##### Table of Contents



UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  FORM 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

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
    BoulevardEnglewood, Colorado

80112(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
 (720) 875-4000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of exchange on which
    registeredSeries A Common Stock, par
    value $.01 per share
    Series B Common Stock, par value $.01 per share

Nasdaq
    Nasdaq   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
          Form 10-K




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##### 



DISCOVERY
    HOLDING COMPANY
    2006 ANNUAL REPORT ON
    FORM 10-K
    Table of Contents
  PagePart IItem 1.


Business


I-1Item 1A.


Risk
    Factors


I-12Item 1B.


Unresolved Staff
    Comments


I-18Item 2.


Properties


I-18Item 3.


Legal
    Proceedings


I-18Item 4.


Submission of
    Matters to a Vote of Security Holders


I-18Part IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


II-1Item 6.


Selected Financial
    Data


II-1Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


II-2Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


II-13Item 8.


Financial
    Statements and Supplementary Data


II-13Item 9.


Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure


II-13Item 9A.


Controls and
    Procedures


II-13Item 9B.


Other
    Information


II-14Part IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


III-1Item 11.


Executive
    Compensation


III-1Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


III-1Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


III-1Item 14.


Principal
    Accounting Fees and Services


III-1Part IVItem 15.


Exhibits and
    Financial Statement Schedules


IV-1SubsidiariesConsent of KPMG LLPConsent of PricewaterhouseCoopers LLPRule 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



PART I.  Item 1.
    Business.  (a)  General
    Development of Business
              Form 10-K
  
    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; I-1




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
    uncertainties inherent in the development and integration of new
    business lines, acquired operations and business strategies;
    changes in the distribution and viewing of television
    programming, including the expanded deployment of personal video
    recorders and other technology, and their impact on television
    advertising revenue;
    rapid technological changes;
    uncertainties associated with product and service development
    and market acceptance, including the development and provision
    of programming for new television and telecommunications
    technologies;
    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
    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.    (b)  Financial
    Information About Operating Segments
      (c)  Narrative
    Description of Business
  ASCENT
    MEDIA
  and/or
   I-2




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Creative
    Services
    Blink Digital, Cinetech, Company 3, Design
    Music Group (DMG), Digital Media Data Center (DMDC), Digital
    Symphony, Encore Hollywood, FilmCore, Level 3 Post, Method,
    Modern Music, One Post, POP Sound, R!OT, Rushes, Soho Images,
    Soundelux, Sound One, St. Annes Post, Todd-AO VisionText.
      Dailies.
  Telecine.
  Digital intermediates.
  Creative editorial. film-to-tape
  Visual effects.
  Assembly, formatting and duplication.
 I-3




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Distribution.
  Sound supervision, sound design and sound
    editorial.
  Music services.
  Re-recording / Mixing.
  Sound effects and music libraries.
  Negative developing and cutting. one-hour
  Restoration, preservation and asset protection of existing
    and damaged content.
  Transferring film to analog video or digital
    media. pay-per-view
  Professional duplication and standards
    conversion. sub-masters sub-masters
 I-4




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pay-per-view
  DVD compression and authoring and menu
    design. video-on-demand
  Storage of original elements and working
    masters.
  Syndicated television distribution. sub-mastering,
  Network
    Services
    Key services
    provided by Ascent Medias network services group include
    the following:
  Network origination and master control. pay-per-view cut-to-clock and/or live-to-satellite multi-language
  Transport and connectivity. direct-to-home point-to-point
 I-5




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Consulting Services.
  Engineering and systems integration.
  Network Operations, Field Service and Call
    Center.
  Strategy
  end-to-end
  Grow digital media management business.
  Increase scale of operations.
  Expand scope of services.
  Deploy an interconnected global media
    network.
 I-6




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Optimize the organization.
  Seasonality
    DISCOVERY
  and/or and/or
    direct-to-home
   I-7




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video-on-demand, IP-delivered
    video-on-demand
  Discovery
    Networks U.S.
  video-on-demand
  Discovery
    Networks International
  50-50 50-50
  Discovery
    Commerce, Education & Other
     I-8




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Unitedstreaming Power-Media-Plus Cosmeo
  Discovery
    Stockholders Agreement
              Regulatory
    Matters
  Ascent
    Media
   I-9




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Discovery
         I-10




---



##### Table of Contents



and/or
    International
    Regulatory Matters
    Competition
  Metro-Goldwyn-Mayer
  pay-per-view
 I-11




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Employees
        (d)  Financial
    Information About Geographic Areas
    (e)  Available
    Information
  Form 10-Ks, Form 10-Qs Form 8-Ks,
  (866) 876-0461.
    Item 1A.
    Risk
    Factors.    We are a holding company, and we could be unable in the
    future to obtain cash in amounts sufficient to service our
    financial obligations or meet our other
    commitments.
  We do not have access to the cash that Discovery generates
    from its operating activities.
 I-12




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We have limited operating history as a separate company upon
    which you can evaluate our performance.
  We do not have the right to manage Discovery, which means we
    cannot cause Discovery to operate in a manner that is favorable
    to us.
    The liquidity and value of our interest in Discovery may be
    adversely affected by a Stockholders Agreement to which we
    are a party.
  and/or
    Because we do not control the business management practices
    of Discovery, we rely on Discovery for the financial information
    that we use in accounting for our ownership interest in
    Discovery.
 I-13




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We cannot be certain that we will be successful in
    integrating acquired businesses, if any.
  A loss of any of Ascent Medias large customers would
    reduce our revenue.
  Ascent Medias business depends on certain client
    industries. video-on-demand
  Changes in technology may limit the competitiveness of and
    demand for our services.
  video-on-demand
 I-14




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A labor dispute in our client industries may disrupt our
    business.
      Risk of loss from earthquakes or other catastrophic events
    could disrupt Ascent Medias business.
  Discovery is dependent upon advertising
    revenue. video-on-demand and/or
  Discoverys revenue is dependent upon the maintenance of
    affiliation agreements with cable and satellite distributors on
    acceptable terms. direct-to-home
  Our businesses are subject to risks of adverse government
    regulation.
 I-15




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Failure to obtain renewal of FCC licenses could disrupt our
    business.
  Our businesses operate in an increasingly competitive market,
    and there is a risk that our businesses may not be able to
    effectively compete with other providers in the
    future. Metro-Goldwyn-Mayer
  direct-to-home
  direct-to-home
  We have overlapping directors and management with Liberty and
    Liberty Global, Inc., which may lead to conflicting
    interests. and/or and/or
 I-16




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and/or and/or and/or
  We and Liberty or LGI may compete for business
    opportunities.
  It may be difficult for a third party to acquire us, even if
    doing so may be beneficial to our
    shareholders.
  
    authorizing a capital structure with multiple series of common
    stock: a Series B that entitles the holders to ten votes
    per share, a Series A that entitles the holders to one vote
    per share and a Series C that, except as otherwise required
    by applicable law, entitles the holders to no voting rights;
    authorizing the issuance of blank check preferred
    stock, which could be issued by our board of directors to
    increase the number of outstanding shares and thwart a takeover
    attempt;
    classifying our board of directors with staggered three-year
    terms, which may lengthen the time required to gain control of
    our board of directors;
    limiting who may call special meetings of shareholders;
    prohibiting shareholder action by written consent (subject to
    certain exceptions), thereby requiring shareholder action to be
    taken at a meeting of the shareholders;
    establishing advance notice requirements for nominations of
    candidates for election to our board of directors or for
    proposing matters that can be acted upon by shareholders at
    shareholder meetings;
    requiring shareholder approval by holders of at least 80% of our
    voting power or the approval by at least 75% of our board of
    directors with respect to certain extraordinary matters, such as
    a merger or consolidation of our company, a sale of all or
    substantially all of our assets or an amendment to our restated
    certificate of incorporation;
    requiring the consent of the holders of at least 75% of the
    outstanding Series B common stock (voting as a separate
    class) to certain share distributions and other corporate
    actions in which the voting power of the Series B common I-17




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stock would be diluted by, for example, issuing shares having
    multiple votes per share as a dividend to holders of
    Series A common stock; and  
    the existence of authorized and unissued stock which would allow
    our board of directors to issue shares to persons friendly to
    current management, thereby protecting the continuity of its
    management, or which could be used to dilute the stock ownership
    of persons seeking to obtain control of us.    Holders of any single series of our common stock may not have
    any remedies if any action by our directors or officers has an
    adverse effect on only that series of our common
    stock.
  Item 1B.
    Unresolved
    Staff
    Comments.    Item 2.
    Properties.      Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security
    Holders.   I-18




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PART II.  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity
    Securities.  Market
    Information
    Series A


Series BHigh


Low


High


Low2006First quarter

$
15.65



13.88



15.96



13.58Second quarter

$
15.18



13.61



15.21



13.73Third quarter

$
14.82



12.81



14.54



12.97Fourth quarter

$
16.96



14.18



16.85



13.972005July 21, 2005 through
    September 30, 2005

$
16.30



13.51



16.77



14.40Fourth quarter

$
16.23



13.69



16.80



13.59   Holders
    Dividends
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Item 6.
    Selected
    Financial
    Data.      December 31,2006


2005


2004


2003


2002amounts in thousandsSummary Balance Sheet Data:Investment in Discovery
    Communications, Inc.

