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

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2007
		For the quarterly period ended June 30, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 000-51205

DISCOVERY HOLDING COMPANY

(Exact name of Registrant as specified in its charter)


State of Delaware		20-2471174
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12300 Liberty Boulevard
Englewood, Colorado		80112
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(720) 875-~~4000~~5400

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, asor ~~defined~~a insmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of Discovery Holding Company’s common stock as of ~~October~~July 31, ~~2007~~2008 was:

Series A common stock ~~269~~268,~~159~~065,~~338~~037 shares; and Series B common stock 13,196,436 shares.

Series B common stock 11,869,696 shares.

TABLE OF CONTENTS

Condensed Consolidated Balance Sheets (unaudited)
Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss) (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
Condensed Consolidated Statement of Stockholders’ Equity Nine months ended September 30, 2007 (unaudited)
Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits
2005 Incentive Plan, As Amended and Restated
2005 Non-Employee Director Incentive Plan, as Amended and Restated
Transitional Stock Adjustment Plan, as Amended and Restated
Rule 13a-14(a)/15d-14(a) Certification
Rule 13a-14(a)/15d-14(a) Certification
Rule 13a-14(a)/15d-14(a) Certification
Section 1350 Certification


Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations and Comprehensive Earnings
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statement of Stockholders’ Equity Six months ended June 30, 2008
Notes to Condensed Consolidated Financial Statements June 30, 2008
Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
Rule 13a-14(a)/15d-14(a) Certification
Rule 13a-14(a)/15d-14(a) Certification
Rule 13a-14(a)/15d-14(a) Certification
Section 1350 Certification

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

	September 30,			December 31,
	June 30,			December 31,
	2007			2006
	2008			2007
	amounts in thousands
ASSETS
Current assets:
Cash and cash equivalents	$	~~157~~226,~~461~~007			~~154~~209,~~775~~449
Trade receivables, net		~~152~~178,~~413~~205			~~147~~144,~~436~~342
Prepaid expenses		1513,~~424~~910			1114,~~522~~815
Other current assets		113,~~077~~956			3,~~629~~101
Total current assets		~~336~~422,~~375~~078			~~317~~371,~~362~~707
Investments in marketable securities		~~51,878~~—			5123,~~837~~545
Investment in Discovery Communications Holding, LLC (“Discovery”) (note 7)		3,294,999			3,129,157
Investment in Discovery Communications Holding, LLC (“Discovery”) (note 6)		3,414,968			3,271,553
Property and equipment, net		~~278~~255,~~503~~963			~~280~~269,~~775~~742
Goodwill (note 6)		2,075,671			2,074,789
Goodwill (note 5)		1,909,823			1,909,823
Other assets, net		1516,~~710~~546			1719,~~062~~382
Total assets	$	6,~~053~~019,~~136~~378			5,~~870~~865,~~982~~752
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3242,~~984~~390			4326,~~656~~298
Accrued payroll and related liabilities		2527,~~985~~127			3226,~~292~~127
Other accrued liabilities		3242,~~468~~713			2942,~~924~~761
Deferred revenue		2122,~~792~~602			1624,~~015~~951
Total current liabilities		~~113~~134,~~229~~832			~~121~~120,~~887~~137
Deferred income tax liabilities		1,~~240~~285,~~090~~504			1,~~174~~228,~~594~~942
Other liabilities		2921,~~808~~675			2522,~~237~~352
Total liabilities		1,~~383~~442,~~127~~011			1,~~321~~371,~~718~~431
Commitments and contingencies (note 9)
Commitments and contingencies (note 8)
Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued		—			—
Series A common stock, $.01 par value. Authorized 600,000,000 shares; issued and outstanding 268,868,635 shares at September 30, 2007 and 268,194,966 shares at December 31, 2006		2,689			2,682
Series A common stock, $.01 par value. Authorized 600,000,000 shares; issued and outstanding 268,059,637 shares at June 30, 2008 and 269,159,928 shares at December 31, 2007		2,680			2,691
Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 11,869,696 shares at September 30, 2007 and 12,025,088 shares at December 31, 2006		119			120
Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 13,198,236 shares at June 30, 2008 and 11,869,696 shares at December 31, 2007		132			119
Series C common stock, $.01 par value. Authorized 600,000,000 shares; no shares issued		—			—
Additional paid-in capital		5,~~727~~729,~~019~~206			5,~~714~~728,~~379~~213
Accumulated deficit		(1,~~082~~173,~~903~~613	)		(1,~~183~~253,~~831~~483	)
Accumulated other comprehensive earnings		2318,~~085~~962			1516,~~914~~781
Total stockholders’ equity		4,~~670~~577,~~009~~367			4,~~549~~494,~~264~~321
Total liabilities and stockholders’ equity	$	6,~~053~~019,~~136~~378			5,~~870~~865,~~982~~752

See accompanying notes to condensed consolidated financial statements.

I-1

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Earnings

(unaudited)

	Three Months Ended						~~Nine~~Six Months Ended
	September 30,						September 30,
	June 30,						June 30,
	2007			2006			2007			2006
	2008			2007			2008			2007
	amounts in thousands, except per share amounts
	amounts in thousands,
Net revenue	$	177,913			169,876			529,015			489,233
	except per share
	amounts
Net revenue (note 9)	$	194,477			177,220			383,782			351,102
Operating expenses:
Cost of services		~~122~~137,~~539~~912			~~111~~125,~~503~~185			~~362~~275,~~174~~972			~~318~~246,~~725~~727
Selling, general, and administrative, including stock-based compensation (notes 2 and 10)		39,644			42,772			122,497			131,894
Selling, general, and administrative, including stock-based compensation (notes 3 and 9)		38,817			37,757			79,972			75,761
Restructuring and other charges		~~192~~156			~~3,633~~—			~~192~~1,413			~~3,963~~—
Gain on sale of operating assets		(85	)		(120	)		(327	)		(287	)
Loss (gain) on sale of operating assets, net		258			(208	)		180			(242	)
Depreciation and amortization		1716,~~176~~761			1617,~~036~~415			5033,~~162~~301			4732,~~995~~986
Impairment of goodwill (note 6)		—			93,402			—			93,402
		193,904			180,149			390,838			355,232
		179,466			267,226			534,698			595,692
Operating income (loss)		573			(2,929	)		(7,056	)		(4,130	)
Operating loss		(1,553	)		(97,350	)		(5,683	)		(106,459	)
Other income:
Share of earnings of Discovery (note 7)		10,493			32,051			157,847			83,569
Share of earnings of Discovery (note 6)		74,802			125,797			141,204			147,354
Other income, net		~~2,653~~731			2,~~581~~318			142,~~268~~415			711,~~054~~615
		13,146			34,632			172,115			90,623
		75,533			128,115			143,619			158,969
Earnings (loss) before income taxes		11,593			(62,718	)		166,432			(15,836	)
Earnings before income taxes		76,106			125,186			136,563			154,839
Income tax expense		(430,~~086~~227	)		(1350,~~915~~969	)		(6456,~~244~~693	)		(3560,~~448~~158	)
Net earnings (loss)		7,507			(76,633	)		102,188			(51,284	)
Net earnings		45,879			74,217			79,870			94,681
Other comprehensive earnings, net of taxes:
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments		~~4,826~~(231	)		43,~~873~~349			93,~~529~~778			134,~~961~~703
Unrealized holding gains (losses) arising during the period		(46,~~514~~640	)		~~160~~1,700			(21,~~358~~597	)		~~844~~2,156
Other comprehensive earnings		~~312~~6,409			5,~~033~~049			72,~~171~~181			146,~~805~~859
Comprehensive earnings (loss)	$	7,819			(71,600	)		109,359			(36,479	)
Comprehensive earnings	$	52,288			79,266			82,051			101,540
Basic and diluted earnings (loss) per common share (note 3)	$	.03			(.27	)		.36			(.18	)
Basic and diluted earnings per common share — Series A and Series B (note 4)	$	.16			.26			.28			.34

See accompanying notes to condensed consolidated financial statements.

I-2

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended
	Six Months Ended
	September 30,
	June 30,
	2007			2006
	2008			2007
	amounts in thousands (note 4)
	amounts in thousands
Cash flows from operating activities:
Net earnings (loss)	$	102,188			(51,284	)
Net earnings	$	79,870			94,681
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		5033,~~162~~301			4732,~~995~~986
Stock-based compensation		~~1,652~~332			1,~~200~~308
Impairment of goodwill		—			93,402
Share of earnings of Discovery		(141,204	)		(147,354	)
Share of earnings of Discovery		(157,847	)		(83,569	)
Gain on lease buyout		—			(6,992	)
Gain on lease buyout		(6,992	)		—
Deferred income tax expense		55,198			58,660
Deferred income tax expense		62,768			33,649
Other non-cash credits, net		(543	)		(776	)
Other non-cash charges (credits), net		(1,008	)		135
Changes in assets and liabilities:
Changes in assets and liabilities, net of acquisitions:
Trade receivables		(33,367	)		7,244
Trade receivables		(4,492	)		(21,875	)
Prepaid expenses and other current assets		379			(1,839	)
Prepaid expenses and other current assets		(3,964	)		(3,730	)
Payables and other liabilities		15,420			(2,539	)
Payables and other liabilities		(9,960	)		33,213
Net cash provided by operating activities		9,386			35,379
Net cash provided by operating activities		32,507			49,136
Cash flows from investing activities:
Capital expenditures		(3618,~~310~~194	)		(5125,~~220~~093	)
Proceeds from lease buyout		7,138			—
Cash proceeds from lease buyout		—			7,138
Net purchases of marketable securities		(41	)		(51,052	)
Net sales (purchases) of marketable securities		23,545			(1,671	)
Cash paid for acquisitions, net of cash acquired		—			(46,793	)
Other investing activities, net		1,782			366
Other investing activities, net		(4,765	)		1,431
Net cash provided by (used in) investing activities		7,133			(19,260	)
Net cash used in investing activities		(33,978	)		(147,634	)
Cash flows from financing activities:
Net cash from option exercises		~~4,626~~379			—4,083
Other financing activities, net		(~~469~~340	)		(6314	)
Net cash provided (used) by financing activities		4,157			(6	)
Net cash provided by financing activities		39			3,769
Net increase (decrease) in cash and cash equivalents		2,686			(98,504	)
Net increase in cash and cash equivalents		16,558			19,888
Cash and cash equivalents at beginning of period		~~154~~209,~~775~~449			~~250~~154,~~352~~775
Cash and cash equivalents at end of period	$	~~157~~226,~~461~~007			~~151~~174,~~848~~663

See accompanying notes to condensed consolidated financial statements.

I-3

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders’ Equity Six months ended June 30, 2008 (unaudited)

Nine months ended September 30, 2007


															Accumulated
										Additional					Other		Total
	Preferred		Common Stock							Paid-in		Accumulated			Comprehensive		Stockholders’
	Stock		Series A			Series B		Series C		Capital		Deficit			Earnings		Equity
	amounts in thousands

Balance at January 1, 2008	$	—		2,691			119		—		5,728,213		(1,253,483	)		16,781		4,494,321
Net earnings		—		—			—		—		—		79,870			—		79,870
Other comprehensive earnings		—		—			—		—		—		—			2,181		2,181
Stock compensation		—		—			—		—		616		—			—		616
Stock option exercises		—		(11	)		13		—		377		—			—		379

Balance at June 30, 2008	$	—		2,680			132		—		5,729,206		(1,173,613	)		18,962		4,577,367

(unaudited)

															Accumulated
										Additional					Other		Total
	Preferred		Common Stock							Paid-in		Accumulated			Comprehensive		Stockholders’
	Stock		Series A		Series B			Series C		Capital		Deficit			Earnings		Equity
	amounts in thousands
Balance at January 1, 2007	$	—		2,682		120			—		5,714,379		(1,183,831	)		15,914		4,549,264
Net earnings		—		—		—			—		—		102,188			—		102,188
Other comprehensive earnings		—		—		—			—		—		—			7,171		7,171
Stock compensation		—		—		—			—		634		—			—		634
Cumulative effect of accounting change (note 8)		—		—		—			—		—		(1,260	)		—		(1,260	)
Conversion of Series B to Series A		—		1		(1	)		—		—		—			—		—
Stock option exercises		—		6		—			—		12,006		—			—		12,012
Balance at September 30, 2007	$	—		2,689		119			—		5,727,019		(1,082,903	)		23,085		4,670,009

See accompanying notes to condensed consolidated financial statements.

I-4

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 2008 (unaudited)

September 30, 2007

(unaudited)


(1)	Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Discovery Holding Company and its consolidated subsidiaries (“DHC” or the “Company”). DHC’s two wholly-owned operating subsidiaries are Ascent Media Group, LLC (“Ascent Media”) and ~~AccentHealth~~Ascent Media CANS, LLC (dba AccentHealth) (“AccentHealth”). DHC also has a 662/3% ownership interest in Discovery, previously a 50% interest through May 14, 2007, which it accounts for as an equity method investment (see note 76). All significant intercompany accounts and transactions have been eliminated in consolidation.

Ascent Media is comprised of two operating segments. Ascent Media’s creative services group provides services necessary to complete the creation of original content, including feature films, mini-series, television shows, television commercials, music videos, promotional and identity campaigns, and corporate communications programming. The group manipulates or enhances original visual images or audio captured in principal photography orand creates new three dimensional images, animation sequences, or sound effects. In addition, the creative services group provides a full complement of facilities and services necessary to optimize, archive, manage, and repurpose completed media assets for global distribution via freight, satellite, fiber and the Internet. The network services group provides the facilities and services necessary to assemble and distribute programming content for cable and broadcast networks via fiber, satellite and the Internet to ~~viewers~~programming providers in North America, Europe and Asia. Additionally, the network services group provides systems integration, design, consulting, engineering and project management services.

~~Substantially~~AccentHealth ~~all~~operates ofan ~~the~~advertising-supported ~~assets~~captive ~~of AccentHealth were acquired by~~audience atelevision ~~subsidiary~~network ofin ~~DHC~~doctor inoffice ~~January~~waiting ~~2006,~~rooms nationwide, and ~~are~~is included as part of the network services group for financial reporting purposes. ~~AccentHealth operates an advertising-supported captive audience television network in doctor office waiting rooms nationwide.~~

Discovery is a leading global media and entertainment company ~~that~~ that provides original and purchased ~~cable and satellite television~~ programming across multiple platforms in the United States and ~~over~~ more than 170 other countries, including television networks offering customized programming in 35 languages. Discovery also develops and ~~sells~~ ~~branded~~sells ~~commerce~~consumer and educational ~~product~~products ~~lines~~and services in the ~~United~~ United States and internationally, and owns and operates a diversified portfolio of website properties and other digital services.

The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K, as amended, for the year ended December 31, ~~2006~~2007.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period. The significant estimates made in preparation of the Company’s ~~consolidated~~condensed ~~financial~~consolidated financial statements primarily relate to valuation of goodwill, ~~other~~ other intangible assets, long-lived assets, deferred tax assets, ~~and~~ and the amount of the allowance for doubtful accounts. Actual results could differ from the estimates upon which the carrying values were based.

(2) Stock Options and Other Long-Term Incentive Compensation

Stock Options

On July 21, 2005, Liberty Media Corporation (“Liberty”) completed the spin off of the capital stock of DHC (the “Spin Off”). The Spin Off was effected as a dividend by Liberty to holders of its Series A and Series B common stock of shares of DHC Series A and Series B common stock, respectively. Approximately 268.1 million shares of DHC Series A common stock and 12.1 million shares of DHC Series B common stock were issued in the Spin Off.

I-5

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~The~~(2) ~~Spin~~Newhouse ~~Off~~Transaction ~~did not involve the payment of any consideration by the holders of Liberty common stock~~ and ~~was~~Ascent ~~intended~~Spin ~~to qualify as a tax-free transaction.~~ Off

AsOn aJune 4, ~~result of the Spin Off and related adjustments to Liberty’s stock incentive awards~~2008, ~~options (“Spin Off~~ DHC ~~Awards”) to acquire an aggregate of approximately 2.0 million shares of DHC Series A common stock~~ and ~~3.0 million~~ ~~shares~~Advance/Newhouse ~~of DHC Series B common stock were~~Programming ~~issued~~Partnership ~~to employees of Liberty. In addition, employees of Ascent Media who held stock options or stock appreciation rights~~ (“~~SARs~~Advance/Newhouse”) toentered ~~acquire~~into ~~shares of Liberty common stock~~a ~~prior~~Transaction toAgreement ~~the~~under ~~Spin~~which ~~Off~~they ~~continue~~will tocombine ~~hold such options. DHC is~~their ~~responsible~~respective ~~for~~interests ~~all~~in ~~stock options related to DHC common stock, and Liberty is responsible for all incentive awards related to Liberty common stock~~Discovery. The ~~Company~~Transaction ~~records stock-based~~Agreement ~~compensation~~contemplates ~~for~~the ~~all~~following ~~stock incentive awards held by DHC’s~~steps: ~~and its subsidiaries’ employees.~~

~~The~~• ~~Company~~DHC ~~accounts~~will ~~for~~spin-off ~~stock~~to ~~option~~its ~~awards~~shareholders ~~pursuant~~a ~~to Statement~~wholly-owned subsidiary holding substantially all of ~~Financial~~DHC’s ~~Accounting~~cash, ~~Standards~~AccentHealth ~~No. 123 (revised~~and ~~2004)~~Ascent Media, ~~“Share~~except for those businesses of Ascent Media that provide sound, music, mixing, sound effects and other related post-~~Based~~production ~~Payment~~audio services under brand names such as Sound One POP Sound, Soundelux and Todd A-O (the “Ascent Media Spin Off” ); • Immediately following the Ascent Media Spin Off, DHC will combine with a new holding company (“~~Statement~~New ~~123R~~DHC”)., ~~Statement~~and ~~123R~~DHC’s ~~generally~~existing ~~requires companies~~shareholders towill ~~measure~~receive ~~the~~shares ~~cost~~of common stock of ~~employee~~New ~~services~~DHC; ~~received~~• As part of this transaction, Advance/Newhouse will contribute its interests in Discovery and Animal Planet to New DHC in exchange for anpreferred ~~award~~stock of ~~equity~~New ~~instruments~~DHC ~~(such~~that, asimmediately ~~stock options~~after ~~and~~the ~~restricted~~closing of the transactions, will be convertible at any time into shares initially representing one-third of the outstanding shares of common stock) ~~based~~of New DHC on ~~the~~an ~~grant~~as-~~date~~converted ~~fair~~basis. ~~value of~~The ~~the~~preferred ~~award,~~stock ~~and~~held toby ~~recognize~~Advance/Newhouse ~~that~~will ~~cost~~entitle ~~over~~it ~~the~~to ~~period~~elect ~~during which~~three ~~the~~members ~~employee~~to isNew ~~required~~DHC’s board of directors and to ~~provide~~exercise ~~service~~approval ~~(usually~~rights with respect to the ~~vesting~~ ~~period~~taking of ~~the~~specified ~~award)~~actions by New DHC and Discovery.

~~Liberty~~Although ~~calculated~~no ~~the~~assurance ~~grant-date~~can ~~fair~~be ~~value~~given, ~~for~~consummation ~~all~~ of ~~its~~this ~~awards~~transaction ~~using~~is expected in the ~~Black-Scholes~~third ~~Model.~~quarter ~~Liberty~~of ~~calculated~~2008. ~~the~~The Ascent ~~expected~~Media ~~term~~Spin ofOff ~~the~~was ~~awards~~approved ~~using~~by ~~the~~DHC’s ~~methodology~~board ~~included~~of directors in ~~SEC~~connection ~~Staff~~with ~~Accounting~~the ~~Bulletin~~agreement ~~No. 107.~~between ~~The~~DHC ~~volatility~~and ~~used~~Advance/Newhouse, inand ~~the~~it ~~calculation~~ is ~~based~~a oncondition ~~the implied volatility~~ of ~~publicly~~ ~~traded~~the ~~Liberty~~Ascent ~~options~~Media ~~with~~Spin aOff ~~similar~~that ~~term (generally~~the ~~20% —~~agreement ~~21%).~~between ~~Liberty~~DHC ~~used~~and ~~the~~Advance/Newhouse ~~risk-free~~be ~~rate~~in ~~for~~effect and that ~~Treasury~~all ~~Bonds~~conditions ~~with~~precedent ~~a term similar~~ to that oftransaction ~~the~~(other ~~subject~~than the ~~options.~~Ascent ~~The~~Media ~~Company~~Spin ~~has~~Off) ~~allocated~~shall ~~the~~have ~~grant-date~~been ~~fair~~satisfied. ~~value~~The ofAscent ~~the~~Media ~~Liberty awards to the~~ Spin Off ~~DHC~~will ~~Awards~~not ~~based~~occur onunless ~~the~~DHC’s shareholders ~~relative~~approve ~~trading~~proposals ~~prices~~relating ofto ~~DHC~~the ~~and~~transactions ~~Liberty~~contemplated ~~common stock after~~by the ~~Spin~~Transaction ~~Off~~Agreement.

