##### 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, 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 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

Nasdaq Global Select MarketSeries B Common Stock, par value $.01 per share

Nasdaq Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
         DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K




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##### 





DISCOVERY
    HOLDING COMPANY
  2007 ANNUAL REPORT ON
    FORM 10-K
  Table
    of Contents
   
 PagePART IItem 1.


Business


I-1Item 1A.


Risk Factors


I-27Item 1B.


Unresolved Staff Comments


I-37Item 2.


Properties


I-37Item 3.


Legal Proceedings


I-37Item 4.


Submission of Matters to a Vote of Security
    Holders


I-37PART IIItem 5.


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


II-1Item 6.


Selected Financial Data


II-2Item 7.


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


II-3Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


II-25Item 8.


Financial Statements and Supplementary Data


II-25Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


II-25Item 9A.


Controls and Procedures


II-25Item 9B.


Other Information


II-25PART 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-1Amended and Restated Limited Liability Company AgreementSubsidiaries of Discovery Holding CompanyConsent 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




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##### Table of Contents



PART I.  Item 1.
    Business.  (a)  General
    Development of Business    2 3
          2 3 1 3
 I-1




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##### Table of Contents




    We will spin-off to our shareholders a wholly-owned subsidiary
    holding cash and Ascent Media, except for those businesses of
    Ascent Media that provide sound, music, mixing, sound effects
    and other related services;
    Immediately following the spin-off, we will combine with a new
    holding company (New DHC), and our existing
    stockholders will receive shares of common stock of New DHC;
    As part of this transaction, Advance/Newhouse will contribute
    its interests in Discovery and Animal Planet to New DHC in
    exchange for preferred stock of New DHC that, immediately after
    the closing of the transactions, will be convertible at any time
    into shares initially representing one-third of the outstanding
    shares of common stock of New DHC. The preferred stock held by
    Advance/Newhouse will entitle it to elect two members to New
    DHCs board of directors and to exercise approval rights
    with respect to the taking of specified actions by New DHC and
    Discovery.      Form 10-K
  
    general economic and business conditions and industry trends
    including the timing of, and spending on, feature film,
    television and television commercial 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 of new business lines
    and business strategies;
    integration of acquired operations;
    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; I-2




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
    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, or the duration
    of any existing strike or job action;
    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-3




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Creative
    Services    Blink Digital, Cinetech, Company 3,
    Digital Media Data Center (DMDC), Digital Symphony, Encore
    Hollywood, FilmCore, Level 3 Post, Method, Modern Music,
    One Post, POP Sound, RIOT, Rushes, Soho Images, Soundelux,
    Soundelux Design Music Group (DMG), Sound One, St. Annes
    Post, Todd-AO VisionText
      Dailies.
  Digital intermediates.
  Color Correction.
  Creative editorial.
  Visual effects.
 I-4




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Assembly, formatting and master creation and
    duplication.
  Digital media management services.
  Advertising distribution.
  Restoration, preservation and asset protection of existing
    and damaged content.
  Transferring film to video or digital media
    masters. pay-per-view
  Professional duplication and standards
    conversion.
 I-5




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pay-per-view
  DVD compression and authoring and menu
    design. video-on-demand
  Storage of elements and working
    masters. Digital media management services
  Syndicated television distribution.
  Sound supervision, sound design and sound
    editorial.
  Music services.
  Re-recording / Mixing.
  Sound effects and music libraries.
 I-6




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Network
    Services      Network origination and master control. pay-per-view multi-language
  Transport and connectivity. and/or
  Engineering and systems integration.
  Consulting Services.
 I-7




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Network Operations, Field Service and Call
    Center.
  AccentHealth      
    selected commercial time slots on the AccentHealth Waiting
    Room TV Networks;
    print-display advertising space (traditionally used for product
    brochures, information pamphlets or coupons) alongside the
    Health Panels, AccentHealths wall-mounted educational
    print displays;
    turn-key literature distribution services; and
    certain services related to the production of commercial
    advertising spots or the customization of certain advertising
    services.    Strategy    Provide a broad range of media services.
 I-8




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Grow digital media management business.
  Deploy an interconnected global media
    network.
  Invest in core business operations.
  Seek opportunities to offer new services within core
    competencies.
  page I-27.
  Seasonality    DISCOVERY
     I-9




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video-on-demand
    Strategy      
    Maintaining Discoverys focus on creative excellence in
    non-fiction programming and expanding the portfolios brand
    entitlement by developing compelling content that increases
    audience growth, builds advertising relationships and supports
    continued distribution revenue on all platforms.
    Exploiting Discoverys distribution strength in the
    U.S.  with three channels reaching more than
    90 million U.S. subscribers and six channels reaching
    approximately 50 million to 70 million
    U.S. subscribers  to build additional branded
    channels and businesses that can sustain long-term growth and
    profitability. For example, Discovery recently announced the
    repositioning of several emerging television networks to build
    stronger consumer brands through specific category ownership
    that supports more passionate audience loyalty and increased
    advertiser and affiliate interest and integration. I-10




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
    Maintaining a leadership position in non-fiction entertainment
    in international markets, and continuing to grow and improve the
    performance of the international operations. This will be
    achieved through expanding local advertising sales capabilities,
    creating licensing and digital growth opportunities, and
    improving operating efficiencies by strengthening development
    and promotional collaboration between U.S. and
    international network groups.
    Developing and growing compelling and profitable content
    experiences on new platforms that are aligned with its core
    branded channels. Specifically, extending ownership of
    non-fiction entertainment to all digital media devices around
    the world to enhance the consumer entertainment experience,
    further monetize Discoverys extensive programming library,
    and create additional vehicles on which to offer new products
    and services that deliver new revenue streams.  Recent
    Developments    
    Business Restructuring:  Improved margins
    through revenue growth and cost efficiencies across
    Discoverys divisions. Management implemented a growth
    strategy to address underperforming assets, closed all of its
    103 retail stores and shifted the focus of its commerce business
    to
    e-commerce
    and licensing in order to broaden the reach of Discovery-branded
    products. Discovery also streamlined its education business to
    focus on direct-to-school products including Discovery
    Education streamingand significantly reduced the investment
    in direct-to-consumer services. These actions, coupled with an
    overall focus on improved efficiency, resulted in an approximate
    25% reduction in global personnel in 2007. As a result of these
    restructurings, Discovery improved the operating cash flow
    margins from the properties that it continues to use and operate.
    Global Content Sharing:  Strengthened
    development and promotional collaboration between U.S. and
    international networks to improve operating margins, promote
    content sharing and build global brand strength.
    Television Network Rebrands:  In January 2008,
    Discovery Times Channel was rebranded as Investigation Discovery
    as a means to exploit Discoverys extensive library of
    fact-based investigation and current affairs programming. In
    June 2008, Discovery expects to rebrand Discovery Home as Planet
    Green, the only
    24-hour
    eco-lifestyle television network committed to documenting,
    preserving and celebrating the planet. In January 2008,
    Discovery announced a proposed
    50-50 joint
    venture with Oprah Winfrey and Harpo, Inc. to rebrand Discovery
    Health as OWN: The Oprah Winfrey Network, a new multi-platform
    venture designed to entertain, inform and inspire people to live
    their best lives through the OWN Channel and the Oprah.com
    website. It is expected that Discovery Health Channel will be
    rebranded as OWN in the second half of 2009.
    Digital Media Acquisitions and Website
    Relaunch:  Expanded internal web operations while
    acquiring HowStuffWorks.com and TreeHugger.com, to create a
    portfolio of brand-aligned digital properties that expand
    Discoverys cross-platform sales and promotional
    opportunities and realize economies through programs that can be
    produced once and used often in both long- and short-form across
    multiple platforms. In December 2007, Discovery completed the
    acquisition of HowStuffWorks.com, an award-winning online source
    of high-quality, unbiased and easy-to-understand explanations of
    how the world actually works, and in August 2007, Discovery
    acquired Treehugger.com, an eco-lifestyle website. Discovery
    relaunched its flagship website, Discovery.com, and is in the
    process of expanding and deepening the content of all of its
    channel websites (e.g., TLC.com, AnimalPlanet.com) to move
    beyond being television promotion vehicles and to focus on
    audience growth, engagement and improved monetization. Together
    with these recent acquisitions, Discovery now has approximately
    25 million unique visitors per month to all of its wholly
    owned websites (source: Omniture, Inc.). I-11




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
    Dispositions- In May 2007, Discovery and Cox completed
    an exchange of Coxs 25% interest in Discovery for all of
    the capital stock of a subsidiary of Discovery that held
    Discoverys entire interest in Travel Channel,
    travelchannel.com and approximately $1.3 billion in cash.  Business
    Operations    Discovery
    Networks U.S.    and/or
  (Discovery Logo)

Discovery Channel

  Launched in June 1985, Discovery Channel reached approximately 97 million U.S. subscribers as of December 31, 2007.
  Discovery Channel brings viewers engaging stories and extraordinary experiences that share knowledge, satisfy curiosity and inspire the very joy of discovery.

  Discoverys flagship, Discovery Channel, was the second most widely distributed cable channel in the United States, according to The Nielsen Company as of December 31, 2007.

  Some of the networks most popular returning and new series include Deadliest Catch, Mythbusters, Dirty Jobs, Man Vs Wild, Smash Lab, Some Assembly Required, Fight Quest,and Bone Detectives. Discovery Channel is also home to high-profile specials and mini-series, including the critically acclaimed Planet Earthand the forthcoming When We Left Earth: The NASA
Missions.

  Target viewers are adults 25-54, particularly men.

  Discovery Channel is simulcast in HD.   I-12




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(TLC Logo)

TLC

  Acquired by Discovery in 1991, TLC reached approximately 96 million U.S. subscribers as of December 31, 2007.

  TLC features educational programming that explores lifes key transitions and turning points, and presents high-quality, relatable and authentic personal stories.

  Series highlights on TLC include L.A. Ink, Little People, Big World, Jon And Kate Plus 8, What Not To Wear, Miami Ink, Flip That House, and the recently relaunched Trading Spaces.

  Target viewers are adults 18-49, particularly women.

  TLC is simulcast in HD.   Animal Planet Logo)

Animal Planet

  Launched in October 1996, Animal Planet reached approximately 94 million U.S. subscribers as of December 31, 2007.

  With a new logo and on-air look, Animal Planet leads viewers to relate to animals as characters that inspire and engage, not merely creatures to observe. Animal Planets engaging, insightful and high-quality entertainment taps into the instincts that drive us all with compelling stories.

  Programming highlights on Animal Planet include Meerkat Manor, Orangutan Island, Animal Precinctand Jeff Corwin specials.

  Target viewers are adults 25-54, particularly women.

  Animal Planet is simulcast in HD.   (Discovery Health Logo)

Discovery Health
  Launched in August 1999, Discovery Health reached approximately 68 million U.S. subscribers as of December 31, 2007.
  Discovery Health takes viewers inside the fascinating and informative world of health and medicine to experience first-hand compelling, real-life stories of medical breakthroughs and human triumphs.(OWN Logo)

  In January 2008, Discovery announced a planned joint venture with Oprah Winfrey and Harpo, Inc. to create OWN: The Oprah Winfrey Network, a new multi-platform venture designed to entertain, inform and inspire people to live their best lives. Oprah Winfrey will serve as Chairman of OWN, LLC and the venture will be 50-50 owned by Discovery
and Harpo. Discovery will handle distribution, origination and other operational requirements and both organizations will contribute advertising sales services to the venture. Discovery and Harpo are currently negotiating a definitive agreement to govern these arrangements.

