DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2007			2006			2008			2007
	amounts in thousands (note 4)						amounts in thousands

Cash flows from operating activities:
Net earnings	$	94,681			25,349		$	33,991			20,464
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		32,986			31,959			16,540			15,571
Stock-based compensation		1,308			987			(116	)		966
Share of earnings of Discovery		(147,354	)		(51,518	)		(66,402	)		(21,557	)
Gain on lease buyout		(6,992	)		—			—			(6,992	)
Deferred income tax expense		58,660			20,176			25,754			8,508
Other non-cash charges (credits), net		(776	)		165
Other non-cash credits, net								(502	)		(487	)
Changes in assets and liabilities, net of acquisitions:
Trade receivables		7,244			(162	)		(28,048	)		(1,082	)
Prepaid expenses and other current assets		(1,839	)		33			(1,157	)		(1,197	)
Payables and other liabilities		(2,539	)		5,054			17,769			(11,629	)

Net cash provided by operating activities		35,379			32,043
Net cash provided by (used in) operating activities								(2,171	)		2,565

Cash flows from investing activities:
Capital expenditures		(25,093	)		(32,400	)		(8,552	)		(13,407	)
Proceeds from lease buyout		7,138			—
Net purchases of marketable securities		(1,671	)		(50,661	)
Cash paid for acquisitions, net of cash acquired		—			(46,793	)
Cash proceeds from lease buyout								—			7,138
Net sales (purchases) of marketable securities								23,545			(665	)
Other investing activities, net		366			256			145			90

Net cash used in investing activities		(19,260	)		(129,598	)
Net cash provided by (used in) investing activities								15,138			(6,844	)

Cash flows from financing activities:
Net cash from option exercises		4,083			—			329			—
Other financing activities, net		(314	)		(4	)		(168	)		(19	)

Net cash provided (used) by financing activities		3,769			(4	)		161			(19	)

Net increase (decrease) in cash and cash equivalents		19,888			(97,559	)		13,128			(4,298	)
Cash and cash equivalents at beginning of period		154,775			250,352			209,449			154,775

Cash and cash equivalents at end of period	$	174,663			152,793		$	222,577			150,477

See accompanying notes to condensed consolidated financial statements.

I-3

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2008
(unaudited)

~~June 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.~~investment (see note 6). 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 all of the assets of AccentHealth were acquired by a subsidiary of DHC in January 2006, and are 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.~~nationwide, and is included as part of the network services group for financial reporting purposes.

Discovery is a leading global media and entertainment company that provides original and purchased ~~cable and satellite television~~ programming across multiple platforms in the United States and ~~over~~more than 170 other ~~countries.~~countries, including television networks offering customized programming in 35 languages. Discovery also develops and sells ~~branded commerce~~consumer and educational ~~product lines~~products and services in the United ~~States.~~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 onForm 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 condensed consolidated financial statements primarily relate to valuation of goodwill, other intangible assets, long-lived assets, deferred tax assets, and the amount of the allowance for doubtful accounts. Actual results could differ from the estimates upon which the carrying values were based.

I-5

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)


(2)	Newhouse Transaction and Ascent Spin Off

In December 2007, DHC announced that it had signed a non-binding letter of intent with Advance/Newhouse Programming Partnership (“Advance/Newhouse”) to combine their respective stakes in Discovery. As currently contemplated by the non-binding letter of intent, the transaction, if completed, would involve the following steps:


	•	DHC will spin-off to its shareholders a wholly-owned subsidiary holding substantially all of DHC’s cash, AccentHealth and Ascent Media, except for those businesses of Ascent Media that provide sound, music, mixing, sound effects and other related services (the “Ascent Media Spin Off”);

	•	Immediately following the Ascent Media Spin Off, DHC will combine with a new holding company(“New DHC”), and DHC’s existing shareholders will receive shares of common stock of New DHC;

	•	As part of this transaction, Advance/Newhouse will contribute its interests in Discovery and Animal Planet to New DHC in exchange for preferred stock of New DHC that, immediately after the closing of the transactions, will be convertible at any time into shares initially representing one-third of the outstanding shares of common stock of New DHC on an as-converted basis. The preferred stock held by Advance/Newhouse will entitle it to elect three members to New DHC’s board of directors and to exercise approval rights with respect to the taking of specified actions by New DHC and Discovery.

Although no assurance can be given, consummation of this transaction is expected in the third quarter of 2008. The Ascent Media Spin Off was approved in connection with the proposed transaction between DHC and Advance/Newhouse, and it is a condition of the Ascent Media Spin Off that the agreement between DHC and Advance/Newhouse be in effect and that all conditions precedent to that transaction (other than the Ascent Media Spin Off) shall have been satisfied.

It is currently expected that the Ascent Media Spin Off will be effected for federal income tax purposes as a tax-free distribution to DHC’s shareholders and 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 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 interests in Discovery and Animal Planet 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 TechnicalBulletin 85-5, the contribution of interests to New DHC will be treated as a non-substantive merger, and therefore, interests will be recorded at carry over basis.