OnIt ~~May 4,~~is ~~2006,~~currently ~~each~~expected ofthat for federal income tax purposes, the ~~non~~Ascent Media Spin Off will qualify as a tax-~~employee~~free distribution ~~directors~~to DHC’s shareholders and will be accounted for at historical cost due to the pro rata nature of ~~DHC~~the ~~was~~distribution. ~~granted~~Subsequent 10to the completion of the Ascent Media Spin Off,~~000~~ ~~options~~the historical results of operations of Ascent Media and AccentHealth prior to ~~purchase~~the Ascent Media Spin Off will be included in discontinued operations in DHC’s ~~Series A~~consolidated financial ~~common~~statements. The acquisition of Advance/Newhouse’s ~~stock~~interest ~~with~~in anDiscovery ~~exercise~~will ~~price~~result in New DHC owning 100% of Discovery, ~~$14.48~~and ~~per~~accordingly, ~~share.~~New ~~Such~~DHC ~~options~~will consolidate ~~vested~~Discovery’s ~~one~~financial ~~year~~position ~~from~~and results of operations effective with the ~~date~~closing of ~~grant,~~the ~~terminate~~transaction. 10Pursuant to FASB Technical Bulletin ~~years~~85-5, ~~from~~ the ~~date~~contribution of ~~grant~~Advance/Newhouse’s interests in Discovery and ~~had~~Animal aPlanet ~~grant-date~~to ~~fair~~New ~~value~~DHC ofwill ~~$4.47~~be treated as a ~~per~~non-substantive ~~share~~merger, asand ~~determined~~therefore, ~~using~~such ~~the~~interests ~~Black-Scholes~~will ~~Model~~be recorded at carry over basis.

On(3) ~~May 16,~~Stock ~~2007,~~Options each of the non-employee directors of DHC was granted 10,000 options to purchase DHC Series A common stock with an exercise price of $22.90 per share. Such options vest on the date of the 2008 DHC annual stockholder meeting. Also on May 16, 2007, the president of DHC was granted 10,000 options to purchase DHC Series A common stock with an exercise price of $22.90 per share. Such options vest one year from the date of grant. All 40,000 options granted on May 16, 2007 terminate 10 years from the date of grant and ~~had~~Other ~~a grant~~Long-~~date~~Term ~~fair~~Incentive ~~value of $7.74 per share, as determined using the Black-Scholes Model.~~ Compensation

~~As of September 30, 2007, the following DHC options were~~Stock ~~outstanding and vested:~~Options

			Weighted				Weighted
			Average				Average
	DHC		Exercise		DHC		Exercise
	Series A		Price		Series B		Price
Outstanding		1,215,000	$	15.33		2,997,000	$	18.87
Exercisable		971,000	$	15.49		2,937,000	$	18.93

The Company records stock-based compensation for all stock incentive awards held by DHC’s and its subsidiaries’ employees. The majority of these stock incentive awards were issued on or prior to DHC’s spin off from Liberty Media Corporation (“Liberty”) on July 21, 2005 (the “2005 Spin Off”). Stock option grants have also been issued to non- employee directors of DHC and to the president of DHC subsequent to that date. For the six months ended June 30, 2008 and 2007, stock-based compensation related to these awards was $616,000 and $401,000, respectively.

As of September 30, 2007, the total compensation cost related to unvested equity awards was $772,000. Such amount will be recognized in the Company’s consolidated statements of operations over a weighted average period of approximately 1.1 years.

2006 Ascent Media Long-Term Incentive Plan

I-6

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~(“Value”)~~As ~~is calculated as the sum~~ of ~~(i)~~June ~~6% of cumulative free cash flow (as defined in the 2006 Plan) over a period of up to six years~~30, ~~divided by 500~~2008,~~000~~ ~~plus (ii) 5% of~~ the ~~increase~~following in the calculated value of Ascent Media over a baseline value determined at the time of grant, divided by 10,000,000. The 2006 Plan is administered by a committee that consists of two individuals appointed by DHC. ~~Grants~~options ~~are determined by the committee, with the first grant occurring on August 3, 2006. The maximum number of PARs that may be granted under the 2006 Plan is 500,000, and there~~ were ~~438,500~~ ~~PARs~~outstanding ~~granted as of September 30, 2007. The PARs vest quarterly over a three year period,~~ and are payable on March 31, 2012 (or, if earlier, on the six-month anniversary of a grantee’s termination of employment without cause). Ascent Media records a liability and a charge to expense based on the Value and percent vested ~~at each reporting~~: ~~period. Ascent Media recorded 2006 Plan expense of $112,000 and $1,031,000 for the three and nine months ended September 30, 2007, respectively.~~

(3) Earnings (Loss) Per Common Share


			Weighted				Weighted
			Average				Average
	DHC		Exercise		DHC		Exercise
	Series A		Price		Series B		Price

Outstanding		1,108,201	$	15.33		1,667,985	$	19.06

Exercisable		891,787	$	15.48		1,667,985	$	19.06

~~Basic~~As ~~earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number~~ of ~~common shares outstanding for the period. The weighted average number of shares outstanding for the three and nine months ended September~~June 30, ~~2007 is 280~~2008,~~474,000~~ ~~and 280,350,000, respectively. The weighted average number of shares outstanding for each of~~ the ~~three~~total ~~and~~compensation ~~nine~~cost ~~months~~related ended September 30, 2006 is 279,949,000. Dilutive EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Due to ~~the relative insignificance of the~~ ~~dilutive~~unvested ~~securities~~equity inawards ~~2007~~was ~~and 2006, their inclusion does~~ not ~~impact~~ ~~the EPS amount as reported in the accompanying condensed consolidated statements of operations~~significant.

~~(4)~~ 2006 Ascent ~~Supplemental~~Media ~~Disclosure~~Long-Term ofIncentive ~~Cash Flow Information~~Plan

	Nine Months
	Ended
	September 30, 2006
	amounts in
	thousands
Cash paid for acquisitions:
Fair value of assets acquired	$	48,264
Net liabilities assumed		(1,471	)
Cash paid for acquisitions, net of cash acquired	$	46,793

Effective August 3, 2006, Ascent Media adopted its 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan provides the terms and conditions for the grant of, and payment with respect to, Phantom Appreciation Rights (“PARs”) granted to certain officers and other key personnel of Ascent Media. The value of a single PAR (“PAR Value”) is equal to the positive amount (if any) of (a) the sum of (i) 6% of cumulative free cash flow (as defined in the 2006 Plan) over a period of up to six years, divided by 500,000; plus (ii) the calculated value of Ascent Media, based on a formula set forth in the 2006 Plan, divided by 10,000,000; over (b) a baseline value determined at the time of grant. The 2006 Plan is administered by a committee that consists of two individuals appointed by DHC. Grants are determined by the committee, with the first grant occurring on August 3, 2006. The maximum number of PARs that may be granted under the 2006 Plan is 500,000, and there were 488,500 PARs granted as of June 30, 2008. The PARs vest quarterly over a three year period, and are payable on March 31, 2012 (or, if earlier, on the six-month anniversary of a grantee’s termination of employment without cause). Ascent Media records a liability and a charge to expense based on the PAR Value and percent vested at each reporting period.

(54) ~~Acquisition~~Earnings Per Common Share — Series A and Series B

~~Effective~~Basic ~~January 27,~~earnings ~~2006,~~per ~~one~~common ofshare ~~DHC’s~~(“EPS”) ~~subsidiaries~~is computed by ~~acquired~~dividing ~~substantially~~net ~~all~~earnings ofby the ~~assets~~weighted average number of ~~AccentHealth’s~~common ~~healthcare~~shares ~~media~~outstanding ~~business~~ for ~~cash~~the ~~consideration~~period. ofThe ~~$46,793,000.~~weighted average number ~~AccentHealth~~of ~~operates~~shares anoutstanding ~~advertising-supported~~for ~~captive~~the ~~audience~~three and six months ended ~~television~~June 30, ~~network~~2008 inis ~~doctor~~281,192,000 ~~office~~and ~~waiting~~281,118,090, ~~rooms nationwide~~respectively. The ~~Company~~weighted ~~recorded~~average ~~goodwill~~number of ~~$32,224,000~~shares ~~and~~outstanding ~~other~~for the three ~~intangible~~and ~~assets~~six ofmonths $9ended June 30,~~800~~ 2007 is 280,351,000 inand 280,287,000, ~~connection~~respectively. ~~with~~Dilutive ~~this~~EPS presents the dilutive ~~acquisition.~~effect ~~Other~~on ~~intangible~~a ~~assets~~per ~~are~~share ~~included~~basis inof ~~Other~~potential common shares as if ~~assets,~~they ~~net~~had inbeen converted at the ~~accompanying~~beginning ~~condensed~~of ~~consolidated~~the ~~balance~~periods ~~sheets~~presented. ~~The~~Due ~~excess~~to ~~purchase price over~~ the ~~fair~~relative ~~value~~insignificance of ~~assets~~the dilutive ~~acquired~~securities isin ~~attributable~~2008 toand ~~the~~2007, ~~growth~~their ~~potential~~inclusion ofdoes ~~AccentHealth~~not impact the ~~and~~EPS ~~expected~~amount ~~compatibility~~as ~~with~~reported ~~Ascent~~in ~~Media’s~~the ~~existing~~accompanying condensed ~~network~~consolidated ~~services~~statements ~~group~~of operations.

~~For~~(5) financial reporting purposes, the acquisition is deemed to have occurred on February 1, 2006. The results of operations of AccentHealth have been included in the consolidated results of DHC as part of the network services group since the date of acquisition. On a pro forma basis, the results of operations of AccentHealth are not significant to those of DHC for the nine months ended September 30, 2006. Goodwill

Goodwill is comprised of the following:


	June 30,		December 31,
	2008		2007
	amounts in thousands

Goodwill
Creative Services group	$	106,599		106,599
Network Services group		32,224		32,224
Discovery		1,771,000		1,771,000

Total goodwill	$	1,909,823		1,909,823

GAAP requires companies to allocate enterprise-level goodwill to all reporting units, including equity method investments. Accordingly, the Company has allocated $1,771,000,000 of enterprise-level goodwill to its investment

I-7

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~(6)~~ in ~~Goodwill~~Discovery. This allocation is performed for goodwill impairment testing purposes only and does not change the reported carrying value of the investment. However, to the extent that all or a portion of an equity method investment is disposed of in the future, the allocated portion of goodwill will be relieved and included in the calculation of the gain or loss on disposal.

~~Goodwill~~In isSeptember ~~comprised~~2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2007. However, the ~~following:~~effective date of SFAS 157 has been deferred to fiscal years beginning after November 15, 2008 and interim periods within those years, and DHC has elected the deferral provision, as it relates to fair value measurement requirements for (i) nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis (e.g. asset retirement obligations, restructuring liabilities and assets and liabilities acquired in business combinations) and (ii) fair value measurements required for impairments under SFAS No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

	September 30,		December 31,
	2007		2006
	amounts in thousands
Goodwill
Creative Services group	$	106,599		106,599
Network Services group		198,072		197,190
Discovery		1,771,000		1,771,000
Total goodwill	$	2,075,671		2,074,789


(6)	Investment in Discovery

~~GAAP~~Discovery ~~requires~~was ~~companies~~formed toin ~~allocate~~the ~~enterprise-level~~second ~~goodwill~~quarter ~~to all~~of ~~reporting~~2007 ~~units,~~as ~~including~~part ~~equity~~of ~~method investments.~~a ~~Accordingly,~~restructuring (the ~~Company~~“DCI ~~has~~Restructuring”) ~~allocated~~completed ~~$1,771,000,000 of~~by ~~enterprise-level~~Discovery ~~goodwill~~Communications, toInc. ~~its~~(“DCI”). ~~investment~~In inthe ~~Discovery. This~~DCI ~~allocation~~Restructuring, isDCI ~~performed~~became ~~for~~a ~~goodwill~~wholly-owned ~~impairment~~subsidiary ~~testing purposes~~of ~~only~~Discovery, and ~~does~~the ~~not~~former ~~change~~shareholders ~~the~~of ~~reported~~DCI, ~~carrying~~including ~~value~~DHC, became members of Discovery. Discovery is the successor ~~investment.~~reporting ~~However,~~entity to ~~the~~DCI. ~~extent~~In ~~that~~connection ~~all~~with orthe aDCI Restructuring, ~~portion~~Discovery ofapplied an“pushdown” accounting ~~equity~~and ~~method~~each ~~investment~~shareholder’s isbasis ~~disposed~~in ofDCI inas ~~the~~of ~~future~~May 14, ~~the~~2007 ~~allocated~~has ~~portion~~been ofpushed ~~goodwill~~down ~~will~~to beDiscovery. ~~relieved~~The ~~and~~result ~~included~~was $4.3 billion in goodwill being recorded by Discovery. Since ~~the~~goodwill ~~calculation~~is ofnot ~~the~~amortizable, ~~gain~~there oris ~~loss~~no oncurrent ~~disposal~~income statement impact for this change in basis.

OnDiscovery ~~August 18,~~is ~~2006,~~a ~~Ascent~~leading ~~Media~~global ~~announced~~media ~~that~~and itentertainment ~~intended~~company tothat ~~streamline~~provides ~~its~~original ~~structure~~and ~~into~~purchased ~~two~~programming ~~global~~across ~~operating~~multiple ~~divisions —~~platforms ~~creative~~in ~~services~~the ~~group~~United States and ~~network services~~more ~~group —~~than to170 ~~better align Ascent Media’s~~other ~~organization~~countries, ~~with~~including ~~the~~television ~~company’s~~networks ~~strategic~~offering ~~goals and to~~customized ~~respond~~programming toin ~~changes~~35 languages. ~~within~~Discovery ~~the~~also ~~industry~~develops ~~driven by technology~~ and ~~customer~~sells ~~requirements.~~consumer ~~The~~and ~~operations~~educational ofproducts ~~the~~and ~~media~~services ~~management~~in the ~~services~~United ~~group~~States ~~were~~and ~~realigned~~internationally, ~~with~~and ~~the~~owns ~~other~~and ~~two~~operates ~~groups, and~~a ~~such~~diversified ~~realignment~~portfolio ~~was~~of ~~completed~~website inproperties ~~the~~and ~~fourth~~other ~~quarter of 2006~~digital services.

AsOn ~~technology~~May 14, ~~and~~2007, ~~customer~~Discovery ~~requirements~~and ~~drove~~Cox ~~changes~~Communications ~~in this~~Holdings, ~~industry,~~Inc. ~~revenue~~(“Cox”) ~~and~~completed ~~operating~~an ~~cash~~exchange ~~flows~~of ~~had~~Cox’s ~~been declining~~25% ~~for~~ownership ~~the~~interest ~~media~~in ~~management~~Discovery ~~services~~for ~~group.~~all ~~As a result~~ of the ~~restructuring,~~ ~~and~~capital ~~the~~stock ~~declining financial performance~~ of ~~this~~ ~~group,~~a ~~including~~subsidiary ~~ongoing~~of ~~operating~~Discovery ~~losses,~~that ~~the~~held ~~media~~Travel ~~management~~Channel, ~~services~~travelchannel.com ~~group~~and ~~was~~approximately ~~tested~~$1.3 billion ~~for goodwill impairment~~ in ~~the third~~cash ~~quarter~~(the of“Cox ~~2006,~~Transaction”). ~~prior~~Discovery toraised ~~DHC’s~~the ~~annual goodwill valuation~~cash ~~assessment~~component ofthrough ~~the~~additional ~~entire~~debt ~~company.~~financing, ~~DHC~~and ~~estimated~~retired the ~~fair value~~ ofmembership ~~that~~interest ~~reporting~~previously ~~unit~~owned ~~principally~~ by ~~using~~Cox. ~~trading~~Upon ~~multiples~~completion of ~~revenue~~this ~~and operating cash flows of similar companies in the industry. In September 2006~~transaction, ~~Ascent~~DHC ~~Media~~owns ~~recognized~~ a ~~goodwill~~ ~~impairment loss for the media management services group of~~662/3% ~~$93,402,000,~~interest ~~which~~in ~~represents~~Discovery ~~the~~and ~~excess~~Advance/Newhouse ofowns ~~the carrying value~~a ~~over~~331/3% interest ~~the~~in ~~implied fair value of such goodwill~~Discovery.

( In connection with the Cox Transaction, DHC reallocated its excess basis related to its investment in Discovery. Such allocation process was completed in the first quarter of 2008 and resulted in approximately 48% of the excess basis created by the Cox Transaction being allocated to intangible assets with determinable useful lives. Amortization of such intangible assets aggregated $3,744,000 and $7,487,000 (net of related taxes) ~~Investment~~for the three and six months ended June 30, 2008, respectively, and is included in DHC’s share of earnings of Discovery.

~~Discovery~~DHC ~~was~~continues ~~formed~~to inaccount ~~the~~for ~~second~~its ~~quarter~~investment ofin ~~2007~~Discovery ~~as part of a~~using ~~restructuring (~~the ~~“DCI~~equity ~~Restructuring”)~~method ~~completed~~of ~~by Discovery~~accounting ~~Communications,~~due ~~Inc.~~to ~~(“DCI”).~~governance ~~In the DCI~~rights ~~Restructuring,~~possessed ~~DCI~~by ~~became~~Advance/Newhouse awhich ~~wholly-owned~~restrict ~~subsidiary~~DHC’s ofability ~~Discovery,~~to ~~and~~control ~~the former shareholders of DCI, including DHC, became members of~~ Discovery. ~~Discovery~~From isJanuary 1, ~~the~~2007 ~~successor~~through ~~reporting~~May 14, ~~entity~~2007, toDHC ~~DCI.~~recorded Inits ~~connection~~50% ~~with~~share of the ~~DCI Restructuring,~~earnings ~~Discovery applied “pushdown” accounting~~of ~~and each shareholder’s basis in~~ DCI. asSubsequent ofto May 14, 2007 ~~has~~, ~~been~~DHC ~~pushed~~has ~~down to Discovery. The result was $4.4 billion in goodwill being~~ recorded ~~by Discovery. Since~~its ~~goodwill is not amortizable, there is no income statement impact~~662/3% ~~for~~share ~~this~~of ~~change~~the inearnings ~~basis~~of Discovery.

~~Discovery~~DHC isdoes anot ~~global~~have ~~media~~access ~~and~~to ~~entertainment~~the ~~company~~cash ~~that provides~~Discovery ~~original~~generates ~~and purchased video programming across~~from ~~multiple~~its ~~platforms~~operations, inunless ~~the~~Discovery ~~United~~makes ~~States~~a ~~and~~distribution ~~in over 170 other~~with ~~countries.~~respect ~~Discovery~~to ~~also~~its ~~develops~~membership ~~and~~interests ~~sells~~or ~~branded~~makes ~~commerce~~other payments or ~~and~~advances ~~educational~~to ~~product~~its ~~lines~~members. inPrior ~~the United States.~~to

On May 14, 2007, Discovery and Cox Communications Holding, Inc. (“Cox”) completed an exchange of Cox’s 25% ownership interest in Discovery for all of the capital stock of a subsidiary of Discovery that held Travel Channel, travelchannel.com and approximately $1.3 billion in cash. Discovery raised the cash component through additional debt financing, and retired the membership interest previously owned by Cox. Upon completion of this

I-8

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~transaction~~May 14, ~~DHC~~2007, ~~owns~~DCI adid not pay any dividends on its capital ~~662/3%~~stock, and since that date, Discovery has not made any ~~interest~~distributions into ~~Discovery~~its members, and ~~Advance/Newhouse~~DHC ~~Communications~~does ~~owns~~not ahave sufficient ~~331/3%~~voting control to cause Discovery to make distributions or make ~~interest~~other payments or advances to DHC.

DHC’s ~~continues~~carrying tovalue ~~account~~ for ~~its investment in~~ Discovery ~~using the~~was ~~equity~~$3,414,968,000 ~~method of accounting due to governance rights~~at ~~possessed by Advance/Newhouse Communications which restrict DHC’s ability to control Discovery. From January~~June 130, ~~2006~~ ~~through~~2008. ~~May 14,~~In ~~2007~~addition, ~~DHC~~as ~~recorded~~described ~~its~~in ~~50% share of~~note 5, ~~the~~enterprise-level ~~earnings~~goodwill of ~~DCI. Subsequent to May 14~~$1, ~~2007~~771,000,000 ~~DHC~~ has ~~recorded~~ ~~its~~been allocated ~~662/3% share~~to of the ~~earnings~~investment ofin Discovery.

DHC’s carrying value for Discovery was $3,294,999,000 at September 30, 2007. In addition, as described in note 6, enterprise-level goodwill of $1,771,000,000 has been allocated to the investment in Discovery.