  Discovery Health is expected to be rebranded as OWN in the second half of 2009.

  OWN will build on Discovery Healths target audience of women 25-54.

  OWN will be simulcast in HD.   I-13




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##### Table of Contents



(Discovery Kids Logo)

Discovery Kids

  Launched in October 1996, Discovery Kids reached approximately 58 million U.S. subscribers as of December 31, 2007.

  Discovery Kids lets kids of all ages (from preschoolers to tweens and teens) explore the world from their point of view. This network provides entertaining, engaging and high-quality programming that kids enjoy and parents trust. Kids can learn about science, adventure, exploration and natural history through documentaries, reality shows, scripted dramas and animated stories.

  Series highlights on Discovery Kids include the animated Real Toon series Tutensteinand Saving A Species: The Great Penguin Rescue.

  Target viewers are children and families.   (Sc Logo)

Science Channel

  Launched in October 1996, Science Channel reached approximately 52 million U.S. subscribers as of December 31, 2007.

  Science Channel is devoted to science by celebrating the why in everything and providing context and understanding of the full spectrum of the wonders of science.

  With a refreshed brand, Science Channel includes series such as Survivorman, How Its Made, Patent Bendingand Weird Connections.

  Target viewers are men 25-54.

  Science Channel is simulcast in HD.   (Planet green Logo)

Planet Green

  Planet Green is expected to be rebranded from Discovery Home in June 2008 with an expected reach of approximately 50 million U.S. subscribers.

  Committed to documenting, preserving and celebrating the planet, Planet Green will be the only 24-hour eco-lifestyle television network.

  Planet Green will speak to people who want to understand green living and to those who are excited to make a difference by providing tools and information to meet the critical challenge of protecting our environment.

  Target viewers will be adults 18-54 with a focus on late teens/college-aged viewers, new parents and young baby boomers.

  Planet Green will be simulcast in HD.

  In August 2007, in support of the Planet Green initiative, Discovery purchased TreeHugger.com, an eco-lifestyle website with news, opinions and information spanning the green spectrum. Discovery has also launched companion website PlanetGreen.com with a focus on community and action oriented content.   (ID Logo)

Investigation Discovery

  Launched in March 2003, Investigation Discovery (formerly Discovery Times Channel) reached approximately 50 million U.S. subscribers as of December 31, 2007.

  In January 2008, Discovery Times Channel was rebranded as Investigation Discovery, exploiting Discoverys extensive library of fact-based investigation and current affairs programming that sheds new light on our culture, history and the human condition.

  Programming highlights include Dateline On ID, Fugitive Task Force, and Diamond Road.

  Target viewers are adults 25-54.  I-14




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(Military Logo)

Military Channel

  Originally launched in 1996 as Discovery Wings and rebranded as Military Channel in January 2005, the network reached approximately 50 million U.S. subscribers as of December 31, 2007.

  Military Channel salutes the sacrifices made by our men and women in uniform with real stories and access to a world of human drama, strategic innovation and long-held traditions.

  Original programming includes Weaponologyand Showdown: Air Combat.

  Target viewers are men 35-64.   (Fittv Logo)

FitTV

  Acquired by Discovery in June 2001, FitTV reached approximately 43 million U.S. subscribers as of December 31, 2007.

  FitTV is designed to inspire viewers to improve their fitness and well-being on their terms.

  Programming features experts and entertaining shows that help people learn how to incorporate fitness into their daily lives.

  Target viewers are adults 25-54.   (HD theater Logo)

HD Theater

  Launched in June 2002, HD Theater reached approximately 11 million U.S. subscribers as of December 31, 2007.

  HD Theater was one of the first nationwide 24-hour-a-day, 7-day-a-week high definition networks in the U.S. offering compelling, real-world content including adventure, nature, world culture, technology and engineering programming.

  Programming highlights on HD Theater include Risk Takers, Equatorand the critically acclaimed Sunrise Earth. In addition, HD Theater offers motorized HD content including upcoming live muscle car auctions with Mecum Auto Auctions.

  Target viewers are adults 25-54, particularly men.   50-50
     I-15




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##### Table of Contents



(Discoverycom )

Discovery.com

  This flagship website is the official website for Discovery Channel and was relaunched in 2007 to feature more robust content, including a new media player, increased video clips and new search tools.

  Discovery.com attracted an average of more than three million unique visitors per month in 2007.

  Discovery is enhancing its other vertical sites (e.g. TLC.com, AnimalPlanet.com) to feature more robust content, a new media player, increased video clips and new search tools in order to move beyond being promotional vehicles for Discoverys television networks and focus on visitor growth, engagement and improved monetization.

  Discoverys vertical sites attracted an average of more than 12 million unique visitors per month in 2007.   (HOWSTUFFWORKS Logo)

HowStuffWorks.com

  Acquired in December 2007, HowStuffWorks.com is an award-winning online source of high-quality, unbiased and easy-to-understand explanations of how the world actually works.

  HowStuffWorks.com provides a high-profile platform for promoting and distributing Discoverys extensive library of programming content and for developing advertising opportunities from the additional Discovery video content on this platform. Discovery believes that the mission alignment between Discovery and HowStuffWorks.com will allow for cross promotion and cross selling opportunities
across multiple platforms.

  HowStuffWorks.com attracted an average of more than 10 million unique visitors per month in 2007.   (Discovery Logo)

TreeHugger.com

  Acquired by Discovery in August 2007, TreeHugger.com is an eco-lifestyle web site that complements the pending debut of the Planet Green television network. Together, TreeHugger.com and PlanetGreen.com will provide consumers with a multi-platform offering across topics and issues around the environment and sustainable development.

  TreeHugger.com attracted an average of more than one million unique visitors per month in 2007.

  Discovery has also launched companion website PlanetGreen.com with a focus on community action oriented content.(Discovery Logo)

Petfinder.com

  Acquired in November 2006, Petfinder.com provides an additional promotional platform for the Animal Planet brand.

  Over 260,000 homeless pets in over 11,000 animal placement organizations across North America have their own homepages on Petfinder.com, the oldest and largest searchable directory of adoptable pets on the web.

  Petfinder.com attracted an average of more than 3.5 million unique visitors per month in 2007.   video-on-demand Mythbusters Deadliest
    Catch
 I-16




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##### Table of Contents



Discovery
    Networks International    and/or
  50-50 50-50
    (Discovery Logo)

Discovery Channel

  Launched internationally in 1989, Discovery Channel reached approximately 240 million international subscribers in more than 170 countries as of December 31, 2007.

  Discovery Channels international programming includes documentaries, docudramas and reality formats covering a wide range of topics and themes, including human adventure and exploration, engineering, science, history and world culture.   I-17




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(Animal planet Logo)

Animal Planet

  Launched internationally in 1997, Animal Planet reached approximately 210 million international subscribers in over 160 countries as of December 31, 2007.

  Animal Planet is dedicated to mankinds fascination with the creatures that share our world, featuring programs such as Meerkat Manor, Unearthedand Lemur Street.

  The international Animal Planet channels are generally a 50-50 joint venture with the BBC.   (travel Logo)

Discovery Lifestyle Networks

  Launched beginning in 1998, Discovery Lifestyle Networks reached approximately 213 million international subscribers in over 90 countries as of December 31, 2007.(travel Logo)

  Discovery Lifestyle Networks is a global
    portfolio of three lifestyle brands offering inspirational
    content that encourages viewers to pursue unique interests and
    experiences: Discovery Travel & Living, Discovery
    Home & Health and Discovery Real Time.(travel Logo)

  Discovery Travel & Living provides a
    mix of lifestyle programming on travel, food, design and
    décor. Discovery Home & Health provides relevant
    and practical programming on relationships, babies, beauty and
    wellbeing. Discovery Real Time features practical and motivating
    programming on how to make the most of free time.   (Discovery Logo)

Discovery Science

  Launched internationally in 1998, Discovery Science reached approximately 29 million international subscribers in over 60 countries as of December 31, 2007.

  Discovery Science uncovers fascinating clues to the questions that have eluded us for centuries and reveals lifes greatest mysteries and smallest wonders.(travel Logo)

Discovery Kids.

  Launched internationally in 1997, Discovery Kids reached approximately 21 million international subscribers in over 25 countries across Latin America, the Carribean and Canada as of December 31, 2007.

  Discovery Kids provides a unique environment that nurtures childrens curiosity using characters and stories, enabling them to relate to real-life experiences.(HD Logo)

Discovery HD.

  Launched internationally in 2005, Discovery HD reached subscribers in 15 countries as of December 31, 2007.

  Discovery HD showcases dynamic content from Discoverys library of thousands of hours of visually compelling HD footage including Discovery Atlas. I-18




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##### Table of Contents



(travel Logo)

People+Arts.

  Launched in 1997, People+Arts reached approximately 20 million international subscribers in Latin America, Spain and Portugal as of December 31, 2007.

  People+Arts is the entertainment network from the BBC and Discovery that explores the complete range of human emotions, with engaging storytelling that is moving, unexpected and authentic.

  People + Arts is a 50-50 joint venture with the BBC.   (DMAX Logo)

DMAX Germany.

  Launched in Germany in 2006, DMAX reached approximately 27 million homes in Germany as of December 31, 2007.

  DMAX is a free-to-air service which has broad distribution. DMAX generates only advertising revenue, offering a broad range of original content from Germany and around the world including documentaries, talk shows and reality-based series.     Spanish-language
  (Discovery Logo)

Discovery en Español.

  Launched in the U.S. in June 1998, Discovery en Español reached approximately eight million U.S. subscribers as of December 31, 2007.

  Discovery en Español is a non-fiction network delivering content that stimulates, informs and empowers, giving viewers a fascinating look at the incredible and often surprising world from an Hispanic perspective.

  Discovery en Español is designed to give viewers more of the programming they enjoy including original programming developed specifically for Spanish-speaking audiences.

  Target viewers are adults 18-49, particularly men.(Discovery familia Logo)

Discovery Familia.

  Launched in the U.S. in August 2007, Discovery Familia reached approximately one million U.S. subscribers as of December 31, 2007.

  Discovery Familia is Discoverys Spanish-language network dedicated to bringing the best educational and entertaining, family-oriented programming to kids and families.