(3)	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 Spin Off did not involve the payment of any consideration by the holders of Liberty common stock and is intended to qualify as a tax-free transaction.~~

As a result of the Spin Off and related adjustments to Liberty’s stock incentive awards, 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 of DHC Series B common stock were issued to employees of Liberty. In addition, employees of Ascent Media who held stock options or stock appreciation rights (“SARs”) to acquire shares of Liberty common stock prior to the Spin Off continue to hold such options. DHC is responsible for all stock options related to DHC common stock, and Liberty is responsible for all incentive awards related to Liberty common stock. Notwithstanding the foregoing, the Company records stock-based compensation for all stock incentive awards held by DHC’s and its subsidiaries’ ~~employees regardless~~employees. The majority of ~~whether such awards relate to DHC common stock or Liberty common stock. Any stock-based compensation recorded by DHC with respect to Liberty~~these stock incentive awards ~~is treated as a capital transaction with the offset~~were issued on or prior to ~~stock-based compensation expense reflected as an adjustment of additional paid-in capital.~~

~~The Company accounts for stock~~DHC’s spin off from Liberty Media Corporation (“Liberty”) on July 21, 2005 (the “2005 Spin Off”). Stock option ~~awards pursuant~~grants have also been issued to ~~Statement of Financial Accounting Standards No. 123 (revised 2004),~~~~“Share-Based Payment”~~ (“Statement 123R”). Statement 123R generally requires companies to measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the employee is required to provide service (usually the vesting period of the award).

Liberty calculated the grant-date fair value for all of its awards using the Black-Scholes Model. Liberty calculated the expected term of the awards using the methodology included in SEC Staff Accounting Bulletin No. 107. The volatility used in the calculation is based on the implied volatility of publicly traded Liberty options with a similar term (generally 20% — 21%). Liberty used the risk-free rate for Treasury Bonds with a term similar to that of the subject options. The Company has allocated the grant-date fair value of the Liberty awards to the Spin Off DHC Awards based on the relative trading prices of DHC and Liberty common stock after the Spin Off.

~~On May 4, 2006, each of the~~ non-employee directors of DHC ~~was granted 10,000 options~~and to purchase DHC Series A common stock with an exercise price of $14.48 per share. Such options vest one year from the date of grant, terminate 10 years from the date of grant and had a grant-date fair value of $4.47 per share, as determined by the Black-Scholes Model.

On May 17, 2007, 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 17, 2007, the president of DHC subsequent to that date. For the three months ended March 31, 2008 and 2007, stock-based compensation related to these awards was ~~granted 10,000 options~~$160,000 and $137,000, respectively.

I-6

~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

2006 Ascent Media Long-Term Incentive Plan

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 ~~calculated as~~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~~500,000; plus (ii) ~~5% of the increase in~~ 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, divided by 10,000,000.~~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 ~~438,500~~483,500 PARs granted as of ~~June 30, 2007.~~March 31, 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 ~~will record~~records a liability and a charge to expense based on the PAR Value and percent vested at each reporting period. ~~As of June 30, 2007, Ascent Media had recorded a liability of $919,000.~~


~~(3)~~(4)	Earnings Per Common Share — Series A and Series B

Basic earnings per common share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. The weighted average number of shares outstanding for the three ~~and six~~ months ended ~~June 30,~~March 31, 2008 and 2007 is ~~280,351,000~~281,044,000 and ~~280,287,000,~~280,222,000, respectively. ~~The weighted average number of shares outstanding for each of the three and six months ended June 30, 2006 is 279,950,000.~~ 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 securities in ~~2007~~2008 and ~~2006,~~2007, their inclusion does not impact the EPS amount as reported in the accompanying condensed consolidated statements of operations.


~~(4)~~	~~Supplemental Disclosure of Cash Flow Information~~

Six Months

Ended

June 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


(5)	~~Acquisition~~

Effective January 27, 2006, one of DHC’s subsidiaries acquired substantially all of the assets of AccentHealth’s healthcare media business for cash consideration of $46,793,000. AccentHealth operates an advertising-supported captive audience television network in doctor office waiting rooms nationwide. The Company recorded goodwill of $32,224,000 and other intangible assets of $9,800,000 in connection with this acquisition. Other intangible assets are included in Other assets, net in the accompanying condensed consolidated balance sheets. The excess purchase price over the fair value of assets acquired is attributable to the growth potential of AccentHealth and expected compatibility with Ascent Media’s existing network services group.

For 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 six months ended June 30, 2006.

~~I-7~~

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

in 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.

In September 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 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.”


~~(7)~~(6)	Investment in Discovery

Discovery was formed in the second quarter of 2007 as part of a restructuring (the “DCI Restructuring”) completed by Discovery Communications, Inc. (“DCI”). In the DCI Restructuring, DCI became a wholly-owned subsidiary of Discovery, and the former shareholders of DCI, including DHC, became members of Discovery. Discovery is the successor reporting entity to DCI. In connection with the DCI Restructuring, Discovery applied “pushdown” accounting and each shareholder’s basis in DCI as of May 14, 2007 has been pushed down to Discovery. The result was ~~$4.4~~$4.3 billion in goodwill being recorded by Discovery. Since goodwill is not amortizable, there is no current income statement impact for this change in basis.

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

On May 14, 2007, Discovery and Cox Communications ~~Holding,~~Holdings, 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.~~cash (the “Cox Transaction”). Discovery raised the cash component through additional debt financing, and retired the membership interest previously owned by Cox. Upon completion of this transaction, DHC owns a 662/3% interest in Discovery and Advance/Newhouse ~~Communications~~ owns a 331/3% ~~interest.~~interest in 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 (net of related taxes) for the three months ended March 31, 2008 and is included in DHC’s share of earnings of Discovery.

DHC continues to account for its investment in Discovery using the equity method of accounting due to governance rights possessed by Advance/Newhouse ~~Communications~~ which restrict DHC’s ability to control Discovery. From January 1, ~~2006~~2007 through May 14, 2007, DHC recorded its 50% share of the earnings of DCI. Subsequent to May 14, 2007, DHC has recorded its 662/3% share of the earnings of Discovery.

~~DHC’s carrying value for Discovery was $3,282,062,000 at June 30, 2007. In addition, as described in note 6, enterprise-level goodwill of $1,771,000,000 has been allocated~~DHC does not have access to the ~~investment in Discovery.~~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

I-8

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

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 DHC does not have sufficient voting control to cause Discovery to make distributions or make other payments or advances to DHC.