Summarized financial information for Discovery is as follows:

Consolidated Balance Sheets

	September 30,			December 31,
	June 30,		December 31,
	2007			2006
	2008		2007
	amounts in thousands
Cash and cash equivalents	$	5582,~~310~~016		44,951	~~52,263~~
Other current assets		~~982~~1,~~431~~056,225		1,032,282	~~918,373~~
Property and equipment, net		~~383~~409,~~989~~082		397,430	~~424,041~~
Goodwill and intangible assets		45,~~807~~019,~~931~~993		5,051,843	~~472,939~~
Programming rights, long term		1,~~143~~106,~~477~~804		1,048,193	~~1,253,553~~
Other assets		~~354~~331,~~198~~170		385,731	~~255,384~~
Total assets	$	78,~~727~~005,~~336~~290		7,960,430	~~3,376,553~~
Current liabilities	$	~~740~~698,~~068~~471		850,495	~~734,524~~
Long term debt		34,~~978~~047,~~252~~898		4,109,085	~~2,633,237~~
Other liabilities		~~220~~275,~~756~~585		243,867	~~175,255~~
Mandatorily redeemable equity in subsidiaries		48,~~010~~721		48,721	~~94,825~~
Members’ equity (deficit)		2,740,250			(261,288	)
Members’ equity		2,934,615		2,708,262
Total liabilities and members’ equity (deficit)	$	7,727,336			3,376,553
Total liabilities and members’ equity	$	8,005,290		7,960,430

I-9

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

Consolidated Statements of Operations

	Nine Months Ended
	Six Months Ended
	September 30,
	June 30,
	2007			2006
	2008			2007
	amounts in thousands
Revenue	$	21,~~241~~658,~~238~~210			21,~~061~~496,~~036~~606
Cost of revenue		(~~735~~473,~~159~~274	)		(~~706~~494,~~008~~772	)
Selling, general and administrative		(~~819~~583,~~997~~849	)		(~~793~~546,~~525~~922	)
Restructuring and other charges		(153,~~798~~919	)		—(12,286	)
Equity-based compensation		(~~129~~17,~~226~~431	)		(1085,~~561~~012	)
Depreciation and amortization		(9577,~~891~~909	)		(8764,~~036~~802	)
Asset impairment		~~(26,174~~—	)		—(26,174	)
Gain on sale of operating assets		~~134,671~~—			—134,671
Operating income		~~553~~501,~~664~~828			~~463~~401,~~906~~309
Interest expense, net		(~~179~~134,~~135~~918	)		(~~149~~107,~~828~~147	)
Other income, net		6,031			21,261
Other income (expense), net		(3,707	)		8,895
Income tax expense		(73140,~~938~~167	)		(~~143~~39,~~727~~732	)
Earnings from continuing operations		~~306~~223,~~622~~036			~~191~~263,~~612~~325
Loss from discontinued operations, net of income taxes		(60,532	)		(24,473	)
Loss from discontinued operations, net of income tax		—			(32,974	)
Net earnings	$	~~246~~223,~~090~~036			~~167~~230,~~139~~351
DHC’s share of Discovery’s net earnings	$	157,847			83,569

Note: In the third quarter of 2007, Discovery ~~completed~~ ~~the~~closed ~~closure of~~ its 103 mall-based and stand-alone Discovery Channel stores. As a result, ~~Consolidated~~Discovery’s ~~Statements~~consolidated statement of operations offor ~~Operations~~the ~~above~~six ~~have~~months ended June 30, 2007 has been prepared to reflect the retail store business as discontinued operations.

(87) Income Taxes

~~Effective~~During ~~January 1, 2007,~~ the ~~Company~~first ~~adopted~~quarter ~~FASB Interpretation~~of ~~No. 48~~2008, ~~“Accounting~~Liberty ~~for~~reached ~~Uncertainty~~an inagreement ~~Income~~with ~~Taxes,~~the anIRS ~~interpretation~~related ofto ~~FASB~~certain ~~Statement No. 109”~~disputed ~~(“FIN 48”).~~tax ~~FIN 48 clarifies~~items ~~the~~that ~~accounting~~arose ~~for uncertainty~~ in ~~income taxes~~ ~~recognized~~periods inprior ato ~~company~~DHC’s ~~financial~~spin ~~statements~~off ~~and prescribes~~from aLiberty ~~recognition threshold and measurement attribute for~~on ~~the~~July 21, ~~financial~~2005. ~~statement~~The ~~recognition~~IRS ~~and~~agreement ~~measurement~~resulted ofin a ~~tax~~reduction to ~~position~~the ~~taken~~initial oramount ~~expected~~of tofederal beand ~~taken~~California innet ~~a tax return. In~~operating ~~instances~~losses ~~where~~by ~~the~~$28,554,000 ~~Company~~and ~~has~~$49,667,000, ~~taken~~respectively, ~~or expects to take a tax~~that ~~position~~Liberty inhad ~~its~~allocated ~~tax~~to ~~return~~DHC ~~and~~at the ~~Company~~spin ~~believes~~off itdate. isIn ~~more~~addition, ~~likely~~during ~~than~~the ~~not~~first ~~that~~quarter ~~such~~of ~~tax~~2008, ~~position~~DHC ~~will~~reduced beits ~~upheld by the~~reserve ~~relevant~~against ~~taxing~~the ~~authority,~~net ~~the~~operating ~~Company~~losses ~~may~~allocated ~~record~~from ~~the~~Liberty ~~benefits~~from of$11,877,000 ~~such~~to ~~tax~~$2,662,000 ~~position~~under inFASB ~~its~~Interpretation ~~consolidated financial statements~~No. 48, ~~Upon~~“Accounting ~~adoption~~for ofUncertainty ~~FIN 48~~in onIncome ~~January 1~~Taxes, ~~2007, the~~an ~~Company’s~~interpretation ~~wholly-owned~~of ~~subsidiary,~~FASB ~~Ascent~~Statement ~~Media, reversed~~No. 109”. ~~$255~~However,~~000~~ ofsince ~~tax~~DHC ~~liabilities~~had ~~included~~previously inrecorded ~~the~~a ~~Company’s~~full valuation ~~December 31,~~allowance ~~2006~~against ~~consolidated~~these ~~balance~~net ~~sheet~~operating ~~with~~losses, athe reversal of ~~corresponding~~the ~~decrease~~net tooperating ~~accumulated~~losses, ~~deficit.~~the ~~Discovery recorded~~decrease ain ~~$5,011,000 net~~the ~~tax~~reserve ~~liability~~on ~~upon~~the ~~adoption of~~net ~~FIN 48~~operating losses, and the ~~Company~~reversal ~~recorded~~of ~~its~~the ~~50% share, or~~corresponding ~~$2,506,000,~~valuation ~~directly~~allowance toresulted ~~accumulated~~in ~~deficit,~~no net ofimpact ato ~~$991,000~~DHC’s ~~deferred~~condensed ~~tax~~consolidated ~~impact~~financial statements.

As of January 1, ~~2007~~2008, the Company’s tax reserves related to unrecognized tax benefits for uncertain tax positions was not significant. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or decrease during the year ended December 31, ~~2007~~2008.

When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Such interest expense is included in other income, net in the accompanying condensed consolidated statements of operations. Any accrual of penalties related to underpayment of income taxes on uncertain tax positions is included in other income, net in the accompanying condensed consolidated statements of operations. As of June 30, 2008, accrued interest and penalties related to uncertain tax positions was not significant.

I-10

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~interest~~As ~~expense~~of isJune 30, ~~included in Other income~~2008, ~~net in~~ the ~~accompanying~~ ~~condensed~~Company’s ~~consolidated~~tax ~~statements~~returns offor ~~operations.~~the ~~Any~~period ~~accrual~~July 21, of2005 ~~penalties~~through ~~related~~December 31, to2007 ~~underpayment of income taxes~~remain onsubject ~~uncertain~~to ~~tax~~examination ~~positions~~by isthe ~~included~~IRS infor ~~Other~~federal income, ~~net in~~tax ~~the accompanying condensed consolidated statements of operations~~purposes. ~~As of January 1, 2007, accrued interest and~~ ~~penalties related to uncertain tax positions was not significant.~~

As(8) ofCommitments ~~September 30,~~and ~~2007, the Company’s tax returns for the period July 21, 2005 through December 31, 2006 remain subject to examination by the IRS for federal income tax purposes.~~ Contingencies

(9) Commitments and Contingencies

The Company is involved in litigation and similar claims incidental to the conduct of its business. In management’s opinion, none of the pending actions is likely to have a material adverse impact on the Company’s financial position or results of operations.

The Company and its subsidiaries lease offices, satellite transponders and certain equipment under capital and operating lease arrangements.

On December 31, 2003, Ascent Media acquired the operations of Sony Electronic’s systems integration center business and related assets, which we refer to as SIC. In exchange, Sony received the right to be paid in 2008 an amount equal to 20% of the value of the combined business of Ascent Media’s wholly owned subsidiary, AF Associates, Inc. and SIC. The value of 20% of the combined business of AF Associates and SIC is estimated at $6,100,000, which liability is included in ~~long-term~~ other accrued liabilities in the accompanying condensed consolidated balance sheets. SIC is included in Ascent Media’s network services group.

(109) Related Party Transactions

In connection with the 2005 Spin Off, DHC and Liberty entered into a Services Agreement. Pursuant to the Services Agreement, ~~Liberty~~ Liberty provides the Company with office space and certain general and administrative services including legal, tax, ~~accounting,~~ accounting, treasury and investor relations support. The Company ~~reimburses~~ reimburses Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and for the Company’s allocable portion of facilities costs and costs associated with any shared services or personnel. Liberty and DHC have agreed that they will review cost allocations every six months and adjust such charges, if appropriate. Amounts charged to DHC by Liberty under the Services Agreement aggregated $1998,~~712,~~000 and $1,~~695~~103,000 for the ~~nine~~six months ended ~~September~~June 30, 2008 ~~2007~~ and ~~2006~~2007, respectively.

Ascent Media provides services, such as satellite uplink, systems integration, origination, and post-production, to Discovery. Revenue recorded by Ascent Media for these services for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 and ~~2006~~2007 aggregated ~~aggregated~~ $3419,~~281~~355,000 and $2422,~~977~~552,000, respectively.

(1110) Information About Operating Segments

The Company’s chief operating decision maker, or his designee (the “CODM”), has identified the Company’s reportable segments based on (i) financial information reviewed by the CODM and (ii) those operating segments that represent more than 10% of the Company’s consolidated revenue or earnings before taxes. In addition, those equity investments whose share of earnings represent more than 10% of the Company’s earnings before taxes are considered reportable segments.

Based on the foregoing criteria, the Company’s business units have been aggregated into three reportable segments: the creative services group and the network services group, which are consolidated operating segments, and Discovery, which is an equity affiliate.

The creative services group provides ~~various~~services ~~technical~~necessary to complete the creation of original content, including feature films, mini-series, television shows, television commercials, music videos, promotional and identity campaigns and corporate ~~creative~~communications. These services ~~necessary~~are referred to ~~complete~~generally ~~principal~~in ~~photography~~the ~~into~~entertainment ~~final~~industry ~~products~~as “post-production” services. In addition, ~~such~~the ascreative ~~feature~~services ~~films,~~group ~~movie~~provides ~~trailers,~~a full ~~documentaries~~complement of facilities and ~~independent~~services ~~films~~necessary to optimize, archive, ~~episodic~~manage ~~television~~and repurpose completed media assets for global distribution via freight, TVsatellite, fiber and the Internet. The ~~movies~~network services group provides the facilities and ~~mini-series,~~services necessary ~~television~~to ~~commercials,~~assemble ~~music~~and ~~videos,~~distribute programming content for ~~interactive~~cable ~~games~~and broadcast networks via fiber, satellite and ~~new~~the Internet to

I-11

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

~~digital~~programming ~~media,~~providers ~~promotional~~in ~~and~~North ~~identity~~America, ~~campaigns~~Europe and ~~corporate communications~~Asia. ~~These services are referred to generally in the~~ ~~entertainment industry as “post-production” services. In addition~~Additionally, the ~~creative~~network services group provides ~~a full~~systems ~~complement of facilities and services necessary to optimize~~integration, ~~archive,~~ ~~manage and repurpose completed media assets for global distribution via freight~~design, ~~satellite~~consulting, ~~fiber~~engineering and ~~the Internet. The~~project ~~network~~management services. ~~group provides broadcast services~~AccentHealth, which ~~are comprised~~operates ~~of services necessary to assemble and distribute~~an ~~programming~~advertising-supported ~~for~~captive ~~cable~~audience ~~and~~television ~~broadcast~~network ~~networks via fiber and~~in ~~satellite~~doctor tooffice ~~viewers~~waiting inrooms ~~North America~~nationwide, ~~Europe~~is ~~and~~included ~~Asia.~~in network ~~Additionally, the networks~~ services group ~~provides~~for ~~systems integration,~~financial ~~design,~~reporting ~~consulting, engineering and project management services~~purposes.

DHC corporate related items and unallocated Ascent Media corporate expenses are reflected in the Corporate and Other column listed below. As a result of Ascent Media’s reorganization completed in the fourth quarter of 2006, the segment presentation for prior periods has been conformed to the current period segment presentation.

The accounting policies of the segments that are consolidated entities are the same as those described in the summary of significant accounting policies and are consistent with GAAP.

The Company evaluates the performance of these operating segments based on financial measures such as revenue and ~~operating~~adjusted ~~cash flow~~OIBDA. The Company defines ~~operating~~adjusted ~~cash~~OIBDA ~~flow~~ as revenue ~~revenue~~ less cost of services and selling, general and administrative ~~administrative~~ expense (excluding stock and other equity-based compensation and accretion expense on asset retirement obligations). The Company believes this is an important indicator of the operational strength and performance of its businesses, including the businesses’ ability to service debt and capital expenditures. In addition, this measure ~~allows~~ is used by management to view operating results and perform analytical comparisons and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock and other equity-based compensation, accretion expense on asset ~~asset~~ retirement obligations and restructuring and impairment charges ~~charges~~ that are included in the measurement of operating income pursuant to GAAP. Accordingly, ~~operating~~adjusted ~~cash~~OIBDA ~~flow~~ should be considered in addition to, but not as a substitute for, operating income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies.

Summarized financial information concerning the Company’s reportable segments is presented in the following tables:


	Consolidated Reportable Segments
	Creative		Network									Equity
	Services		Services							Consolidated		affiliate-
	group		group(1)		Total		Other(2)			Total		Discovery
	amounts in thousands

Six months ended June 30, 2008
Revenue from external customers	$	193,713		190,069		383,782		—			383,782		1,658,210
Adjusted OIBDA	$	14,366		33,185		47,551		(19,252	)		28,299		601,087
Capital expenditures	$	9,522		6,381		15,903		2,291			18,194		24,053
Total assets	$	374,193		267,245		641,438		5,377,940			6,019,378		8,005,290
Six months ended June 30, 2007
Revenue from external customers	$	216,442		134,660		351,102		—			351,102		1,496,606
Adjusted OIBDA	$	25,481		19,101		44,582		(14,504	)		30,078		454,912
Capital expenditures	$	13,425		8,467		21,892		3,201			25,093		36,635


(1)		Included in network services group revenue is broadcast services revenue of $83,676,000 and $75,806,000 and systems integration revenue of $106,393,000 and $58,854,000 for the six months ended June 30, 2008 and 2007, respectively.

(2)		Amounts shown in other provide a reconciliation of total reportable segments to the Company’s consolidated total. Included in other is (i) SG&A expenses and capital expenditures incurred at a corporate level and (ii) assets held at a corporate level mainly comprised of cash and investment in Discovery, including enterprise — level goodwill allocated to Discovery.

I-12

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

Summarized financial information concerning the Company’s reportable segments is presented in the following tables:


	Consolidated Reportable Segments
	Creative		Network									Equity
	Services		Services							Consolidated		affiliate-
	group		group(1)		Total		Other(2)			Total		Discovery
	amounts in thousands

Three months ended June 30, 2008
Revenue from external customers	$	101,929		92,548		194,477		—			194,477		863,632
Adjusted OIBDA	$	10,546		16,016		26,562		(8,302	)		18,260		315,155
Capital expenditures	$	5,769		2,653		8,422		1,220			9,642		10,098
Three months ended June 30, 2007
Revenue from external customers	$	105,730		71,490		177,220		—			177,220		786,408
Adjusted OIBDA	$	11,198		10,813		22,011		(7,295	)		14,716		264,484
Capital expenditures	$	7,292		2,880		10,172		1,514			11,686		23,228

	Consolidated Reportable Segments
(1)	Included in network services group revenue is broadcast services revenue of $41,091,000 and $38,391,000 and systems integration revenue of $51,457,000 and $33,099,000 for the three months ended June 30, 2008 and 2007, respectively.
	Creative		Network							Equity
(2)	Amounts shown in other provide a reconciliation of total reportable segments to the Company’s consolidated total. Included in other is (i) SG&A expenses and capital expenditures incurred at a corporate level and (ii) assets held at a corporate level mainly comprised of cash and investment in Discovery, including enterprise — level goodwill allocated to Discovery.
	Services		Services		Corporate			Consolidated		Affiliate-
	group		group(1)		and other			Total		Discovery
	amounts in thousands
Nine months ended September 30, 2007
Revenue from external customers	$	316,401		212,614		—			529,015		2,241,238
Operating cash flow (deficit)	$	35,478		32,507		(21,753	)		46,232		686,082
Capital expenditures	$	19,240		13,482		3,588			36,310		55,317
Total assets	$	413,219		388,992		5,250,925			6,053,136		7,727,336
Nine months ended September 30, 2006
Revenue from external customers	$	303,498		185,735		—			489,233		2,061,036
Operating cash flow (deficit)	$	32,241		34,576		(27,003	)		39,814		561,503
Capital expenditures	$	19,243		29,481		2,496			51,220		40,109

~~(1)~~ The ~~Included~~following intable ~~network~~provides ~~services~~a ~~group~~reconciliation ~~revenue is broadcast services revenue~~ of ~~$113,951,000~~consolidated segment ~~and~~adjusted ~~$119,118,000~~OIBDA ~~and~~to ~~systems~~earnings ~~integration~~before ~~revenue~~income ~~of $98,663,000 and $66,617,000 for the nine months ended September 30, 2007 and 2006, respectively~~taxes.

	Consolidated Reportable Segments
	Three Months Ended						Six Months Ended
	Creative			Network									Equity
	June 30,						June 30,
	Services			Services			Corporate			Consolidated			Affiliate-
	2008			2007			2008			2007
	group			group(1)			and other			Total			Discovery
				amounts in thousands
	amounts in thousands
Consolidated segment adjusted OIBDA	$	26,562			22,011			47,551			44,582
Three months ended September 30, 2007
Corporate selling, general and administrative expenses		(8,302	)		(7,295	)		(19,252	)		(14,504	)
Revenue from external customers	$	99,959			77,954			—			177,913			744,631
Stock-based compensation		(448	)		(342	)		(332	)		(1,308	)
Operating cash flow (deficit)	$	9,995			13,407			(7,248	)		16,154			231,170
Restructuring and other charges		(156	)		—			(1,413	)		—
Capital expenditures	$	5,815			5,014			387			11,216			18,682
Depreciation and amortization		(16,761	)		(17,415	)		(33,301	)		(32,986	)
Three months ended September 30, 2006
Share of earnings of Discovery		74,802			125,797			141,204			147,354
Revenue from external customers	$	101,567			68,309			—			169,876			704,530
Other, net		409			2,430			2,106			11,701
Operating cash flow (deficit)	$	8,181			15,503			(7,868	)		15,816			204,960
Earnings before income taxes	$	76,106			125,186			136,563			154,839
Capital expenditures	$	7,142			10,472			1,206			18,820			14,334

(1) Included in network services group revenue is broadcast services revenue of $38,145,000 and $41,178,000 and systems integration revenue of $39,809,000 and $27,131,000 for the three months ended September 30, 2007 and 2006, respectively.

I-13

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

The following table provides a reconciliation of consolidated segment operating cash flow to earnings before income taxes.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	amounts in thousands
Consolidated segment operating cash flow	$	16,154			15,816			46,232			39,814
Stock-based compensation		(344	)		(215	)		(1,652	)		(1,200	)
Depreciation and amortization		(17,176	)		(16,036	)		(50,162	)		(47,995	)
Impairment of goodwill		—			(93,402	)		—			(93,402	)
Share of earnings of Discovery		10,493			32,051			157,847			83,569
Other, net		2,466			(932	)		14,167			3,378
Earnings (loss) before income taxes	$	11,593			(62,718	)		166,432			(15,836	)

Information as to the Company’s operations in different geographic areas is as follows:

	Nine Months Ended
	Six Months Ended
	September 30,
	June 30,
	2007		2006
	2008		2007
	amounts in thousands
Revenue
United States	$	~~420~~298,~~081~~841		~~373~~278,~~697~~674
United Kingdom		9072,~~339~~667		9859,~~976~~834
Other countries		1812,~~595~~274		1612,~~560~~594
	$	~~529~~383,~~015~~782		~~489~~351,~~233~~102

	September 30,		December 31,
	June 30,		December 31,
	2007		2006
	2008		2007
	amounts in thousands
Property and equipment, net
United States	$	~~185~~172,~~326~~181		~~184~~178,~~052~~299
United Kingdom		7063,~~293~~584		7068,~~363~~548
Other countries		2220,~~884~~198		2622,~~360~~895
	$	~~278~~255,~~503~~963		~~280~~269,~~775~~742

I-14


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results Of Operations*

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects, and anticipated sources and uses of capital. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

• 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; • fluctuations in foreign currency exchange rates and political unrest in international markets; • the ability of suppliers and vendors to deliver products, equipment, software and services; • the outcome of any pending or threatened litigation; • availability of qualified personnel; • the possibility of an industry-wide strike or other job action ~~by or~~ affecting a major entertainment industry union, 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.