  Target viewers are Hispanic children, women and families.      I-19




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Discovery
    Commerce and Education
  Discovery
    Commerce  brick-and-mortar e-commerce
  e-commerce
  
    Discoverystore.comis an
    e-commerce
    site where customers can shop for a large assortment of
    proprietary Discovery merchandise and other products.
    Discoverystore.com logged more than 12 million unique
    visitors in 2007. Discoverystore.com also reaches consumers
    through relationships with leading
    e-commerce
    sites such as Amazon.com.
    The Discovery Channel Store Catalogis distributed to
    over nine million consumers annually and highlights a selection
    of proprietary and other products for the whole family. The
    catalog is a highly targeted marketing and branding tool driving
    online and phone sales. It also adds value as a cross
    promotional vehicle for network and corporate initiatives.
    Domestic Licensinghas agreements with key manufacturers
    and retailers, including JAKKS, Activision, and others to
    develop long-term, strategic programs that translate
    Discoverys network brands and signature properties into an
    array of merchandising opportunities. From Animal Planet toy and
    pet products, Mythbustersbooks, DVDs and calendars to
    Miami Inkapparel and accessories, domestic licensing
    develops products that capture the look and feel of
    Discoverys core brands and programs.  Discovery
    Education  Discovery
    Education streaming s video-on-demand
    Content
    Development  25-70%
   I-20




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##### Table of Contents



Planet Earth,
    Nefertiti Resurrected, Walking With Cavemen Blue
    Planet Mythbusters, Dirty
    Jobs, Deadliest Catch, What Not To Wear, Man Vs Wild, John And
    Kate Plus 8 Little People, Big World
    Sources
    of Revenue    Distribution
    Revenue   I-21




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Advertising
    Revenue      18-54
      Commerce
    and Education Revenue    E-commerce e-commerce
 I-22




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Operating
    Expenditures    Discovery
    Limited Liability Company Agreement  2 3 1 3 2 3 1 3
          REGULATORY
    MATTERS
  Ascent
    Media   I-23




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##### Table of Contents



Discovery    MVPD
    Programming    À la
    Carte Programming and Unbundling Proposals   I-24




---



##### Table of Contents



Must
    Carry and Leased Access  and
  Childrens
    Programming    Regulation
    of the Internet    COMPETITION
   I-25




---



##### Table of Contents



pay-per-view video-on-demand e-commerce
  EMPLOYEES
        INTELLECTUAL
    PROPERTY
        (d)  Financial
    Information About Geographic Areas   I-26




---



##### Table of Contents



(e)  Available
    Information  Form 10-Ks, Form 10-Qs Form 8-Ks,
  (866) 876-0461.
    Item 1A.
    Risk
    Factors.    Risk
    Factors Relating to the Ownership of our Common Stock  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.
  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.
 I-27




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##### Table of Contents



2 3 1 3
  The liquidity and value of our interest in Discovery may be
    adversely affected by a Limited Liability Company Agreement to
    which we are a party. 2 3
    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. 2 3
  We cannot be certain that we will be successful in
    integrating acquired businesses, if any.
  Our businesses are subject to risks of adverse government
    regulation.
 I-28




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##### Table of Contents



We have overlapping directors and management with Liberty and
    Liberty Global, Inc., which may lead to conflicting
    interests. and/or 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; I-29




---



##### Table of Contents




    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
    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.
  Risk
    Factors Relating to Ascent Media  A loss of any of Ascent Medias large customers would
    reduce its revenue.
   I-30




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##### Table of Contents



Ascent Medias business depends on certain client
    industries. video-on-demand
  Because Ascent Media uses third-party satellite and
    terrestrial connectivity services to provide certain of its
    creative, media management and network services, a material
    disruption to such connectivity services could have a negative
    impact on Ascent Medias operations.
  A labor dispute in our client industries may disrupt Ascent
    Medias business.
      2007-2008
 I-31




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##### Table of Contents



Changes in technology may limit the competitiveness of and
    demand for Ascent Medias services.
  While Ascent Media believes that its business methods and
    technical processes do not infringe upon the proprietary rights
    of any third parties, there can be no assurances that third
    parties will not assert infringement claims against Ascent
    Media.
  Loss of key personnel could negatively impact our
    business.
  Risk of loss from earthquakes or other catastrophic events
    could disrupt Ascent Medias business.
 I-32




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##### Table of Contents



Failure to obtain renewal of FCC licenses could disrupt
    Ascent Medias business.
  Ascent Media operates in an increasingly competitive market,
    and there is a risk that it may not be able to effectively
    compete with other providers in the future.
  Risk
    Factors Relating to Discovery  Discoverys success is dependent upon U.S. and
    foreign audience acceptance of its programming and other
    entertainment content which is difficult to
    predict.
  The loss of Discoverys affiliation agreements, or
    renewals with less advantageous terms, could cause its revenue
    to decline.
 I-33




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##### Table of Contents



Discovery operates in increasingly competitive
    industries.
  Discoverys business is subject to risks of adverse laws
    and regulations, both domestic and
    foreign. and/or and/or
 I-34




---



##### Table of Contents



Macroeconomic risks associated with Discoverys business
    could adversely affect its financial
    condition.
  Increased programming production and content costs may
    adversely affect Discoverys results of operations and
    financial condition.
  Disruption or failure of satellites and facilities on which
    Discovery depends to distribute its programming could adversely
    affect its business. back-up
  Discovery cannot be certain that it will realize anticipated
    benefits from any business acquisition that it
    effects.
  Discovery must respond to and capitalize on rapid changes in
    new technologies and distribution platforms, including their
    effect on consumer behavior, in order to remain competitive and
    exploit new opportunities.
 I-35




---



##### Table of Contents



video-on-demand
  Discoverys revenue and operating results are subject to
    seasonal and cyclical
    variations.
  Discovery continues to develop new products and services for
    evolving markets. There can be no assurance of the success of
    these efforts due to a number of factors, some of which are
    beyond Discoverys control.
  Risks associated with Discoverys international
    operations could harm its financial
    condition.
    The loss of key talent could disrupt Discoverys
    business and adversely affect its
    revenue.
  Piracy of Discoverys entertainment content, including
    digital piracy, may decrease revenue received from its
    programming and adversely affect its business and
    profitability.
 I-36




---



##### Table of Contents



Financial market conditions may impede access to or increase
    the cost of financing Discoverys operations and
    investments.
  Item 1B.
    Unresolved
    Staff
    Comments.    Item 2.
    Properties.          Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security
    Holders.   I-37




---



##### Table of Contents



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


Low2007First quarter

$
19.48



15.52



19.46



15.70Second quarter

$
24.70



19.12



24.70



19.25Third quarter

$
29.33



21.92



29.25



21.98Fourth quarter

$
29.81



22.55



30.25



25.402006First 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



13.97   Holders
    Dividends
   II-1




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##### Table of Contents



Stock
    Performance Graph
    
  Item 6.
    Selected
    Financial
    Data.      December 31,2007


2006


2005


2004


2003amounts in thousandsSummary Balance Sheet Data:Current assets

$
371,707



317,362



400,386



198,969



131,437Investment in Discovery Communications Holding, LLC

$
3,271,553



3,129,157



3,018,622



2,945,782



2,863,003Goodwill

$
1,909,823



2,074,789



2,133,518



2,135,446



2,130,897Total assets

$
5,865,752



5,870,982



5,819,236



5,564,828



5,396,627Current liabilities

$
120,137



121,887



93,773



108,527



60,595Stockholders equity

$
4,494,321



4,549,264



4,575,425



4,347,279



4,260,269   II-2




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##### Table of Contents



Years Ended December 31,2007


2006


2005


2004


2003amounts in thousands,except per share amountsSummary Statement of Operations Data:Net revenue

$
707,214



688,087



694,509



631,215



506,103Operating income (loss)(1)

$
(167,643
)


(115,137
)


(1,402
)


16,935



(2,404
)Share of earnings of Discovery

$
141,781



103,588



79,810



84,011



37,271Net earnings (loss)(1)

$
(68,392
)


(46,010
)


33,276



66,108



(52,394
)Basic and diluted earnings (loss) per common share 
    Series A and Series B(2)

$
(0.24
)


(0.16
)


0.12



0.24



(0.19
)     (1)
    
    Includes impairment of goodwill of $165,347,000 and $93,402,000
    for the years ended December 31, 2007 and 2006,
    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
  2 3
  and/or
     II-3




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##### Table of Contents



2 3 1 3
    
    We will spin-off to our shareholders a wholly-owned subsidiary
    holding cash and Ascent Media, except for those businesses of
    Ascent Media that provide sound, music, mixing, sound effects
    and other related services;
    Immediately following the spin-off, we will combine with a new
    holding company (New DHC), and our existing
    stockholders will receive shares of common stock of New DHC;
    As part of this transaction, Advance/Newhouse will contribute
    its interests in Discovery and Animal Planet to New DHC in
    exchange for preferred stock of New DHC that, immediately after
    the closing of the transactions, will be convertible at any time
    into shares initially representing one-third of the outstanding
    shares of common stock of New DHC. The preferred stock held by
    Advance/Newhouse will entitle it to elect two members to New
    DHCs board of directors and to exercise approval rights
    with respect to the taking of specified actions by New DHC and
    Discovery.    Acquisitions
    Operating
    Cash Flow
   II-4




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##### Table of Contents



Results
    of Operations
            Years Ended December 31,2007


2006


2005amounts in thousandsSegment RevenueCreative Services group

$
420,504



417,876



421,797Network Services group


286,710



270,211



272,712Corporate and other










$
707,214



688,087



694,509Segment Operating Cash FlowCreative Services group

$
48,493



48,035



65,098Network Services group


49,256



47,005



52,797Corporate and other


(30,831
)


(36,311
)


(39,270
)$
66,918



58,729



78,625  II-5




---



##### Table of Contents



Revenue.
    Cost of Services.
    Selling, General and Administrative.
 II-6




---



##### Table of Contents



Restructuring Charges.
  Depreciation and Amortization.
  Stock Compensation.
  5-year
       II-7




---



##### Table of Contents



Impairment of Goodwill.
    Share of Earnings of Discovery. 2 3 2 3
    Income Taxes.
 II-8




---



##### Table of Contents



Net Earnings (Loss).
  Liquidity
    and Capital Resources
          Off-Balance
    Sheet Arrangements and Contractual Obligations
    Payments Due by periodLess than








After 51 year


1-3 years


3-5 years


years


Totalamounts in thousandsOperating leases

$
31,374



58,673



39,316



62,080



191,443Capital lease


1,080



2,160



2,160



1,080



6,480Other


6,100















6,100Total contractual obligations

$
38,554



60,833



41,476



63,160



204,023     Recent
    Accounting Pronouncements
  Fair Value Measurements
 II-9




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##### Table of Contents



Business
    Combinations
  Critical
    Accounting Polices and Estimates
  Valuation of Long-lived Assets and Amortizable Other
    Intangible Assets.
  Valuation of Goodwill and
    Non-amortizable
    Other Intangible Assets.
  Valuation of Trade Receivables.
  Valuation of Deferred Tax Assets.
 II-10




---



##### Table of Contents



Discovery
  Overview
  2 3
      video-on-demand
  U.S.
    Networks   II-11




---



##### Table of Contents



International
    Networks  50-50
   II-12




---



##### Table of Contents



Commerce
    and Education  brick-and-mortar e-commerce
  e-commerce, e-commerce
    Acquisitions
    Dispositions
   II-13




---



##### Table of Contents



Results
    of Operations
    Consolidated
    Results     II-14




---



##### Table of Contents



Years Ended December 31,2007


2006


2005amounts in thousandsRevenueAdvertising

$
1,345,033



1,243,500



1,187,823Distribution


1,477,479



1,434,901



1,198,686Other


304,821



205,270



157,849Total revenue


3,127,333



2,883,671



2,544,358ExpensesCost of revenue


(1,172,907
)


(1,032,789
)


(907,664
)SG&A expenses


(1,148,246
)


(1,104,116
)


(928,950
)Operating cash flow


806,180



746,766



707,744Expenses arising from long-term incentive plans


(141,377
)


(39,233
)


(49,465
)Restructuring charges and asset impairments


(46,598
)






Depreciation and amortization


(130,576
)


(122,037
)


(112,653
)Gain from disposition of business


134,671







Operating income


622,300



585,496



545,626Other Income (Expense)Interest expense, net


(248,757
)


(194,255
)