DHC’s carrying value for Discovery was $3,330,030,000 at March 31, 2008. In addition, as described in note 5, 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


	June 30,		December 31,			March 31,		December 31,
	2007		2006			2008		2007
	amounts in thousands					amounts in thousands

Cash and cash equivalents	$	67,880		52,263		$	68,654		44,951
Other current assets		1,013,824		918,373			1,021,658		1,032,282
Property and equipment, net		385,476		424,041			379,125		397,430
Goodwill and intangible assets		4,793,972		472,939			5,041,554		5,051,843
Programming rights, long term		1,132,758		1,253,553			1,045,593		1,048,193
Other assets		384,771		255,384			364,753		385,731

Total assets	$	7,778,681		3,376,553		$	7,921,337		7,960,430

Current liabilities	$	682,219		734,524		$	681,805		850,495
Long term debt		4,082,810		2,633,237			4,088,607		4,109,085
Other liabilities		237,516		175,255			300,610		243,867
Mandatorily redeemable equity in subsidiaries		47,298		94,825			48,721		48,721
Stockholders’ equity (deficit)		2,728,838		(261,288	)
Members’ equity							2,801,594		2,708,262

Total liabilities and stockholders’ equity (deficit)	$	7,778,681		3,376,553
Total liabilities and members’ equity						$	7,921,337		7,960,430

~~Consolidated Statements of Operations~~

Six Months Ended

June 30,
2007 2006
amounts in thousands

Revenue $ 1,539,779 1,392,606
Cost of revenue (527,329 ) (485,404 )
Selling, general and administrative (574,814 ) (571,730 )
Restructuring and other charges (21,097 ) —
Equity-based compensation (85,012 ) (9,976 )
Depreciation and amortization (68,144 ) (63,674 )
Asset impairment (54,438 ) —
Gain on sale of operating assets 134,671 —

Operating income 343,616 261,822
Interest expense (107,141 ) (99,805 )
Other income, net 8,895 16,567
Income tax expense (15,019 ) (75,549 )

Net earnings $ 230,351 103,035

DHC’s share of net earnings $ 147,354 51,518

I-9

DISCOVERY HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)

Consolidated Statements of Operations


	Three Months Ended
	March 31,
	2008			2007
	amounts in thousands

Revenue	$	794,578			710,198
Cost of revenue		(230,435	)		(243,523	)
Selling, general and administrative		(278,211	)		(276,247	)
Restructuring and other charges		—			(10,999	)
Equity-based compensation		35,857			(11,721	)
Depreciation and amortization		(37,720	)		(32,433	)

Operating income		284,069			135,275
Interest expense, net		(68,720	)		(44,558	)
Other income (expense), net		(22,590	)		2,407
Income tax expense		(87,541	)		(41,710	)

Earnings from continuing operations		105,218			51,414
Loss from discontinued operations, net of income tax		—			(8,300	)

Net earnings	$	105,218			43,114

Note: In the third quarter of 2007, Discovery closed its 103 mall-based and stand-alone Discovery Channel stores. As a result, Discovery’s consolidated statement of operations for the three months ended March 31, 2007 has been prepared to reflect the retail store business as discontinued operations.


~~(8)~~(7)	Income Taxes

~~Effective January 1, 2007,~~During the ~~Company adopted~~first quarter of 2008, Liberty reached an agreement with the IRS related to certain disputed tax items that arose in periods prior to DHC’s 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 had allocated to DHC at the spin off date. In addition, during the first quarter of 2008, DHC reduced its reserve against the net operating losses allocated from Liberty from $11,877,000 to $2,662,000 under FASB Interpretation No. 48, ~~“Accounting~~“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. ~~109” (“FIN 48”)~~109”. ~~FIN 48 clarifies~~However, since DHC had previously recorded a full valuation allowance against these net operating losses, the ~~accounting for uncertainty~~reversal of the net operating losses, the decrease in ~~income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for~~ the ~~financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In instances where~~reserve on the ~~Company has taken or expects to take a tax position in its tax return~~net operating losses, and the ~~Company believes it is more likely than not that such tax position will be upheld by~~reversal of the ~~relevant taxing authority, the Company may record the benefits of such tax position~~corresponding valuation allowance resulted in ~~its~~no net impact to DHC’s condensed consolidated financial statements. Upon adoption of FIN 48 on January 1, 2007, the Company’s wholly-owned subsidiary, Ascent Media, reversed $255,000 of tax liabilities included in the Company’s December 31, 2006 consolidated balance sheet with a corresponding decrease to accumulated deficit. Discovery recorded a $5,011,000 net tax liability upon adoption of FIN 48, and the Company recorded its 50% share, or $2,506,000, directly to accumulated deficit, net of a $991,000 deferred tax impact.

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~~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~~other income, net in the accompanying condensed consolidated statements of operations. As of January 1, ~~2007,~~2008, accrued interest and penalties related to uncertain tax positions was not significant.

As of ~~June 30, 2007,~~March 31, 2008, the Company’s tax returns for the period July 21, 2005 through December 31, ~~2006~~2007 remain subject to examination by the IRS for federal income tax purposes.

I-10

~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

DHC by Liberty under the Services Agreement aggregated ~~$1,103,000~~$499,000 and ~~$1,130,000~~$552,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ 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 ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007 aggregated $9,311,000 and ~~2006 aggregated $22,552,000 and $13,878,000,~~$4,960,000, respectively.


~~(11)~~(10)	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. Corporate related items and unallocated income and expenses are reflected in the corporate and other category listed below.

