Form 10-K
    (2)  Stock
    Options and Other Long-Term Incentive Compensation
  Stock
    Options
   I-5




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
      Share-Based Payments
        Weighted





WeightedAverage





AverageDHC


Exercise


DHC


ExerciseSeries A


Price


Series B


PriceOutstanding


1,874,365


$
15.41



2,996,525


$
18.87Exercisable


1,401,272


$
16.13



2,876,525


$
18.99     2006
    Ascent Media Long-Term Incentive Plan
   I-6




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    (3)  Earnings
    Per Common Share
    (4)  Supplemental
    Disclosure of Cash Flow Information
  Three MonthsEndedMarch 31, 2006amounts in thousandsCash paid for acquisitions:Fair value of assets acquired

$
48,264Net liabilities assumed


(1,471
)Cash paid for acquisitions, net of
    cash acquired

$
46,793   (5)  Acquisition
     I-7




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   (6)  Goodwill
    March 31,


December 31,2007


2006amounts in thousandsGoodwillCreative Services group

$
106,599



106,599Network Services group


197,283



197,190Discovery


1,771,000



1,771,000Total goodwill

$
2,074,882



2,074,789     (7)  Investment
    in Discovery
    2 3
   I-8




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
     Consolidated
    Balance Sheets
  March 31,


December 31,2007


2006amounts in thousandsCash and cash equivalents

$
71,285



52,263Other current assets


904,398



918,373Property and equipment, net


417,286



424,041Goodwill and intangible assets


455,906



472,939Programming rights, long term


1,253,539



1,253,553Other assets


446,736



255,384Total assets

$
3,549,150



3,376,553Current liabilities

$
567,276



734,524Long term debt


2,896,186



2,633,237Other liabilities


257,790



175,255Mandatorily redeemable equity in
    subsidiaries


46,586



94,825Stockholders deficit


(218,688
)


(261,288
)Total liabilities and
    stockholders deficit

$
3,549,150



3,376,553   Consolidated
    Statements of Operations
  Three Months EndedMarch 31,2007


2006amounts in thousandsRevenue

$
727,826



659,601Cost of revenue


(257,027
)


(240,342
)Selling, general and administrative


(291,002
)


(274,348
)Restructuring and other charges


(10,999
)


Equity-based compensation


(11,721
)


(5,169
)Depreciation and amortization


(35,188
)


(30,135
)Operating income


121,889



109,607Interest expense


(44,556
)


(49,006
)Other income, net


2,407



10,005Income tax expense


(36,626
)


(28,259
)Net earnings

$
43,114



42,347DHCs share of net earnings

$
21,557



21,173   (8)  Income
    Taxes
   I-9




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
          (9)  Commitments
    and Contingencies
        (10)  Related
    Party Transactions
  out-of-pocket
   I-10




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   (11)  Information
    About Operating Segments
               I-11




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
     Consolidated Reportable SegmentsCreative


Network








EquityServices


Services


Corporate


Consolidated


Affiliate-Group


Group(1)


and Other


Total


Discoveryamounts in thousandsThree months ended March 31,
    2007Revenue from external customers

$
110,712



63,170







173,882



727,826Operating cash flow (deficit)

$
14,284



8,288



(7,210
)


15,362



179,797Capital expenditures

$
6,132



5,587



1,688



13,407



13,407Total assets

$
412,284



383,532



5,099,418



5,895,234



3,549,150Three months ended March 31,
    2006Revenue from external customers

$
98,530



55,038







153,568



659,601Operating cash flow (deficit)

$
13,098



9,497



(9,251
)


13,344



144,911Capital expenditures

$
5,595



7,603



604



13,802



7,344     (1)
    
    Included in Network Services group revenue is broadcast services
    revenue of $37,415,000 and $39,290,000 and systems integration
    revenue of $25,755,000 and $15,748,000 for the three months
    ended March 31, 2007 and 2006, respectively.    Three Months EndedMarch 31,2007


2006amounts in thousandsSegment operating cash flow

$
15,362



13,344Stock-based compensation


(966
)


(546
)Depreciation and amortization


(15,571
)


(15,655
)Share of earnings of Discovery


21,557



21,173Other, net


9,271



1,950Earnings before income taxes

$
29,653



20,266  I-12




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    Three Months EndedMarch 31,2007


2006amounts in thousandsRevenueUnited States

$
137,212



116,189United Kingdom


30,140



32,080Other countries


6,530



5,299$
173,882



153,568   March 31,


December 31,2007


2006amounts in thousandsProperty and equipment, netUnited States

$
189,798



184,052United Kingdom


70,345



70,363Other countries


25,029



26,360$
285,172



280,775  I-13




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##### Table of Contents



Item 2.Managements
    Discussion and Analysis of Financial Condition and Results Of
    Operations
  Form 10-Q
  
    general economic and business conditions and industry trends
    including the timing of, and spending on, feature film and
    television production;
    spending on domestic and foreign television advertising and
    spending on domestic and 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;
    continued consolidation of the broadband distribution and movie
    studio industries;
    uncertainties inherent in the development and integration of new
    business lines, acquired operations and business strategies;
    uncertainties associated with product and service development
    and market acceptance, including the development and provision
    of programming for new television and telecommunications
    technologies;
    changes in the distribution and viewing of television
    programming, including the expanded deployment of personal video
    recorders, video on demand and IP television and their impact on
    television advertising revenue;
    rapid technological changes;
    future financial performance, including availability, terms and
    deployment of capital;
    fluctuations in foreign currency exchange rates and political
    unrest in international markets;
    the ability of suppliers and vendors to deliver products,
    equipment, software and services;
    the outcome of any pending or threatened litigation;
    availability of qualified personnel;
    the possibility of an industry-wide strike or other job action
    by or 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 adverse outcomes from
    regulatory proceedings;
    changes in the nature of key strategic relationships with
    partners and joint venturers;
    competitor responses to our products and services, and the
    products and services of the entities in which we have
    interests; and
    threatened terrorists attacks and ongoing military action in the
    Middle East and other parts of the world.   I-14