(184,585
)Unrealized gains (losses) from derivative instruments, net


(8,636
)


22,558



22,499Minority interests in consolidated subsidiaries


(8,266
)


(2,451
)


(43,696
)Other


7,839



8,527



13,771Income from continuing operations before income taxes


364,480



419,875



353,615Income tax expense


(77,466
)


(190,381
)


(173,427
)Income from continuing operations


287,014



229,494



180,188Loss from discontinued operations, net of taxes


(65,023
)


(22,318
)


(20,568
)Net income

$
221,991



207,176



159,620   Revenue.
 II-15




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##### Table of Contents



Cost of revenue.
    SG&A expenses.
    Expenses arising from long-term incentive
    plans.
 II-16




---



##### Table of Contents



Restructuring charges.
  Asset impairment.
  Depreciation and amortization.
  Gain from disposition of business.
  Other
    Income and Expense  Interest expense.
  Unrealized gains from derivative instruments,
    net.
  Minority interests in consolidated
    subsidiaries.
  Other.
  Income taxes.
 II-17




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##### Table of Contents



Loss from discontinued operations.
  Years Ended December 31,2007


2006


2005amounts in thousandsRevenue

$
57,853



129,317



127,396Operating cash flow

$
(27,904
)


(24,343
)


(21,106
)Loss from discontinued operations before income taxes

$
(99,427
)


(35,911
)


(31,652
)Loss from discontinued operations, net of tax

$
(65,023
)


(22,318
)


(20,568
)     Net earnings.
  Operating
    Division Results
    Discovery
    Consolidated
  Years Ended December 31,2007


2006


2005amounts in thousandsRevenueU.S. networks

$
1,972,321



1,893,808



1,743,358International networks


1,033,449



911,445



738,094Commerce and education


149,805



107,285



88,576Corporate and eliminations


(28,242
)


(28,867
)


(25,670
)Total revenue

$
3,127,333



2,883,671



2,544,358Operating Cash FlowU.S. networks

$
774,268



828,443



745,980International networks


210,090



153,127



128,837Commerce and education


1,676



(72,599
)


(25,285
)Corporate and eliminations


(179,854
)


(162,205
)


(141,788
)Total operating cash flow

$
806,180



746,766



707,744Operating cash flow margin


25.8
%


25.9
%


27.8
%  II-18




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##### Table of Contents



U.S.
    Networks  Years Ended December 31,2007


2006


2005amounts in thousandsRevenueAdvertising

$
1,014,541



965,648



944,770Distribution


862,542



865,613



736,713Other


95,238



62,547



61,875Total revenue


1,972,321



1,893,808



1,743,358Cost of revenue


(737,892
)


(635,874
)


(587,370
)SG&A expenses


(460,161
)


(429,491
)


(410,008
)Operating cash flow

$
774,268



828,443



745,980Operating cash flow margin


39.3
%


43.7
%


42.8
%     U.S.
    Networks without Travel Channel  Years Ended December 31,2007


2006


2005amounts in thousandsRevenueAdvertising

$
974,552



863,690



852,075Distribution


840,262



813,342



693,339Other


94,010



58,876



58,197Total revenue


1,908,824



1,735,908



1,603,611Cost of revenue


(710,052
)


(560,241
)


(523,426
)SG&A expenses


(439,501
)


(383,064
)


(372,322
)Operating cash flow

$
759,271



792,603



707,863Operating cash flow margin


39.8
%


45.7
%


44.1
%     Revenue. Planet Earth Deadliest
    Catch, Man vs. Wild, Dirty Jobs Mythbusters Little People Big World, What Not to Wear L.A.
    Ink.
 II-19




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##### Table of Contents



Cost of revenue.
    SG&A expenses.
    Digital Media Business.
 II-20




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##### Table of Contents



International
    Networks  Years Ended December 31,2007


2006


2005amounts in thousandsRevenueAdvertising

$
330,300



277,559



242,849Distribution


614,937



569,288



462,049Other


88,212



64,598



33,196Total revenue


1,033,449



911,445



738,094Cost of revenue


(408,957
)


(390,783
)


(315,539
)SG&A expenses


(414,402
)


(367,535
)


(293,718
)Operating cash flow

$
210,090



153,127



128,837Operating cash flow margin


20.3
%


16.8
%


17.5
%   Revenue.
    Cost of revenue.
    SG&A expenses.
 II-21




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##### Table of Contents



Commerce
    and Education  Years Ended December 31,2007


2006


2005amounts in thousandsRevenue

$
149,805



107,285



88,576Cost of revenue


(90,976
)


(79,460
)


(59,567
)SG&A expenses


(57,153
)


(100,424
)


(54,294
)Operating Cash Flow

$
1,676



(72,599
)


(25,285
)Operating cash flow margin


1.1
%


(67.7
)%


(28.5
)%   Revenue.
    Cost of revenue. unitedstreaming,
    SG&A expenses. and/or
 II-22




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##### Table of Contents



Corporate
    Liquidity
    and Capital Resources
            Term Loan B, due quarterly September 2007 to May 2014

$
1,492,500Term Loan, due quarterly December 2008 to October 2010


1,000,0008.06% Senior Notes, semi annual interest, due March 2008


180,000£10,000 Uncommitted Facility, due August 2008


8,785260,000.0 Revolving Loan, due April 2009


94,1747.45% Senior Notes, semi annual interest, due September 2009


55,000Revolving Loan, due October 2010


337,5008.37% Senior Notes, semi annual interest, due March 2011


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


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


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


390,000Total long-term debt

$
4,102,959  II-23




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##### Table of Contents



Contractual obligations.
    Payments Due by Period(3)Less than 1








AfterTotal


year


1-3 years


3-5 years


5 yearsLong-term debt

$
4,102,959



266,285



1,454,174



575,000



1,807,500Interest payments(1)


1,245,596



261,424



449,275



335,673



199,224Capital leases


44,107



9,042



15,828



9,202



10,035Operating leases


415,384



82,357



122,509



76,777



133,741Program license fees


558,183



325,509



110,362



80,843



41,469Launch incentives


12,572



4,492



8,080







Other(2)


292,339



106,320



157,619



28,000



400Total

$
6,671,140



1,055,429



2,317,847



1,105,495



2,192,369     (1)
    
    Amounts (i) are based on our outstanding debt at
    December 31, 2007, (ii) assume the interest rates on
    our floating rate debt remain constant at the December 31,
    2007 rates and (iii) assume that our existing debt is
    repaid at maturity.(2)
    
    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.(3)
    
    Table 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
    $141.7 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. II-24




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk.  Foreign
    Currency Risk
    Item 8.
    Financial
    Statements and Supplementary Data.  Page II-28. 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-26 Managements Report on Internal Control Over
    Financial Reporting.
  page II-27 Report of Independent Registered Public Accounting
    Firm
    Item 9B.
    Other
    Information.   II-25




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING      Internal
    Control-Integrated Framework
    Form 10-K page II-27 Form 10-K.
 II-26




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##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal
    Control  Integrated Framework
        Internal Control  Integrated
    Framework
  2 3
     II-27




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm     2 3
      Share-Based Payment
  Internal Control  Integrated
    Framework
      II-28




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 Consolidated
    Balance Sheets
    December 31, 2007 and 2006
  2007


2006amounts in thousandsASSETSCurrent assets:Cash and cash equivalents

$
209,449



154,775Trade receivables, net


144,342



147,436Prepaid expenses


14,815



11,522Other current assets


3,101



3,629Total current assets


371,707



317,362Investments in marketable securities


23,545



51,837Investment in Discovery Communications Holding, LLC
    (Discovery) (note 6)


3,271,553



3,129,157Property and equipment, net (note 7)


269,742



280,775Goodwill (note 8)


1,909,823



2,074,789Other assets, net


19,382



17,062Total assets

$
5,865,752



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

$
26,298



43,656Accrued payroll and related liabilities


26,127



32,292Other accrued liabilities


42,761



29,924Deferred revenue


24,951



16,015Total current liabilities


120,137



121,887Deferred income tax liabilities (note 11)


1,228,942



1,174,594Other liabilities


22,352



25,237Total liabilities


1,371,431



1,321,718Commitments and contingencies (notes 15 and 16)Stockholders equity (note 12):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
    269,159,928 shares at December 31, 2007 and
    268,194,966 shares at December 31, 2006


2,691



2,682Series B common stock, $.01 par value. Authorized
    50,000,000 shares; issued and outstanding
    11,869,696 shares at December 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


5,728,213



5,714,379Accumulated deficit


(1,253,483
)


(1,183,831
)Accumulated other comprehensive earnings


16,781



15,914Total stockholders equity


4,494,321



4,549,264Total liabilities and stockholders equity

$
5,865,752



5,870,982    II-29




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 Consolidated
    Statements of Operations and Comprehensive Earnings
    (Loss)
 Years ended December 31, 2007, 2006 and 2005
  2007


2006


2005amounts in thousands,except per share amountsNet revenue

$
707,214



688,087



694,509Operating expenses:Cost of services


491,034



468,057



460,805Selling, general, and administrative, including stock-based
    compensation (notes 13 and 17)


150,687



163,791



159,462Restructuring and other charges (note 9)


761



12,092



4,112Gain on sale of operating assets


(704
)


(2,047
)


(4,845
)Depreciation and amortization


67,732



67,929



76,377Impairment of goodwill (note 8)


165,347



93,402



874,857



803,224



695,911Operating loss


(167,643
)


(115,137
)


(1,402
)Other income:Share of earnings of Discovery (note 6)


141,781



103,588



79,810Other income, net


16,627



9,481



3,704158,408



113,069



83,514Earnings (loss) before income taxes


(9,235
)


(2,068
)


82,112Income tax expense (note 11)


(59,157
)


(43,942
)


(48,836
)Net earnings (loss)

$
(68,392
)


(46,010
)


33,276Other comprehensive earnings (loss), net of taxes (note 14):Unrealized holding gains (losses) arising during the period


(6,606
)


(148
)


651Foreign currency translation adjustments


7,934



17,922



(14,821
)Minimum pension liability adjustment


(461
)






Other comprehensive earnings (loss)


867



17,774



(14,170
)Comprehensive earnings (loss)

$
(67,525
)


(28,236
)


19,106Basic and diluted earnings (loss) per common share 
    Series A and Series B (note 4)

$
(0.24
)


(0.16
)


0.12    II-30




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 Consolidated
    Statements of Cash Flows
 Years ended December 31, 2007, 2006 and 2005
  2007


2006


2005amounts in thousands(see note 5)Cash flows from operating activities:Net earnings (loss)

$
(68,392
)


(46,010
)


33,276Adjustments to reconcile net earnings (loss) to net cash
    provided by operating activities:Depreciation and amortization


67,732



67,929



76,377Stock-based compensation


1,129



1,817



4,383Payments for stock-based compensation










(2,139
)Impairment of goodwill


165,347



93,402



Share of earnings of Discovery


(141,781
)


(103,588
)


(79,810
)Gain on lease buyout


(6,992
)






Deferred income tax expense


56,353



42,115



50,363Other non-cash credits, net


(1,559
)


(1,342
)


(4,684
)Changes in assets and liabilities, net of acquisitions:Trade receivables


3,752



(9,718
)


16,237Prepaid expenses and other current assets


(6,916
)


1,345



10,804Payables and other liabilities


(11,674
)


27,683



(19,516
)Net cash provided by operating activities


56,999



73,633



85,291Cash flows from investing activities:Capital expenditures


(47,115
)