For additional risk factors, please see our Annual Report on Form 10-K, as amended, for the year ended December 31, ~~2006~~2007. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our ~~expectations with regard~~ ~~thereto, or any other change in events, conditions or~~expectations ~~circumstances on which any such statement is based.~~

I-15

~~The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction~~ with ~~our accompanying~~regard ~~condensed consolidated financial statements and the notes~~ thereto;, ~~and~~or ~~our~~any ~~“Management’s~~other ~~Discussion~~change ~~and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included~~ in ~~our~~events, ~~Annual~~conditions ~~Report~~or circumstances on ~~Form 10-K for~~ ~~the~~which ~~year~~any ~~ended~~such ~~December 31,~~statement ~~2006~~is based.

The following discussion and analysis provides information ~~Recent~~concerning our results of operations and financial condition. ~~Events~~This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto; and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2007.

On Monday, November 5, 2007, the Writers Guild of America declared a strike that will affect the script writing for television shows and films. This strike may have an adverse effect on the revenue generated by Ascent Media’s creative services business for services provided on new entertainment projects utilizing scripted content. The impact is unknown at this time, as it is dependent upon the number of television episodes and feature films which have already been written and the undeterminable length of the strike.

Overview

We are a holding company and our businesses and assets include consolidated subsidiaries Ascent Media Group, LLC (“Ascent Media”) and ~~AccentHealth~~Ascent Media CANS, ~~which~~LLC we(dba ~~consolidate~~AccentHealth) (“AccentHealth”), and a 662/3% ownership interest in Discovery Communications Holding, LLC (“Discovery”), which we account for using the equity ~~equity~~ method of accounting. Accordingly, as described below, Discovery’s revenue is not reflected in the revenue we report in our condensed consolidated financial statements.

~~Ascent Media provides creative and network services to the media~~ ~~and entertainment industries in the United States, the United Kingdom (“UK”) and Singapore.~~ Ascent Media~~’s clients include major motion picture studios,~~ independent producers, broadcast networks, cable programming networks, advertising agencies and other companies that produce, own and/or distribute entertainment, news, sports, corporate, educational, industrial and advertising content. Ascent Media’s operations are organized into the following three groups: creative services group, network services group and corporate and other. Ascent Media has few long-term or exclusive agreements with its creative services customers.

~~AccentHealth,~~Ascent ~~which~~Media weprovides ~~acquired~~creative onand ~~January 27,~~network ~~2006~~services ~~for~~to the media ~~cash~~and ~~consideration~~entertainment ofindustries ~~$46,793,000,~~in ~~operates~~the anUnited States, the ~~advertising-supported~~United ~~captive~~Kingdom ~~audience~~(“UK”) ~~television~~and ~~network~~Singapore. inAscent ~~doctor~~Media’s ~~office~~clients ~~waiting~~include ~~rooms~~major ~~nationwide.~~motion ~~For~~picture ~~financial reporting~~studios, ~~purposes~~independent producers, ~~the~~broadcast ~~acquisition~~networks, isprogramming ~~deemed~~networks, advertising toagencies ~~have~~and ~~occurred~~other oncompanies that produce, own ~~February 1~~and/or distribute entertainment, ~~2006~~news, ~~and~~sports, ~~the~~corporate, ~~results~~educational, industrial ofand ~~operations~~advertising ofcontent. Ascent Media’s ~~AccentHealth~~operations ~~have~~are ~~been~~organized ~~included~~into inthe ~~our~~following ~~consolidated~~two ~~results~~groups: asthe ~~part~~creative ~~of the network~~ services group ~~since~~and the ~~date~~network ofservices ~~acquisition~~group.

~~Our~~On ~~most~~November 5, ~~significant~~2007, ~~asset~~Writers isGuild ~~our~~of ~~interest in Discovery~~America, ~~which~~East and weWest do(“Writers ~~not~~Guild”) ~~control.~~declared ~~During~~a ~~the~~strike ~~second~~affecting ~~quarter~~the script ofwriting ~~2007,~~for ~~each~~television ~~of the~~shows ~~shareholders~~and offilms. ~~DCI~~The ~~contributed~~strike, ~~its~~which lasted ~~DCI~~until ~~common~~February 12, ~~stock~~2008, tohad a significant adverse ~~newly~~effect ~~formed~~on ~~company,~~the ~~Discovery,~~revenue ingenerated ~~exchange~~by ~~for~~Ascent ~~Discovery~~Media’s creative ~~membership~~services ~~interests.~~business ~~Subsequent~~for toservices ~~the~~provided ~~DCI~~on ~~Restructuring,~~new ~~each~~entertainment ofprojects ~~the~~utilizing ~~members~~scripted ofcontent ~~Discovery~~and ~~hold~~ the ~~same~~production ~~ownership~~of ~~interests in~~new ~~Discovery~~television ascommercials. ~~they~~The 2007-2008 television ~~previously~~season ~~held~~was insignificantly ~~DCI.~~affected ~~DCI~~by ~~became~~the astrike. ~~wholly-owned~~Networks ~~subsidiary~~and producers resumed production of ~~Discovery,~~some ~~and~~scripted television ~~Discovery~~programming isinterrupted by the strike. However, some ~~successor~~programming ~~reporting~~never ~~entity~~resumed ofproduction ~~DCI~~this season.

OnThe ~~May 14,~~contract ~~2007,~~between ~~Discovery~~the ~~and~~Screen ~~Cox~~Actors ~~completed~~Guild anand ~~exchange~~the Alliance of ~~Cox’s~~Motion ~~25%~~Picture ~~ownership~~and ~~interest~~Television inProducers ~~Discovery~~(“AMPTP”) for ~~all of the~~ ~~capital~~theatrical ~~stock~~motion ofpicture aand ~~subsidiary~~television ofperformances ~~Discovery~~expired ~~that held Travel~~on ~~Channel~~June 30, ~~travelchannel~~2008.~~com~~ ~~and~~A ~~approximately~~failure ~~$1.3 billion~~by the Screen Actors Guild to infinalize ~~cash~~and ~~(the~~ratify ~~“Cox~~a ~~Transaction”).~~new ~~Discovery~~agreement ~~raised~~with the AMPTP within a ~~cash~~reasonable ~~component~~period ~~through~~of ~~additional~~time ~~debt~~after ~~financing,~~expiration ~~and~~of ~~retired~~the prior contract ~~the~~could ~~membership~~lead ~~interest~~to ~~previously~~a ~~owned~~strike byor ~~Cox~~other job action. ~~Upon~~Any ~~completion~~such labor ofdispute ~~this~~could ~~transaction,~~have wean ~~own~~adverse ~~a 662/3% interest~~effect inon ~~Discovery~~the television and motion ~~Advance/Newhouse~~picture ~~Communications~~production ~~owns~~industries, aincluding Ascent ~~331/3% interest.~~Media’s Webusiness, ~~continue~~and toin ~~account~~the ~~for~~case ~~our~~of ~~investment~~a insevere ~~Discovery~~or prolonged ~~using~~work stoppage, the ~~equity~~adverse ~~method~~effect ofon ~~accounting~~Ascent ~~due to governance rights~~Media’s ~~possessed~~business, byoperations, ~~Advance/Newhouse~~results ~~Communications~~of ~~which restrict our~~operations ~~ability~~and/or financial tocondition ~~control~~could ~~Discovery~~be material.

~~Discovery is a global media and entertainment company that~~ ~~provides original and purchased video programming across multiple platforms in the U.S. and over 170 other countries.~~ Discovery ~~also develops and sells branded commerce~~ and educational product lines in the United States. Our share of the results of operations of Discovery is reflected in our consolidated results as earnings or losses of Discovery. To assist the reader in better understanding and analyzing our business, we have included a separate discussion and analysis of Discovery’s results of operations and financial condition below.

Our most significant asset is our interest in Discovery, which we do not control. Discovery is a leading global media and entertainment company that provides original and purchased programming across multiple platforms in the U.S. and more than 170 other countries. Discovery also develops and sells consumer and educational products and services in the United States and internationally, and owns and operates a diversified portfolio of website properties and other digital services. Our share of the results of operations of Discovery is reflected in our condensed consolidated results as earnings or losses of Discovery. To assist the reader in better understanding and analyzing our business, we have included a separate discussion and analysis of Discovery’s results of operations and financial condition below.

During the second quarter of 2007, each of the shareholders of Discovery Communications, Inc. (“DCI”), including our company, contributed its DCI common stock to a newly formed company, Discovery, in exchange for Discovery membership interests. Subsequent to the contribution, each of the members of Discovery held the same

I-16

ownership interests in Discovery as they previously held in DCI. ~~Operating~~DCI became a wholly-owned subsidiary of Discovery, and Discovery ~~Cash~~is ~~Flow~~the successor reporting entity of DCI

WeOn ~~evaluate~~May 14, ~~the~~2007, ~~performance~~Discovery ofand ~~our~~Cox ~~operating~~Communications ~~segments based on~~Holdings, ~~financial~~Inc. ~~measures~~(“Cox”) ~~such~~completed asan ~~revenue~~exchange ~~and~~of ~~operating~~Cox’s ~~cash flow. We~~25% ~~define~~ownership ~~operating~~interest ~~cash~~in ~~flow~~Discovery asfor ~~revenue~~all ~~less cost~~ of ~~services~~the ~~and selling,~~capital ~~general and administrative expense (excluding~~ stock ~~and~~of ~~other~~a ~~equity-based~~subsidiary ~~compensation~~of ~~and~~Discovery ~~accretion~~that ~~expense~~held onTravel ~~asset~~Channel, ~~retirement obligations)~~travelchannel.com Weand ~~believe~~approximately ~~this~~$1.3 billion isin ~~an important~~cash ~~indicator of~~ (the ~~operational~~“Cox ~~strength~~Transaction”). ~~and~~Discovery ~~performance~~raised ofthe ~~our~~cash ~~businesses,~~component ~~including~~through ~~their~~additional ~~ability to invest in ongoing capital expenditures and service any~~ debt. ~~In addition~~financing, ~~this measure allows management to view operating results~~ and ~~perform~~retired the ~~analytical~~membership ~~comparisons~~interest ~~and~~previously ~~identify~~owned ~~strategies~~by ~~to improve performance~~Cox. ~~This~~Upon ~~measure~~completion of ~~performance excludes depreciation~~ ~~and~~this ~~amortization~~transaction, ~~stock~~we ~~and~~own ~~other equity-based compensation,~~a ~~accretion expense on asset retirement obligations, restructuring~~662/3% ~~and~~interest ~~impairment charges that are included~~ in ~~the~~Discovery ~~measurement~~and ofAdvance/Newhouse Programming ~~operating~~Partnership ~~income~~(“Advance/Newhouse”) ~~pursuant~~owns ~~to GAAP. Accordingly, operating cash~~a ~~flow~~331/3% interest ~~should~~in beDiscovery. ~~considered~~We incontinue ~~addition~~ to, ~~but~~account ~~not as a substitute~~ for, ~~operating~~our ~~income, cash flow provided by~~investment ~~operating~~in ~~activities~~Discovery ~~and~~using ~~other~~the ~~measures~~equity method of ~~financial~~accounting ~~performance prepared~~due ~~in accordance with GAAP. See note 11~~ to ~~the~~ ~~accompanying~~governance ~~condensed~~rights ~~consolidated~~possessed ~~financial~~by ~~statements~~Advance/Newhouse ~~for~~which arestrict ~~reconciliation~~our ofability ~~operating cash flow~~ to ~~earnings~~control ~~before income taxes~~Discovery.

~~Results~~Newhouse ofTransaction ~~Operations~~and Ascent Spin Off

~~Our~~On ~~consolidated~~June 4, ~~results~~2008, ofwe ~~operations~~entered ~~include~~into ~~100%~~a ofTransaction ~~the~~Agreement ~~results~~with ofAdvance/Newhouse ~~Ascent~~under ~~Media~~which we and ~~AccentHealth,~~Advance/Newhouse ~~general and~~will ~~administrative~~combine ~~expenses~~our ~~incurred~~respective atinterests ~~the~~in ~~DHC~~Discovery. ~~corporate~~Under ~~level,~~the ~~and~~terms ~~our~~of ~~share~~the ofagreement, ~~earnings~~the oftransaction ~~Discovery.~~will involve the following steps:

~~Our~~• ~~creative~~We ~~services~~will ~~group~~spin-off ~~revenue~~to isour ~~primarily~~shareholders ~~generated~~a ~~from fees~~wholly-owned ~~for~~subsidiary ~~video~~holding ~~and~~substantially ~~audio~~all ~~post~~of ~~production~~DHC’s cash, ~~special~~AccentHealth ~~effects~~ and ~~editorial~~ ~~services~~Ascent Media, except for ~~the~~those ~~television~~businesses of Ascent Media that provide sound, ~~feature~~music, ~~film~~mixing, sound effects and ~~advertising~~ ~~industries.~~other ~~Generally,~~related ~~these~~post-production audio services ~~pertain~~under tobrand ~~the completion~~names ofsuch ~~feature~~as ~~films~~Sound One, ~~television~~POP ~~programs~~Sound, Soundelux and ~~advertisements.~~ ~~These~~Todd ~~projects~~A-O ~~normally~~(the ~~span~~“Ascent ~~from~~Media aSpin ~~few~~Off”); ~~days~~• ~~to three~~Immediately ~~months~~following orthe ~~more~~Ascent inMedia ~~length~~Spin Off, ~~and~~we ~~fees~~will ~~for~~combine ~~these~~with ~~projects typically~~a ~~range~~new ~~from~~holding ~~$10,000~~company to(“New $1DHC”),~~000,000~~ ~~per~~and ~~project. Additionally,~~our ~~the~~existing ~~creative~~shareholders ~~services~~will ~~group~~receive ~~provides~~shares ~~owners~~of common stock of ~~film~~ ~~libraries~~New aDHC; ~~broad~~• ~~range~~As part of ~~restoration,~~this ~~preservation~~transaction, ~~archiving,~~ ~~professional~~Advance/Newhouse ~~mastering~~will ~~and~~contribute ~~duplication~~its ~~services.~~interests ~~The scope~~in ofDiscovery ~~these~~and ~~creative~~Animal ~~services~~Planet ~~vary~~to New DHC in ~~duration~~exchange ~~from~~for ~~one~~preferred ~~day to~~stock ~~several~~of ~~months~~New ~~depending~~DHC onthat, immediately after the ~~nature~~closing of the ~~service~~transactions, ~~and fees~~will ~~typically~~be ~~range~~convertible ~~from~~at ~~less~~any ~~than~~time ~~$1,000~~into toshares ~~$100,000~~initially ~~per project~~representing one-third of the outstanding shares of common stock of New DHC on an as-converted basis. The ~~creative~~preferred ~~services~~stock ~~group~~held ~~includes~~by ~~Ascent Media’s~~Advance/Newhouse ~~digital~~will ~~media~~entitle ~~distribution~~it ~~center~~to ~~which~~elect ~~is developing~~three ~~new~~members ~~digital~~to ~~service~~New ~~products~~DHC’s board of directors and ~~businesses~~to inexercise ~~areas such~~approval asrights ~~digital~~with ~~imaging,~~respect ~~digital~~to ~~vault,~~the ~~distribution~~taking ~~services and~~of ~~interactive~~specified ~~media~~actions by New DHC and Discovery.

~~Our~~Although ~~network~~no ~~services~~assurance ~~group’s~~can ~~revenue~~be ~~consists~~given, consummation of ~~fees~~this ~~relating~~transaction to(the ~~facilities~~“Newhouse Transaction and ~~services~~Ascent ~~necessary to assemble and~~Spin ~~transport~~Off”) ~~programming~~is ~~for~~expected ~~cable~~in ~~and broadcast networks across~~ the ~~world~~third ~~via~~quarter ~~fiber,~~of ~~satellite and the Internet~~2008. The Ascent ~~group’s~~Media ~~revenue~~Spin isOff ~~also~~was ~~driven~~approved by ~~systems~~DHC’s ~~integration~~board ~~and~~of directors in ~~field~~connection ~~support~~with ~~services,~~the ~~technology~~agreement ~~consulting~~between ~~services,~~DHC ~~design~~ and ~~implementation of advanced video systems~~Advance/Newhouse, ~~engineering~~ ~~project management, technical help desk~~ and ~~field~~it ~~service. Approximately~~is ~~60%~~a condition of the ~~network~~Ascent ~~services~~Media ~~group’s~~Spin ~~revenue~~Off that the ~~relates~~agreement tobetween ~~broadcast~~DHC ~~services,~~and ~~satellite~~Advance/Newhouse ~~operations~~be in effect and ~~fiber~~that ~~services~~all ~~that~~conditions ~~are~~precedent ~~earned~~to ~~monthly~~that ~~under~~transaction ~~long-term~~(other ~~contracts~~than the ~~ranging~~Ascent ~~generally~~Media ~~from~~Spin ~~one~~Off) toshall ~~seven~~have ~~years~~been satisfied. ~~Additionally,~~The Ascent ~~approximately~~Media ~~40%~~Spin ofOff ~~revenue~~will ~~relates~~not tooccur ~~systems~~unless ~~integration~~DHC’s ~~and~~shareholders ~~engineering~~approve ~~services~~proposals ~~that~~relating ~~are~~to ~~provided~~the ontransactions acontemplated ~~project basis over~~by ~~terms~~the ~~generally~~Transaction ~~ranging from three to twelve months~~Agreement.

It is currently expected that for federal income tax purposes, the Ascent Media Spin Off will qualify as a tax-free distribution to DHC’s shareholders and will be accounted for at historical cost due to the pro rata nature of the distribution. Subsequent to the completion of the Ascent Media Spin Off, the historical results of operations of Ascent Media and AccentHealth prior to the Ascent Media Spin Off will be included in discontinued operations in DHC’s consolidated financial statements. The acquisition of Advance/Newhouse’s interest in Discovery will result in New DHC owning 100% of Discovery, and accordingly, New DHC will consolidate Discovery’s financial position and results of operations effective with the closing of the transaction. Pursuant to FASB Technical Bulletin 85-5, the contribution of Advance/Newhouse’s interests in Discovery and Animal Planet to New DHC will be treated as a non-substantive merger, and therefore, such interests will be recorded at carry over basis.