The creative services group provides ~~various technical and creative~~ services necessary to complete ~~principal photography into final products, such as~~the creation of original content, including feature films, ~~movie trailers, documentaries and independent films, episodic~~mini-series, television ~~TV movies and mini-series,~~shows, television commercials, music videos, ~~interactive games and new digital media,~~ promotional and identity campaigns and corporate communications. These services are referred to generally in the entertainment industry as “post-production” services. 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 ~~broadcast services, which are comprised of~~the facilities and services necessary to assemble and distribute programming content for cable and broadcast networks via fiber, satellite and ~~satellite~~the Internet to ~~viewers~~programming providers in North America, Europe and Asia. Additionally, the ~~networks~~network services group provides systems integration, design, consulting, engineering and project management services.

I-11

~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

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											Consolidated Reportable Segments
	Creative		Network							Equity		Creative		Network							Equity
	Services		Services		Corporate			Consolidated		Affiliate-		Services		Services		Corporate			Consolidated		affiliate-
	Group		Group(1)		and Other			Total		Discovery		group		group(1)		and other			Total		Discovery
	amounts in thousands											amounts in thousands

Six months ended June 30, 2007
Three months ended March 31, 2008
Revenue from external customers	$	216,442		134,660		—			351,102		1,539,779	$	91,782		97,523		—			189,305		794,578
Operating cash flow (deficit)	$	25,481		19,101		(14,504	)		30,078		437,636	$	3,817		17,170		(10,948	)		10,039		285,932
Capital expenditures	$	13,425		8,467		3,201			25,093		36,635	$	3,753		3,728		1,071			8,552		13,955
Total assets	$	416,654		389,428		5,235,462			6,041,544		7,778,681	$	375,690		265,268		5,294,880			5,935,838		7,921,337
Six months ended June 30, 2006
Three months ended March 31, 2007
Revenue from external customers	$	201,930		117,427		—			319,357		1,392,606	$	110,712		63,170		—			173,882		710,198
Operating cash flow (deficit)	$	24,060		19,073		(19,465	)		23,668		335,472	$	14,284		8,288		(7,210	)		15,362		190,428
Capital expenditures	$	12,101		19,009		1,290			32,400		25,775	$	6,132		5,587		1,688			13,407		13,407


(1)		Included in network services group revenue is broadcast services revenue of ~~$75,806,000~~$42,588,000 and ~~$77,941,000~~$37,415,000 and systems integration revenue of ~~$58,854,000~~$54,935,000 and ~~$39,486,000 for the six months ended June 30, 2007 and 2006, respectively.~~

Consolidated Reportable Segments
Creative
Network
Equity

Services
Services
Corporate
Consolidated
Affiliate-

Group Group(1) and Other Total Discovery
amounts in thousands

Three months ended June 30, 2007
Revenue from external customers $ 105,730 71,490 — 177,220 811,953
Operating cash flow (deficit) $ 11,198 10,813 (7,295 ) 14,716 257,839
Capital expenditures $ 7,292 2,880 1,514 11,686 23,228
Three months ended June 30, 2006
Revenue from external customers $ 103,400 62,389 — 165,789 733,005
Operating cash flow (deficit) $ 10,962 9,576 (10,214 ) 10,324 190,561
Capital expenditures $ 6,506 11,406 686 18,598 18,431


~~(1)~~		~~Included in network services group revenue is broadcast services revenue of $38,391,000 and $38,650,000 and systems integration revenue of $33,099,000 and $23,739,000~~$25,755,000 for the three months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

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


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

Certain statements in this Quarterly Report onForm 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 ~~and integration~~ of new business lines ~~acquired operations~~ 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;~~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 onForm 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

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with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

~~I-14~~

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 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 onForm 10-K, as amended, for the year ended December 31, ~~2006.~~2007.

Overview

We are a holding company and our businesses and assets include consolidated subsidiaries Ascent Media Group, LLC (“Ascent Media”) and ~~AccentHealth, which we consolidate,~~Ascent Media CANS, LLC (dba AccentHealth) (“AccentHealth”), and ana 662/3% ownership interest in Discovery Communications Holding, LLC (“Discovery”), which we account for using the 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

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, ownand/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.

On November 5, 2007, Writers Guild of America, East and West (“Writers Guild”) declared a strike affecting the script writing for television shows and films. The strike has had a significant adverse effect on the revenue generated by Ascent ~~Media has few long-term or exclusive agreements with its~~Media’s creative services ~~customers.~~business for services provided on new entertainment projects utilizing scripted content and the production of new television commercials. On February 10, 2008, the Writers Guild announced that its governing boards had voted to recommend the terms of a proposed new contract with the Alliance of Motion Picture and Television Producers (“AMPTP”) and suspended picketing by the Writers Guild against producers. Members of the Writers Guild voted to end the strike on February 12, 2008. On February 26, 2008, the Writers Guild announced that its members had ratified the new contract, the term of which runs through May 1, 2011. The2007-2008 television season has been significantly affected by the strike. Networks and producers have resumed production of some scripted television programming interrupted by the strike. However, it is expected that some programming will not resume production this season, if at all. Accordingly, the full impact of the strike cannot currently be determined.

~~AccentHealth, which we acquired on January 27, 2006~~On February 21, 2008, the Directors Guild of America announced that its members had ratified a new contract with the AMPTP for ~~cash consideration of $46,793,000, operates an advertising-supported captive audience~~a term ending June 30, 2011.

The current contract between the Screen Actors Guild and AMPTP is scheduled to expire June 30, 2008, as does the contract governing primetime dramatic television network in doctor office waiting rooms nationwide. For financial reporting purposes, the acquisition is deemed to have occurred on February 1, 2006, and the results of operations of AccentHealth have been included in our consolidated results as partprogramming for members of the ~~network services group since~~American Federation of Television and Radio Artists, which traditionally negotiates labor terms with the ~~date of acquisition.~~producers in conjunction with the Screen Actors Guild.