(77,541
)


(90,526
)Cash paid for acquisition, net of cash acquired






(46,793
)


Net sales (purchases) of marketable securities


28,292



(51,837
)


12,800Cash proceeds from lease buyout


7,138







Cash proceeds from dispositions


2,143



5,697



15,374Other investing activities, net


(5,117
)


992



(394
)Net cash used in investing activities


(14,659
)


(169,482
)


(62,746
)Cash flows from financing activities:Net cash transfers from Liberty Media Corporation
    (Liberty)










206,044Net cash from option exercises


12,975



279



Payment of capital lease obligations


(641
)


(7
)


(12
)Other financing activities, net










134Net cash provided by financing activities


12,334



272



206,166Net increase (decrease) in cash and cash equivalents


54,674



(95,577
)


228,711Cash and cash equivalents at beginning of year


154,775



250,352



21,641Cash and cash equivalents at end of year

$
209,449



154,775



250,352    II-31




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 Consolidated
    Statements of Stockholders Equity
 Years ended December 31, 2007, 2006 and 2005
  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, 2005

$




















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 2005 Spin Off
    (note 3)






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



4,549,264Net loss


























(68,392
)






(68,392
)Other comprehensive earnings






























867



867Stock compensation


















867















867Cumulative effect of accounting change (note 11)


























(1,260
)






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






1



(1
)






















Stock option exercises






8











12,967















12,975Balance at December 31, 2007

$




2,691



119







5,728,213







(1,253,483
)


16,781



4,494,321     II-32




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
 Notes to
    Consolidated financial Statements
    December 31, 2007, 2006 and 2005
  (1)
    Basis of
    Presentation            (2)
    Newhouse
    Transaction and Ascent Spin Off    
    DHC will spin-off to its shareholders a wholly-owned subsidiary
    holding cash and Ascent Media, except for those businesses of
    Ascent Media that provide sound, music, mixing, sound effects
    and other related services (the Ascent Media Spin
    Off);
    Immediately following the spin-off, DHC will combine with a new
    holding company (New DHC), and DHCs
    existing stockholders will receive shares of common stock of New
    DHC; II-33




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
   
    As part of this transaction, Advance/Newhouse will contribute
    its interests in Discovery and Animal Planet to New DHC in
    exchange for preferred stock of New DHC that, immediately after
    the closing of the transactions, will be convertible at any time
    into shares initially representing one-third of the outstanding
    shares of common stock of New DHC. The preferred stock held by
    Advance/Newhouse will entitle it to elect two members to New
    DHCs board of directors and to exercise approval
    rights with respect to the taking of specified actions by New
    DHC and Discovery.    (3)
    2005 Spin
    Off Transaction           II-34




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    (4)
    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 thousands2007

$
9,045



892







(943
)


8,9942006

$
7,708



1,023







314



9,0452005

$
12,104



(619
)


(2,443
)


(1,334
)


7,708   Concentration
    of Credit Risk and Significant Customers    Fair
    Value of Financial Instruments    Investment
    in Discovery  2 3 2 3
   II-35




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    2 3 1 3
  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
 II-36




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
  Long-Lived
    Assets    Foreign
    Currency Translation    Revenue
    Recognition      Income
    Taxes  Accounting for
    Income Taxes
  Accounting for Uncertainty in
    Income Taxes, an interpretation of FASB Statement
    No. 109
  Advertising
    Costs   II-37




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
  Stock-Based
    Compensation    Share-Based Payment
        Year EndedDecember 31,2005Net earnings, as reported

$
33,276Add:Stock-based employee compensation expense included in reported
    net earnings, net of taxes


2,309Deduct:Stock-based employee compensation expense determined under fair
    value based method for all awards, net of taxes


(8,247
)Pro forma net earnings

$
27,338Pro forma basic and diluted earnings per common share:As reported

$
.12Pro forma for fair value stock compensation

$
.10  II-38




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
  Earnings
    (Loss) Per Common Share  Series A and
    Series B    Estimates    Recent
    Accounting Pronouncements  Fair Value Measurements
  Business
    Combinations
 II-39




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
  (5)
    Supplemental
    Disclosure of Cash Flow Information  Years Ended December 31,2007


2006


2005amounts in thousandsCash paid for acquisition:Fair value of assets acquired

$




48,264



Net liabilities assumed






(1,471
)


Cash paid for acquisition, net of cash acquired

$




46,793



Cash paid during the year for income taxes

$
1,321



1,871



1,190Non-cash financing activity:Capital lease

$
5,774







   (6)
    Investment
    in Discovery      2 3 1 3
  2 3
     II-40




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    Consolidated
    Balance Sheets  December 31,2007


2006amounts in thousandsCash and cash equivalents

$
44,951



52,263Other current assets


1,032,282



918,373Property and equipment


397,430



424,041Goodwill and intangible assets


5,051,843



472,939Programming rights, long term


1,048,193



1,253,553Other assets


385,731



255,384Total assets

$
7,960,430



3,376,553Current liabilities

$
850,495



734,524Long-term debt


4,109,085



2,633,237Other liabilities


243,867



175,255Mandatorily redeemable equity in subsidiaries


48,721



94,825Members equity (deficit)


2,708,262



(261,288
)Total liabilities and members equity (deficit)

$
7,960,430



3,376,553   Consolidated
    Statements of Operations  Years Ended December 31,2007


2006


2005amounts in thousandsRevenue

$
3,127,333



2,883,671



2,544,358Cost of revenue


(1,172,907
)


(1,032,789
)


(907,664
)Selling, general and administrative


(1,148,246
)


(1,104,116
)


(928,950
)Restructuring and other charges


(20,424
)






Equity-based compensation


(141,377
)


(39,233
)


(49,465
)Depreciation and amortization


(130,576
)


(122,037
)


(112,653
)Asset impairment


(26,174
)






Gain from disposition of business


134,671







Operating income


622,300



585,496



545,626Interest expense, net


(248,757
)


(194,255
)


(184,585
)Other income (expense), net


(9,063
)


28,634



(7,426
)Income tax expense


(77,466
)


(190,381
)


(173,427
)Earnings from continuing operations


287,014



229,494



180,188Loss from discontinued operations, net of income tax


(65,023
)


(22,318
)


(20,568
)Net earnings

$
221,991



207,176



159,620DHCs share of Discoverys net earnings

$
141,781



103,588



79,810    Note:
    In the third quarter of 2007, Discovery closed its 103
    mall-based and stand-alone Discovery Channel stores. As a
    result, Discoverys consolidated statements of operations
    above have been prepared to reflect the retail store business as
    discontinued operations. II-41




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
   (7)
    Property
    and Equipment    2007


2006amounts in thousandsProperty and equipment, net:Land

$
42,525



42,336Buildings


222,375



217,210Equipment


231,460



192,208496,360



451,754Accumulated depreciation


(226,618
)


(170,979
)$
269,742



280,775   (8)
    Goodwill
    and Other Intangible Assets    Creative


NetworkServices


ServicesGroup


Group


Discovery


Totalamounts in thousandsNet balance at January 1, 2006

$
200,001



162,517



1,771,000



2,133,518Acquisition of AccentHealth






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



2,074,789Goodwill impairment






(165,347
)






(165,347
)Foreign exchange and other






381







381Net balance at December 31, 2007

$
106,599



32,224



1,771,000



1,909,823      II-42




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
        (9)
    Restructuring
    Charges      Opening








EndingBalance


Additions


Deductions


Balanceamounts in thousandsExcess facility costs and otherDecember 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
)


10,928Severance


6,264



761



(5,681
)


1,344Excess facility costs


4,664







(2,703
)


1,961December 31, 2007

$
10,928



761



(8,384
)


3,305   (10)
    Acquisitions  AccentHealth     II-43




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    (11)
    Income
    Taxes    Years Ended December 31,2007


2006


2005amounts in thousandsCurrentFederal

$
(584
)


(1,015
)


State


(2,075
)


(1,340
)


(637
)Foreign


(145
)


528



2,164(2,804
)


(1,827
)


1,527DeferredFederal


(46,079
)


(33,711
)


(26,402
)State


(9,925
)


(7,250
)


(20,743
)Foreign


(349
)


(1,154
)


(3,218
)(56,353
)


(42,115
)


(50,363
)Total tax expense

$
(59,157
)


(43,942
)


(48,836
)     Years Ended December 31,2007


2006


2005amounts in thousandsDomestic

$
10,036



16,761



76,907Foreign


(19,271
)


(18,829
)


5,205$
(9,235
)


(2,068
)


82,112     Years Ended December 31,2007


2006


2005amounts in thousandsComputed expected tax benefit (expense)

$
3,232



724



(28,739
)State and local income taxes, net of federal income taxes


(3,015
)


(4,477
)


(3,976
)Change in valuation allowance affecting tax expense


(25,181
)


(8,711
)


1,630Goodwill impairment not deductible for tax purposes


(26,421
)


(26,655
)


U.S. taxes on foreign income


(3,503
)


776



34Non-deductible expenses


(1,960
)


(2,273
)


(2,361
)Change in estimated state tax rate










(15,263
)Other, net


(2,309
)


(3,326
)


(161
)Income tax expense

$
(59,157
)


(43,942
)


(48,836
)  II-44




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    2007


2006amounts in thousandsCurrent assets:Accounts receivable reserves

$
3,127



3,572Accrued liabilities


11,241



12,82114,368



16,393Noncurrent assets:Net operating loss carryforwards


58,309



61,956Intangible assets


39,971



9,497Other


5,809



8,527104,089



79,980Total deferred tax assets, gross


118,457



96,373Valuation allowance


(117,551
)


(96,223
)Total deferred tax assets, net


906



150Current liabilities:Other


(2,000
)


(1,761
)Noncurrent liabilities:Investments


(1,228,965
)


(1,174,744
)Other


(883
)


(1,229,848
)


(1,174,744
)Total deferred tax liabilities


(1,231,848
)


(1,176,505
)Net deferred tax liability

$
(1,230,942
)


(1,176,355
)     December 31,2007


2006amounts in thousandsCurrent deferred tax liabilities

$
2,000



1,761Long-term deferred tax liabilities, net of deferred tax assets


1,228,942



1,174,594Net deferred tax liabilities

$
1,230,942



1,176,355      II-45




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
                   II-46




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
  (12)
    Stockholders
    Equity  Preferred
    Stock    Common
    Stock      (13)
    Stock
    Options and Other Long-Term Incentive Compensation  Stock
    Options       II-47




---



##### 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, 2007


1,943,804


$
15.45



2,996,525


$
18.87Grants


40,000


$
22.90



Exercises


(828,570
)

$
15.94



Cancellations


(2,942
)

$
31.61



Outstanding at December 31, 2007


1,152,292


$
15.32



2,996,525


$
18.87Exercisable at December 31, 2007


926,743


$
15.47



2,936,525


$
18.93     2006
    Ascent Media Long-Term Incentive Plan
    (14)
    Other
    Comprehensive Earnings (Loss)   II-48




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    AccumulatedForeign


Unrealized


Minimum


OtherCurrency


Holding


Pension


ComprehensiveTranslation


Gains (losses)


Liability


Earnings (loss),Adjustments


on Securities


Adjustment


Net of Taxesamounts in thousandsBalance at January 1, 2005

$
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







15,914Other comprehensive earnings


7,934



(6,606
)


(461
)


867Balance at December 31, 2007

$
23,068



(5,826
)