Adjusted OIBDA

We evaluate the performance of our operating segments based on financial measures such as revenue and adjusted OIBDA. We define adjusted OIBDA as revenue less cost of services and selling, general and administrative expense (excluding stock and other equity-based compensation and accretion expense on asset retirement obligations). We believe this is an important indicator of the operational strength and performance of our businesses,

I-17

~~Corporate~~including ~~related~~their ~~items~~ability to invest in ongoing capital expenditures and ~~expenses~~service ~~are~~any ~~reflected~~debt. inIn ~~Corporate~~addition, this measure is used by management to view operating results and ~~other,~~perform analytical ~~below~~comparisons and identify strategies to improve performance. ~~Cost~~This measure of ~~services~~performance excludes depreciation and ~~operating~~amortization, ~~expenses~~stock and other equity-based compensation, ~~consist~~accretion ~~primarily~~expense on asset retirement obligations, restructuring and impairment charges that are included in the measurement of operating ~~production~~income ~~wages~~pursuant to U.S. GAAP. Accordingly, adjusted ~~facility~~OIBDA ~~costs~~should ~~and~~be ~~other~~considered in addition to, but not as a ~~direct~~substitute ~~costs~~for, ~~and~~operating ~~selling~~income, ~~general~~cash flow provided by operating activities and ~~administrative~~other ~~expenses~~measures of financial performance prepared in accordance with GAAP. See note 10 to the accompanying condensed consolidated financial statements for a reconciliation of adjusted OIBDA to earnings (loss) before income taxes.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	amounts in thousands
Segment Revenue
Creative Services group	$	99,959			101,567			316,401			303,498
Network Services group		77,954			68,309			212,614			185,735
Corporate and other		—			—			—			—
	$	177,913			169,876			529,015			489,233
Segment Operating Cash Flow
Creative Services group	$	9,995			8,181			35,478			32,241
Network Services group		13,407			15,503			32,507			34,576
Corporate and other		(7,248	)		(7,868	)		(21,753	)		(27,003	)
	$	16,154			15,816			46,232			39,814

Results of Operations

~~Revenue. Total~~Our ~~revenue~~condensed ~~increased~~consolidated ~~$8,037,000~~results ~~or 4.7%~~of ~~and~~operations ~~$39,782,000~~include ~~or 8.1~~100% ~~for the three and nine months ended~~of ~~September 30,~~Ascent ~~2007,~~Media’s asand ~~compared~~AccentHealth’s toresults ~~the corresponding prior~~of ~~year periods. The creative services group revenue decreased $1~~operations,~~608,000~~ orgeneral ~~1.6%~~ and ~~increased~~administrative ~~$12,903,000~~expenses orincurred ~~4.3%~~at ~~for~~ the ~~three~~DHC ~~and~~corporate ~~nine months ended September 30~~level, 2007, respectively, as compared to the corresponding prior year periods. The decrease in creative services revenue for the three month period was mainly due to a $3,401,000 decrease in feature revenue driven by weakness in audio services, partially offset by growth in digital vaulting and ~~digital~~our ~~distribution~~share ~~services. The~~of ~~increase~~earnings ~~in creative services revenue for the nine month period was due to (i) an increase~~ of ~~$6,569,000~~Discovery. inOur ~~commercial~~operations ~~revenue~~are ~~driven~~organized ~~primarily~~into ~~by strong worldwide demand in~~ the ~~first~~following ~~quarter,~~two ~~(ii) an~~groups: ~~increase of $4,171,000 in~~the ~~media~~creative services ~~driven~~group ~~by growth in digital vaulting~~ and ~~digital distribution~~the ~~services,~~network ~~offset by lower traditional lab and DVD~~ services ~~and (iii) favorable changes in foreign currency exchange rates of $5,134,000, offset by a decrease in television post production services in the U~~group.~~S. and U.K.~~

~~The~~Ascent ~~network~~Media’s creative services group ~~revenue~~generates ~~increased $9,645,000 or 14.1%~~revenue ~~and~~primarily ~~$26,879,000~~from orfees ~~14.5%~~ for ~~the~~video ~~three~~ and ~~nine~~audio ~~months~~post ~~ended September 30~~production, ~~2007, as compared to the corresponding prior~~special ~~year~~effects ~~periods.~~and ~~The~~editorial ~~increase~~services ~~in revenue~~ for the ~~three~~television, ~~month~~feature ~~period~~film ~~was~~and ~~due~~advertising toindustries. ~~(i) an increase of $12~~Generally,~~678,000~~ inthese ~~system integration~~ services ~~revenue~~pertain ~~due~~ to ~~the timing of and increase~~ in the ~~number~~completion of ~~projects~~feature ~~and (ii) an increase of $3~~films,~~179,000~~ intelevision ~~content~~programs ~~distribution revenue in the U.S.~~ and ~~Singapore~~television commercials. These ~~increases~~projects innormally ~~revenue~~span ~~were~~from ~~partially offset by~~ a few ~~decrease~~days ~~of $5,937,000 primarily due~~ to ~~the~~three ~~termination~~months ~~of certain~~or ~~distribution~~more ~~contracts~~ in ~~the~~length, ~~U.K.~~and ~~The~~fees ~~increase~~for inthese ~~revenue~~projects ~~for~~typically ~~the~~range ~~nine~~from ~~month~~$10,000 ~~period was due~~ to ~~(i) an increase of~~ $321,~~047~~000,000 inper ~~system integration services revenue~~project. ~~due~~Additionally, to the ~~timing~~creative ofservices ~~and~~group ~~increase~~provides inowners ~~the number~~ of ~~projects,~~ ~~(ii) an~~film ~~increase~~libraries ofa ~~$4,699,000~~broad inrange ~~content~~of ~~distribution~~restoration, preservation, ~~revenue~~archiving, inprofessional ~~the~~mastering ~~U.S.~~ and ~~Singapore,~~duplication ~~(iii) an~~services. ~~increase~~The scope of ~~$3,131,000~~these ~~driven~~creative byservices ~~AccentHealth~~vary ~~which~~in ~~was~~duration ~~acquired~~from inone day ~~February~~to ~~2006~~several ~~and~~months ~~(vi) favorable~~depending ~~changes~~on inthe ~~foreign~~nature of the service, and ~~currency~~fees ~~exchange~~typically ~~rates~~range offrom less than $31,~~314,~~000. ~~These~~to ~~increases~~$100,000 inper ~~revenue~~project. ~~were~~The ~~partially~~creative ~~offset~~services bygroup ~~(i) a~~includes ~~decrease of~~Ascent ~~$10,200,000~~Media’s ~~primarily~~digital ~~due~~media todistribution ~~the~~center, ~~termination~~which ~~of certain~~provides ~~distribution~~file-based ~~contracts~~services in ~~the~~areas ~~U.K.~~such ~~and~~as ~~(ii) a~~digital ~~decrease~~imaging, ofdigital $4vault,~~794,000~~ ~~due~~distribution toservices aand ~~one-time~~interactive ~~project~~media into ~~2006~~new and existing distribution platforms.

~~Cost~~The ofnetwork ~~Services. Cost~~services ofgroup’s ~~services~~revenue ~~increased~~consists of fees ~~$11,036,000~~relating orto ~~9.9%~~facilities and ~~$43,449,000~~services ornecessary ~~13.6%~~to ~~for~~assemble ~~the three~~ and ~~nine~~transport ~~months~~programming ~~ended~~for ~~September 30,~~cable ~~2007,~~and asbroadcast ~~compared~~networks ~~to the~~across ~~corresponding~~the ~~prior~~world ~~year~~via ~~periods.~~fiber, ~~The~~satellite ~~increase~~and ~~for~~ the ~~three~~Internet. The ~~month~~group’s ~~period~~revenue ~~was~~is ~~attributable~~also todriven ~~higher~~by ~~costs~~systems ~~across~~integration ~~the network~~and ~~services~~field ~~group~~support ~~primarily~~services, intechnology ~~production~~consulting ~~material~~services, ~~resulting from~~design ~~increased~~and ~~volumes~~implementation inof ~~system~~advanced ~~integration~~video ~~services.~~systems, ~~The increase~~engineering ~~for~~project ~~the~~management, ~~nine~~technical ~~month~~help ~~period~~desk ~~was~~and ~~across~~field ~~creative~~service. ~~services and~~This ~~network~~operating ~~services~~segment ~~resulting~~also ~~from~~includes ~~higher~~the ~~volumes~~operations of ~~system~~AccentHealth, ~~integration~~which ~~services,~~operates ~~commercial~~an ~~and~~advertising-supported ~~feature~~captive ~~revenue, and new~~audience ~~digital~~television ~~media~~network ~~revenue.~~in ~~Additionally,~~doctor ~~changes~~office inwaiting ~~foreign~~rooms ~~currency~~nationwide. ~~exchange~~Approximately ~~rates~~44% ~~resulted~~of inthe annetwork ~~increase~~services ofgroup’s $1revenue relates to AccentHealth,~~703,000~~ ~~for~~broadcast ~~the~~services, satellite ~~three~~operations ~~month period~~ and ~~$5,616,000~~fiber ~~for~~services ~~the~~that ~~nine~~are ~~month~~earned ~~period.~~monthly Asunder along-term ~~percent~~contracts ofranging ~~revenue,~~generally ~~cost~~from ofone ~~services~~to ~~was~~seven 68years.9% Additionally, ~~and~~approximately ~~65.6~~56% ~~for the~~of ~~three~~revenue ~~month~~relates ~~periods~~to systems integration and ~~was~~engineering ~~68.5%~~services ~~and~~that ~~65.1%~~are ~~for~~provided ~~the~~on ~~nine~~a ~~months~~project ~~ended~~basis ~~September 30,~~over ~~2007~~terms ~~and~~generally ~~2006,~~ranging ~~respectively.~~from ~~The percentage~~three ~~increase~~to ~~was a~~twelve months.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
	dollar amounts in thousands

Segment Revenue
Creative Services group	$	101,929			105,730			193,713			216,442
Network Services group	$	92,548			71,490			190,069			134,660
Segment Adjusted OIBDA
Creative Services group	$	10,546			11,198			14,366			25,481
Network Services group	$	16,016			10,813			33,185			19,101
Segment Adjusted OIBDA as a percentage of Revenue
Creative Services group		10.3	%		10.6	%		7.4	%		11.8	%
Network Services group		17.3	%		15.1	%		17.5	%		14.2	%

Revenue. Total revenue increased $17,257,000 or 9.7% and $32,680,000 or 9.3% for the three and six months ended June 30, 2008, as compared to the corresponding prior year period. The creative services group revenue

I-18

~~result~~decreased of$3,801,000 or 3.6% and $22,729,000 or 10.5% for the three and six months ended June 30, 2008, respectively, as compared to the corresponding prior year period. The decrease in creative services revenue ~~mix~~for the three month period was due to (i) a decrease of $3,204,000 in television post production services worldwide driven primarily by ~~higher~~the ~~material~~continued ~~costs~~impact of ~~for~~the ~~system~~Writers ~~integration~~Guild ~~projects~~strike atin the ~~network~~U.S. and ~~services~~declines ~~group~~in broadcast work in the U.K. and by(ii) a ~~higher~~decrease ~~labor~~of $2,145,000 ~~intensive~~in ~~commercial~~media services driven by lower lab, DVD and digital services. These decreases were partially offset by an increase of $2,774,000 in feature ~~projects~~revenue driven by increased titles for post production and audio services. The decrease in revenue for the ~~creative~~six month period was due to (i) a decrease of $13,232,000 in television post production services ~~group~~in the U.S. driven primarily by the Writers Guild strike, (ii) a decrease of $2,853,000 in commercial revenue driven by strong worldwide demand in the prior year period, (iii) a decrease of $1,568,000 in U.K. television revenue driven by declines in the broadcast work and (iv) lower feature revenue of $1,443,000 driven by smaller feature sound projects and fewer titles for post production.

~~Selling,~~The ~~General~~network ~~and~~services ~~Administrative. Our~~group revenue increased $21,058,000 or ~~selling~~29.5% and $55,409,000 ~~general~~or 41.1% for the three and ~~administrative~~six ~~expenses~~months ~~(“SG&A”)~~ended June 30, ~~including~~2008, ~~corporate~~as ~~expenses~~compared ofto ~~both~~the corresponding prior ~~DHC~~year ~~and~~period. ~~Ascent~~The ~~Media~~increase ~~but~~in ~~excluding~~network ~~stock-based~~services ~~compensation~~revenue ~~and~~for the ~~accretion~~three ~~expense~~month onperiod ~~asset~~was ~~retirement~~due ~~obligations,~~to ~~decreased~~(i) an increase of $318,~~337~~358,000 orin ~~7.8%~~system ~~and~~integration services revenue due to an increase in the number of larger projects, primarily from one customer, (ii) an increase of $101,~~085~~453,000 ordriven ~~7.7%~~by AccentHealth ~~for~~due to continued growth in the ~~three~~digital ~~and~~network, ~~nine~~(iii) an ~~months~~increase ~~ended~~of ~~September 30~~$818,000 ~~2007~~in ascontent ~~compared~~distribution revenue toprimarily in the U.K. and (iv) favorable changes in ~~corresponding~~foreign ~~prior~~currency ~~year~~exchange ~~periods~~rates of $502,000. The ~~decline~~increase in revenue for ~~both~~the ~~periods~~ six month period was ~~driven~~due byto ~~lower~~(i) an ~~personnel~~increase in ~~costs,~~system ~~resulting~~integration ~~from~~services ~~Ascent~~revenue of $47,539,000, ~~Media’s~~reflecting ~~restructuring~~a insignificant ~~the~~number ~~third~~of ~~and~~larger ~~fourth~~projects ~~quarters~~in of2008 ~~2006,~~primarily ~~and~~from ~~lower~~one ~~professional~~customer, ~~fees.~~(ii) an Asincrease ~~a percent~~ of ~~revenue~~$3,289,000 ~~SG&A~~in ~~was~~content ~~22.0%~~distribution revenue in the U.S. and 25U.1%K., (iii) an ~~for~~increase ~~the~~of ~~three~~$3,835,000 ~~month~~driven ~~periods~~by ~~and~~AccentHealth due ~~was~~to ~~22.8%~~continued growth in the digital network and (iv) favorable 26changes in foreign currency exchange rates of $1,202,000.7% ~~for~~For the ~~nine~~three and six months ended ~~September~~June 30, ~~2007~~2008, $21,757,000 and ~~2006~~$52,500,000, respectively, of the system integration services revenue was generated by one customer under a contract which expires in July 2009. We could only sustain this level of revenue in the future if we enter in to other contracts of this same magnitude, of which there is no guarantee.

~~Restructuring~~Cost ~~Charges~~of Services. ~~During~~Cost of services increased $12,727,000 or 10.2% and $29,245,000 or 11.9% for the ~~nine~~three ~~months~~and six months ended ~~September~~June 30, ~~2007~~2008, ~~Ascent~~as ~~Media~~compared ~~recorded~~to the ~~restructuring~~corresponding ~~charges~~prior year period. A significant portion of ~~$192,000~~the increase ~~related~~was attributable to ~~severance~~network inservices resulting from ~~conjunction~~higher ~~with~~volumes ~~restructuring~~of ~~efforts~~system ~~within~~integration ~~the~~services, ~~U.S. and~~which have a ~~U.K.~~higher ~~creative~~percentage ~~services~~of ~~business~~equipment costs. ~~Additional~~The ~~restructuring~~increase was partially ~~charges~~offset ~~are~~by ~~expected~~lower cost of services in creative services driven by decreases in television production services impacted by the Writers ~~fourth~~Guild ~~quarter~~strike. As a percent of ~~2007~~revenue, cost of services was 70.9% ~~During~~and 70.6% for the three month periods and was 71.9% ~~nine~~and 70.3% for the six months ended ~~September~~June 30, ~~2006,~~2008 ~~Ascent~~and ~~Media recorded~~2007, ~~restructuring~~respectively. ~~charges~~The ofpercentage ~~$3,963,000~~increase ~~primarily~~is ~~related~~mainly toa result of ~~severance.~~creative ~~These~~services ~~restructuring~~labor ~~activities~~costs ~~were~~decreasing ~~primarily~~to ina ~~the~~lesser degree than ~~Corporate~~revenue ~~and~~during ~~other~~the ~~group~~period inof the ~~United~~Writers ~~States~~Guild ~~and~~strike, ~~United~~with ~~Kingdom~~certain fixed costs remaining regardless of the decline in revenue.

~~Depreciation~~Selling, General and ~~Amortization~~Administrative. ~~The increase in~~Our ~~depreciation~~selling, ~~and~~general ~~amortization expense for the three~~ and ~~nine months~~administrative ~~ended September 30, 2007 is due to depreciation on~~expenses ~~new~~(“SG&A”) ~~assets~~are ~~placed~~comprised inof ~~service~~the ~~partially offset by assets becoming~~following: ~~fully depreciated.~~

Stock-Based Compensation. Effective August 3, 2006, Ascent Media adopted its 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan provides the terms and conditions for the grant of, and payment with respect to, Phantom Appreciation Rights (“PARs”) granted to certain officers and other key personnel of Ascent Media. The maximum number of PARs that may be granted under the 2006 Plan is 500,000, and there were 438,500 PARs granted as of September 30, 2007. Ascent Media recorded 2006 Plan expense of $112,000 and $1,031,000 for the three and nine months ended September 30, 2007, respectively.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	amounts in thousands

SG&A	$	38,305		37,319		79,511		74,297
Stock-based compensation		448		342		332		1,308
Accretion expense on asset retirement obligations		64		96		129		156

Total SG&A	$	38,817		37,757		79,972		75,761

OnOur ~~July 21~~SG&A, ~~2005,~~including ~~Liberty~~corporate ~~completed~~expenses ~~the spin off~~ of ~~our capital~~both ~~stock.~~DHC ~~As a result of the Spin Off~~ and ~~related~~ adjustments to Liberty’s stock incentive awards, options to acquire an aggregate of approximately 2.0 million shares of our Series A common stock and 3.0 million shares of our Series B common stock were issued to employees of Liberty. In addition, employees of Ascent Media ~~who~~but ~~held~~excluding stock ~~options~~-based orcompensation ~~stock appreciation rights (“SARs”) to~~and ~~acquire~~accretion ~~shares~~expense ofon ~~Liberty~~asset ~~common~~retirement ~~stock~~obligations, ~~prior to the Spin Off~~increased ~~continue to hold such options. SAR expense was a credit of~~ $13986,000 ~~and~~or an2.6% ~~expense~~and of $125,214,000 or 7.0% for the ~~nine~~three ~~months~~and ~~ended~~six ~~September~~months ended June 30, ~~2007~~2008 ~~and~~as ~~2006,~~compared ~~respectively. Pursuant~~ to ~~a reorganization agreement we entered into with Liberty in connection with~~ the ~~Spin Off, we are responsible for all stock~~corresponding ~~options~~prior ~~related~~year ~~to DHC common stock, and Liberty is responsible for all incentive awards related to Liberty common stock~~period. ~~We record~~The ~~stock-based~~increase ~~compensation~~was ~~for~~mainly ~~all~~driven ~~stock incentive awards held~~ by ~~our employees and our subsidiaries’ employees.~~DHC ~~Stock-based~~corporate ~~compensation~~expenses, ~~expense~~which ~~was~~increased $~~634~~184,000 and $13,~~188~~411,000 ~~for~~over the ~~nine~~corresponding ~~months~~prior ~~ended~~year ~~September 30,~~period ~~2007~~primarily ~~and~~as ~~2006,~~a result of ~~respectively.~~legal and accounting costs related

As of September 30, 2007, the total compensation cost related to unvested equity awards was $772,000. Such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 1.1 years.

Share of Earnings of Discovery. From January 1, 2006 through May 14, 2007, we recorded our 50% share of the earnings of DCI. Subsequent to May 14, 2007, we recorded our 662/3% share of the earnings of Discovery. Our share of earnings of Discovery decreased $21,558,000 and increased $74,278,000 for the three and nine months ended September 30, 2007, respectively, as compared to the corresponding prior year periods. The three month decrease is mainly due to Discovery’s increased long-term incentive plan expense as well as its increased interest expense resulting from the debt incurred by Discovery in connection with the Cox Transaction. The nine month increase resulted from our $89,781,000 share of Discovery’s gain on the Cox Transaction, along with a $12,357,000 increase as the result of our ownership interest in Discovery increasing from 50% to 662/3%. These increases were partially offset by Discovery incurring higher long-term incentive plan expenses and higher interest expense.

I-19

to the Newhouse Transaction and Ascent Spin Off. As a percent of revenue, SG&A was 20.7% and 21.2% for the six months ended June 30, 2008 and 2007, respectively.

Adjusted OIBDA. Total adjusted OIBDA as a percentage of revenue was 9.4% and 8.3% for the three month periods and 7.4% and 8.6% for the six months ended June 30, 2008 and 2007, respectively. The services provided by the creative services group are very labor intensive and incur high facility costs, with labor and facility costs representing over 73% of revenue. The creative services group’s other primary cost components are production equipment, materials cost and general and administrative expenses. Creative services group adjusted OIBDA as a percentage of revenue was lower for 2008 compared to 2007 mainly due to the impact of the Writers Guild strike, as certain fixed costs remained regardless of the decline in revenue.

The primary cost components for the network services group are labor and materials, with these costs comprising over 68% of the networks’ revenue. The other primary cost components for the network services group are facility costs, production equipment and general and administrative expenses. Network services group adjusted OIBDA as a percentage of revenue was higher for 2008 compared to 2007 mainly due to lower labor and facility costs which did not fully offset the increase in material costs as the networks revenue mix shifted toward more systems integration projects. Because of the higher labor and facility costs for the creative services group, as well as slightly higher production equipment costs, the adjusted OIBDA margin for the creative services group is lower than such margin for the network services group for the three and six months ended June 30, 2008 and 2007. See footnote 10 to the accompanying condensed consolidated financial statements for a reconciliation of consolidated segment adjusted OIBDA to earnings before income taxes.

Restructuring Charges. During the six months ended June 30, 2008, Ascent Media recorded restructuring charges of $1,413,000 related to severance and facility costs in conjunction with closing its operations in Mexico during the first quarter of 2008. No such charges were recorded in 2007.

Depreciation and Amortization. Depreciation and amortization expense for the three and six months ended June 30, 2008 was relatively flat compared to the corresponding prior year period due to depreciation on new assets placed in service offset by assets becoming fully depreciated.

Stock-Based Compensation. Stock-based compensation was $332,000 and $1,308,000 for the six months ended June 30, 2008 and 2007, respectively. Effective August 3, 2006, Ascent Media adopted its 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan provides the terms and conditions for the grant of, and payment with respect to, Phantom Appreciation Rights (“PARs”) granted to certain officers and other key personnel of Ascent Media. The maximum number of PARs that may be granted under the 2006 Plan is 500,000, and there were 488,500 PARs granted as of June 30, 2008. Ascent Media recorded 2006 Plan benefit of $276,000 and expense of $919,000 for the six months ended June 30, 2008 and 2007, respectively. We also recorded stock-based compensation expense of $616,000 and $401,000 for the six months ended June 30, 2008 and 2007, respectively, for Discovery Holding Company stock options held by certain of our employees.