$
3,129,157



3,018,622



2,945,782



2,863,003



2,816,513Goodwill

$
2,074,789



2,133,518



2,135,446



2,130,897



2,104,705Total assets

$
5,870,982



5,819,236



5,564,828



5,396,627



5,373,150Stockholders equity

$
4,549,264



4,575,425



4,347,279



4,260,269



3,617,417   II-1




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##### Table of Contents



Years ended December 31,2006


2005


2004


2003


2002amounts in thousands,except per share amountsSummary Statement of Operations
    Data:Net revenue

$
688,087



694,509



631,215



506,103



539,333Operating income (loss)(1)

$
(115,137
)


(1,402
)


16,935



(2,404
)


(61,452
)Share of earnings (losses) of
    Discovery

$
103,588



79,810



84,011



37,271



(32,046
)Net earnings (loss)(1)

$
(46,010
)


33,276



66,108



(52,394
)


(129,275
)Basic and diluted earnings (loss)
    per common share(2)

$
(0.16
)


0.12



0.24



(0.19
)


(0.46
)     (1)
    
    Includes impairment of goodwill and other long-lived assets of
    $93,402,000 and $83,718,000 for the years ended
    December 31, 2006 and 2002, respectively.(2)
    
    Basic and diluted net earnings (loss) per common share is based
    on (1) 280,199,000 shares, which is the number of
    shares issued in the spin off, for all periods prior to the spin
    off and (2) the actual number of weighted average
    outstanding shares for all periods subsequent to the spin off.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.    Overview
    and/or
     II-2




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Acquisitions
  AccentHealth.
  Cinetech.
  London Playout Centre.
  Operating
    Cash Flow
    Results
    of Operations
         II-3




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##### Table of Contents



Years ended December 31,2006


2005


2004amounts in thousandsSegment
    RevenueCreative Services group

$
417,876



421,797



405,026Network Services group


270,211



272,712



226,189Corporate and other










$
688,087



694,509



631,215Segment Operating Cash
    FlowCreative Services group

$
52,554



70,708



72,903Network Services group


49,522



55,877



62,537Corporate and other


(43,347
)


(47,960
)


(37,645
)$
58,729



78,625



97,795   Revenue.
    Cost of Services.
    Selling, General and Administrative.
 II-4




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Depreciation and Amortization.
  Stock Compensation.
  in-the-money 5-year
  in-the-money
    Restructuring Charges.
 II-5




---



##### Table of Contents



Impairment of Goodwill.
  Share of Earnings of Discovery.
    Income Taxes.
  Net Earnings (Loss).
  Liquidity
    and Capital Resources
         II-6




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##### Table of Contents



Off-Balance
    Sheet Arrangements and Contractual Obligations
    Payments due by periodLess than








After 51 year


1-3 years


4-5 years


years


Totalamounts in thousandsOperating leases

$
32,058



56,801



44,026



59,144



192,029Other






6,100











6,100Total contractual obligations

$
32,058



62,901



44,026



59,144



198,129     Recent
    Accounting Pronouncements
    Critical
    Accounting Estimates
  Valuation of Long-lived Assets and Amortizable Other
    Intangible Assets.
  Valuation of Goodwill and
    Non-amortizable
    Other Intangible Assets.
  Valuation of Trade Receivables.
 II-7




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Valuation of Deferred Tax Assets.
  Discovery
       II-8




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##### Table of Contents



Consolidated
    Results of Discovery
  Years ended December 31,2006


2005


2004amounts in thousandsRevenueAdvertising

$
1,243,500



1,187,823



1,133,807Distribution


1,434,901



1,198,686



976,362Other


334,587



285,245



255,177Total revenue


3,012,988



2,671,754



2,365,346ExpensesCost of revenue


(1,120,377
)


(979,765
)


(846,316
)SG&A expense


(1,170,187
)


(1,005,351
)


(856,340
)Operating cash flow


722,424



686,638



662,690Expenses arising from long-term
    incentive plans


(39,233
)


(49,465
)


(71,515
)Depreciation &
    amortization


(133,634
)


(123,209
)


(129,011
)Gain on sale of patents










22,007Operating income


549,557



513,964



484,171Other Income
    (Expense)Interest expense, net


(194,227
)


(184,575
)


(167,420
)Realized and unrealized gains from
    derivative instruments, net


22,558



22,499



45,540Minority interests in consolidated
    subsidiaries


(2,451
)


(43,696
)


(54,940
)Other


8,527



13,771



2,470Income before income taxes


383,964



321,963



309,821Income tax expense


(176,788
)


(162,343
)


(141,799
)Net income

$
207,176



159,620



168,022   Business
    Segment Results of Discovery
  Years ended December 31,2006


2005


2004amounts in thousandsRevenueU.S. networks

$
1,926,180



1,743,358



1,599,678International networks


879,074



738,094



596,450Discovery commerce,
    education & other


207,734



190,302



169,218Total revenue

$
3,012,988



2,671,754



2,365,346Operating Cash FlowU.S. networks

$
727,469



643,366



597,922International networks


116,446



107,096



101,875Discovery commerce,
    education & other


(121,491
)


(63,824
)


(37,107
)Total operating cash flow

$
722,424



686,638



662,690     Note:
    
    Discovery commerce, education & other includes
    intercompany eliminations. Certain prior period amounts have
    been reclassified to conform to the current period presentation.  Revenue.
 II-9




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video-on-demand
  direct-to-school unitedstreaming, direct-to-school
  Cost of Revenue. free-to-air
   II-10




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SG&A Expenses.
    Expenses Arising from Long-term Incentive
    Plans.
  Depreciation and Amortization.
  Gain on Sale of Patents.
  Other
    Income and Expense
  Interest Expense.
 II-11




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Unrealized Gains from Derivative Instruments,
    net.
  Minority Interests in Consolidated
    Subsidiaries.
  Other.
  Income Taxes.
  Liquidity &
    Capital Resources
            Contractual Obligations.
 II-12




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Payments due by period(2)Less than








After 5Total


1 year


1-3 years


4-5 years


yearsamounts in thousandsLong-term debt

$
2,607,300







860,300



1,032,000



715,000Capital leases


38,900



9,300



14,600



9,600



5,400Operating leases


505,228



87,049



141,494



100,615



176,070Program license fees


559,633



318,523



109,849



87,424



43,837Launch incentives


36,713



21,632



15,081







Other(1)


229,451



86,965



116,102



25,264



1,120Total

$
3,977,225



523,469



1,257,426



1,254,903



941,427     (1)
    
    Represents Discoverys obligations to purchase goods and
    services whereby the underlying agreements are enforceable,
    legally binding and specify all significant terms. The more
    significant purchase obligations include: agreements related to
    audience ratings, market research, contracts for entertainment
    talent and other education and service project agreements.(2)
    
    The table above does not include certain long-term obligations
    reflected in the Discovery consolidated balance sheet as the
    timing of the payments cannot be predicted or the amounts will
    not be settled in cash. The most significant of these
    obligations is the $84.5 million accrued under
    Discoverys LTIP plans. In addition, amounts accrued in the
    Discovery consolidated balance sheet related to derivative
    financial instruments are not included in the table as such
    amounts may not be settled in cash or the timing of the payments
    cannot be predicted.    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market
    Risk.  Foreign
    Currency Risk
    Item 8.
    Financial
    Statements and Supplementary
    Data.  Page II-17. Regulation S-X Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial
    Disclosure.    Item 9A.
    Controls
    and
    Procedures.  Rules 13a-15 15d-15,
  page II-15 Managements Report on Internal Control Over
    Financial Reporting.
 II-13




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page II-16 Report of Independent Registered Public Accounting
    Firm
    Item 9B.
    Other
    Information.   II-14




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MANAGEMENTS
    REPORT ON INTERNAL
    CONTROL OVER FINANCIAL REPORTING      Internal
    Control-Integrated Framework.
    Form 10-K page II-16 Form 10-K.
 II-15




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REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     page II-15, Internal
    Control  Integrated Framework
        Internal Control  Integrated Framework Internal
    Control  Integrated Framework
       II-16




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Report
    of Independent Registered Public Accounting Firm           Share Based
    Payment.
  Internal
    Control  Integrated Framework issued by the Committee
    of Sponsoring Organizations of the Treadway Commission
    (COSO)
     II-17




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DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets
  December 31,2006


2005amounts in thousandsASSETSCurrent assets:Cash and cash equivalents

$
154,775



250,352Trade receivables, net


147,436



134,615Prepaid expenses


11,522



10,986Other current assets


3,629



4,433Total current assets


317,362



400,386Investments in marketable
    securities


51,837



Investment in Discovery
    Communications, Inc. (Discovery or DCI)
    (note 5)


3,129,157



3,018,622Property and equipment, net
    (note 6)


280,775



256,245Goodwill (note 7)