(461
)


16,781     TaxBefore-tax


(Expense)


Net-of-taxAmount


Benefit


Amountamounts in thousandsYear ended December 31, 2007:Foreign currency translation adjustments

$
13,125



(5,191
)


7,934Unrealized holding losses on securities arising during period


(10,928
)


4,322



(6,606
)Minimum pension liability adjustment


(763
)


302



(461
)Other comprehensive earnings

$
1,434



(567
)


867Year ended December 31, 2006:Foreign currency translation adjustments

$
29,648



(11,726
)


17,922Unrealized holding losses 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
)   (15)
    Employee
    Benefit Plans   II-49




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    (16)
    Commitments
    and Contingencies    Year ended December 31:2008

$
31,3742009

$
30,9642010

$
27,7092011

$
22,3622012

$
16,954Thereafter

$
62,080         (17)
    Related
    Party Transactions      (18)
    Information
    About Operating Segments   II-50




---



##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
           II-51




---



##### 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, 2007Revenue from external customers

$
420,504



286,710







707,214



3,127,333Operating cash flow

$
48,493



49,256



(30,831
)


66,918



806,180Capital expenditures

$
23,494



19,789



3,832



47,115



80,553Depreciation and amortization

$
33,089



28,636



6,007



67,732



130,576Total assets

$
369,845



257,679



5,238,228



5,865,752



7,960,430Year ended December 31, 2006Revenue from external customers

$
417,876



270,211







688,087



2,883,671Operating cash flow

$
48,035



47,005



(36,311
)


58,729



746,766Capital expenditures

$
27,126



44,331



6,084



77,541



90,138Depreciation and amortization

$
38,661



23,055



6,213



67,929



122,037Total 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



2,544,358Operating cash flow

$
65,098



52,797



(39,270
)


78,625



707,744Capital expenditures

$
47,179



38,476



4,871



90,526



99,684Depreciation and amortization

$
38,644



27,046



10,687



76,377



112,653Total assets

$
470,213



323,558



5,025,465



5,819,236



3,174,620     (1)
    
    Included in Network Services Group revenue is broadcast services
    revenue of $158,273,000, $158,151,000 and $149,568,000 and
    systems integration revenue of $128,437,000, $112,060,000 and
    $123,144,000 in 2007, 2006 and 2005, respectively.    Years Ended December 31,2007


2006


2005amounts in thousandsSegment operating cash flow

$
66,918



58,729



78,625Stock-based compensation


(1,129
)


(1,817
)


(4,383
)Restructuring and other charges


(761
)


(12,092
)


(4,112
)Depreciation and amortization


(67,732
)


(67,929
)


(76,377
)Impairment of goodwill


(165,347
)


(93,402
)


Share of earnings of Discovery


141,781



103,588



79,810Other, net


17,035



10,855



8,549Earnings (loss) before income taxes

$
(9,235
)


(2,068
)


82,112  II-52




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##### Table of Contents



DISCOVERY
    HOLDING COMPANY AND SUBSIDIARIES
  Notes to
    Consolidated financial
    Statements  (Continued)
    Years Ended December 31,2007


2006


2005amounts in thousandsRevenueUnited States

$
561,594



535,792



525,288United Kingdom


120,821



129,540



149,928Other countries


24,799



22,755



19,293$
707,214



688,087



694,509Property and equipment, netUnited States

$
178,299



184,052United Kingdom


68,548



70,363Other countries


22,895



26,360$
269,742



280,775   (19)
    Quarterly
    Financial Information (Unaudited)  1st


2nd


3rd


4thQuarter


Quarter


Quarter


Quarteramounts in thousands, except per share amounts2007:Revenue

$
173,882



177,220



177,913



178,199Operating income (loss)

$
(1,201
)


(2,929
)


(1,553
)


(161,960
)Net earnings (loss)

$
20,464



74,217



7,507



(170,580
)Basic and diluted net earnings (loss) per common share

$
.07



.26



.03



(.61
)2006: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
)


.02  II-53




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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




---



##### 



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


II-26Report of Independent Registered Public
    Accounting Firm


II-27Report of Independent Registered Public
    Accounting Firm


II-28Consolidated Balance Sheets, December 31,
    2007 and 2006


II-29Consolidated Statements of Operations and
    Comprehensive Earnings (Loss), Years ended December 31,
    2007, 2006 and 2005


II-30Consolidated Statements of Cash Flows, Years
    Ended December 31, 2007, 2006 and 2005


II-31Consolidated Statements of Stockholders
    Equity, Years ended December 31, 2007, 2006 and 2005


II-32Notes to Consolidated Financial Statements,
    December 31, 2007, 2006 and 2005


II-33    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
    Holding, LLC:  
  Report of Independent Registered Public
    Accounting Firm


IV-3Report of Independent Registered Public
    Accounting Firm


IV-4Consolidated Balance Sheets, December 31,
    2007 and 2006


IV-5Consolidated Statements of Operations, Years
    ended December 31, 2007, 2006 and 2005


IV-6Consolidated Statements of Cash Flows, Years
    ended December 31, 2007, 2006 and 2005


IV-7Consolidated Statements of Changes in
    Members Equity and Stockholders Deficit, Years ended
    December 31, 2007, 2006 and 2005


IV-8Notes to Consolidated Financial Statements


IV-9    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). IV-1




---



##### Table of Contents



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


Amended and Restated Limited Liability Company Agreement of
    Discovery Communications Holding, LLC, dated as of May 14,
    2007, by and among Advance/Newhouse Programming Partnership, LMC
    Discovery, Inc. and John S. Hendricks, filed herewith.10.2


Form of Tax Sharing Agreement between Liberty Media Corporation
    and DHC (incorporated by reference to Exhibit 10.6 to the
    Form 10).10.3


Discovery Holding Company 2005 Incentive Plan (As Amended and
    Restated Effective August 15, 2007) (incorporated by
    reference to Exhibit 10.1 to the Quarterly Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.4


Discovery Holding Company 2005 Non-Employee Director Incentive
    Plan (As Amended and Restated Effective August 15, 2007)
    (incorporated by reference to Exhibit 10.2 to the Quarterly
    Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.5


Discovery Holding Company Transitional Stock Adjustment Plan (As
    Amended and Restated Effective August 15, 2007)
    (incorporated by reference to Exhibit 10.3 to the Quarterly
    Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.6


Agreement between DHC and John C. Malone (incorporated by
    reference to Exhibit 10.10 to the Form 10).10.7


Agreement, dated June 24, 2005, between Discovery and DHC
    (incorporated by reference to Exhibit 10.11 to the
    Form 10).10.8


Indemnification Agreement, dated as of June 24, 2005,
    between Cox and DHC (incorporated by reference to
    Exhibit 10.12 to the Form 10).10.9


Indemnification Agreement, dated as of June 24, 2005,
    between NewChannels and DHC (incorporated by reference to
    Exhibit 10.13 to the Form 10).10.10


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




---



##### Table of Contents



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




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm  To the Board
    of Directors and Members of
       IV-4




---



##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Consolidated
    Balance Sheets
  Successor






PredecessorCompany







CompanyDecember 31, 2007






December 31, 2006in thousands, except share dataASSETSCurrent assetsCash and cash equivalents

$
44,951



$
52,263Accounts receivable, less allowances of $22,419 and $25,175


741,745




657,552Inventories


10,293




35,716Deferred income taxes


103,723




76,156Content rights, net


79,162




64,395Other current assets


97,359




84,554Total current assets


1,077,233




970,636Property and equipment, net


397,430




424,041Content rights, net, less current portion


1,048,193




1,253,553Deferred launch incentives


242,655




207,032Goodwill


4,870,187




365,266Intangibles, net


181,656




107,673Investments in and advances to unconsolidated affiliates


100,724




15,564Other assets


42,352




32,788TOTAL ASSETS

$
7,960,430



$
3,376,553LIABILITIES AND MEMBERS EQUITY/STOCKHOLDERS
    DEFICITCurrent liabilitiesAccounts payable and accrued liabilities

$
267,818



$
316,804Accrued payroll and employee benefits


183,823




122,431Launch incentives payable


1,544




17,978Content rights payable


56,334




57,694Current portion of long-term incentive plan liabilities


141,562




43,274Current portion of long-term debt


32,006




7,546Income taxes payable


23,629




55,264Unearned revenue


78,155




68,339Other current liabilities


65,624




45,194Total current liabilities


850,495




734,524Long-term debt, less current portion


4,109,085




2,633,237Derivative financial instruments, less current portion


49,110




8,282Launch incentives payable, less current portion


6,114




10,791Long-term incentive plan liabilities, less current portion







41,186Content rights payable, less current portion


2,459




3,846Deferred income taxes


10,619




46,289Other liabilities


175,565




64,861Total liabilities


5,203,447




3,543,016Mandatorily redeemable interests in subsidiaries


48,721




94,825Commitments and contingenciesMembers Equity/Stockholders deficitClass A common stock; $.01 par value; zero shares
    authorized, issued or outstanding at December 31, 2007;
    100,000 shares authorized, 51,119 shares issued, less
    719 shares of treasury stock at December 31, 2006







1Class B common stock; $.01 par value; zero shares
    authorized, issued or outstanding at December 31, 2007;
    60,000 shares authorized, 50,615 shares issued and
    held in treasury stock at December 31, 2006







Additional paid-in capital







21,093Members equity (51,119 member units issued, less 13,319
    repurchased and retired)


2,533,694




Retained earnings (deficit)


184,712




(306,135
)Accumulated other comprehensive (loss) income


(10,144
)



23,753Total members equity/stockholders deficit


2,708,262




(261,288
)TOTAL LIABILITIES AND MEMBERS EQUITY/STOCKHOLDERS
    DEFICIT

$
7,960,430



$
3,376,553    IV-5




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Consolidated
    Statements of Operations
  SuccessorCompany



Predecessor CompanyMay 15, 2007



January 1, 2007


Year Ended


Year Endedthrough



through


December 31,


December 31,December 31, 2007



May 14, 2007


2006


2005in thousandsOPERATING REVENUEAdvertising

$
874,894



$
470,139


$
1,243,500


$
1,187,823Distribution


930,386




547,093



1,434,901



1,198,686Other


222,626




82,195



205,270



157,849Total operating revenue


2,027,906




1,099,427



2,883,671



2,544,358OPERATING EXPENSESCost of revenue, exclusive of depreciation and amortization
    shown below


799,716




373,191



1,032,789



907,664Selling, general and administrative


823,918




486,129



1,143,349



978,415Depreciation and amortization


82,807




73,943



122,037



112,653Gain from disposition of business


(134,671
)











Total operating expenses


1,571,770




933,263



2,298,175



1,998,732INCOME FROM OPERATIONS


456,136




166,164



585,496



545,626OTHER INCOME (EXPENSE)Interest, net


(180,157
)



(68,600
)


(194,255
)


(184,585
)Realized and unrealized (losses) gains from non-hedged
    derivative instruments, net


(10,986
)



2,350



22,558



22,499Minority interests in consolidated subsidiaries


(7,133
)



(1,133
)


(2,451
)


(43,696
)Equity in earnings of unconsolidated affiliates


5,093




3,529



7,060



4,660Other, net


(448
)



(335
)


1,467



9,111Total other expense, net


(193,631
)



(64,189
)


(165,621
)