Share of Earnings of Discovery. From January 1, 2007 through May 14, 2007, we recorded our 50% share of the earnings of DCI. Subsequent to May 14, 2007, we recorded our 662/3% share of the earnings of Discovery. Our share of earnings of Discovery decreased $50,995,000 and $6,150,000 for the three and six months ended June 30, 2008, respectively, as compared to the corresponding prior year period. The decrease for both the three and six month periods resulted from our $89,781,000 share of Discovery’s gain on the Cox Transaction in the second quarter of 2007, primarily offset by Discovery’s improved performance in the first and second quarters of 2008 as compared to the prior year period. The decrease was also offset from our ownership interest in Discovery increasing from 50% to 662/3%.

In connection with the Cox Transaction, we reallocated our excess basis related to our investment in Discovery. Such allocation process was completed in the first quarter of 2008 and resulted in approximately 48% of the excess basis created by the Cox Transaction being allocated to intangible assets with determinable useful lives. Amortization of such intangible assets aggregated $3,744,000 and $7,487,000 (net of related taxes) for the three and six months ended June 30, 2008 and is included in our share of earnings of Discovery.

We have provided a more detailed discussion of Discovery’s results of operations below.

~~Other Income. During the first quarter of~~ ~~2007, our landlord terminated an operating lease for one of our~~I-20 production facilities in exchange for a cash payment. In connection with such termination we recorded a $6,992,000 gain, representing the cash we received less the net book value of leasehold improvements which were retired.

IncomeTable Taxes. Our effective tax rate was 38.6% for the nine months ended September 30, 2007. Our income tax expense for 2007 was higher than the federal income tax rate of 35% due to state and foreign tax expense. For the nine months ended September 30, 2006, the effective tax rate was not meaningful because we recorded income tax expense of $35,448,000, but had a net loss before taxes of $15,836,000. The net loss resulted from a $93,402,000 goodwill impairment charge recorded in the third quarter of 2006, for which we receive no tax benefit. Contents

~~Net~~Other ~~Earnings (Loss)~~Income. ~~Our~~During ~~net~~the ~~earnings~~first ~~(loss)~~quarter of ~~increased~~2007, ~~from~~the alandlord ~~loss~~terminated ofan ~~$51,284,000~~operating lease for ~~the~~one ~~nine~~of Ascent ~~months~~Media’s ~~ended~~production facilities in exchange for a cash ~~September 30,~~payment. ~~2006~~In toconnection ~~earnings~~with ofsuch termination we recorded a $~~102~~6,~~188~~992,000 ~~for~~gain, representing the ~~nine~~cash we received less the net ~~months~~book ~~ended~~value ~~September 30,~~of ~~2007.~~leasehold ~~Such~~improvements ~~increase~~which iswere ~~due~~retired. toNo such ~~the~~transaction ~~other~~was ~~aforementioned~~recorded ~~fluctuations~~ in ~~revenue and expenses~~2008.

Income Taxes. Our effective tax rate was 41.5% and 38.9% for the six months ended June 30, 2008 and 2007, respectively. Our income tax expense for 2008 and 2007 was higher than the federal income tax rate of 35% mainly due to state and foreign tax expense.

During the first quarter of 2008, Liberty reached an agreement with the IRS related to certain tax items that arose in periods prior to our spin off from Liberty on July 21, 2005. The agreement resulted in a reduction to the initial amount of federal and California net operating losses by $28,554,000 and $49,667,000, respectively, that Liberty allocated to DHC at the spin off date. However, since we had previously recorded a full valuation allowance against these net operating losses, the reversal of both the net operating losses and the corresponding valuation allowance resulted in no net impact to our condensed consolidated financial statements.

Net Earnings. Our net earnings decreased from $94,681,000 for the six months ended June 30, 2007 to $79,870,000 for the six months ended June 30, 2008. Such decrease is due to the aforementioned fluctuations in revenue, expenses and other income.

Liquidity and Capital Resources

Our primary sources of funds are cash on hand and cash flows from operating activities. During the ~~nine~~six months ended ~~September~~June 30, 2008 and 2007, our ~~primary use of~~ cash ~~was~~from ~~capital~~operating activities ~~expenditures~~was of $369,~~310~~386,000. Ofand ~~the foregoing 2007 capital expenditures,~~ $1135,~~300~~379,000, ~~relates to the buildout of Ascent Media’s existing facilities for specific customer contracts~~respectively. The ~~remainder of our capital expenditures relate to~~primary ~~purchases~~drivers of ~~new~~our ~~equipment~~cash ~~and~~from ~~the~~operating ~~upgrade~~activities ofare ~~existing~~adjusted OIBDA ~~facilities~~ and ~~equipment.~~changes Wein ~~currently~~working ~~expect~~capital. toFluctuations ~~spend~~in upour ~~to an~~adjusted ~~additional~~OIBDA ~~$33,000,000~~are ~~for~~discussed ~~capital~~in ~~expenditures~~“Results inof ~~2007,~~Operations” ~~which~~above weunder ~~expect~~the ~~will~~captions beRevenue, ~~funded~~Cost ~~with~~of ~~Ascent~~Services ~~Media’s~~ and Selling, ~~AccentHealth’s~~General ~~cash~~and ~~from~~Administrative. ~~operations~~Changes ~~and~~in ~~cash~~working oncapital ~~hand. At~~are ~~September 30,~~generally ~~2007,~~due weto ~~have~~the ~~approximately $152.5 million~~timing of ~~corporate~~purchases ~~cash~~ and ~~short-term~~payments for ~~investments.~~equipment ~~For~~and the ~~foreseeable~~timing ~~future,~~of webillings ~~expect~~and tocollections ~~have~~for ~~sufficient~~revenue. ~~available~~The ~~cash~~increase ~~balances~~in ~~and~~accounts ~~net~~receivable ~~cash~~ from ~~operating~~ ~~activities~~December 31, 2007 to ~~meet~~June 30, ~~our~~2008 ~~working~~is ~~capital~~mainly ~~needs~~driven ~~and capital~~by ~~expenditure~~a ~~requirements.~~$28 million Weincrease ~~intend~~in tosystems ~~seek~~integration ~~external equity or~~contract ~~debt~~billings ~~financing~~and ina ~~the~~$7.5 million ~~event~~increase ~~any~~in ~~new~~U.K. ~~investment opportunities,~~network ~~additional~~services ~~capital~~contracts. ~~expenditures~~The orincrease ~~our~~in ~~operations~~payables ~~require additional~~and ~~funds, but there can be no assurance that we will be~~other ~~able~~liabilities tois ~~obtain~~mainly ~~equity~~the orresult ~~debt~~of ~~financing~~equipment purchases on ~~terms that are~~large ~~acceptable~~systems tointegration uscontracts.

During the six months ended June 30, 2008 and 2007, we used cash of $18,194,000 and $25,093,000, respectively, to fund our capital expenditures. These expenditures relate to the purchase of new equipment, the upgrade of facilities and the buildout of Ascent Media’s existing facilities to meet customer contracts, which are capitalized as additions and remain the property of Ascent Media, not the specific customer. We currently expect to spend up to an additional $27,000,000 for capital expenditures in 2008, which we expect will be funded with Ascent Media’s and AccentHealth’s cash from operations and cash on hand. During the six months ended June 30, 2008, we sold marketable securities for cash of $23,545,000. These securities were originally purchased in 2006. At June 30, 2008, we have approximately $226 million of cash, and for the foreseeable future, we expect to have sufficient available cash balances and net cash from operating activities to meet our working capital needs and capital expenditure requirements. We intend to seek external equity or debt financing in the event any new investment opportunities, additional capital expenditures or our operations require additional funds, but there can be no assurance that we will be able to obtain equity or debt financing on terms that are acceptable to us.

We do not have access to the cash Discovery generates from its operations, unless Discovery makes a distribution with respect to its membership interests or makes other payments or advances to its members. Prior to May 14, 2007, DCI did not pay any dividends on its capital stock, and since that date, Discovery has not made any distributions to its members, and we do not have sufficient voting control to cause Discovery to make distributions or make other payments or advances to us.

Discovery

Effective May 15, 2007 and as a result of the Cox Transaction, our ownership interest in Discovery increased from 50% to 662/3%,. ~~and~~We we continue to account for this investment ~~using~~as ~~the~~an equity ~~method of accounting due to governance rights which restrict our ability to control Discovery. Accordingly~~affiliate, inrather ~~our~~than ~~condensed consolidated~~as ~~financial~~a ~~statements we record our share of Discovery’s net income or loss available to members and reflect this activity in one line item in our condensed~~ consolidated ~~statement of operations as “Share of earnings of Discovery.” The following financial information of Discovery for the nine months ended September 30~~subsidiary, ~~2007~~due ~~and 2006 and related discussion is presented~~ to ~~provide the reader~~ ~~with~~governance ~~additional~~rights ~~analysis~~which ofrestrict the operating results and financial position of Discovery. Because we do not control the decision-making process or business management practices of Discovery, we rely on Discovery to provide us with financial information prepared in accordance with GAAP that we use in the application of the equity method. The following discussion and analysis of Discovery’s operations and financial position has been prepared based on information that we receive from Discovery and represents our ~~views and understanding of its operating performance and financial position based on such information. Discovery is not a separately traded public company, and we do not have the~~ ability to ~~cause~~control Discovery~~’s management to prepare its own management’s discussion and analysis for our purposes~~. Accordingly, ~~we note that the material presented~~ in ~~this~~our ~~section might be different~~condensed ~~if Discovery’s management had prepared it.~~

I-20

The following discussion of Discovery’s results of operations is presented on a consolidated basis. In order to provide a better understanding of Discovery’s operations, we have also included a summarized presentation of revenue and operating cash flow of Discovery’s three operating groups: Discovery networks U.S., or U.S. networks, Discovery networks international, or international networks, and Discovery commerce, education and other.

U.S. networks is Discovery’s largest division, which owns and operates 11 cable and satellite channels, provides distribution and advertising sales services for Travel Channel and BBC America and provides distribution services for BBC World News. International networks manages a portfolio of channels, led by the Discovery Channel and Animal Planet brands, that are distributed in virtually every pay-television market in the world via an infrastructure that includes major operational centers in London, Singapore, New Delhi and Miami. Discovery commerce has undergone a strategic review and has repositioned its operating approach from running brick-and-mortar physical retail locations to focusing on an increased reach of its products through retail partnerships and the e-commerce platform. On May 17, 2007, Discovery announced that it would close its 103 mall-based and stand-alone Discovery Channel stores, which closures were completed in the third quarter of 2007. These stores had been part of Discovery’s commerce business. As a result of the store closures, the following Consolidated Results of Discovery have been prepared to reflect the retail store business as discontinued operations. Accordingly, the revenue, costs and expenses of the retail store business have been excluded from the respective captions in the Consolidated Results of Discovery and have been reported under the heading of discontinued operations. Discovery’s education business will continue to focus on its direct-to-school distribution platform and its other premium direct-to-school subscription services.

Consolidated Results of Discovery

	Nine Months Ended
	September 30,
	2007			2006
	amounts in thousands
Revenue:
Advertising	$	968,087			887,627
Distribution		1,099,624			1,063,138
Other		173,527			110,271
Total revenue		2,241,238			2,061,036
Expenses:
Cost of revenue		(735,159	)		(706,008	)
Selling, general and administrative (“SG&A”) expense		(819,997	)		(793,525	)
Operating cash flow		686,082			561,503
Restructuring and other charges		(15,798	)		—
Expenses arising from long-term incentive plans		(129,226	)		(10,561	)
Depreciation and amortization		(95,891	)		(87,036	)
Asset impairment		(26,174	)		—
Gain on sale of operating assets		134,671			—
Operating income		553,664			463,906
Other income (expense):
Interest expense, net		(179,135	)		(149,828	)
Realized and unrealized gains from derivative instruments, net		2,507			11,562
Minority interests in consolidated subsidiaries		(2,049	)		3,077
Other		5,573			6,622
Earnings before income taxes		380,560			335,339
Income tax expense		(73,938	)		(143,727	)
Earnings from continuing operations		306,622			191,612
Loss from discontinued operations, net of income taxes		(60,532	)		(24,473	)
Net earnings	$	246,090			167,139

I-21

consolidated financial statements we record our share of ~~Business~~Discovery’s net income or loss available to members and ~~Segment~~reflect ~~Results~~this activity in one line item in our condensed consolidated statement of operations as “Share of earnings of Discovery.”

	Nine Months Ended
	September 30,
	2007			2006
	amounts in thousands
Revenue:
U.S. networks	$	1,468,061			1,391,520
International networks		723,984			641,299
Commerce, education and other		49,193			28,217
Total revenue	$	2,241,238			2,061,036
Operating Cash Flow:
U.S. networks	$	595,123			541,393
International networks		99,886			96,667
Commerce, education and other		(8,927	)		(76,557	)
Total operating cash flow	$	686,082			561,503

The following financial information of Discovery for the six months ended June 30, 2008 and 2007 and related discussion is presented to provide the reader with additional analysis of the operating results and financial position of Discovery. Because we do not control the decision-making process or business management practices of Discovery, we rely on Discovery to provide us with financial information prepared in accordance with GAAP that we use in the application of the equity method. The following discussion and analysis of Discovery’s operations and financial position has been prepared based on information that we receive from Discovery and represents our views and understanding of its operating performance and financial position based on such information. Discovery is not a separately traded public company, and we do not have the ability to cause Discovery’s management to prepare its own management’s discussion and analysis for our purposes. Accordingly, we note that the material presented in this section might be different if Discovery’s management had prepared it.

~~Note:~~ The following discussion of Discovery’s ~~commerce,~~results ~~education~~of operations ~~and~~is ~~other~~presented in two parts to assist the reader in ~~includes~~better ~~intercompany~~understanding ~~eliminations~~Discovery’s operations. InThe ~~addition~~first section is an overall discussion of Discovery’s consolidated operating results. The second section includes a more detailed discussion of revenue, ~~prior~~cost ~~year~~of revenue and ~~amounts~~selling, ~~have~~general ~~been~~and ~~reclassified~~administrative ~~for~~expenses ~~comparability~~of ~~with~~Discovery’s three ~~current~~operating divisions: Discovery networks U.S., or ~~year~~U.S. networks, ~~presentation~~Discovery networks international, or international networks, and Discovery commerce and education.

~~The Cox Transaction was completed on May 14, 2007, and in~~ ~~connection therewith Discovery exchanged its subsidiary which~~Consolidated ~~held~~Results ~~Travel Channel, travelchannel.com and approximately $1.3 billion in cash for Cox’s ownership interest in Discovery. Accordingly, Discovery’s 2007 results~~ of ~~operations~~ ~~do not include Travel Channel for the full nine months. In the following discussion of~~ Discovery’s consolidated and the U.S. network’s revenue and expenses, the changes between the nine months ended September 30, 2007 and 2006 exclude the fluctuations due to the disposition of the Travel Channel. The disposal of Travel Channel does not meet the requirements for discontinued operations presentation.

~~Revenue.~~ Discovery’s ~~consolidated~~was ~~revenue~~formed in the second quarter of 2007 as part of a ~~increased~~restructuring ~~11%~~(the ~~for~~“DCI Restructuring”) completed by Discovery Communications, Inc. (“DCI”). In the ~~nine~~DCI Restructuring, ~~months~~DCI ~~ended~~became ~~September 30~~a wholly-owned subsidiary of Discovery, ~~2007~~and the former shareholders of DCI, including DHC, asbecame ~~compared~~members toof Discovery. Discovery is the ~~corresponding~~successor reporting ~~prior~~entity ~~year~~to ~~period~~DCI. ~~Increased~~In connection with the DCI ~~revenue~~Restructuring, ~~was~~Discovery ~~due~~applied to“pushdown” aaccounting and 5%each ~~increase~~shareholder’s basis in ~~distribution~~DCI ~~revenue,~~as aof May 14%, 2007 ~~increase~~has been pushed down to Discovery resulting in ~~advertising~~$4.3 billion of ~~revenue~~goodwill ~~and~~being arecorded ~~47%~~by ~~increase~~Discovery. inSince ~~other~~goodwill is not ~~revenue~~amortizable, ~~including~~there ~~commerce~~is ~~and~~no ~~education~~current ~~revenue,~~income ~~during~~statement ~~the~~impact for ~~same~~this ~~period~~change in basis.

~~Distribution~~During ~~revenue increased $21~~2007,~~425,000~~ orDiscovery 4%undertook atbroad ~~the~~restructuring activities, ~~U.S. networks~~including ~~for~~closing ~~the~~its ~~nine~~103 ~~months~~mall-based ~~ended~~and ~~September 30,~~stand-alone Discovery ~~2007~~Channel stores, asto ~~compared~~better toposition ~~the~~its ~~corresponding~~portfolio ~~prior~~of ~~year~~assets ~~period,~~and ~~primarily due~~ to afacilitate 7%growth ~~increase~~and inenhanced ~~average~~profitability. ~~paying subscription~~These ~~units,~~activities ~~principally~~resulted ~~from~~in ~~networks~~additional ~~carried~~operating onexpenses ~~the~~in ~~digital tier,~~2007 ~~partially~~that ~~offset~~impact bythe ancomparability ~~increase~~of inresults ~~contra-revenue~~from ~~items~~2007 to 2008. The ~~Contra-revenue~~more significant items ~~included~~include infourth ~~distribution~~quarter ~~revenue,~~2007 ~~such as~~content ~~launch~~impairment ~~amortization~~charges ~~and~~of ~~marketing consideration, aggregated~~ $70129,~~966~~091,000 ~~and~~at U.S. Networks and $629,~~768~~976,000 ~~for~~at ~~the~~Education ~~nine~~which ~~months~~both ~~ended~~impacted 2008 content ~~September 30,~~amortization ~~2007~~expense. ~~and~~During ~~2006,~~the ~~respectively.~~six ~~Many~~months ofended June 30, 2008, Discovery’s ~~domestic~~recorded ~~networks~~$3,919,000 ~~are~~in ~~currently~~restructuring ~~distributed to~~charges ~~substantially~~related ~~all~~to the closure of ~~the~~its ~~cable~~distribution ~~television~~center and ~~direct broadcast~~stores ~~satellite~~headquarter ~~homes~~offices. inDuring the ~~U.S. Accordingly,~~six ~~the~~months ~~rate~~ended ~~of growth~~June 30, in2007, ~~U.S. distribution~~Discovery ~~revenue~~recorded $12,286,000 in ~~future~~restructuring ~~periods is expected~~charges related to bethe ~~less~~strategic ~~than~~re-alignment ~~historical~~of ~~rates~~its organization.

At the international networks, distribution revenue increased $31,464,000 or 8% for the nine months ended September 30, 2007, as compared to the corresponding prior year period. Such increase was principally comprised of combined revenue growth in Europe and Latin America of $44,698,000, revenue growth in Asia of $9,250,000 and a favorable foreign exchange impact in Europe and the U.K. of $15,518,000, offset by a $41,262,000 revenue decline in the U.K. The net increase in revenue resulted from a 13% increase in average paying subscription units combined with contractual rate increases in certain markets, partially offset by an increase in launch amortization. In January 2007 and in connection with the settlement of terms under a pre-existing distribution agreement, Discovery completed negotiations for the renewal of long-term distribution agreements for certain of its U.K. networks and paid a distributor $195.8 million. Most of the payment was attributed to the renewal period and is being amortized over a five year term. As a result, launch amortization at the international networks was $32,945,000 for the nine months ended September 30, 2007, as compared to $4,794,000 for the corresponding prior year period.

I-22

~~Advertising revenue, which includes revenue from paid~~ ~~programming, increased $83,960,000 or 13% at the~~Consolidated ~~U.S. networks~~Results ~~and~~of increased $30,342,000 or 16% at the international networks, for the nine months ended September 30, 2007 as compared to the corresponding prior year period. The increase in advertising revenue at the U.S. networks was primarily due to improved advertising sell-out rates, better unit pricing and higher audience delivery on most channels, notably the Discovery ~~Channel and TLC. The~~ increase in international networks advertising revenue was due primarily to higher viewership in Europe and Latin America combined with an increased subscriber base in most markets worldwide, partially offset by a decline in advertising revenue in the U.K.

Commerce, Education and Other revenue increased $20,976,000 or 74% for the nine months ended September 30, 2007, as compared to the corresponding prior year period. The increase was driven by a surge in sales of Planet Earth DVDs following the series premiere in March 2007, as well as an increase in subscribers and improved pricing for Discovery’s direct-to-school education distribution platform.