2,074,789



2,133,518Other assets, net


17,062



10,465Total assets

$
5,870,982



5,819,236LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
43,656



26,854Accrued payroll and related
    liabilities


32,292



21,651Other accrued liabilities


29,924



27,777Deferred revenue


16,015



17,491Total current liabilities


121,887



93,773Deferred income tax liabilities
    (note 10)


1,174,594



1,127,677Other liabilities


25,237



22,361Total liabilities


1,321,718



1,243,811Commitments and contingencies
    (notes 14 and 15)Stockholders equity
    (note 11):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 268,194,966 shares at December 31,
    2006 and 268,097,442 shares at December 31, 2005


2,682



2,681Series B common stock,
    $.01 par value. Authorized 50,000,000 shares; issued
    and outstanding 12,025,088 shares at December 31, 2006
    and 12,106,093 shares at December 31, 2005


120



121Series C common stock,
    $.01 par value. Authorized 600,000,000 shares; no
    shares issued






Additional paid-in capital


5,714,379



5,712,304Accumulated deficit


(1,183,831
)


(1,137,821
)Accumulated other comprehensive
    earnings (loss)


15,914



(1,860
)Total stockholders equity


4,549,264



4,575,425Total liabilities and
    stockholders equity

$
5,870,982



5,819,236    II-18




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Operations and Comprehensive Earnings
    (Loss)
  Years Ended December 31,2006


2005


2004amounts in thousands,except per share amountsNet revenue

$
688,087



694,509



631,215Operating expenses:Cost of services


454,482



445,839



380,290Selling, general, and
    administrative, including stock-based compensation


177,366



174,428



155,905Depreciation and amortization


67,929



76,377



77,605Restructuring and other charges
    (note 8)


12,092



4,112



Loss (gain) on sale of operating
    assets


(2,047
)


(4,845
)


429Impairment of goodwill
    (note 7)


93,402







51803,224



695,911



614,280Operating income (loss)


(115,137
)


(1,402
)


16,935Other income:Share of earnings of Discovery
    (note 5)


103,588



79,810



84,011Other, net


9,481



3,704



132113,069



83,514



84,143Earnings (loss) before income taxes


(2,068
)


82,112



101,078Income tax expense (note 10)


(43,942
)


(48,836
)


(34,970
)Net earnings (loss)

$
(46,010
)


33,276



66,108Other comprehensive earnings
    (loss), net of taxes (note 13):Unrealized holding gains (losses)
    arising during the period


(148
)


651



(1,162
)Foreign currency translation
    adjustments


17,922



(14,821
)


6,797Other comprehensive earnings (loss)


17,774



(14,170
)


5,635Comprehensive earnings (loss)

$
(28,236
)


19,106



71,743Basic and diluted earnings (loss)
    per common share (note 3)

$
(0.16
)


0.12



0.24    II-19




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Cash Flows
  Years Ended December 31,2006


2005


2004amounts in thousands(see note 4)Cash flows from operating
    activities:Net earnings (loss)

$
(46,010
)


33,276



66,108Adjustments to reconcile net
    earnings (loss) to net cash provided by operating activities:Depreciation and amortization


67,929



76,377



77,605Stock-based compensation


1,817



4,383



2,775Payments for stock-based
    compensation






(2,139
)


Impairment of goodwill


93,402







51Share of earnings of Discovery


(103,588
)


(79,810
)


(84,011
)Deferred income tax expense


42,115



50,363



31,692Other non-cash charges (credits),
    net


(1,342
)


(4,684
)


706Changes in assets and liabilities
    (net of acquisitions):Trade receivables


(9,718
)


16,237



(36,405
)Prepaid expenses and other current
    assets


1,345



10,804



(6,631
)Payables and other liabilities


27,683



(19,516
)


32,432Net cash provided by operating
    activities


73,633



85,291



84,322Cash flows from investing
    activities:Capital expenditures


(77,541
)


(90,526
)


(49,292
)Cash paid for acquisitions, net of
    cash acquired


(46,793
)






(44,238
)Net sales (purchases) of
    marketable securities


(51,837
)


12,800



(12,800
)Cash proceeds from dispositions


5,697



15,374



3,978Other investing activities, net


992



(394
)


73Net cash used in investing
    activities


(169,482
)


(62,746
)


(102,279
)Cash flows from financing
    activities:Net cash transfers from Liberty






206,044



30,999Net cash from option exercises


279







Payments of long-term debt and
    capital lease obligations


(7
)


(12
)


Other financing activities, net






134



Net cash provided by financing
    activities


272



206,166



30,999Net increase (decrease) in cash
    and cash equivalents


(95,577
)


228,711



13,042Cash and cash equivalents at
    beginning of year


250,352



21,641



8,599Cash and cash equivalents at end
    of year

$
154,775



250,352



21,641    II-20




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Consolidated
    Statements of Stockholders Equity
 Years
    ended December 31, 2006, 2005 and 2004
  AccumulatedAdditional








Other


TotalPreferred


Common Stock


Paid-in


Parents


Accumulated


Comprehensive


StockholdersStock


Series A


Series B


Series C


Capital


Investment


Deficit


Earnings (loss)


Equityamounts in thousandsBalance at January 1, 2004

$




















5,490,799



(1,237,205
)


6,675



4,260,269Net earnings


























66,108







66,108Other comprehensive earnings






























5,635



5,635Stock compensation






















2,268











2,268Reallocation of enterprise level
    goodwill from Liberty (note 5)






















(18,000
)










(18,000
)Net cash transfers from Liberty






















30,999











30,999Balance at December 31, 2004






















5,506,066



(1,171,097
)


12,310



4,347,279Net earnings


























33,276







33,276Other comprehensive loss






























(14,170
)


(14,170
)Stock compensation


















640



2,222











2,862Net cash transfers from Liberty






















206,044











206,044Change in capitalization in
    connection with Spin Off (note 2)






2,681



121







5,711,530



(5,714,332
)










Stock option exercises


















134















134Balance at December 31, 2005






2,681



121







5,712,304







(1,137,821
)


(1,860
)


4,575,425Net loss


























(46,010
)






(46,010
)Other comprehensive earnings






























17,774



17,774Stock compensation


















1,796















1,796Conversion of Series B to
    Series A






1



(1
)






















Stock option exercises


















279















279Balance at December 31, 2006

$




2,682



120







5,714,379







(1,183,831
)


15,914



4,549,264    II-21




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial Statements
 December 31, 2006, 2005 and 2004
  (1)  Basis
    of Presentation
            (2)  Spin
    Off Transaction
         II-22




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
  out-of-pocket
    (3)  Summary
    of Significant Accounting Policies
  Cash
    and Cash Equivalents
    Trade
    Receivables
      Balance


Charged








BalanceBeginning


(Credited)





Acquired and


End ofof Year


to Expense


Write-Offs


Other Activity


Yearamounts in thousands2006

$
7,708



1,023







314



9,0452005

$
12,104



(619
)


(2,443
)


(1,334
)


7,7082004

$
11,580



555







(31
)


12,104   Concentration
    of Credit Risk and Significant Customers
    Investment
    in Discovery
     II-23




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
   other-than-temporary
  Property
    and Equipment
    Buildings

20 yearsLeasehold improvements

15 years or lease term, if
    shorterFurniture and fixtures

7 yearsComputers

3 yearsMachinery and equipment

5 to 7 years     Goodwill
  Goodwill and Other Intangible
    Assets
    Other
    Intangible Assets
  Accounting for Impairment or Disposal
    of Long-Lived Assets
  Long-Lived
    Assets
    Foreign
    Currency Translation
    Revenue
    Recognition
   II-24




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
      Income
    Taxes
  Accounting for
    Income Taxes
  Advertising
    Costs
    Stock-Based
    Compensation
    Share-Based Payments Accounting for Stock-Based
    Compensation Accounting for Stock Issued to Employees
     II-25




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
       Years Ended December 31,2005


2004amounts in thousands, except per share amountsNet earnings, as reported

$
33,276



66,108Add:Stock-based employee compensation
    expense included in reported net earnings, net of taxes


2,309



2,268Deduct:Stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of taxes


(8,247
)


(6,247
)Pro forma net earnings

$
27,338



62,129Pro forma basic and diluted
    earnings per common share:As reported

$
.12



.24Pro forma for fair value stock
    compensation

$
.10



.22   Earnings
    (Loss) Per Common Share
    Estimates
    Recent
    Accounting Pronouncements
   II-26




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
    (4)  Supplemental
    Disclosure of Cash Flow Information
  Years Ended December 31,2006


2005


2004amounts in thousandsCash paid for acquisitions:Fair value of assets acquired

$
48,264







60,950Net liabilities assumed


(1,471
)






(17,073
)Deferred tax liability










361Cash paid for acquisitions, net of
    cash acquired

$
46,793







44,238Cash paid during the year for
    income taxes

$
1,871



1,190



1,916   (5)  Investment
    in Discovery
          Consolidated
    Balance Sheets
  December 31,2006