(192,011
)INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES


262,505




101,975



419,875



353,615Income tax expense


25,303




52,163



190,381



173,427INCOME FROM CONTINUING OPERATIONS


237,202




49,812



229,494



180,188DISCONTINUED OPERATIONSLoss from discontinued operations, net of income tax benefit


(52,490
)



(12,533
)


(22,318
)


(20,568
)LOSS FROM DISCONTINUED OPERATIONS


(52,490
)



(12,533
)


(22,318
)


(20,568
)NET INCOME

$
184,712



$
37,279


$
207,176


$
159,620    IV-6




---



##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Consolidated
    Statements of Cash Flows
  SuccessorCompany



Predecessor CompanyMay 15, 2007



January 1, 2007


Year Ended


Year Endedthrough



through


December 31,


December 31,December 31, 2007



May 14, 2007


2006


2005in thousandsOPERATING ACTIVITIESNet income

$
184,712



$
37,279


$
207,176


$
159,620Adjustments to reconcile net income to cash provided by (used
    in) operations:Depreciation and amortization


111,208




77,186



133,634



123,209Amortization of deferred launch incentives and representation
    rights


58,425




37,158



77,778



83,411Provision (reversal) for losses on accounts receivable


(2
)



1,855



3,691



12,217Expenses arising from long-term incentive plans


78,527




62,850



39,233



49,465Equity in earnings of unconsolidated affiliates


(5,093
)



(3,529
)


(7,060
)


(4,660
)Deferred income taxes


(70,978
)



10,511



108,903



109,383Realized and unrealized gains on derivative financial
    instruments, net


10,986




(2,350
)


(22,558
)


(22,499
)Gain from disposition of business


(134,671
)











Non-cash minority interest charges


7,133




1,133



2,451



43,696Gain on sale of investments











(1,467
)


(12,793
)Other non-cash (income) charges


1,733




(4,263
)


2,447



9,675Changes in assets and liabilities, net of business
    combinations and dispositions:Accounts receivable


(45,808
)



(29,507
)


(84,598
)


(37,207
)Inventories


21,666




4,805



(4,560
)


1,853Other assets


27,682




(23,872
)


(7,434
)


(18,748
)Content rights, net of payables


110,811




(2,689
)


(84,377
)


(108,155
)Accounts payable and accrued liabilities


119,769




(93,260
)


73,646



47,913Representation rights











93,233



(6,000
)Deferred launch incentives


(25,623
)



(197,624
)


(49,386
)


(35,731
)Long-term incentive plan liabilities


(76,315
)



(7,773
)


(841
)


(325,756
)Cash provided by (used in) operations


374,162




(132,090
)


479,911



68,893INVESTING ACTIVITIESAcquisition of property and equipment


(55,965
)



(24,588
)


(90,138
)


(99,684
)Business combinations, net of cash acquired


(306,094
)







(194,905
)


(400
)Purchase of intangibles















(583
)Investments in and advances to unconsolidated affiliates















(363
)Redemption of interests in subsidiaries







(44,000
)


(180,000
)


(92,874
)Proceeds from sale of investments











1,467



14,664Cash used in investing activities


(362,059
)



(68,588
)


(463,576
)


(179,240
)FINANCING ACTIVITIESProceeds from issuance of long-term debt


1,286,362




211,277



316,813



1,785,955Principal payments of long-term debt


(11,742
)



(2,356
)


(307,030
)


(1,697,068
)Deferred financing fees


(4,690
)



(16
)


(1,144
)


(4,810
)Repurchase of members interest


(1,284,544
)











Contributions from minority shareholders















603Other financing


(17,590
)



(2,473
)


(9,963
)


32,153Cash (used in) provided by financing activities


(32,204
)



206,432



(1,324
)


116,833Effect of exchange rate changes on cash and cash equivalents


2,658




4,377



2,761



3,723CHANGE IN CASH AND CASH EQUIVALENTS


(17,443
)



10,131



17,772



10,209Cash and cash equivalents, beginning of period


62,394




52,263



34,491



24,282CASH AND CASH EQUIVALENTS, END OF PERIOD

$
44,951



$
62,394


$
52,263


$
34,491    IV-7




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Consolidated
    Statements of Changes in Members Equity and
    Stockholders Deficit
  Accumulated OtherComprehensive Income (Loss)UnrealizedAdditional











GainPaid-in








Unrealized


(Loss)Class A


Capital/


Retained


Foreign


Gain


fromCommon Stock


Members


Earnings


Currency


(Loss) on


HedgingAt Par


Redeemable


Equity


(Deficit)


Translation


Investment


Activities


TOTALin thousandsPredecessor Company:Balance, 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
)Comprehensive incomeNet income for the period January 1, 2007 through
    May 14, 2007














37,279Foreign currency translation, net of tax of $4.7 million


















7,691Unrealized gain on investments, net of tax of $0.9 million






















1,552Amortization of gain on cash flow hedge


























(77
)Cumulative effect for the adoption of FIN 48














(5,011
)Total comprehensive income






























41,434Balance, May 14, 2007

$
1


$



$
21,093


$
(273,867
)

$
28,864


$
2,275


$
1,780


$
(219,854
)Successor Company:Formation of Successor CompanyPushdown of investor basis










4,392,804



















4,392,804Comprehensive incomeNet income for the period May 15, 2007 through
    December 31, 2007














184,712Foreign currency translation, net of tax of $4.4 million


















7,354Unrealized gain on investments, net of tax of $1.8 million






















3,011Changes from hedging activities, net of tax of $12.2 million


























(20,509
)Total comprehensive income






























174,568Repurchase of members interest










(1,859,110
)


















(1,859,110
)Balance, December 31, 2007









$
2,533,694


$
184,712


$
7,354


$
3,011


$
(20,509
)

$
2,708,262    IV-8




---



##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to Consolidated Financial Statements
  1.  Basis
    of Presentation and Description of Business
  Basis
    of Presentation
    non-amortizable
    Description
    of Business
    2.  Summary
    of Significant Accounting Policies
  Principles
    of Consolidation
   IV-9




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Use
    of Estimates
    Recent
    Accounting Pronouncements
         IV-10




---



##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Revenue
    Recognition
  e-commerce
  E-commerce point-of-sale
  Advertising
    Costs
    Cash
    and Cash Equivalents
    Derivative
    Financial Instruments
    Inventories
    Content
    Rights
   IV-11




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Property
    and Equipment
    Capitalized
    Software Costs
    Recoverability
    of Long-Lived Assets, Goodwill, and Intangible
    Assets
   IV-12




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Deferred
    Launch Incentives
    Foreign
    Currency Translation
    Long-term
    Incentive Plans
      mark-to-market
 IV-13




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Mandatorily
    Redeemable Interest in Subsidiaries
    Minority
    Interest
    Treasury
    Stock
    Discontinued
    Operations
    Income
    Taxes
   IV-14




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      3.
    Supplemental
    Disclosures to Consolidated Statements of Cash Flows  Successor


PredecessorMay 15


January 1through


throughDecember 31,


May 14,2007


2007

2006

2005in thousandsCash paid for acquisitions:Fair value of assets acquired

$
419,154



$



$
223,293


$
400Fair value of liabilities Assumed


(113,060
)







(28,388
)


Cash paid for acquisitions, net of cash acquired

$
306,094



$



$
194,905


$
400Cash paid for interest

$
179,669



$
77,849


$
196,195


$
171,151Cash paid for income taxes

$
58,323



$
16,554


$
70,215


$
27,678   4.
    Business
    Combinations    12-24 months.
 IV-15




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
          HSW, Animal Planet andAsset (Liability)

Treehugger, Combinedin thousandsCurrent assets and content

$
22,399Investment in HSWi stock


79,375Other tangible assets


1,313Finite-lived intangibles (including brand names, customer lists
    and trademarks)


119,421Goodwill


196,646Liabilities assumed


(14,753
)Deferred taxes


(44,585
)Estimated redemption liability to HSW shareholders


(53,722
)Cash paid, net of cash acquired

$
306,094   free-to-air free-to-air
   IV-16




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      
    Petfinder.com, a facilitator of pet adoptions and
    PetsIncredible, a producer and distributor of pet-training
    videos. During 2007, the former owners earned payment of certain
    contingent consideration in connection with this acquisition,
    resulting in the addition of $11.0 million in goodwill.
    Clearvue and SVE, Inc., a provider of curriculum-oriented media
    educational products.
    Academy123, Inc., a provider of on-line supplemental,
    educational content focusing largely on mathematics and
    sciences. In May 2007, Discovery recorded an asset impairment of
    $20.6 million, including $11.5 million of goodwill,
    for goodwill and intangible assets established during 2006
    related to Academy 123, Inc. The business had not been
    integrated into the education reporting unit, and management
    decided to scale back its education business to consumers.
    Thinklink, Inc., a provider of formative assessment testing
    services to schools servicing students in grades K through 12.      DMAX, Antenna andOther Acquisitions,Asset (Liability)

Combinedin thousandsCurrent assets and content

$
40,365Other tangible assets


7,765Finite-lived intangible assets


73,378Goodwill


101,785Liabilities assumed


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

$
194,905   5.
    Discontinued
    Operations  e-commerce e-commerce,
 IV-17




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Successor


PredecessorMay 15 through


January 1 throughDecember 31, 2007


May 14, 2007

2006

2005in thousandsRevenue

$
30,491



$
27,362


$
129,317


$
127,396Loss from discontinued operations before income taxes

$
(81,115
)


$
(18,312
)

$
(35,911
)

$
(31,652
)Loss from discontinued operations, net of tax

$
(52,490
)


$
(12,533
)

$
(22,318
)

$
(20,568
)       December 31,Successor



Predecessor2007



2006in thousandsCurrent assets

$




$
38,106Total assets

$




$
67,707Current liabilities

$
(6,349
)


$
(29,961
)Total liabilities

$
(6,349
)


$
(39,339
)  IV-18




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  6.
    Content
    Rights  December 31,Successor



PredecessorContent Rights

2007



2006in thousandsProduced content rightsCompleted

$
1,346,985



$
1,476,830In process


195,025




161,942Co-produced content rightsCompleted


499,127




681,105In process


53,984




86,359Licensed content rightsAcquired


209,082




213,691Prepaid


21,690




10,386Content rights, at cost


2,325,893




2,630,313Accumulated amortization


(1,198,538
)



(1,312,365
)Content rights, net


1,127,355




1,317,948Current portion, licensed content rights


(79,162
)



(64,395
)Non-current portion

$
1,048,193



$
1,253,553      IV-19




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    Property
    and Equipment  December 31,Successor



PredecessorProperty and Equipment

2007



2006in thousandsEquipment and software

$
478,616



$
411,583Land


28,781




28,781Buildings


154,227




153,737Furniture, fixtures, leasehold improvements and other


151,417




217,884Assets in progress


14,471




11,833Property and equipment, at cost


827,512




823,818Accumulated depreciation and amortization


(430,082
)



(399,777
)Property and equipment, net

$
397,430



$
424,041     8.
    Sale of
    Equity Investments    9.  Goodwill
    and Intangible Assets
  December 31,Successor



PredecessorGoodwill and Intangible Assets

2007



2006in thousandsGoodwill

$
4,870,187



$
365,266Trademarks, net of accumulated amortization of $2,272 and $1,905

$
62,193



$
12,322Customer lists, net of accumulated amortization of $76,919 and
    $136,049