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##### Table of Contents



Form 10-K
  Overview
    and/or
      Operating
    Cash Flow
    Results
    of Operations
   I-15




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##### Table of Contents



Three Months EndedMarch 31,2007


2006amounts in thousandsSegment RevenueCreative Services group

$
110,712



98,530Network Services group


63,170



55,038Corporate and other






$
173,882



153,568Segment Operating Cash FlowCreative Services group

$
14,284



13,098Network Services group


8,288



9,497Corporate and other


(7,210
)


(9,251
)$
15,362



13,344   Revenue.
   I-16




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##### Table of Contents



Cost of Services.
  Selling, General and
    Administrative.
  Depreciation and Amortization.
  Stock-Based Compensation.
      Share of Earnings of Discovery.
   I-17




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##### Table of Contents



Other Income.
  Income Taxes.
  Net Earnings.
  Liquidity
    and Capital Resources
      Discovery
     I-18




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##### Table of Contents



direct-to-consumer
  2 3
  Consolidated
    Results of Discovery
  Three Months EndedMarch 31,2007


2006amounts in thousandsRevenue:Advertising

$
289,769



267,028Distribution


369,879



346,014Other


68,178



46,559Total revenue


727,826



659,601Expenses:Cost of revenue


(257,027
)


(240,342
)Selling, general and
    administrative (SG&A) expense


(291,002
)


(274,348
)Operating cash flow


179,797



144,911Restructuring and other charges


(10,999
)


Expenses arising from long-term
    incentive plans


(11,721
)


(5,169
)Depreciation and amortization


(35,188
)


(30,135
)Operating income


121,889



109,607Other income (expense):Interest expense, net


(44,556
)


(49,006
)Unrealized gains from derivative
    instruments, net


1,065



6,725Minority interests in consolidated
    subsidiaries


(707
)


1,878Other


2,049



1,402Earnings before income taxes


79,740



70,606Income tax expense


(36,626
)


(28,259
)Net earnings

$
43,114



42,347  I-19




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##### Table of Contents



Business
    Segment Results of Discovery
  Three Months EndedMarch 31,2007


2006amounts in thousandsRevenue:U.S. networks

$
485,613



443,434International networks


207,796



193,216Discovery commerce, education and
    other


34,417



22,951Total revenue

$
727,826



659,601Operating Cash Flow:U.S. networks

$
180,431



152,117International networks


19,496



31,146Discovery commerce, education and
    other


(20,130
)


(38,352
)Total operating cash flow

$
179,797



144,911     Note:
  Revenue.
        direct-to-school unitedstreaming direct-to-school
 I-20




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##### Table of Contents



direct-to-consumer e-commerce
  Cost of Revenue. free-to-air
  SG&A Expenses.
    Restructuring Charges.
  Expenses Arising from Long-term Incentive
    Plans.
  Depreciation and Amortization.
  Other
    Income and Expense
  Interest Expense.
 I-21




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##### Table of Contents



Unrealized Gains from Derivative Instruments,
    net.
  Minority Interests in Consolidated
    Subsidiaries.
  Other.
  Income Taxes.
  Liquidity
    and Capital Resources
               I-22




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##### Table of Contents



Item 3.Quantitative
    and Qualitative Disclosures about Market Risk
  Foreign
    Currency Risk
   
  Item 4.Controls
    and Procedures
  Rules 13a-15 15d-15,
   I-23




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY
 
  PART II 
    OTHER INFORMATION
 
  Item 1.Legal
    Proceedings
  Form 10-K
 
  Item 6.Exhibits
  (a)  Exhibits
  31
.1

Rule 13a-14(a)/15d-14(a)
    Certification*31
.2

Rule 13a-14(a)/15d-14(a)
    Certification*31
.3

Rule 13a-14(a)/15d-14(a)
    Certification*32


Section 1350 Certification*     *
    
    Filed herewith. II-1




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##### Table of Contents



SIGNATURES
    DISCOVERY HOLDING COMPANYDate: May 9, 2007

By:

/s/  John
    C. MaloneJohn
    C. Malone
    Chief Executive OfficerDate: May 9, 2007

By:

/s/  David
    J.A. FlowersDavid
    J.A. Flowers
    Senior Vice President and Treasurer
    (Principal Financial Officer)Date: May 9, 2007

By:

/s/  Christopher
    W. SheanChristopher
    W. Shean
    Senior Vice President and Controller
    (Principal Accounting Officer)  II-2




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##### Table of Contents



EXHIBIT INDEX
  Regulation S-K):
  31
.1

Rule 13a-14(a)/15d-14(a)
    Certification*31
.2

Rule 13a-14(a)/15d-14(a)
    Certification*31
.3

Rule 13a-14(a)/15d-14(a)
    Certification*32


Section 1350 Certification*     *
    
    Filed herewith.