	Six Months Ended
	June 30,
	2008			2007
	amounts in thousands

Revenue:
Advertising	$	681,700			647,166
Distribution		819,685			732,518
Other		156,825			116,922

Total revenue		1,658,210			1,496,606

Expenses:
Cost of revenue		(473,274	)		(494,772	)
Selling, general and administrative (“SG&A”) expense		(583,849	)		(546,922	)
Restructuring charges		(3,919	)		(12,286	)
Expense arising from long-term incentive plans		(17,431	)		(85,012	)
Depreciation and amortization		(77,909	)		(64,802	)
Asset impairment		—			(26,174	)
Gain on sale of operating assets		—			134,671

Operating income		501,828			401,309
Other income (expense):
Interest expense, net		(134,918	)		(107,147	)
Unrealized gains (losses) from derivative instruments, net		2,174			4,948
Minority interests in consolidated subsidiaries		(8,041	)		(1,394	)
Other		2,160			5,341

Income from continuing operations before income taxes		363,203			303,057
Income tax expense		(140,167	)		(39,732	)

Income from continuing operations		223,036			263,325
Loss from discontinued operations, net of income taxes		—			(32,974	)

Net income	$	223,036			230,351

~~Cost of~~ Revenue. ~~Cost~~Discovery’s ofconsolidated revenue increased 9$161,604,000 or 11% for the ~~nine~~six months ended ~~September~~ June 30, ~~2007~~2008, as compared to the corresponding prior year period., Asdue ato ~~percent~~increases of ~~revenue~~$87, ~~cost~~167,000 ofor ~~revenue was 33~~12% ~~for~~in ~~each of the nine month periods ended~~distribution ~~September 30~~revenue, ~~2007 and 2006. The~~ $5539,~~599~~903,000 ~~increase~~or ~~over the~~34% ~~prior~~in ~~year~~other ~~period~~revenue, ~~primarily~~and ~~resulted from a~~ $4534,~~497~~534,000 or ~~increase~~5% in ~~content~~advertising ~~amortization~~revenue. ~~expense~~The ~~due~~increase toin ~~continued~~distribution revenue ~~investment~~was indue ~~original~~to ~~productions~~(i) a $68,243,000 ~~from~~or ~~2006~~23% ~~acquisitions,~~increase ~~and~~in ~~from~~international ~~accelerated~~networks ~~amortization~~primarily ofdue ~~certain~~to ~~programs.~~international ~~As announced~~networks onsubscriber ~~April 5~~growth, ~~2007,~~(ii) favorable ~~the~~exchange ~~Discovery~~rates ~~Home channel will be~~of ~~re-branded~~$22,416,000 asand ~~Discovery~~(iii) an ~~PlanetGreen~~$18,924,000 ~~during~~or ~~2008,~~4% soincrease ~~additional~~in ~~accelerated~~U.S. networks ~~amortization~~driven ~~expenses~~by on(a) annual ~~Discovery~~contract ~~Home programs~~increases ~~could~~for ~~be expected during~~ the ~~remainder~~fully ofdistributed ~~2007 and early 2008~~U.S. networks, (b) an ~~All~~increase ~~programming~~in ~~portfolio~~average ~~assets~~paying ~~will~~subscription ~~continue~~units toand ~~be subject to~~(c) a ~~evaluation~~one-time in$7,975,000 ~~2007~~revenue ~~relative~~correction tothat ~~reviews~~was ~~and~~related ~~strategic~~to ~~plans put~~prior inperiods ~~place~~and ~~for~~resulted ~~certain~~from ~~other~~improvements ~~channels~~in ~~by the new management. The~~Discovery’s ~~increase~~methodology inof ~~cost~~estimating ofaccrued revenue isfor ~~also the result of several new~~certain ~~networks~~distribution ~~launched~~operators. inThe ~~Europe,~~increase ~~and~~in ~~a $4,517,000 impact of the~~U.S. networks ~~German~~distribution ~~free-to-air~~revenue ~~channel~~was ~~branded~~partially asoffset ~~DMAX~~by ~~which~~the ~~was~~disposition ~~acquired in~~of ~~March~~Travel ~~2006~~Channel.

~~SG&A~~Other ~~Expenses. SG&A~~revenue ~~expenses~~ increased 4%primarily ~~for the nine months ended September 30, 2007,~~ as ~~compared~~a toresult ~~the corresponding prior year period. This increase is comprised~~ of ~~$32,584,000~~an ~~and~~ $5518,~~199~~419,000 ~~increases~~ ~~for~~increase ~~U.S. networks~~in ~~and~~ancillary ~~international~~revenue ~~networks,~~from ~~respectively, as~~a ~~compared~~joint toventure ~~the~~primarily ~~corresponding prior year period, partially~~due ~~offset~~to bysales aof ~~$43,944,000 decrease for~~ the ~~education~~Planet ~~business.~~Earth ~~In U.S. networks~~DVD, ~~the~~which ~~increase~~ is ~~due~~not toexpected ~~compensation and~~to ~~benefit~~continue ~~increases,~~at ~~small~~the ~~acquisition-related~~same ~~increases~~level, and ~~increases~~ infrom ~~general support costs, partially offset by a decrease in marketing expense. In international networks, the increase is primarily due to a~~ $4612,~~982~~413,000 orearned ~~40% increase in~~by personnel expense, resulting from 2006 acquisitions and infrastructure expansions in Europe which increased headcount and office locations, along with the effects of foreign currency exchange rates. In both U.S. networks’ ~~and~~representation international networks, there was also an increase in corporate expenses allocated to these segments following the organizational and strategic changes which decreased allocations to commerce, education and other. In the education business, the decrease is primarily due to a $14,481,000 or 43% reduction in personnel expense as a result of ~~business~~Travel ~~restructuring, combined with a $20,821,000 or 89% reduction in marketing expense as Discovery re-focuses the direction of the education business~~Channel. ~~As a percent~~ ~~of revenue, SG&A expense was 37% and 39% for the nine months ended September 30, 2007 and 2006, respectively.~~

~~Restructuring~~An ~~Charges. During~~increase ~~the~~of ~~nine months ended September 30~~$19, ~~2007~~868,000 ~~Discovery~~or ~~recorded~~15% ~~restructuring~~in international networks ~~charges~~advertising ~~related~~revenue towas aprimarily ~~number~~due ofto ~~organizational~~higher ~~and~~viewership ~~strategic~~in ~~adjustments~~EMEA ~~and~~(Europe ~~consisting~~excluding ~~mainly~~U.K., ofMiddle ~~severance~~East ~~due~~and toAfrica) aand the ~~reduction~~impact inof ~~headcount.~~favorable ~~The~~exchange ~~purpose~~rates of ~~these~~$8,711,000. ~~adjustments~~An ~~was~~increase toof ~~better~~$14,755,000 ~~align~~or ~~Discovery’s~~3% ~~organizational~~in ~~structure~~U.S. networks ~~with~~advertising ~~the~~revenue was ~~company’s~~driven ~~new~~by ~~strategic~~higher ~~priorities~~cash sellouts and tohigher ~~respond~~scatter torates across ~~continuing~~most ~~changes~~networks ~~within~~at the ~~media industry~~U.S. networks, ~~There~~offset ~~was~~by nothe ~~restructuring~~disposition ~~charge~~of ~~in 2006.~~Travel

Expenses Arising from Long-term Incentive Plans. Expenses arising from long-term incentive plans are related to Discovery’s unit-based, long-term incentive plan, or LTIP, for its employees who meet certain eligibility criteria. Units are awarded to eligible employees and generally vest at a rate of 25% per year. The value of units in the LTIP is indexed to the value of DHC Series A common stock and treated similar to a derivative by determining their fair value each reporting period. The change in unit value of LTIP awards outstanding is recorded as compensation expense over the period outstanding. Upon redemption of the LTIP awards, participants receive a cash payment based on the change in market price of DHC Series A common stock. In the third quarter of 2007, Discovery amended its LTIP such that the redemption dates occur annually over a 4 year period instead of bi-annually over an 8 year period. This amendment will impact compensation expense recognized in 2007 and future

I-23

~~periods,~~Channel and ~~also~~lower ~~impact~~ratings ~~the~~at ~~timing of cash payments~~TLC. ~~Compensation~~ ~~expense~~Program ~~aggregated~~ratings ~~$129,226,000~~are ~~for the nine months~~an ~~ended~~indication ~~September 30, 2007 compared to $10,561,000 for the same period in 2006. The increase is primarily the result~~ of ~~increases~~ inconsumer ~~the~~acceptance ~~DHC~~and ~~Series A~~directly ~~common stock price offset by~~affect aDiscovery’s ~~decrease~~ability ~~in expense related~~ to ~~the~~generate ~~shortened~~revenue ~~redemption time period under the amended LTIP along with the difference in value accrued for units paid or forfeited~~ during the ~~quarter, largely~~airing ~~as a result~~ of ~~the~~its ~~restructuring~~programs. If ~~the~~programs ~~remaining~~do ~~vested~~not ~~LTIP~~achieve sufficient ~~awards at September 30~~acceptance, ~~2007 were redeemed,~~ the ~~aggregate cash~~revenue ~~payments~~from byadvertising ~~Discovery~~sales ~~would~~may ~~be approximately $105,308,000~~decline.

~~Depreciation~~Cost ~~and~~of ~~Amortization~~revenue. ~~The~~Cost ~~increase~~of inrevenue, which ~~depreciation~~includes ~~and~~content amortization and other production related expenses in addition to distribution and merchandising costs, decreased $21,498,000 or 4% for the ~~nine~~six months ended ~~September~~June 30, 2008, as compared to the corresponding prior year period. This net decrease is comprised of a decrease of $51,321,000 or 16% in U.S. networks which is primarily a result of (i) the effect of the fourth quarter 2007 content impairment charge which drove a year over year decrease in content amortization expense of $37,293,000 and (ii) a $27,496,000 decrease from the disposition of Travel Channel. Partially offsetting the U.S. networks’ decrease is an increase of $22,693,000 or 12% in international networks due to the ancontinued ~~increase~~investment in ~~new~~additional ~~assets~~local feeds for growth in ~~placed~~local ad sales, including the unfavorable impact of foreign currency exchange rates of $5,606,000. As a result of the foregoing fluctuations, cost of revenue as a percent of revenue decreased to 29% in ~~service~~2008 ~~during~~from ~~2006~~33% ~~and~~in 2007.

~~Asset~~SG&A ~~impairment~~expenses. ~~During~~SG&A expenses, which include personnel, marketing and other general and administrative expenses, increased by $36,927,000 or 7% for the six ~~second~~months ~~quarter~~ended June 30, 2008, as compared to the corresponding prior year period. These increases were primarily due to (i) U.S. networks continued investment of ~~2007~~$23,096,000 ~~Discovery~~in ~~recorded~~digital anmedia, ~~asset~~(ii) $11,079,000 ~~impairment~~related ~~which~~to the ~~represents~~marketing for Animal Planet and the launch of Planet Green, ~~write~~(iii) $7,033,000 related to the expansion of network teams to support re-~~offs~~branding strategies and (iv) the impact of unfavorable ~~education~~foreign ~~intangible~~currency ~~assets~~exchange rates of $10,645,000. These increases were partially offset by a decrease of $20,228,000 related to ~~its~~the disposition of Travel Channel. As a ~~consumer~~percent ~~business~~of revenue, SG&A expense was 35% and 37% for the six months ended June 30, 2008 and 2007, respectively.

~~Gain~~Expenses arising from long-term incentive plans. Expenses arising from long-term incentive plans are related to Discovery’s unit-based, long-term incentive plan, or LTIP, for its employees who meet certain eligibility criteria. Units are awarded to eligible employees and generally vest at a rate of 25% per year. The value of units in the LTIP is indexed to the value of DHC Series A common stock and is calculated using the Black Scholes Model. The change in unit value of LTIP awards outstanding is recorded as compensation expense over the period outstanding. Upon redemption of the LTIP awards, participants receive a cash payment based on ~~sale~~the value of ~~operating~~the ~~assets~~award as described in the terms of the LTIP. In the third quarter of 2007, Discovery ~~recognized~~amended the LTIP such that the redemption dates occur annually over a ~~gain~~4 year onperiod ~~sale~~instead of ~~operating~~bi-annually ~~assets~~over an 8 year period. Compensation expense was $11,576,000 for the six months ended June 30, 2008 compared to $85,012,000 for the same period in 2007. The expense for the six months ended June 30, 2008 was driven by the vesting of outstanding units offset by a decrease in DHC Series A common stock price from December 31, 2007. The expense for the six months ended June 30, 2007 was primarily the result of increases in the DHC Series A common stock price, partially offset by a decrease in expense related to the difference in value accrued for units paid or forfeited during the quarter, largely as a result of the restructuring. Discovery also recorded $~~134~~5,~~671~~855,000 of compensation expense for the six months ended June 30, 2008 arising from a long-term incentive plan related to one of Discovery’s subsidiaries, for which there was no expense in the corresponding prior year period. If the ~~connection~~remaining ~~with~~vested LTIP awards at June 30, 2008 were redeemed, the ~~Cox~~aggregate ~~Transaction~~cash payments by Discovery would be approximately $78,485,000.

Restructuring charges. During the six months ~~Other~~ended June 30, 2008, Discovery recorded $3,919,000 in ~~Income~~restructuring charges related to the closure of its distribution center and ~~Expense~~its stores headquarter offices along with the transition of the remaining commerce distribution services to third-party service providers. This compares to $12,286,000 in restructuring charges for the six months ended June 30, 2007 which related to a number of organizational and strategic adjustments and consisted mainly of severance due to a reduction in headcount. The purpose of these restructurings was to better align Discovery’s organizational structure with the company’s new strategic priorities and to respond to continuing changes within the media industry.

~~Interest~~Depreciation ~~Expense~~and amortization. OnThe ~~May 14,~~increase ~~2007,~~in ~~Discovery~~depreciation ~~issued~~and aamortization ~~new~~for ~~$1.5~~the six months ended June ~~billion~~30, ~~term~~2008 ~~loan~~is due to an increase in ~~connection~~intangible assets ~~with~~resulting ~~the~~from ~~Cox~~acquisitions ~~Transaction.~~combined ~~The~~with ~~increase~~increases in Discovery’s ~~interest~~depreciable ~~expense~~asset ~~for~~base resulting from capital ~~the~~expenditures. ~~nine~~These ~~months~~increases ~~ended~~were ~~September 30,~~partially ~~2007~~offset isby ~~primarily~~ a ~~result~~decrease ofin amortization related to the ~~new~~2007 ~~term~~asset ~~loan~~impairment charge.

Realized and Unrealized Gains from Derivative Instruments, net. Realized and unrealized gains from derivative transactions relate primarily to Discovery’s use of derivative instruments to modify its exposure to interest rate fluctuations on its debt. These instrument contracts include a combination of swaps and swaptions. As a result of mark to market adjustments, Discovery recognized $2,507,000 and $11,562,000 in net gains on these instruments during the nine months ended September 30, 2007 and 2006, respectively. The foreign exchange hedging instruments used by Discovery are spot, forward and option contracts. Additionally, Discovery enters into non-designated forward contracts to hedge non-dollar denominated cash flows and foreign currency balances.

Minority Interests in Consolidated Subsidiaries. Minority interest represents increases and decreases in the estimated redemption value of mandatorily redeemable interests in subsidiaries which are initially recorded at fair value.

Other. Other income in 2007 and 2006 relates primarily to Discovery’s equity share of earnings on its joint ventures.

Income Taxes. Discovery’s effective tax rate for income from continuing operations was 19% and 43% for the nine months ended September 30, 2007 and 2006, respectively. Discovery’s effective tax rate differed from the federal income tax rate of 35% primarily due to the tax-free treatment of the disposition of the Travel Channel in 2007 and due to foreign and state taxes in 2006.

Net Earnings. Discovery’s net earnings were $246,090,000 and $167,139,000 for the nine months ended September 30, 2007 and 2006, respectively. Such change is due to the other aforementioned fluctuations in revenue and expense. In addition, Discovery recognized $60,532,000 and $24,473,000 of net losses from discontinued operations for each of the nine months ended September 30, 2007 and 2006, respectively. The 2007 net loss contains $39,904,000 in restructuring costs and $28,264,000 in asset impairment charges, along with normal business operations.

Liquidity and Capital Resources

Discovery provided $126,043,000 and $270,606,000 of cash from operations during the nine months ended September 30, 2007 and 2006, respectively. Included in cash from operations was $209,289,000 and $33,729,000 of deferred launch payments for the nine months ended September 30, 2007 and 2006, respectively, driving a significant use of cash during 2007.

I-24

Asset impairment. During the ~~nine~~second ~~months~~quarter ~~ended September 30,~~ of 2007, Discovery ~~spent~~ ~~$55,317,000~~recorded onan ~~capital~~asset ~~expenditures,~~impairment of $4426,~~000~~174,000 to ~~acquire mandatorily redeemable securities~~ related to ~~minority interests in certain subsidiaries, and paid $1,321,544,000 in connection with~~ the ~~Cox~~write-off ~~Transaction. During the nine months ended September 30, 2006, Discovery paid $179,019,000 for business combinations, net~~ of ~~the~~education ~~cash~~intangible ~~acquired,~~assets ~~paid $80,000,000 to acquire mandatorily redeemable securities~~ related to ~~minority~~its ~~interests~~consumer inbusiness. ~~certain~~No ~~subsidiaries~~such ~~and~~charge ~~spent $40,109,000~~was onrecorded ~~capital~~in ~~expenditures~~2008.

InGain addition to cash provided by operations, Discovery funds its activities with proceeds borrowed under various debt facilities, including two term loans, two revolving loan facilities and various senior notes payable. The second term loan was issued on ~~May 14,~~ ~~2007~~sale ~~for~~of ~~$1.5 billion~~operating ~~in connection with the Cox Transaction~~assets. During the ~~nine months ended September 30,~~ ~~2007~~second ~~and~~quarter ~~2006, net borrowings under debt facilities were $1,331,909,000 and $71,909,000, respectively. Total commitments~~ of ~~these facilities were $5~~2007,~~590,000,000~~ atDiscovery ~~September 30, 2007.~~recognized ~~Debt~~a ~~outstanding~~gain on ~~these~~sale ~~facilities aggregated~~of ~~$3,946,300,000~~operating atassets ~~September 30, 2007, providing excess debt availability~~ of $1134,~~643~~671,~~700,~~000. ~~Discovery’s~~in ~~ability~~connection ~~to borrow~~with the ~~unused capacity is dependent on its continuing~~Cox ~~compliance~~Transaction. ~~with~~No ~~its~~such ~~covenants~~gain atwas ~~the~~recorded ~~time~~in ~~of, and after giving effect to, a requested borrowing~~2008.

~~The $1.5 billion term loan is secured by the assets of~~ ~~Discovery, excluding assets held by its subsidiaries. The~~Other ~~remaining~~Income ~~term~~ and ~~revolving loans and senior notes are~~Expense unsecured. The debt facilities contain covenants that require the respective borrowers to meet certain financial ratios and place restrictions on the payment of dividends, sale of assets, additional borrowings, mergers, and purchases of capital stock, assets and investments. Discovery has indicated it is in compliance with all debt covenants at September 30, 2007.

~~During~~Interest expense. On May 14, 2007, Discovery ~~including~~entered ~~amounts~~into ~~discussed~~a ~~above,~~new ~~Discovery~~$1.5 billion term loan in ~~expects~~connection towith ~~spend~~the upCox toTransaction. ~~$100,000,000~~The ~~for~~increase ~~capital~~in ~~expenditures,~~interest ~~$250,000,000~~expense for ~~interest~~the ~~expense~~six ~~under~~months ~~its~~ended ~~current~~June 30, ~~debt~~2008 as compared ~~facilities,~~to ~~approximately~~the ~~$250,000,000~~corresponding ~~for~~prior ~~the~~year ~~announced~~period is primarily a result of ~~acquisition~~the ofnew ~~HowStuffWorks~~term loan.~~com~~ ~~and~~The ~~$85,000,000~~increase tois ~~satisfy~~also ~~LTIP~~impacted by Discovery ~~obligations.~~exercising ~~Discovery~~its ~~believes~~call ~~that~~rights ~~its~~in ~~cash~~January ~~flow~~2007 ~~from~~to acquire ~~operations~~mandatorily redeemable securities and ~~borrowings~~reversing $4.5 million ~~available~~of ~~under~~accrued ~~its~~preferred ~~credit~~returns. ~~facilities~~Preferred ~~will~~returns behad ~~sufficient~~been torecorded ~~fund~~as ~~its~~a ~~working~~component ~~capital~~of ~~requirements~~interest expense based on a constant rate of return through the full term.

~~Discovery~~Unrealized ~~has~~gains ~~agreements~~from ~~covering~~derivative ~~leases~~instruments, net. Unrealized gains from derivative transactions relate primarily to Discovery’s use of derivative ~~satellite~~instruments to modify its exposure to interest rate ~~transponders,~~fluctuations ~~facilities~~on ~~and~~its ~~equipment~~debt. These ~~agreements~~instruments ~~expire~~include a atcombination ~~various~~of ~~dates~~swaps, ~~through~~caps, ~~2020~~collars and other structured instruments. ~~Discovery~~As isa ~~obligated~~result of unrealized mark to ~~license~~market ~~programming~~adjustments, ~~under~~Discovery ~~agreements~~recognized ~~with~~an ~~content~~unrealized ~~suppliers~~gain ~~that~~of $2,174,000 ~~expire~~and $4,948,000 during the six months ended ~~over~~June 30, ~~various~~2008 ~~dates~~and 2007, respectively. The foreign exchange hedging instruments used by Discovery ~~also~~are ~~has~~spot, ~~other~~forward ~~contractual~~and ~~commitments~~option ~~arising~~contracts. inAdditionally, ~~the~~Discovery ~~ordinary~~enters ~~course~~into non-designated offorward ~~business~~contracts to hedge non-dollar denominated cash flows and foreign currency balances.