2005amounts in thousandsCash and cash equivalents

$
52,263



34,491Other current assets


918,373



796,878Property and equipment


424,041



397,578Goodwill and intangible assets


472,939



397,927Programming rights, long term


1,253,553



1,175,988Other assets


255,384



371,758Total assets

$
3,376,553



3,174,620Current liabilities

$
734,524



692,465Long-term debt


2,633,237



2,590,440Other liabilities


175,255



101,571Mandatorily redeemable equity in
    subsidiaries


94,825



272,502Stockholders deficit


(261,288
)


(482,358
)Total liabilities and
    stockholders deficit

$
3,376,553



3,174,620  II-27




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
  Consolidated
    Statements of Operations
  Years Ended December 31,2006


2005


2004amounts in thousandsRevenue

$
3,012,988



2,671,754



2,365,346Operating expenses


(1,120,377
)


(979,765
)


(846,316
)Selling, general and administrative


(1,170,187
)


(1,005,351
)


(856,340
)Equity-based compensation


(39,233
)


(49,465
)


(71,515
)Depreciation and amortization


(133,634
)


(123,209
)


(129,011
)Gain on sale of patent










22,007Operating income


549,557



513,964



484,171Interest expense


(194,227
)


(184,575
)


(167,420
)Other income (expense)


28,634



(7,426
)


(6,930
)Income tax expense


(176,788
)


(162,343
)


(141,799
)Net earnings

$
207,176



159,620



168,022DHCs share of net earnings

$
103,588



79,810



84,011   (6)  Property
    and Equipment
    2006


2005amounts in thousandsProperty and equipment, net:Land

$
42,336



48,365Buildings


217,210



186,389Equipment


192,208



215,595451,754



450,349Accumulated depreciation


(170,979
)


(194,104
)$
280,775



256,245   (7)  Goodwill
    and Other Intangible Assets
    Creative


NetworkServices


ServicesGroup


Group


Discovery


Totalamounts in thousandsNet balance at January 1, 2005

$
200,727



163,719



1,771,000



2,135,446Foreign exchange and other


(726
)


(1,202
)






(1,928
)Net balance at December 31,
    2005


200,001



162,517



1,771,000



2,133,518Acquisition of AccentHealth, LLC






32,224







32,224Goodwill impairment


(93,402
)










(93,402
)Foreign exchange and other






2,449







2,449Net balance at December 31,
    2006

$
106,599



197,190



1,771,000



2,074,789    II-28




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
          (8)  Restructuring
    Charges
      Opening








EndingBalance


Additions


Deductions


Balanceamounts in thousandsExcess facility costs
    December 31, 2004

$
3,377







(788
)


2,589Excess facility costs
    December 31, 2005

$
2,589



4,112



(2,718
)


3,983Severance


155



9,005



(2,896
)


6,264Excess facility costs


3,828



3,087



(2,251
)


4,664December 31, 2006

$
3,983



12,092



(5,147
)


10,928   (9)  Acquisitions
  AccentHealth
     II-29




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
   London
    Playout Centre
    (10)  Income
    Taxes
    Years Ended December 31,2006


2005


2004amounts in thousandsCurrent:Federal

$
(1,015
)






State


(1,340
)


(637
)


502Foreign


528



2,164



(3,780
)Current


(1,827
)


1,527



(3,278
)Deferred:Federal


(33,711
)


(26,402
)


(25,221
)State


(7,250
)


(20,743
)


(7,774
)Foreign


(1,154
)


(3,218
)


1,303Deferred


(42,115
)


(50,363
)


(31,692
)Total tax expense

$
(43,942
)


(48,836
)


(34,970
)     Years Ended December 31,2006


2005


2004amounts in thousandsDomestic

$
16,761



76,907



96,470Foreign


(18,829
)


5,205



4,608$
(2,068
)


82,112



101,078  II-30




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2006


2005


2004amounts in thousandsComputed expected tax benefit
    (expense)

$
724



(28,739
)


(35,377
)State and local income taxes, net
    of federal income taxes


(4,477
)


(3,976
)


(5,311
)Change in valuation allowance
    affecting tax expense


(8,711
)


1,630



3,575Goodwill impairment not deductible
    for tax purposes


(26,655
)






Non-deductible expenses


(2,273
)


(2,361
)


(476
)Change in estimated state tax rate






(15,263
)


Other, net


(2,550
)


(127
)


2,619Income tax expense

$
(43,942
)


(48,836
)


(34,970
)     2006


2005amounts in thousandsCurrent assets:Accounts receivable reserves

$
3,572



2,350Accrued liabilities


12,821



14,67616,393



17,026Noncurrent assets:Net operating loss carryforwards


61,956



59,064Property and equipment


2,743



4,771Intangible assets


9,497



8,249Other


5,784



5,50679,980



77,590Total deferred tax assets, gross


96,373



94,616Valuation allowance


(96,223
)


(91,235
)Total deferred tax assets, net


150



3,381Current liabilities:Prepaid expenses


(139
)


(818
)Other


(1,622
)


(3,010
)(1,761
)


(3,828
)Noncurrent liabilities:Investments


(1,174,744
)


(1,131,058
)Total deferred tax liabilities


(1,176,505
)


(1,134,886
)Net deferred tax liability

$
(1,176,355
)


(1,131,505
)  II-31




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
    December 31,2006


2005amounts in thousandsCurrent deferred tax liabilities

$
1,761



3,828Long-term deferred tax
    liabilities, net of deferred tax assets


1,174,594



1,127,677Net deferred tax liabilities

$
1,176,355



1,131,505           (11)  Stockholders
    Equity
  Preferred
    Stock
   Common
    Stock
     (12)
    Stock
    Options and Other Long-Term Incentive Compensation  Stock
    Options
  II-32




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
     DHC





DHCSeries A





Series BCommon





CommonStock


WAEP


Stock


WAEPOutstanding at January 1, 2006


1,937,616


$
15.43



2,996,525



18.87Granted


30,000


$
14.48



Exercises


(22,382
)

$
12.46



Cancellations


(1,430
)

$
12.10



Outstanding at December 31,
    2006


1,943,804


$
15.45



2,996,525



18.87Exercisable at December 31,
    2006


1,460,415


$
16.18



2,876,525



18.99     2006
    Ascent Media Long-Term Incentive Plan
   (13)  Other
    Comprehensive Earnings (Loss)
  available-for-sale
    AccumulatedForeign


Unrealized


OtherCurrency


Holding


ComprehensiveTranslation


Gains (losses)


Earnings (loss),Adjustments


on Securities


Net of Taxesamounts in thousandsBalance at January 1, 2004

$
5,236



1,439



6,675Other comprehensive earnings


6,797



(1,162
)


5,635Balance at December 31, 2004


12,033



277



12,310Other comprehensive loss


(14,821
)


651



(14,170
)Balance at December 31, 2005


(2,788
)


928



(1,860
)Other comprehensive earnings


17,922



(148
)


17,774Balance at December 31, 2006

$
15,134



780



15,914  II-33




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
    TaxBefore-Tax


(Expense)


Net-of-TaxAmount


Benefit


Amountamounts in thousandsYear ended December 31, 2006:Foreign currency translation
    adjustments

$
29,648



(11,726
)


17,922Unrealized holding gains on
    securities arising during period


(245
)


97



(148
)Other comprehensive earnings

$
29,403



(11,629
)


17,774Year ended December 31, 2005:Foreign currency translation
    adjustments

$
(24,518
)


9,697



(14,821
)Unrealized holding gains on
    securities arising during period


1,077



(426
)


651Other comprehensive loss

$
(23,441
)


9,271



(14,170
)Year ended December 31, 2004:Foreign currency translation
    adjustments

$
11,143



(4,346
)


6,797Unrealized holding losses on
    securities arising during period


(1,905
)


743



(1,162
)Other comprehensive earnings

$
9,238



(3,603
)


5,635   (14)  Employee
    Benefit Plans
    (15)  Commitments
    and Contingencies
    Year ended December 31:2007

$
32,0582008

$
29,1562009

$
27,6452010

$
24,5902011

$
19,436Thereafter

$
59,144        II-34




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
      (16)  Related
    Party Transactions
      (17)  Information
    About Operating Segments
           II-35




---



##### Table of Contents



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


Network








EquityServices


Services


Corporate


Consolidated


Affiliate-Group


Group(1)


and Other


Total


Discoveryamounts in thousandsYear ended December 31, 2006Revenue from external customers

$
417,876



270,211







688,087



3,012,988Operating cash flow

$
52,554



49,522



(43,347
)


58,729



722,424Capital expenditures

$
27,126



44,331



6,084



77,541



90,138Depreciation and amortization

$
38,661



23,055



6,213



67,929



133,634Total assets

$
410,313



382,848



5,077,821



5,870,982



3,376,553Year ended December 31, 2005Revenue from external customers

$
421,797



272,712







694,509



2,671,754Operating cash flow

$
70,708



55,877



(47,960
)