Discovery

Our most significant asset is our interest in Discovery, which we ~~are deemed~~do not ~~to control for~~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

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analyzing our business, we have included a separate discussion and analysis of Discovery’s results of operations and financial ~~reporting purposes.~~ condition below.

During the second quarter of 2007, each of the shareholders of ~~DCI~~Discovery Communications, Inc (“DCI”), including our company, contributed its DCI common stock to a newly formed company, Discovery, in exchange for Discovery membership ~~interest.~~interests. Subsequent to the ~~DCI Restructuring,~~contribution, each of the members of Discovery ~~hold~~held the same ownership interests in Discovery as they previously held in DCI. DCI became a wholly-owned subsidiary of Discovery, and Discovery is the successor reporting entity of ~~DCI.~~DCI

On May 14, 2007, Discovery and Cox Communications Holdings, 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 ~~(“Cox~~(the “Cox Transaction”). Discovery raised the cash component through additional debt financing, and retired the membership interest previously owned by Cox. Upon completion of this transaction, we own a 662/3% interest in Discovery and Advance/Newhouse ~~Communications~~Programming Partnership (“Advance/Newhouse”) owns a 331/3% ~~interest.~~interest in Discovery. We continue to account for our investment in Discovery using the equity method of accounting due to governance rights possessed by Advance/Newhouse ~~Communications~~ which restrict our ability to control Discovery.

Newhouse Transaction and Ascent Spin Off

In December 2007, we announced that we had signed a non-binding letter of intent with Advance/Newhouse to combine our respective stakes in Discovery. As currently contemplated by the non-binding letter of intent, the transaction, if completed, would involve the following steps:


	•	We will spin-off to our shareholders a wholly-owned subsidiary holding substantially all of DHC’s cash, AccentHealth and Ascent Media, except for those businesses of Ascent Media that provide sound, music, mixing, sound effects and other related services (the “Ascent Media Spin Off”);

	•	Immediately following the Ascent Media Spin Off, we will combine with a new holding company (“New DHC”), and our existing shareholders will receive shares of common stock of New DHC;

	•	As part of this transaction, Advance/Newhouse will contribute its interests in Discovery and Animal Planet to New DHC in exchange for preferred stock of New DHC that, immediately after the closing of the transactions, will be convertible at any time into shares initially representing one-third of the outstanding shares of common stock of New DHC on an as-converted basis. The preferred stock held by Advance/Newhouse will entitle it to elect three members to New DHC’s board of directors and to exercise approval rights with respect to the taking of specified actions by New DHC and Discovery.

Although no assurance can be given, consummation of this transaction (the “Newhouse Transaction and Ascent Spin Off”) is expected in the third quarter of 2008. The Ascent Media Spin Off was approved in connection with the proposed transaction between DHC and Advance/Newhouse, and it is a ~~global media~~condition of the Ascent Media Spin Off that the agreement between DHC and ~~entertainment company~~Advance/Newhouse be in effect and that ~~provides original~~all conditions precedent to that transaction (other than the Ascent Media Spin Off) shall have been satisfied.

It is currently expected that the Ascent Media Spin Off will be effected for federal income tax purposes as a tax-free distribution to DHC’s shareholders and ~~purchased video programming across multiple platforms in~~be accounted for at historical cost due to the ~~U.S. and over 170 other countries. Discovery also develops and sells branded commerce and educational product lines in~~pro rata nature of the ~~United States. Our share~~distribution. Subsequent to the completion of the Ascent Media Spin Off, the historical results of operations of Ascent Media 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 interests in Discovery ~~is reflected~~and Animal Planet will result in ~~our consolidated results as earnings or losses~~New DHC owning 100% of ~~Discovery. To assist the reader in better understanding~~Discovery, and ~~analyzing our business, we have included a separate discussion~~accordingly, New DHC will consolidate Discovery’s financial position and ~~analysis of Discovery’s~~ results of operations effective with the closing of the transaction. Pursuant to FASB TechnicalBulletin 85-5, the contribution of interests to New DHC will be treated as a non-substantive merger, and ~~financial condition below.~~therefore, interests will be recorded at carry over basis.

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Operating Cash Flow

We evaluate the performance of our operating segments based on financial measures such as revenue and operating cash flow. We define operating cash flow 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, including their ability to invest in ongoing capital expenditures and service any debt. In addition, this

~~I-15~~

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 retirement obligations, restructuring and impairment charges that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, operating cash 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. See note 1110 to the accompanying condensed consolidated financial statements for a reconciliation of operating cash flow to earnings before income taxes.

Results of Operations

Our condensed consolidated results of operations include 100% of ~~the~~Ascent Media’s and AccentHealth’s results of ~~Ascent Media and AccentHealth,~~operations, general and administrative expenses incurred at the DHC corporate level, and our share of earnings of Discovery.

~~Our~~Ascent Media’s creative services group generates revenue is primarily ~~generated~~ from fees for video and audio post production, special effects and editorial services for the television, feature film and advertising industries. Generally, these services pertain to the completion of feature films, television programs and ~~advertisements.~~television commercials. These projects normally span from a few days to three months or more in length, and fees for these projects typically range from $10,000 to $1,000,000 per project. Additionally, the creative services group provides owners of film libraries a broad range of restoration, preservation, archiving, professional mastering and duplication services. The scope of these creative services vary in duration from one day to several months depending on the nature of the service, and fees typically range from less than $1,000 to $100,000 per project. The creative services group includes Ascent Media’s digital media distribution center, which ~~is developing new digital service products and businesses~~provides file-based services in areas such as digital imaging, digital vault, distribution services and interactive ~~media.~~media to new and existing distribution platforms.