~~Discovery~~Minority isinterests ~~subject~~in toconsolidated subsidiaries. Minority ainterests ~~contractual agreement that may require~~primarily ~~Discovery~~represent ~~to acquire~~ the ~~minority~~portion ~~interest~~ of ~~certain~~earnings of ~~its subsidiaries.~~consolidated ~~The~~entities ~~right of the minority partner to put its~~which ~~interest~~are ~~back~~allocable to ~~Discovery~~the ~~for~~minority apartners ~~value~~as ~~determined~~well byas athe ~~specified~~increases ~~formula~~and ~~every~~decreases ~~three~~in ~~years commenced on December 31, 2002. Discovery accretes~~ the ~~mandatorily redeemable equity in a subsidiary to its~~ estimated redemption value ~~through~~of ~~the~~mandatorily ~~applicable~~redeemable ~~redemption~~interests ~~date.~~in ~~The~~subsidiaries ~~most~~which ~~recent~~are ~~put right has been~~initially ~~exercisable~~recorded ~~since~~at ~~December~~fair ~~2005~~value. ~~During~~The ~~2006,~~increase ~~Discovery~~for ~~was notified that~~ the ~~minority~~six ~~partner~~months ~~was evaluating whether to~~ended ~~execute its rights under the agreement. As of September~~June 30, ~~2007,~~ ~~the~~2008 ~~minority~~as ~~partner~~compared ~~had~~to ~~not~~the ~~advised~~corresponding ~~Discovery~~prior ~~of its~~year ~~intention.~~period ~~Discovery~~ is ~~now~~the ~~accreting~~result ~~this~~of ~~minority~~increased ~~interest~~profits toearned by these ~~the~~consolidated ~~December~~subsidiaries, ~~2008~~mainly ~~redemption~~driven ~~date~~by ~~and~~royalties ~~estimates~~on the ~~redemption~~ ~~value~~Planet toEarth beDVD ~~$48 million as of September 30, 2007~~sales.

Other. Other income in 2008 and 2007 relates primarily to Discovery’s equity share of earnings of its joint ventures.

Income taxes. Discovery’s effective tax rate was 39% and 13% for the six months ended June 30, 2008 and 2007, respectively. In 2008, Discovery’s effective tax rate differed from the federal income tax rate of 35% primarily due to state taxes. In 2007, the effective rate differed from the federal income tax rate due to the tax-free treatment of the disposition of the Travel Channel and the reversal of deferred tax liabilities related to certain Travel Channel assets.

Loss from discontinued operations. Summarized financial information for the retail stores business included in discontinued operations is as follows (amounts in thousands):


	Six Months Ended
	June 30,
	2007

Revenue	$	43,173
Loss from discontinued operations before income taxes	$	(57,587	)
Loss from discontinued operations, net of tax	$	(32,974	)

Net earnings. Discovery’s net earnings were $223,036,000 and $230,351,000 for the six months ended June 30, 2008 and 2007, respectively. The changes in net earnings are due to the aforementioned fluctuations in revenue and expense.

Discovery’s Operating Division Results

As noted above, Discovery’s operations are divided into three groups: U.S. networks, international networks and commerce and education. Corporate expenses, which primarily consist of corporate functions, executive

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management and administrative support services, are excluded from segment results to enable executive management to evaluate business segment performance based upon decisions made directly by business segment executives. Certain prior period amounts have been reclassified between segments to conform to Discovery’s 2008 operating structure.

U.S. Networks


	Six Months Ended
	June 30,
	2008			2007
	amounts in thousands

Revenue
Advertising	$	526,862			512,107
Distribution		459,576			440,652
Other		53,449			40,082

Total revenue	$	1,039,887			992,841

Cost of revenue	$	(261,317	)		(312,638	)

SG&A expenses	$	(246,034	)		(224,860	)

As noted above, in May 2007, Discovery exchanged its subsidiary holding the Travel Channel, travelchannel.com and approximately $1.3 billion in cash for Cox’s interest in Discovery. Accordingly, Discovery’s 2008 results of operations do not include Travel Channel. The disposal of Travel Channel does not meet the requirements for discontinued operations presentation. The following table presents U.S. networks results of operations excluding Travel Channel for all periods. This presentation is not in accordance with GAAP. However, Discovery believes this presentation provides a more meaningful comparison of the U.S. networks results of operations and allows the reader to better understand the U.S. networks ongoing operations.

U.S. Networks without Travel Channel


	Six Months Ended
	June 30,
	2008			2007
	amounts in thousands

Revenue
Advertising	$	526,862			472,173
Distribution		459,576			418,228
Other		53,449			39,072

Total revenue	$	1,039,887			929,473

Cost of revenue	$	(261,317	)		(285,142	)

SG&A expenses	$	(246,034	)		(204,632	)

The following discussion excludes the results of Travel Channel for all periods.

Revenue. For the six months ended June 30, 2008, advertising revenue increased $54,689,000 or 12%, distribution revenue increased $41,348,000 or 10%, and other revenue increased $14,377,000 or 37%, as compared to the corresponding prior year period. The increase in advertising revenue at the U.S. networks was primarily due to higher cash sellouts and scatter market rates, which were partially offset by lower ratings at TLC.

Distribution revenue was driven by a 5% increase in average paying subscription units, principally from networks carried on the digital tier, combined with annual contractual rate increases for the fully distributed networks. Distribution revenue includes a one-time $7,975,000 revenue correction related to prior periods and resulting from improvements in Discovery’s methodology of estimating accrued revenue for certain distribution

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operators. The correction was recorded in its entirety in the second quarter of 2008 and was not considered material to the current or prior periods. Contra revenue items included in distribution revenue, such as launch amortization and marketing consideration, totaled $42,132,000 and $46,826,000 for the six months ended June 30, 2008 and 2007, respectively. In 2007, contra revenue included $3,044,000 for replacement decoder boxes to support the digitization of an analog transponder. U.S. networks is currently in negotiations to renew distribution agreements for carriage of its networks involving a substantial portion of its subscribers. A failure to secure a renewal or a renewal on less favorable terms may have a material adverse effect on U.S. networks results of operations and financial position.

Other revenue increased $14,377,000 for the six months ended June 30, 2008 as compared to the corresponding prior year period due to (i) a $12,413,000 increase in U.S. networks’ representation of the Travel Channel, (ii) a $6,039,000 impact from the acquisition of HowStuffWorks in December 2007 and (iii) a partial offset of these increases from a $4,431,000 decrease in intra-divisional revenue related to cross channel promotion time and program sharing, which is eliminated on a consolidated level.

Cost of revenue. For the six months ended June 30, 2008, cost of revenue decreased $23,825,000 or 8%, as compared to the corresponding prior year period, primarily due to a decrease in content amortization expense of $29,428,000. The decrease in content amortization expense was primarily an effect of the $129,091,000 content impairment charge recorded in the fourth quarter of 2007 which drove a $37,293,000 decrease in content amortization expense for the six months ended June 30, 2008 as compared to the corresponding prior year period. Partially offsetting this reduction is new content amortization expense for programming on Discovery Channel, TLC and Science Channel that began to air in 2008. Beginning in the third quarter of 2008, additional content amortization expense is expected from the launch of new programming on most networks and the rebranding of certain networks.

SG&A expenses. SG&A expenses increased $41,402,000 or 20% for the six months ended June 30, 2008, as compared to the corresponding prior year period. The increase is primarily driven by $23,096,000 of expenses related to the continued investment in digital media, including acquisitions from the third and fourth quarters of 2007, increased marketing of $11,079,000 for Animal Planet and the launch of Planet Green, and a $7,033,000 impact related to the expansion of network teams to support the re-branding strategies for Planet Green and Investigation Discovery.

Digital Media Business. U.S. networks digital media business revenue, included within advertising and other revenue, was $25,706,000 and $12,897,000 for the six months ended June 30, 2008 and 2007, respectively. Combined cost of revenue and SG&A expenses for these businesses were $45,634,000 and $17,149,000 for the six months ended June 30, 2008 and 2007, respectively. Discovery expects to continue to invest in digital media due to its recent acquisitions of PetFinder.com, TreeHugger.com and HowStuffWorks.com, as well as any future organic investments in this arena.

International Networks


	Six Months Ended
	June 30,
	2008			2007
	amounts in thousands

Revenue
Advertising	$	154,754			134,886
Distribution		360,109			291,866
Other		53,276			38,209

Total revenue	$	568,139			464,961

Cost of revenue	$	(211,976	)		(189,283	)

SG&A expenses	$	(200,046	)		(191,979	)

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Revenue. Distribution revenue increased 23%, or $68,243,000, for the six months ended June 30, 2008, as compared to the corresponding prior year period, principally comprised of combined revenue growth in EMEA and Latin America of $38,573,000 and a favorable foreign exchange impact of $22,416,000. The increase in revenue resulted from increases in average paying subscription units of 17% primarily due to pay TV subscriber growth in EMEA and Latin America. Advertising revenue increased 15%, or $19,868,000, for the six months ended June 30, 2008, primarily due to higher viewership in EMEA and Latin America combined with an increased subscriber base in most markets worldwide and favorable foreign exchange impacts of $8,711,000. These increases were partially offset by a reduction of $13,305,000 in the U.K. market. Other revenue increased 39%, or $15,067,000, primarily due to an improvement in licensing and sales of programming and growth at Antenna Audio.

Cost of revenue. Cost of revenue increased 12%, or $22,693,000, for the six months ended June 30, 2008, as compared to the corresponding prior year period, driven by a $21,757,000 increase in content amortization expense due to continued investment in original productions and language customization to support additional local feeds for growth in local ad sales.

SG&A expenses. SG&A expenses increased 4%, or $8,067,000, for the six months ended June 30, 2008, as compared to the corresponding prior year period. The increase is primarily due to an increase in personnel costs of $13,594,000 which includes an unfavorable foreign exchange impact of $3,872,000, offset by decreases in marketing and other general expenses due to a shift in content investment.

For the six months ended June 30, 2008 and 2007, the international networks revenue and operating income were impacted favorably by changes in the exchange rates of various foreign currencies. In the event the U.S. dollar strengthens against certain foreign currencies in the future, the international networks group’s revenue and operating income would be negatively impacted. Had there been no impact from changes in exchange rates, international networks would have increased revenue by 15% instead of 22% and combined cost of revenue and SG&A expenses would have increased by 4% instead of 8% during the six months ended June 30, 2008, as compared to 2007.

Commerce and Education


	Six Months Ended June 30,
	2008			2007
	amounts in thousands

Revenue	$	44,951			55,990

Cost of revenue	$	(22,546	)		(26,280	)

SG&A expenses	$	(25,818	)		(25,978	)

Revenue. Commerce and education revenue decreased 20% or $11,039,000 for the six months ended June 30, 2008, as compared to the corresponding prior year period, due to a decrease in commerce revenue primarily due to the higher level of sales of Planet Earth DVDs in the second quarter of 2007 following the premiere of this series in March 2007. This decrease was offset by strong home video sales of Human Body, Sunrise Earth, Body Atlas, and Dirty Jobs during the six months ended June 30, 2008. Weakness in consumer spending in e-commerce and back-ordered sales for NASA (When We Left Earth) also impacted the current year’s sales performance. Education revenue remained flat as a result of increased streaming and other revenue driven by further penetration of core streaming businesses and new products offset by a decrease in other non-digital services.

Cost of revenue. Cost of revenue decreased 14% or $3,734,000 for the six months ended June 30, 2008, as compared to the corresponding prior year period, due to (i) reduced expenses resulting from reduced sales levels, (ii) the execution of the new Commerce product mix strategy of lower cost, higher margin products and (iii) emphasis on DVD sales.

SG&A expenses. SG&A expenses remained flat for the six months ended June 30, 2008, as compared to the corresponding prior year period, primarily due to increased costs related to the transition of the remaining commerce distribution services to third-party service providers offset by a decrease due to a legal settlement in the first quarter of 2007 and a reduction in Education personnel as a result of business restructurings in 2007.

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Corporate


	Six Months Ended June 30,
	2008			2007
	amounts in thousands

Revenue	$	5,233			(17,186	)

Expenses	$	(89,386	)		(70,677	)

Corporate is mainly comprised of ancillary revenue and expenses, elimination of intra-divisional revenue and expenses, corporate functions, executive management and administrative support services. Corporate expenses are excluded from segment results to enable executive management to evaluate business segment performance based upon decisions made directly by business segment executives. Corporate revenue increased $22,419,000 for the six months ended June 30, 2008, as compared to the corresponding prior year period, primarily due to increased ancillary revenue from sales of the Planet Earth DVD, which is not expected to continue at the same level. Corporate costs increased $18,709,000 or 26% driven by (i) $7,382,000 incurred in conjunction with the Newhouse Transaction and Ascent Spin Off, (ii) $5,484,000 related to the Planet Earth DVD sales, and (iii) $4,211,000 of transaction costs related to the formation and negotiation of the OWN joint venture.

Discovery’s Liquidity and Capital Resources

Discovery’s principal sources of liquidity are cash flows from operations and borrowings under its credit facility, and its principal uses of cash are for capital expenditures, acquisitions, debt service requirements, and other obligations. Discovery anticipates that its operating cash flows, existing cash, cash equivalents and borrowing capacity under its revolving credit facility are sufficient to meet its anticipated cash requirements for at least the next 12 months.

During the six months ended June 30, 2008, Discovery’s primary uses of cash were principal payments under its bank facilities and senior notes totaling $196,652,000, capital expenditures of $24,053,000, and payments under its LTIP of $17,701,000. Discovery funded these investing and financing activities with cash from operations of $172,977,000 and bank borrowings of $101,125,000.

Discovery’s various debt facilities include two term loans, two revolving loan facilities and various senior notes payable. The second term loan was entered into on May 14, 2007 for $1.5 billion in connection with the Cox Transaction. Total commitments of these facilities were $5,440,000,000 at June 30, 2008. Debt outstanding on these facilities aggregated $4,008,225,000 at June 30, 2008, providing excess debt availability of $1,431,775,000. Discovery’s ability to borrow the unused capacity is dependent on its continuing compliance with its covenants at the time of, and after giving effect to, a requested borrowing.

Discovery’s $1.5 billion term loan is secured by the assets of Discovery, excluding assets held by its subsidiaries. The remaining term loan, revolving loans and senior notes are unsecured. The debt facilities contain covenants that require the respective borrowers to meet certain financial ratios and place restrictions on the payment of dividends, sale of assets, additional borrowings, mergers, and purchases of capital stock, assets and investments. Discovery has indicated that it was in compliance with all debt covenants as of June 30, 2008.

In 2008, including amounts discussed above, Discovery expects its uses of cash to be approximately $266,285,000 for debt repayments, $90,000,000 for capital expenditures and $263,000,000 for interest expense. Discovery will also be required to make payments under its LTIP. However, amounts expensed and payable under the LTIP are dependent on future annual calculations of unit values which are affected primarily by changes in DHC’s stock price, annual grants of additional units, redemptions of existing units, and changes to the plan. If the remaining vested LTIP awards at June 30, 2008 were redeemed, the aggregate cash payments by Discovery would be approximately $78,485,000. Discovery believes that its cash flow from operations and borrowings available under its credit facilities will be sufficient to fund its cash requirements, including LTIP obligations.

Discovery has agreements covering leases of satellite transponders, facilities and equipment. These agreements expire at various dates through 2020. Discovery is obligated to license programming under agreements

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with content suppliers that expire over various dates. Discovery also has other contractual commitments arising in the ordinary course of business.


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*

Foreign Currency Risk

We continually monitor our economic exposure to changes in foreign exchange rates and may enter into foreign exchange agreements where and when appropriate. Substantially all of our foreign transactions are denominated in foreign currencies, including the liabilities of our foreign subsidiaries. Although our foreign transactions are not generally subject to significant foreign exchange transaction gains or losses, the financial statements of our foreign subsidiaries are translated into United States dollars as part of our consolidated financial reporting. As a result, fluctuations in exchange rates affect our financial position and results of operations.

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Item 4.	*Controls and Procedures*

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer, principal accounting officer and principal financial officer (the “Executives”), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2007~~2008 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal controls over financial reporting identified in connection with the evaluation described above that occurred during the ~~nine~~three months ended ~~September~~June 30, ~~2007~~2008 that has materially affected, or is is reasonably likely to materially affect, its internal controls over financial reporting.

I-2630

DISCOVERY HOLDING COMPANY

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*

For information regarding institution of, or material changes in, material legal proceedings that have been reported this fiscal year, reference is made to Part I, Item 3 of our Annual Report on Form 10-K, as amended, filed on ~~February~~June 282, ~~2007~~2008.


Item 6.	*Exhibits*

(a) Exhibits

10	.1	Discovery Holding Company 2005 Incentive Plan (As Amended and Restated Effective August 15, 2007)*
2	.1	Transaction Agreement, dated June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., DHC Merger Sub, Inc., Advance/Newhouse Programming Partnership, and with respect to Section 5.14 only Advance Publications, Inc., and Newhouse Broadcasting Corporation (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-4 of Discovery Communications, Inc. (File No. 333-151586) as filed with the Securities and Exchange Commission on June 11, 2008 (the “DCI S-4”).
10	.2	Discovery Holding Company 2005 Non-Employee Director Incentive Plan (As Amended and Restated Effective August 15, 2007)*
2	.2	Agreement and Plan of Merger, dated June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., and DHC Merger Sub, Inc. (incorporated by reference to Exhibit 2.2 to the DCI S-4).
10	.3	Discovery Holding Company Transitional Stock Adjustment Plan (As Amended and Restated Effective August 15, 2007)*
2	.3	Reorganization Agreement, dated as of June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., Ascent Media Corporation, Ascent Media Group, LLC and Ascent Media Creative Sound Services, Inc. (incorporated by reference to Exhibit 2.3 to the DCI S-4).
31	.1	Rule 13a-14(a)/15d-14(a) Certification*
31	.2	Rule 13a-14(a)/15d-14(a) Certification*
31	.3	Rule 13a-14(a)/15d-14(a) Certification*
32		Section 1350 Certification**

* Filed herewith. ** Furnished herewith.

II-1

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DISCOVERY HOLDING COMPANY
Date: November 7, 2007	By:	/s/ John C. Malone John C. Malone Chief Executive Officer
Date: August 11, 2008	By:	/s/ John C. Malone John C. Malone Chief Executive Officer
Date: November 7, 2007	By:	/s/ David J.A. Flowers David J.A. Flowers Senior Vice President and Treasurer (Principal Financial Officer)
Date: August 11, 2008	By:	/s/ David J.A. Flowers David J.A. Flowers Senior Vice President and Treasurer (Principal Financial Officer)
Date: November 7, 2007	By:	/s/ Christopher W. Shean Christopher W. Shean Senior Vice President and Controller (Principal Accounting Officer)
Date: August 11, 2008	By:	/s/ Christopher W. Shean Christopher W. Shean Senior Vice President and Controller (Principal Accounting Officer)

II-2

EXHIBIT INDEX

Listed below are the exhibits which are ~~filed~~included as a part of ~~this~~ this Report (according to the number assigned to them in Item 601 of Regulation S-K):

10	.1	Discovery Holding Company 2005 Incentive Plan (As Amended and Restated Effective August 15, 2007)*
2	.1	Transaction Agreement, dated June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., DHC Merger Sub, Inc., Advance/Newhouse Programming Partnership, and with respect to Section 5.14 only Advance Publications, Inc., and Newhouse Broadcasting Corporation (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-4 of Discovery Communications, Inc. (File No. 333-151586) as filed with the Securities and Exchange Commission on June 11, 2008 (the “DCI S-4”).
10	.2	Discovery Holding Company 2005 Non-Employee Director Incentive Plan (As Amended and Restated Effective August 15, 2007)*
2	.2	Agreement and Plan of Merger, dated June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., and DHC Merger Sub, Inc. (incorporated by reference to Exhibit 2.2 to the DCI S-4).
10	.3	Discovery Holding Company Transitional Stock Adjustment Plan (As Amended and Restated Effective August 15, 2007) *
2	.3	Reorganization Agreement, dated as of June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., Ascent Media Corporation, Ascent Media Group, LLC and Ascent Media Creative Sound Services, Inc. (incorporated by reference to Exhibit 2.3 to the DCI S-4).
31	.1	Rule 13a-14(a)/15d-14(a) Certification*
31	.2	Rule 13a-14(a)/15d-14(a) Certification*
31	.3	Rule 13a-14(a)/15d-14(a) Certification*
32		Section 1350 Certification**

* Filed herewith. ** Furnished herewith.

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Filing Compare · Discovery Holding CO