67,282




26,500Other, net of accumulated amortization of $77,026 and $55,355


52,181




68,851Intangibles, net

$
181,656



$
107,673  IV-20




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Reconciliation of net carrying amount of goodwill

in thousandsBalance at January 1, 2007 (Predecessor)

$
365,266Impairment (Predecessor) (Note 4)


(11,478
)Translation (Predecessor)


2,047Push down of investor basis (Successor) (Note 1)


4,591,581Disposals (Successor) (Note 1)


(280,838
)Acquisitions (Successor) (Note 4)


198,109Translation (Successor)


5,500Balance at December 31, 2007 (Successor)

$
4,870,187        IV-21




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  10.  Investments
    AccountingAffiliates:

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

ConsolidatedJoint Venture Network LLC (JVN)

ConsolidatedAnimal Planet Europe

ConsolidatedAnimal Planet Latin America

ConsolidatedPeople & Arts Latin America

ConsolidatedAnimal Planet Asia

ConsolidatedAnimal Planet Japan

ConsolidatedAnimal Planet Canada

EquityOther Ventures:Animal Planet United States (see Note 12)

ConsolidatedDiscovery Canada

EquityDiscovery Japan

EquityDiscovery Health Canada

EquityDiscovery Kids Canada

EquityDiscovery Civilization Canada

EquityHSWi (See Note 4)

Equity   Joint
    Ventures with the BBC
      Other
    Ventures
   IV-22




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  11.
    Debt  December 31,Successor



PredecessorDebt

2007



2006in thousands$1,000,000.0 Term Loan A due quarterly December 2008 to October
    2010

$
1,000,000



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


337,500




249,500260,000.0 Revolving Loan, due April 2009


94,174




187,828$1,500,000.0 Term Loan B due quarterly September 2007 to May 2014


1,492,500




8.06% 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




235,000Floating Rate Senior Notes, semi-annual interest, due December
    2012


90,000




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


390,000




390,000£10,000.0 Uncommitted Facility, due August 2008


8,785




Obligations under capital leases


37,172




32,355Other notes payable


960




1,100Subtotal


4,141,091




2,640,783Current portion


(32,006
)



(7,546
)Total long-term debt

$
4,109,085



$
2,633,237   1 2
     IV-23




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
            12.
    Mandatorily
    Redeemable Interests in Subsidiaries  December 31,Successor



PredecessorMandatorily Redeemable Interests in Subsidiaries

2007



2006in thousandsAnimal Planet LP

$




$
48,950People & Arts Latin America and Animal Planet Channel
    Group


48,721




45,875Mandatorily redeemable interests in subsidiaries

$
48,721



$
94,825   Animal
    Planet LP
    People &
    Arts Latin America and Animal Planet Channel Group
   IV-24




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
      13.
    Commitments
    and Contingencies  Year ending December 31,Future Minimum Payments

Leases


Content


Other


Totalin thousands2008

$
80,691


$
269,175


$
106,187


$
456,0532009


65,991



66,616



85,546



218,1532010


56,518



41,287



71,246



169,0512011


41,360



40,176



23,852



105,3882012


35,417



40,667



4,148



80,232Thereafter


133,741



41,469



400



175,610Total

$
413,718


$
499,390


$
291,379


$
1,204,487        IV-25




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    14.
    Employee
    Savings Plans    15.
    Long-term
    Incentive Plans           IV-26




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Successor


PredecessorMay 15 -


January 1 -Weighted Average Assumptions

December 31, 2007


May 14, 2007

2006

2005Risk-free interest rate


3.20
%



4.72
%


4.78
%


4.36
%Expected term (years)


1.48




3.87



3.86



4.75Expected volatility


27.93
%



23.78
%


27.06
%


30.36
%Dividend yield


0
%



0
%


0
%


0
%       Successor



PredecessorMay 15 -



January 1 -December 31, 2007



May 14, 2007


2006


2005Weighted






Weighted





Weighted





WeightedAverage






Average





Average





AverageExercise






Exercise





Exercise





ExerciseUnits


Price



Units


Price


Units


Price


Units


PriceOutstanding at Beginning of period


26.7


$
16.01




26.3


$
15.00



24.2


$
14.82






$
Units exchanged



























7.8



12.77Units granted


6.4



29.65




7.8



18.66



3.5



16.36



16.4



15.81Units exercised


(1.1
)


15.69




(2.3
)


14.01



(0.1
)


13.12







Units redeemed/cancelled


(5.2
)


15.29




(5.1
)


15.82



(1.3
)


15.43







Outstanding at end of period


26.8



19.42




26.7



16.01



26.3



15.00



24.2



14.82Vested at Period-end


6.6


$
13.97




6.5


$
13.84



8.5


$
13.78



1.6


$
11.22    IV-27




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
  16.
    Income
    Taxes    Successor



PredecessorMay 15 -



January 1 -Income From Continuing Operations

December 31,



May 14,Before Taxes

2007



2007


2006


2005Domestic

$
254,772



$
86,601


$
444,504


$
358,065Foreign


7,733




15,374



(24,629
)


(4,450
)Income from continuing operations before taxes

$
262,505



$
101,975


$
419,875


$
353,615     Successor



PredecessorMay 15 -



January 1 -December 31,



May 14,Income Tax Expense

2007



2007


2006


2005in thousandsCurrentFederal

$
52,346



$
20,526


$
4,591


$
(1,479
)State


7,079




5,064



5,695



(3,205
)Foreign


28,185




16,634



59,879



57,644Total current income tax provision


87,610




42,224



70,165



52,960DeferredFederal


(65,091
)



4,618



114,986



106,182State


9,879




9,023



3,707



16,298Foreign


1,989




3,395



(3,637
)


(3,851
)Total deferred income tax (benefit) expense


(53,223
)



17,036



115,056



118,629Change in valuation allowance


(9,084
)



(7,097
)


5,160



1,838Total income tax expense

$
25,303



$
52,163


$
190,381


$
173,427  IV-28




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31Successor



Predecessor2007



2006Deferred Income Tax Assets and Liabilities

Current


Non-current



Current


Non-currentin thousandsAssetsLoss carryforwards

$
21,851


$
21,145



$
19,855


$
27,712Compensation


58,762



9,489




30,981



15,563Accrued expenses


11,161



13,232




12,088



14,981Reserves and allowances


8,613








10,938



Tax credits















8,574Derivative financial instruments






6,992








3,141Investments






13,337








10,445Depreciation






16,169








Intangibles






68,293








104,078Uncertain tax positions






28,089








Other


4,769



17,024




4,301



20,897105,156



193,770




78,163



205,391Valuation allowance






(10,250
)







(26,552
)Total deferred income tax assets


105,156



183,520




78,163



178,839LiabilitiesDepreciation















(6,164
)Content rights and deferred launch incentives






(156,654
)







(200,732
)Foreign currency translation






(5,744
)







(12,936
)Unrealized gains on investments






(24,970
)







(861
)Other


(1,433
)


(6,771
)



(2,007
)


(4,435
)Total deferred income tax liabilities


(1,433
)


(194,139
)



(2,007
)


(225,128
)Deferred income tax assets (liabilities), net

$
103,723


$
(10,619
)


$
76,156


$
(46,289
)  IV-29




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Successor


PredecessorMay 15 -


January 1 -

Year Ended December 31,Reconciliation of Effective Tax Rate from Continuing
    Operations

December 31, 2007


May 14, 2007

2006

2005Federal statutory rate


35.0
%



35.0
%


35.0
%


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


2.4




1.9



1.5



3.2Foreign income taxes, net of Federal benefit


7.5




12.8



7.7



9.7Non-taxable gain


(17.9
)











Travel deferred tax liabilities


(20.4
)











Change in US reserve


3.3












Non-deductible goodwill write-off







3.9







Domestic production deduction


(1.1
)



(1.8
)






Other


0.8




(0.6
)


1.1



1.1Effective income tax rate


9.6
%



51.2
%


45.3
%


49.0
%           non-U.S. tax
  non-U.S. tax and/or
     IV-30




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Reconciliation of Unrecognized Tax BenefitsBalance at January 1, 2007 (Predecessor)

$
91,375Reductions for tax positions of prior years (Predecessor)


(412
)Additions based on tax positions related to the current year
    (Successor)


11,650Additions for tax positions of prior years (Successor)


16,830Reductions for tax positions of prior years (Successor)


(28,674
)Settlements (Successor)


(2,035
)Balance at December 31, 2007 (Successor)

$
88,734     and/or and/or
    17.
    Financial
    Instruments       IV-31




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Fair
    Value of Financial Instruments
          Credit
    Concentrations
      18.
    Related
    Party Transactions   IV-32




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##### Table of Contents



DISCOVERY
    COMMUNICATIONS HOLDING, LLC
  Notes to
    Consolidated Financial
    Statements  (Continued)
   IV-33




---



##### Table of Contents



SIGNATURES
      By
    /s/  John
    C. Malone   Chief Executive Officer
      Signature

Title

Date/s/  John
    C. MaloneJohn
    C. Malone

Chairman of the Board, Director and Chief Executive Officer

February 15, 2008/s/  Robert
    R. BennettRobert
    R. Bennett

Director and President

February 15, 2008/s/  Paul
    A. GouldPaul
    A. Gould

Director

February 15, 2008/s/  M.
    LaVoy RobisonM.
    LaVoy Robison

Director

February 15, 2008/s/  J.
    David WargoJ.
    David Wargo

Director

February 15, 2008/s/  David
    J.A. FlowersDavid
    J.A. Flowers

Senior Vice President and Treasurer (Principal Financial Officer)

February 15, 2008/s/  Christopher
    W. SheanChristopher
    W. Shean

Senior Vice President and Controller (Principal Accounting
    Officer)

February 15, 2008  IV-34




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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


Amended and Restated Limited Liability Company Agreement of
    Discovery Communications Holding, LLC, dated as of May 14,
    2007, by and among Advance/Newhouse Programming Partnership, LMC
    Discovery, Inc. and John S. Hendricks, filed herewith.10.2


Form of Tax Sharing Agreement between Liberty Media Corporation
    and DHC (incorporated by reference to Exhibit 10.6 to the
    Form 10).10.3


Discovery Holding Company 2005 Incentive Plan (As Amended and
    Restated Effective August 15, 2007) (incorporated by
    reference to Exhibit 10.1 to the Quarterly Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.4


Discovery Holding Company 2005 Non-Employee Director Incentive
    Plan (As Amended and Restated Effective August 15, 2007)
    (incorporated by reference to Exhibit 10.2 to the Quarterly
    Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.5


Discovery Holding Company Transitional Stock Adjustment Plan (As
    Amended and Restated Effective August 15, 2007)
    (incorporated by reference to Exhibit 10.3 to the Quarterly
    Report on
    Form 10-Q
    of Discovery Holding Company for the quarter ended
    September 30, 2007 (File
    No. 000-51205)
    as filed on November 7, 2007).10.6


Agreement between DHC and John C. Malone (incorporated by
    reference to Exhibit 10.10 to the Form 10).10.7


Agreement, dated June 24, 2005, between Discovery and DHC
    (incorporated by reference to Exhibit 10.11 to the
    Form 10).10.8


Indemnification Agreement, dated as of June 24, 2005,
    between Cox and DHC (incorporated by reference to
    Exhibit 10.12 to the Form 10).10.9


Indemnification Agreement, dated as of June 24, 2005,
    between NewChannels and DHC (incorporated by reference to
    Exhibit 10.13 to the Form 10).10.10


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




---



##### 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.