~~Our~~The network services group’s revenue consists of fees relating to facilities and services necessary to assemble and transport programming for cable and broadcast networks across the world via fiber, satellite and the Internet. The group’s revenue is also driven by systems integration and field support services, technology consulting services, design and implementation of advanced video systems, engineering project management, technical help desk and field service. This operating segment also includes the operations of AccentHealth, which operates an advertising-supported captive audience television network in doctor office waiting rooms nationwide. Approximately ~~60%~~44% of the network services group’s revenue relates to AccentHealth, broadcast services, satellite operations and fiber services that are earned monthly under long-term contracts ranging generally from one to seven years. Additionally, approximately ~~40%~~56% of revenue relates to systems integration and engineering services that are provided on a project basis over terms generally ranging from three to twelve months.

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Revenue. Total revenue increased ~~$11,431,000~~$15,423,000 or ~~6.9% and $31,745,000 or 9.9%~~8.9% for the three ~~and six~~ months ended ~~June 30, 2007,~~March 31, 2008, as compared to the corresponding prior year ~~periods.~~period. The creative services group revenue ~~increased $2,330,000~~decreased $18,930,000 or ~~2.3% and $14,512,000 or 7.2%~~17.1% for the three ~~and six~~ months ended ~~June 30, 2007,~~March 31, 2008, respectively, as compared to the corresponding prior year ~~periods.~~period. The ~~increase~~decrease in creative services revenue for the three month period was due to an increase of $2,434,000 in media services driven by growth in digital vaulting and digital distribution services, offset by lower lab and DVD services. The increase in creative services revenue for the six month period was due to (i) ~~an increase~~a decrease of $6,198,000 in commercial revenue driven primarily by strong U.S. demand, (ii) an increase of $4,076,000 in feature revenue driven by increased titles for post production and audio services, (iii) an increase of $2,374,000 in media services driven by growth in digital vaulting and digital distribution services, offset by lower traditional lab and DVD services and (iv) favorable changes in foreign currency exchange rates of $3,667,000, offset by a decrease$10,742,000 in television post production services in the U.S. driven primarily by the Writers Guild strike, (ii) lower feature revenue of $4,210,000 driven by smaller feature sound projects, (iii) a decrease of $2,573,000 in commercial revenue driven by strong worldwide demand in the prior year period and (iv) a decrease of $857,000 in U.K. television revenue driven by declines in the broadcast work.

The network services group revenue increased ~~$9,101,000~~$34,353,000 or ~~14.6% and $17,233,000 or 14.7%~~54.4% for the three ~~and six~~ months ended ~~June 30, 2007,~~March 31, 2008, as compared to the corresponding prior year ~~periods.~~period. The increase in revenue ~~for the three month period~~ was due to (i) an increase of ~~$9,360,000~~$29,180,000 in system integration services revenue due to the timing of and increase in the number of large projects, ~~and~~ (ii) an increase of ~~$1,926,000~~$3,071,000 in content distribution revenue in the U.S. and ~~Singapore. These increases in revenue were partially offset by a decrease of $2,400,000 primarily due to the termination of certain distribution contracts in the~~ U.K. ~~The increase in revenue for the six month period was due to (i) an increase of $19,368,000 in system integration services revenue due to the timing of~~ and ~~increase in the number of projects, (ii) an increase of $4,699,000 in content distribution revenue in the U.S. and Singapore,~~ (iii) an increase of ~~$2,272,000~~$2,382,000 driven by AccentHealth which was acquired in February 2006 and (vi) favorable changes in foreign currency exchange rates of $2,354,000. These increases in revenue were partially offset by (i) a decrease of $7,900,000 primarily due to the ~~termination of certain distribution contracts~~continued growth in the ~~U.K. and (ii) a decrease of $3,560,000 due to a one-time project in 2006.~~digital network.

Cost of Services. Cost of services increased ~~$11,986,000~~$16,518,000 or ~~10.9% and $32,413,000 or 15.6%~~13.6% for the three ~~and six~~ months ended ~~June 30, 2007,~~March 31, 2008, as compared to the corresponding prior year ~~periods. The increases are~~period. A significant portion of the increase was attributable to ~~higher costs across creative services and~~ network services ~~groups primarily in production material, production personnel and equipment expenses~~ resulting from ~~increased~~higher volumes inof system integration services, ~~feature revenue and commercial revenue. Additionally, changes~~which have a higher percentage of equipment costs. The increase was partially offset by lower cost of services in ~~foreign currency exchange rates resulted~~creative services driven by decreases in ~~an increase of $1,736,000 for~~television production services impacted by the ~~three month period and $3,895,000 for the six month period.~~Writers Guild strike. As a percent of revenue, cost of services was ~~68.6%~~72.9% and ~~66.1%~~69.9% for the three ~~month periods and was 68.3% and 64.9% for the six~~ months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. The percentage increase ~~was~~is a result of revenue mix primarily driven ~~primarily~~ by the higher production material costs for system integration projects, ~~at the network services group and by higher labor intensive commercial and feature projects in the~~which have lower margins. Additionally, creative services ~~group.~~labor costs decreased to a lesser degree than revenue during the period of the Writers Guild strike, with certain fixed costs remaining regardless of the decline in revenue.

Selling, General and Administrative. Our selling, general and administrative expenses (“SG&A”), including corporate expenses of both DHC and Ascent Media but excluding stock-based compensation and accretion expense on asset retirement obligations, ~~decreased $4,947,000~~increased $4,228,000 or ~~10.8% and $7,078,000 or 8.0%~~11.4% for the three ~~and six~~ months ended ~~June 30, 2007~~March 31, 2008 as compared to the corresponding prior year ~~periods.~~period. The ~~decline for the six month period~~increase was mainly driven by ~~lower personnel~~DHC corporate expenses, which increased $3,227,000 over the corresponding prior year period as a result of legal and accounting costs related to the Newhouse Transaction and ~~lower professional fees.~~Ascent Spin Off. As a percent of revenue, SG&A was ~~23.1%~~21.8% and ~~27.7%~~21.3% for the three ~~month periods and was 23.2% and 27.7% for the six~~ months ended ~~June 30,~~March 31, 2008 and 2007, respectively.