78,625



686,638Capital expenditures

$
47,179



38,476



4,871



90,526



99,684Depreciation and amortization

$
38,644



27,046



10,687



76,377



123,209Total assets

$
470,213



323,558



5,025,465



5,819,236



3,174,620Year ended December 31, 2004Revenue from external customers

$
405,026



226,189







631,215



2,365,346Operating cash flow

$
72,903



62,537



(37,645
)


97,795



662,690Capital expenditures

$
22,810



23,123



3,359



49,292



88,100Depreciation and amortization

$
38,776



27,074



11,755



77,605



129,011Total assets

$
469,930



294,599



4,800,299



5,564,828



3,235,686     (1)
    
    Included in Network Services Group revenue is broadcast services
    revenue of $158,151,000, $149,568,000 and $136,680,000 and
    systems integration revenue of $112,060,000, $123,144,000 and
    $89,509,000 in 2006, 2005 and 2004, respectively.    Years Ended December 31,2006


2005


2004amounts in thousandsSegment operating cash flow

$
58,729



78,625



97,795Stock-based compensation


(1,817
)


(4,383
)


(2,775
)Restructuring and other charges


(12,092
)


(4,112
)


Depreciation and amortization


(67,929
)


(76,377
)


(77,605
)Impairment of goodwill


(93,402
)






(51
)Share of earnings of Discovery


103,588



79,810



84,011Other, net


10,855



8,549



(297
)Earnings (loss) before income taxes

$
(2,068
)


82,112



101,078  II-36




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2006


2005


2004amounts in thousandsRevenueUnited States

$
535,792



525,288



460,070United Kingdom


129,540



149,928



148,002Other countries


22,755



19,293



23,143$
688,087



694,509



631,215Property and equipment, netUnited States

$
184,052



163,073United Kingdom


70,363



65,017Other countries


26,360



28,155$
280,775



256,245   (18)  Quarterly
    Financial Information (Unaudited)
  1st


2nd


3rd


4thQuarter


Quarter


Quarter


Quarteramounts in thousands, except per share amounts2006:Revenue

$
153,568



165,789



169,876



198,854Operating loss

$
(2,857
)


(6,252
)


(97,350
)


(8,678
)Net earnings (loss)

$
11,615



13,734



(76,633
)


5,274Basic and diluted net earnings
    (loss) per common share

$
.04



.05



(.27
)


.022005:Revenue

$
174,290



178,019



167,934



174,266Operating income (loss)

$
2,877



(4,982
)


(1,403
)


2,106Net earnings

$
16,825



4,027



1,189



11,235Basic and diluted net earnings per
    common share

$
.06



.01







.04  II-37




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##### Table of Contents



PART III.     Item 10.
    Directors,
    Executive Officers and Corporate Governance   Item 11.
    Executive
    Compensation   Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   Item 13.
    Certain
    Relationships and Related Transactions, and Director Independence   Item 14.
    Principal
    Accounting Fees and Services   III-1




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##### Table of Contents



PART IV.  Item 15.
    Exhibits
    and Financial Statement Schedules.      Page No.Discovery Holding Company:Managements
    Report on Internal Control over Financial Reporting


II-15Report of
    Independent Registered Public Accounting Firm


II-16Report of
    Independent Registered Public Accounting Firm


II-17Consolidated
    Balance Sheets, December 31, 2006 and 2005


II-18Consolidated
    Statements of Operations and Comprehensive Earnings (Loss),
    Years ended December 31, 2006, 2005 and 2004


II-19Consolidated
    Statements of Cash Flows, Years Ended December 31, 2006,
    2005 and 2004


II-20Consolidated
    Statements of Stockholders Equity, Years ended
    December 31, 2006, 2005 and 2004


II-21Notes to
    Consolidated Financial Statements, December 31, 2006, 2005
    and 2004


II-22   Financial Statement Schedules
    (i)
    All schedules have been omitted because they are not applicable,
    not material or the required information is set forth in the
    financial statements or notes thereto.  (ii)
    Separate financial statements for Discovery Communications, Inc.:  Report of
    Independent Registered Public Accounting Firm


IV-3Consolidated
    Balance Sheets, December 31, 2006 and 2005


IV-4Consolidated
    Statements of Operations, Years ended December 31, 2006,
    2005 and 2004


IV-5Consolidated
    Statements of Cash Flows, Years ended December 31, 2006,
    2005 and 2004


IV-6Consolidated
    Statements of Changes in Stockholders Deficit, Years ended
    December 31, 2006, 2005 and 2004


IV-7Notes to
    Consolidated Financial Statements


IV-8   Exhibits
  Regulation S-K):
  2  Plan of Acquisition,
    Reorganization, Arrangement, Liquidation or Succession:2.1


Reorganization Agreement among
    Liberty Media Corporation, Discovery Holding Company
    (DHC) and Ascent Media Group, Inc. (incorporated by
    reference to Exhibit 2.1 to DHCs Registration
    Statement on Form 10, dated July 15, 2005 (File
    No. 000-51205)
    (the Form 10)).3  Articles of
    Incorporation and Bylaws:3.1


Restated Certificate of
    Incorporation of DHC (incorporated by reference to
    Exhibit 3.1 to the Form 10).3.2


Bylaws of DHC (incorporated by
    reference to Exhibit 3.2 to the Form 10).4  Instruments Defining
    the Rights of Securities Holders, including Indentures:4.1


Specimen Certificate for shares of
    the Series A common stock, par value $.01 per share, of DHC
    (incorporated by reference to Exhibit 4.1 to the
    Form 10).4.2


Specimen Certificate for shares of
    the Series B common stock, par value $.01 per share, of DHC
    (incorporated by reference to Exhibit 4.2 to the
    Form 10).4.3


Rights Agreement between DHC and
    EquiServe Trust Company, N.A., as Rights Agent
    (incorporated by reference to Exhibit 4.3 to the
    Form 10). IV-1




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##### Table of Contents



10  Material Contracts:10.1


The Shareholders Agreement, dated
    as of November 30, 1991 (the Stockholders
    Agreement), by and among Discovery Communications, Inc.
    (Discovery), Cox Discovery, Inc. (Cox),
    NewsChannels TDC Investments, Inc. (NewChannels),
    TCI Cable Education, Inc. (TCID) and John S.
    Hendricks (Hendricks) (incorporated by reference to
    Exhibit 10.1 to the Form 10).10.2


First Amendment to the
    Stockholders Agreement, dated as of December 20,
    1996, by and among Discovery, Cox Communications Holdings, Inc.
    (the successor to Cox), Newhouse Broadcasting Corporation ( the
    successor to NewChannels), TCID, Hendricks and for the purposes
    stated therein only, LMC Animal Planet, Inc. (LMC)
    and Liberty Media Corporation, a Colorado corporation
    (Liberty) (incorporated by reference to
    Exhibit 10.2 to the Form 10).10.3


Second Amendment to the
    Stockholders Agreement, dated as of September 7,
    2000, by and among Discovery, Cox Communications Holdings, Inc.
    (the successor to Cox), Advance/Newhouse Programming Partnership
    (the successor to NewChannels), LMC Discovery, Inc. (formerly
    known as TCID) and Hendricks (incorporated by reference to
    Exhibit 10.3 to the Form 10).10.4


Third Amendment to the
    Stockholders Agreement, dated as of September, 2001, by
    and among Discovery, Cox, NewChannels, TCID, Hendricks and
    Advance Programming Holdings Corp. (incorporated by reference to
    Exhibit 10.4 to the Form 10).10.5


Fourth Amendment to the
    Stockholders Agreement, dated as of June 23, 2003, by
    and among Discovery, Cox NewChannels, TCID, Liberty Animal, Inc.
    (the successor in interest to LMC) for the purposes stated
    in the First Amendment to the Stockholders Agreement, and
    Hendricks (incorporated by reference to Exhibit 10.5 to the
    Form 10).10.6


Form of Tax Sharing Agreement
    between Liberty Media Corporation and DHC (incorporated by
    reference to Exhibit 10.6 to the Form 10).10.7


Discovery Holding Company 2005
    Incentive Plan (incorporated by reference to Exhibit 10.7
    to the Form 10).10.8


Discovery Holding Company 2005
    Non-Employee Director Plan (incorporated by reference to
    Exhibit 10.8 to the Form 10).10.9


Discovery Holding Company
    Transitional Stock Adjustment Plan (incorporated by reference to
    Exhibit 10.9 to the Form 10).10.10


Agreement between DHC and John C.
    Malone (incorporated by reference to Exhibit 10.10 to the
    Form 10).10.11


Agreement, dated June 24,
    2005, between Discovery and DHC (incorporated by reference to
    Exhibit 10.11 to the Form 10).10.12


Indemnification Agreement, dated
    as of June 24, 2005, between Cox and DHC (incorporated by
    reference to Exhibit 10.12 to the Form 10).10.13


Indemnification Agreement, dated
    as of June 24, 2005, between NewChannels and DHC
    (incorporated by reference to Exhibit 10.13 to the
    Form 10).10.14


Form of Indemnification Agreement
    with Directors and Executive Officers (incorporated by reference
    to Exhibit 10.14 to the Form 10).21  Subsidiaries of
    Discovery Holding Company, filed herewith.23.1