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~~On July 21, 2005, Liberty completed~~$276,000 and expense of $841,000 for the ~~spin off~~three months ended March 31, 2008 and 2007, respectively. For Discovery Holding Company stock options held by certain of our capital stock. 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 held stock options or stock appreciation rights (“SARs”) to acquire shares of Liberty common stock prior to the Spin Off continue to hold such options. SAR expense was a credit of $12,000 and an expense of $7,000 for the six months ended June 30, 2007 and 2006, respectively. Pursuant to the Reorganization Agreement, we are responsible for all stock options related to DHC common stock, and Liberty is responsible for all incentive awards related to Liberty common stock. Notwithstanding the foregoing, we record stock-based compensation for all stock incentive awards held by our employees and our subsidiaries’ employees regardless of whether such awards relate to our common stock or Liberty common stock. Any stock-based compensationalso recorded ~~by us with respect to Liberty stock incentive awards is treated as a capital transaction with the offset to~~ stock-based compensation expense ~~reflected as an adjustment~~ of ~~additional paid-in capital. Stock-based compensation expense was $401,000~~$160,000 and ~~$978,000~~$137,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

As of ~~June 30, 2007,~~March 31, 2008, the total compensation cost related to unvested equity awards was ~~$1,006,000.~~$379,000. Such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately ~~1.2~~1.1 years.

Share of Earnings of Discovery. From January 1, ~~2006~~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 increased ~~$95,452,000 and $95,836,000~~$44,845,000 for the three ~~and six~~ months ended ~~June 30, 2007, respectively.~~March 31, 2008 as compared to the corresponding prior year period. The increase is mainly due to Discovery’s performance in the first quarter of 2008 as compared to the prior year period. The increase also resulted from ~~our $89,781,000 share of Discovery’s gain on the Cox Transaction, along with~~ a ~~$9,734,000 increase as the result of~~$17,536,000 impact 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 (net of related taxes) for the three months ended March 31, 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 production ~~facilities.~~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. No such transaction was recorded in 2008.

Income Taxes. Our effective tax rate was ~~38.9%~~43.8% and ~~45.9%~~31.0% for the ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. Our income tax expense for ~~2007 and 2006~~2008 was higher than the federal income tax rate of 35% due to state and foreign tax expense. Our income tax expense for 2007 is lower than the federal income tax rate of 35% due to a reduction in the valuation allowance from the usage of net operating loss carryforwards to offset taxable income in the first quarter of 2007.

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.

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Net ~~Earnings.~~Earnings (Loss). Our net earnings increased from ~~$25,349,000~~$20,464,000 for the ~~six~~three months ended ~~June 30, 2006~~March 31, 2007 to ~~$94,681,000~~$33,991,000 for the ~~six~~three months ended ~~June 30, 2007.~~March 31, 2008. Such increase is due to the other aforementioned fluctuations in revenue, expenses and ~~expenses.~~other income.

Liquidity and Capital Resources

Our primary sources of funds are cash on hand and cash flows from operating activities. During the ~~six~~three months ended ~~June 30, 2007,~~March 31, 2008, our primary use of cash was capital expenditures of ~~$25,093,000. Of the foregoing 2007 capital expenditures, $9,790,000 relates~~$8,552,000 to ~~the buildout of Ascent Media’s existing facilities for specific customer contracts. The remainder of our capital expenditures relate to purchases of~~purchase new equipment and ~~the~~ upgrade of existing facilities and ~~equipment.~~equipment at Ascent Media and AccentHealth. We currently expect to spend up to an additional ~~$45,000,000~~$40,000,000 for capital expenditures in ~~2007,~~2008, which we expect will be funded with Ascent Media’s and AccentHealth’s cash from operations and cash on hand. At ~~June 30, 2007,~~March 31, 2008, we have approximately ~~$155.7~~$223 million of ~~corporate~~ cash, and ~~short-term investments. For~~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 ~~pays~~makes a ~~dividend~~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, ~~or otherwise distributes cash to its stockholders. Historically,~~and since that date, Discovery has not ~~paid~~made any

~~I-18~~

~~dividends on~~ distributions to its ~~capital stock,~~members, and we do not have sufficient voting control to cause Discovery to ~~pay dividends~~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 continue to account for this investment using the equity method of accounting due to governance rights which restrict our ability to control Discovery. Accordingly, in our condensed consolidated financial statements we record our share of Discovery’s net income or loss available to ~~common shareholders~~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 ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007 ~~and 2006~~ 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.

The following discussion of Discovery’s results of operations is presented ~~on a consolidated basis. In order~~in two parts to ~~provide a~~assist the reader in better understanding Discovery’s operations. The first section is an overall discussion of Discovery’s ~~operations, we have also included~~consolidated operating results. The second section includes a ~~summarized presentation~~more detailed discussion of revenue and operating cash flow activity of Discovery’s three operating ~~groups:~~divisions: Discovery networks U.S., or U.S. networks, Discovery networks international, or international networks, and Discovery commerce ~~education~~ and ~~other.~~education.