Consent of KPMG LLP, filed
    herewith.23.2


Consent of PricewaterhouseCoopers
    LLP, filed herewith.31.1


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.31.2


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.31.3


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.32  Section 1350
    Certification, filed herewith.  IV-2




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##### Table of Contents



Report
    of Independent Registered Public Accounting Firm  To the Board
    of Directors and Stockholders of
        IV-3




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Consolidated
    Balance Sheets
  December 31,2006


2005in thousands,except share dataASSETSCurrent assetsCash and cash equivalents

$
52,263



34,491Accounts receivable, less
    allowances of $25,175 and $35,079


657,552



565,407Inventories


35,716



30,714Deferred income taxes


76,156



88,765Content rights, net


64,395



55,125Other current assets


84,554



56,867Total current assets


970,636



831,369Property and equipment, net


424,041



397,578Content rights, net, less current
    portion


1,253,553



1,175,988Deferred launch incentives


207,032



255,259Goodwill


365,266



254,989Intangibles, net


107,673



142,938Investments in and advances to
    unconsolidated affiliates


15,564



11,528Deferred income taxes






69,316Other assets


32,788



35,655TOTAL ASSETS

$
3,376,553



3,174,620LIABILITIES AND
    STOCKHOLDERS DEFICITCurrent liabilitiesAccounts payable and accrued
    liabilities

$
316,804



283,326Accrued payroll and employee
    benefits


122,431



88,000Launch incentives payable


17,978



22,655Content rights payable


57,694



97,075Current portion of long-term
    incentive plan liabilities


43,274



20,690Current portion of long-term debt


7,546



6,470Income taxes payable


55,264



51,226Unearned revenue


68,339



89,803Other current liabilities


45,194



33,220Total current liabilities


734,524



692,465Long-term debt, less current portion


2,633,237



2,590,440Derivative financial instruments,
    less current portion


8,282



18,592Launch incentives payable, less
    current portion


10,791



21,910Long-term incentive plan
    liabilities, less current portion


41,186



25,380Content rights payable, less
    current portion


3,846



4,380Deferred income taxes


46,289



Other liabilities


64,861



31,309Total liabilities


3,543,016



3,384,476Mandatorily redeemable interests in
    subsidiaries


94,825



272,502Commitments and contingenciesStockholders
    deficitClass A common stock; $.01 par
    value; 100,000 shares authorized; 51,119 shares
    issued, less 719 shares of treasury stock


1



1Class B common stock; $.01 par
    value; 60,000 shares authorized; 50,615 shares






issued and held in treasury stockAdditional paid-in capital


21,093



21,093Accumulated deficit


(306,135
)


(513,311
)Accumulated other comprehensive
    income


23,753



9,859Total stockholders deficit


(261,288
)


(482,358
)TOTAL LIABILITIES AND
    STOCKHOLDERS DEFICIT

$
3,376,553



3,174,620    IV-4




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Consolidated
    Statements of Operations
  Year Ended December 31,2006


2005


2004in thousandsOPERATING REVENUEAdvertising

$
1,243,500



1,187,823



1,133,807Distribution


1,434,901



1,198,686



976,362Other


334,587



285,245



255,177Total operating revenue


3,012,988



2,671,754



2,365,346Cost of revenue, exclusive of
    depreciation shown below


1,120,377



979,765



846,316Selling, general &
    administrative


1,209,420



1,054,816



927,855Depreciation &
    amortization


133,634



123,209



129,011Gain on sale of long-lived asset










(22,007
)Total operating expenses


2,463,431



2,157,790



1,881,175INCOME FROM
    OPERATIONS


549,557



513,964



484,171OTHER INCOME
    (EXPENSE)Interest, net


(194,227
)


(184,575
)


(167,420
)Realized and unrealized gains from
    derivative instruments, net


22,558



22,499



45,540Minority interests in consolidated
    subsidiaries


(2,451
)


(43,696
)


(54,940
)Equity in earnings of
    unconsolidated affiliates


7,060



4,660



171Other, net


1,467



9,111



2,299Total other expense, net


(165,593
)


(192,001
)


(174,350
)INCOME BEFORE INCOME
    TAXES


383,964



321,963



309,821Income tax expense


176,788



162,343



141,799NET INCOME

$
207,176



159,620



168,022    IV-5




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Consolidated
    Statements of Cash Flows
  Year Ended December 31,2006


2005


2004in thousandsOPERATING ACTIVITIESNet income

$
207,176



159,620



168,022Adjustments to reconcile net
    income to cash provided by operationsDepreciation and amortization


133,634



123,209



129,011Amortization of deferred launch
    incentives and representation rights


77,778



83,411



107,757Provision for losses on accounts
    receivable


3,691



12,217



959Expenses arising from long-term
    incentive plans


39,233



49,465



71,515Equity in earnings of
    unconsolidated affiliates


(7,060
)


(4,660
)


(171
)Deferred income taxes


108,903



109,383



105,522Realized and unrealized gains on
    derivative financial instruments, net


(22,558
)


(22,499
)


(45,540
)Non-cash minority interest charges


2,451



43,696



54,940Gain on sale of investments


(1,467
)


(12,793
)


Gain on sale of long-lived assets










(22,007
)Other non-cash (income) charges


2,447



9,675



(2,681
)Changes in assets and
    liabilities, net of business combinationsAccounts receivable


(84,598
)


(37,207
)


(60,841
)Inventories


(4,560
)


1,853



4,555Other assets


(7,434
)


(18,748
)


(3,711
)Content rights, net of payables


(84,377
)


(108,155
)


(122,433
)Accounts payable and accrued
    liabilities


73,646



47,913



55,734Representation rights


93,233



(6,000
)


(479
)Deferred launch incentives


(49,386
)


(35,731
)


(74,696
)Long-term incentive plan
    liabilities


(841
)


(325,756
)


(240,752
)Cash provided by operations


479,911



68,893



124,704INVESTING ACTIVITIESAcquisition of property and
    equipment


(90,138
)


(99,684
)


(88,100
)Business combinations, net of cash
    acquired


(194,905
)


(400
)


(17,218
)Purchase of intangibles






(583
)


Investments in and advances to
    unconsolidated affiliates






(363
)


(17,433
)Redemption of interests in
    subsidiaries


(180,000
)


(92,874
)


(148,880
)Proceeds from sale of investments


1,467



14,664



Proceeds from sale of long-lived
    assets










22,007Cash used by investing activities


(463,576
)


(179,240
)


(249,624
)FINANCING ACTIVITIESProceeds from issuance of
    long-term debt


316,813



1,785,955



1,848,000Principal payments of long-term
    debt


(307,030
)


(1,697,068
)


(1,699,215
)Deferred financing fees


(1,144
)


(4,810
)


(8,499
)Contributions from minority
    shareholders






603



3,146Other financing


(9,963
)


32,153



(30,840
)Cash (used) provided by financing
    activities


(1,324
)


116,833



112,592Effect of exchange rate changes on
    cash


2,761



3,723



2,535CHANGE IN CASH AND CASH
    EQUIVALENTS


17,772



10,209



(9,793
)Cash and cash equivalents,
    beginning of year


34,491



24,282



34,075CASH AND CASH EQUIVALENTS, END
    OF YEAR

$
52,263



34,491



24,282    IV-6




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Consolidated
    Statements of Changes in Stockholders
    Deficit
  Other Comprehensive Income (Loss)Additional





Foreign


Unrealized


UnamortizedClass A


Paid-In


Accumulated


Currency


Gain (Loss) on


Gain onAt Par


Redeemable


Capital


Deficit


Translation


Investments


Derivatives


TOTALin thousandsBalance, December 31,
    2003

$
1







21,093



(840,953
)


14,323



3,771







(801,765
)Comprehensive incomeNet income














168,022Foreign currency translation, net
    of tax of $5.2 million


















8,409Unrealized loss on investments, net
    of tax of $1.7 million






















(2,592
)Total comprehensive income






























173,839Balance, December 31,
    2004

$
1







21,093



(672,931
)


22,732



1,179







(627,926
)Comprehensive incomeNet income














159,620Foreign currency translation, net
    of tax of $9.6 million


















(16,017
)Unrealized loss on investments, net
    of tax of $0.1 million






















(101
)Unamortized gain on cash flow
    hedge, net of tax of $1.3 million


























2,066Total comprehensive income






























145,568Balance, December 31,
    2005

$
1







21,093



(513,311
)


6,715



1,078



2,066



(482,358
)Comprehensive incomeNet income














207,176Foreign currency translation, net
    of tax of $8.8 million


















14,458Unrealized loss on investments, net
    of tax of $0.2 million






















(355
)Amortization of gain on cash flow
    hedge, net of tax of $0.1 million


























(209
)Total comprehensive income






























221,070Balance, December 31,
    2006

$
1







21,093



(306,135
)


21,173



723



1,857



(261,288
)    IV-7




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes
    to Consolidated Financial Statements
  1.  Description
    of Business
    2.  Summary
    of Significant Accounting Policies
  Principles
    of Consolidation
      Use
    of Estimates
        Recent
    Accounting Pronouncements
   IV-8




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Revenue
    Recognition
    point-of-sale
  Advertising
    Costs
    Cash
    and Cash Equivalents
    Derivative
    Financial Instruments
    Inventories
    Content
    Rights
     IV-9




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Property
    and Equipment
    Capitalized
    Software Costs
    Recoverability
    of Long-Lived Assets, Goodwill, and Intangible
    Assets
      Deferred
    Launch Incentives
    Foreign
    Currency Translation
   IV-10




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Long-term
    Incentive Plans
      mark-to-mark
    Mandatorily
    Redeemable Interests in Subsidiaries
    Treasury
    Stock
    Income
    Taxes
   IV-11




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  3.  Supplemental
    Disclosures to Consolidated Statements of Cash Flows
  Year Ended December 31,2006


2005


2004in thousandsCash paid for acquisitions:Fair value of assets acquired

$
223,293



400



21,414Fair value of liabilities assumed


(28,388
)






(4,196
)Cash paid for acquisitions, net of
    cash acquired


194,905



400



17,218Cash paid for interest

$
196,195



171,151



166,584Cash paid for income taxes

$
70,215



27,678



28,999   4.  Business
    Combinations
  free-to-air free-to-air
      
    Petfinder.com, a facilitator of pet adoptions and
    PetsIncredible, a producer and distributor of pet-training
    videos. The Company also has certain contingent considerations
    in connection with this acquisition payable in the event
    specific business metrics are achieved totaling up to
    $13.5 million over 3 years, which could result in the
    recording of additional goodwill.
    Clearvue and SVE, Inc., a provider of curriculum-oriented media
    educational products.
    Academy123 Inc., a provider of online supplemental, educational
    content focusing largely on mathematics and sciences.
    Thinklink, Inc., a provider of formative assessment testing
    services to schools servicing students in grades K through 12.   IV-12




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Aggregation ofRemainingAsset (Liability)

DMAX


Antenna


Acquisitions


Totalin thousandsCurrent assets and content

$
10,119



21,403



8,843



40,365Other tangible assets






6,244



1,521



7,765Finite-lived intangible assets


23,006



6,383



43,989



73,378Goodwill


31,255



42,667



27,863



101,785Liabilities assumed


(4,204
)


(12,340
)


(11,844
)


(28,388
)Cash paid, net of cash acquired

$
60,176



64,357



70,372



194,905       5.
    Content
    Rights  December 31,Content Rights

2006


2005in thousandsProduced content rightsCompleted

$
1,594,549



1,272,331In process


161,942



122,366Co-produced content rightsCompleted


688,023



731,344In process


86,359



53,704Licensed content rightsAcquired


229,878



214,100Prepaid


10,386



3,371Content rights, at cost


2,771,137



2,397,216Accumulated amortization


(1,453,189
)


(1,166,103
)Content rights, net


1,317,948



1,231,113Current portion, licensed content
    rights


(64,395
)


(55,125
)Non-current portion

$
1,253,553



1,175,988      IV-13




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  6.
    Property
    and Equipment  December 31,Property and Equipment

2006


2005in thousandsEquipment and software

$
411,583



347,667Land


28,781



28,781Buildings


153,737



157,896Furniture, fixtures, leasehold
    improvements and other


217,884



187,589Assets in progress


11,833



16,824Property and equipment, at cost


823,818



738,757Accumulated depreciation and
    amortization


(399,777
)


(341,179
)Property and equipment, net

$
424,041



397,578     7.
    Sale of
    Equity Investments and Long-lived Assets      8.
    Goodwill
    and Intangible Assets  December 31,Goodwill and Intangible Assets

2006


2005in thousandsGoodwill

$
365,266



254,989Trademarks


12,322



12,327Customer lists, net of accumulated
    amortization of $136,049 and $111,954


26,500



38,561Distribution, net of accumulated
    amortization of $4,072


21,331



Other, net of accumulated
    amortization of $55,283 and $41,107


47,520



24,207Representation rights, net of
    amortization of zero and $69,886






67,843Goodwill and intangible assets, net

$
472,939



397,927        IV-14




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      9.
    Investments    AccountingAffiliates:

MethodJoint Ventures with the
    BBC:JV Programs LLC (JVP)

ConsolidatedJoint Venture Network LLC
    (JVN)

ConsolidatedAnimal Planet United States (see
    Note 11)

ConsolidatedAnimal Planet Europe

ConsolidatedAnimal Planet Latin America

ConsolidatedPeople & Arts Latin
    America

ConsolidatedAnimal Planet Asia

ConsolidatedAnimal Planet Japan
    (APJ)

ConsolidatedAnimal Planet Canada

EquityOther
    Ventures:Discovery Canada

EquityDiscovery Japan

EquityDiscovery Health Canada

EquityDiscovery Kids Canada

EquityDiscovery Civilization Canada

EquityMeteor Studios

Equity   Joint
    Ventures with the BBC
        Other
    Ventures
   IV-15




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Year Ended December 31,Operating Results (Unaudited)

2006


2005


2004in thousandsNet Revenue

$
123,486



111,872



163,630Income from operations


42,090



41,934



26,201Net income


24,463



24,634



8,688   December 31,Balance Sheets (Unaudited)

2006


2005in thousandsCurrent assets

$
77,767



68,529Total assets


89,058



80,365Current liabilities


25,515



24,204Total liabilities


33,619



33,578Total shareholders equity or
    partners capital


55,439



46,787   10.  Long-Term
    Debt
  December 31,Long-Term Debt

2006


2005in thousands$1,000,000.0 Term Loan, due
    quarterly December 2008 to October 2010

$
1,000,000



1,000,000$1,555,000.0 Revolving Loan, due
    October 2010


249,500



103,000260.0 Revolving Loan, due
    April 2009


187,828



7.81% Senior Notes, semi annual
    interest, due March 2006






300,0008.06% Senior Notes, semi annual
    interest, due March 2008


180,000



180,0007.45% Senior Notes, semi annual
    interest, due September 2009


55,000



55,0008.37% Senior Notes, semi annual
    interest, due March 2011


220,000



220,0008.13% Senior Notes, semi annual
    interest, due September 2012


235,000



235,000Senior Notes, semi annual
    interest, due December 2012


90,000



90,0006.01% Senior Notes, semi annual
    interest, due December 2015


390,000



390,000Obligations under capital leases


32,355



23,910Other notes payable


1,100



Total long-term debt


2,640,783



2,596,910Current portion


(7,546
)


(6,470
)Non-current portion

$
2,633,237



2,590,440    IV-16




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                11.
    Mandatorily
    Redeemable Interests in Subsidiaries  December 31,Mandatorily Redeemable Interests in Subsidiaries

2006


2005in thousandsDiscovery Times

$




106,862Animal Planet LLC






80,000Animal Planet LP


48,950



48,840People & Arts Latin
    America and Animal Planet Channel Group


45,875



36,800Mandatorily redeemable interests
    in subsidiaries

$
94,825



272,502   Discovery
    Times
   IV-17




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    FitTV
    (formerly known as The Health Network)
    Animal
    Planet LLC
    Animal
    Planet LP
    People &
    Arts Latin America and Animal Planet Channel Group
     IV-18




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  12.  Commitments
    and Contingencies
  Year Ending December 31,Future Minimum Payments

Leases


Content


Other


Totalin thousands2007

$
83,533



260,829



86,965



431,3272008


78,999



55,447



61,467



195,9132009


60,850



50,556



54,635



166,0412010


52,683



44,129



17,388



114,2002011


47,932



43,295



7,876



99,103Thereafter


176,070



43,837



1,120



221,027Total

$
500,067



498,093



229,451



1,227,611               13.  Employee
    Savings Plans
   IV-19




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  14.  Long-term
    Incentive Plans
            Year Ended December 31,Weighted Average Assumptions

2006


2005Risk-free interest rate


4.79
%


4.36
%Expected term (years)


4.42



4.75Expected volatility


27.07
%


30.36
%Dividend yield


0
%


0
%    IV-20




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2006


2005Weighted





WeightedAverage





AverageExercise





ExerciseUnits


Price


Units


PriceOutstanding at January 1


24.2


$
14.82






$
Units exchanged










7.8



12.77Units granted


3.5



16.36



16.4



15.81Units exercised


(0.1
)


13.12







Units redeemed/cancelled


(1.3
)


15.43







Outstanding at December 31


26.3



15.00



24.2



14.82Vested at December 31


8.5


$
13.78



1.6


$
11.22       Outstanding


VestedWeighted Average





Weighted AverageRemaining Years of





Remaining Years ofUnit Price

Number of Units


Contractual Life


Number of Units


Contractual Life$3.48


0.1



3.75



0.1



3.75$7.06


0.6



3.75



0.6



3.75$12.52


5.1



3.75



3.3



3.70$15.81


17.1



3.74



4.5



0.83$16.22


1.1



4.25







$15.84


1.3



4.75







$17.22


1.0



4.93







Total


26.3



3.86



8.5



2.20     2005


2004Weighted





WeightedAverage





AverageExercise





ExerciseUnits


Price


Units


PriceOutstanding at January 1


25.6


$
24.10



19.1


$
18.18Units exchanged


(7.8
)


34.31







Units granted


0.5



37.35



8.7



34.22Units redeemed/cancelled


(18.3
)


20.53



(2.2
)


13.49Outstanding at December 31










25.6



24.10Vested at December 31





$




17.5


$
19.76  IV-21




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  15.  Income
    Taxes
  Year Ended December 31,Income Tax Expense

2006


2005


2004in thousandsCurrentFederal

$
3,906



(1,479
)


(231
)State


4,101



(3,205
)


3,952Foreign


59,879



57,644



32,556Total current income tax provision


67,886



52,960



36,277DeferredFederal


103,672



95,098



95,761State


3,707



16,298



7,723Foreign


(3,637
)


(3,851
)


Total deferred income tax expense


103,742



107,545



103,484Change in valuation allowance


5,160



1,838



2,038Total income tax expense

$
176,788



162,343



141,799   December 31,2006


2005Deferred Income Tax Assets and Liabilities

Current


Non-current


Current


Non-currentin thousandsAssetsLoss carryforwards

$
19,855



27,712



43,470



61,974Compensation


30,981



15,563



15,185



12,432Accrued expenses


12,088



14,981



17,769



Reserves and allowances


10,938







10,392



463Tax credits






8,574







3,823Derivative financial instruments






3,141







7,052Investments






10,445







86,039Intangibles






104,078







41,401Other


4,301



20,897



3,689



11,73278,163



205,391



90,505



224,916Valuation allowance






(26,552
)






(21,392
)Total deferred income tax assets


78,163



178,839



90,505



203,524LiabilitiesAccelerated depreciation






(6,164
)






(11,948
)Content rights and deferred launch
    incentives






(200,732
)






(109,009
)Foreign currency translation






(12,936
)






(4,103
)Unrealized gains on investments






(861
)






(1,920
)Other


(2,007
)


(4,435
)


(1,740
)


(7,228
)Total deferred income tax
    liabilities


(2,007
)


(225,128
)


(1,740
)


(134,208
)Deferred income tax assets
    (liabilities), net

$
76,156



(46,289
)


88,765



69,316   IV-22




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Year Ended December 31,Reconciliation of Effective Tax Rate

2006


2005


2004Federal statutory rate


35.0
%


35.0
%


35.0
%Increase (decrease) in tax rate
    arising from:State income taxes, net of Federal
    benefit


1.4



3.0



2.4Foreign income taxes, net of
    Federal benefit


8.5



9.3



6.4Other


1.1



3.1



2.0Effective income tax rate


46.0
%


50.4
%


45.8
%       16.  Financial
    Instruments
  Derivative
    Financial Instruments
          Fair
    Value of Financial Instruments
   IV-23




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          Credit
    Concentrations
      17.
    Related
    Party Transactions   IV-24




---



##### Table of Contents



SIGNATURES
    DISCOVERY HOLDING COMPANYDated: February 28, 2007

By

/s/  John
    C. MaloneJohn
    C. Malone
    Chief Executive Officer     February 28, 2007

/s/  John
    C. MaloneJohn
    C. Malone
    Chairman of the Board, Director 
    and Chief Executive OfficerFebruary 28, 2007

/s/  Robert
    R. BennettRobert
    R. Bennett
    Director and PresidentFebruary 28, 2007

/s/  Paul
    A. GouldPaul
    A. Gould
    DirectorFebruary 28, 2007

/s/  M.
    LaVoy RobisonM.
    LaVoy Robison
    DirectorFebruary 28, 2007

/s/  J.
    David WargoJ.
    David Wargo
    DirectorFebruary 28, 2007

/s/  David
    J.A. FlowersDavid
    J.A. Flowers
    Senior Vice President and Treasurer
    (Principal Financial Officer)February 28, 2007

/s/  Christopher
    W. SheanChristopher
    W. Shean
    Senior Vice President and Controller
    (Principal Accounting Officer)  IV-25




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##### Table of Contents



EXHIBIT INDEX
  Regulation S-K):
  2  Plan of Acquisition,
    Reorganization, Arrangement, Liquidation or Succession:2.1


Reorganization Agreement among
    Liberty Media Corporation, Discovery Holding Company
    (DHC) and Ascent Media Group, Inc. (incorporated by
    reference to Exhibit 2.1 to DHCs Registration
    Statement on Form 10, dated July 15, 2005 (File
    No. 000-51205)
    (the Form 10)).3  Articles of
    Incorporation and Bylaws:3.1


Restated Certificate of
    Incorporation of DHC (incorporated by reference to
    Exhibit 3.1 to the Form 10).3.2


Bylaws of DHC (incorporated by
    reference to Exhibit 3.2 to the Form 10).4  Instruments Defining
    the Rights of Securities Holders, including Indentures:4.1


Specimen Certificate for shares of
    the Series A common stock, par value $.01 per share, of DHC
    (incorporated by reference to Exhibit 4.1 to the
    Form 10).4.2


Specimen Certificate for shares of
    the Series B common stock, par value $.01 per share, of DHC
    (incorporated by reference to Exhibit 4.2 to the
    Form 10).4.3


Rights Agreement between DHC and
    EquiServe Trust Company, N.A., as Rights Agent
    (incorporated by reference to Exhibit 4.3 to the
    Form 10).10  Material Contracts:10.1


The Shareholders Agreement, dated
    as of November 30, 1991 (the Stockholders
    Agreement), by and among Discovery Communications, Inc.
    (Discovery), Cox Discovery, Inc. (Cox),
    NewsChannels TDC Investments, Inc. (NewChannels),
    TCI Cable Education, Inc. (TCID) and John S.
    Hendricks (Hendricks) (incorporated by reference to
    Exhibit 10.1 to the Form 10).10.2


First Amendment to the
    Stockholders Agreement, dated as of December 20,
    1996, by and among Discovery, Cox Communications Holdings, Inc.
    (the successor to Cox), Newhouse Broadcasting Corporation ( the
    successor to NewChannels), TCID, Hendricks and for the purposes
    stated therein only, LMC Animal Planet, Inc. (LMC)
    and Liberty Media Corporation, a Colorado corporation
    (Liberty) (incorporated by reference to
    Exhibit 10.2 to the Form 10).10.3


Second Amendment to the
    Stockholders Agreement, dated as of September 7,
    2000, by and among Discovery, Cox Communications Holdings, Inc.
    (the successor to Cox), Advance/Newhouse Programming Partnership
    (the successor to NewChannels), LMC Discovery, Inc. (formerly
    known as TCID) and Hendricks (incorporated by reference to
    Exhibit 10.3 to the Form 10).10.4


Third Amendment to the
    Stockholders Agreement, dated as of September, 2001, by
    and among Discovery, Cox, NewChannels, TCID, Hendricks and
    Advance Programming Holdings Corp. (incorporated by reference to
    Exhibit 10.4 to the Form 10).10.5


Fourth Amendment to the
    Stockholders Agreement, dated as of June 23, 2003, by
    and among Discovery, Cox NewChannels, TCID, Liberty Animal, Inc.
    (the successor in interest to LMC) for the purposes stated
    in the First Amendment to the Stockholders Agreement, and
    Hendricks (incorporated by reference to Exhibit 10.5 to the
    Form 10).10.6


Form of Tax Sharing Agreement
    between Liberty Media Corporation and DHC (incorporated by
    reference to Exhibit 10.6 to the Form 10).10.7


Discovery Holding Company 2005
    Incentive Plan (incorporated by reference to Exhibit 10.7
    to the Form 10).10.8


Discovery Holding Company 2005
    Non-Employee Director Plan (incorporated by reference to
    Exhibit 10.8 to the Form 10).10.9


Discovery Holding Company
    Transitional Stock Adjustment Plan (incorporated by reference to
    Exhibit 10.9 to the Form 10).10.10


Agreement between DHC and John C.
    Malone (incorporated by reference to Exhibit 10.10 to the
    Form 10).10.11


Agreement, dated June 24,
    2005, between Discovery and DHC (incorporated by reference to
    Exhibit 10.11 to the Form 10).10.12


Indemnification Agreement, dated
    as of June 24, 2005, between Cox and DHC (incorporated by
    reference to Exhibit 10.12 to the Form 10).10.13


Indemnification Agreement, dated
    as of June 24, 2005, between NewChannels and DHC
    (incorporated by reference to Exhibit 10.13 to the
    Form 10).10.14


Form of Indemnification Agreement
    with Directors and Executive Officers (incorporated by reference
    to Exhibit 10.14 to the Form 10).




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##### Table of Contents



21  Subsidiaries of
    Discovery Holding Company, filed herewith.23.1


Consent of KPMG LLP, filed
    herewith.23.2


Consent of PricewaterhouseCoopers
    LLP, filed herewith.31.1


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.31.2


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.31.3


Rule 13a-14(a)/15d 
    14(a) Certification, filed herewith.32  Section 1350
    Certification, filed herewith.