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 Consolidated Results

Discovery ~~Channel and Animal Planet brands, that are distributed in virtually every pay-television market~~was formed 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 thee-commerce~~ ~~platform. On May 17, 2007, Discovery announced that it would close its 103 mall-based and stand-alone Discovery Channel stores by the end of the third~~second quarter of ~~2007. These stores have been~~2007 as part of ~~Discovery’s commerce business. Upon~~a restructuring (the “DCI Restructuring”) completed by Discovery Communications, Inc. (“DCI”). In the ~~conclusion~~DCI Restructuring, DCI became a wholly-owned subsidiary of Discovery, and the ~~store closures,~~former shareholders of DCI, including DHC, became members of Discovery. Discovery is the ~~retail store business will be presented~~successor reporting entity to DCI. In connection with the DCI Restructuring, Discovery applied “pushdown” accounting and each shareholder’s basis in DCI as ~~discontinued operations. Discovery’s education business will continue~~of May 14, 2007 has been pushed down to ~~focus on its direct-to-school distribution platform and its other premium direct-to-school subscription services.~~

~~I-19~~I-20

Discovery resulting in $4.3 billion of goodwill being recorded by Discovery. Since goodwill is not amortizable, there is no current income statement impact for this change in basis.

During 2007, Discovery undertook broad restructuring activities to better position its portfolio of assets and to facilitate growth and enhanced profitability. These activities resulted in additional operating expenses that impact the comparability of results from 2007 to 2008. The more significant items include fourth quarter 2007 content impairment charges of $129,091,000 at U.S. Networks and $9,976,000 at Education which both impacted content amortization expense when comparing expenses in the first quarter of 2008 to those in the corresponding prior year period. Additionally, a $10,999,000 restructuring charge was recorded in the first quarter of 2007, with no similar charge recorded in 2008.

Consolidated Results of Discovery


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2007			2006			2008			2007
	amounts in thousands						amounts in thousands

Revenue:
Advertising	$	647,166			593,307		$	304,129			289,769
Distribution		732,518			696,545			402,683			369,879
Other		160,095			102,754			87,766			50,550

Total revenue		1,539,779			1,392,606			794,578			710,198

Expenses:
Cost of revenue		(527,329	)		(485,404	)		(230,435	)		(243,523	)
Selling, general and administrative (“SG&A”) expense		(574,814	)		(571,730	)		(278,211	)		(276,247	)

Operating cash flow		437,636			335,472			285,932			190,428
Restructuring and other charges		(21,097	)		—
Expenses arising from long-term incentive plans		(85,012	)		(9,976	)
Restructuring charges								—			(10,999	)
Benefit (expense) arising from long-term incentive plans								35,857			(11,721	)
Depreciation and amortization		(68,144	)		(63,674	)		(37,720	)		(32,433	)
Asset impairment		(54,438	)		—
Gain on sale of operating assets		134,671			—

Operating income		343,616			261,822			284,069			135,275
Other income (expense):
Interest expense, net		(107,141	)		(99,805	)		(68,720	)		(44,558	)
Realized and unrealized gains from derivative instruments, net		4,948			12,221
Unrealized gains (losses) from derivative instruments, net								(16,095	)		1,065
Minority interests in consolidated subsidiaries		(1,394	)		268			(6,806	)		(707	)
Other		5,341			4,078			311			2,049

Earnings before income taxes		245,370			178,584
Income from continuing operations before income taxes								192,759			93,124
Income tax expense		(15,019	)		(75,549	)		(87,541	)		(41,710	)

Net earnings	$	230,351			103,035
Income from continuing operations								105,218			51,414
Loss from discontinued operations, net of income taxes								—			(8,300	)

Net income							$	105,218			43,114

~~Business Segment Results of Discovery~~

Six Months Ended

June 30,
2007 2006
amounts in thousands

Revenue:
U.S. networks $ 992,842 932,892
International networks 464,960 408,446
Discovery commerce, education and other 81,977 51,268

Total revenue $ 1,539,779 1,392,606

Operating Cash Flow:
U.S. networks $ 400,355 355,733
International networks 58,789 58,367
Discovery commerce, education and other (21,508 ) (78,628 )

Total operating cash flow $ 437,636 335,472

~~Note:~~ ~~Discovery commerce, education and other includes intercompany eliminations. In addition, prior year amounts have been reclassified for comparability with current year presentation.~~

~~I-20~~

U.S. networks, offset by the disposition of Travel Channel. Increases in advertising revenue were primarily due to higher viewership in Europe and the impact of favorable exchange rates, higher cash sellouts and higher scatter rates across most networks at the U.S. networks, offset by the disposition of Travel Channel. Program ratings are an indication of consumer acceptance and directly affect Discovery’s ability to generate revenue during the airing of its programs. If programs do not achieve sufficient acceptance, the revenue from advertising sales may decline.

Cost of revenue. Cost of revenue, which includes content amortization and other production related expenses in addition to distribution and merchandising costs, decreased 5% for the three months ended March 31, 2008, as compared to the corresponding prior year period. ~~Increased~~The decrease is primarily a result of (i) an $18,319,000 decrease from the disposition of Travel Channel and (ii) the effect of the $129,091,000 content impairment charge recorded in 2007 at U.S. networks which decreased content amortization expense by $17,702,000 for the first quarter of 2008 compared to the corresponding prior year period. Partially offsetting the decrease is the impact of International networks’ continued investment to support additional local feeds for growth in local ad sales, and the unfavorable impact of foreign currency exchange rates. As a result of the foregoing fluctuations, cost of revenue ~~was due~~as a percent of revenue decreased to ~~a 5% increase~~29% in ~~distribution revenue, a 9% increase~~2008 from 34% in ~~advertising revenue and a 56% increase in other revenue, including commerce and education revenue, during the same period.~~2007.

~~Distribution revenue~~SG&A expenses. SG&A expenses, which include personnel, marketing and other general and administrative expenses, increased ~~$15,648,000 or 4% at the U.S. networks primarily due to a 6% increase in end-of-period paying subscription units, partially offset~~ by lower subscription rates for subscribers previously owned by Adelphia Communications, Inc., which were acquired by Comcast Corporation and Time Warner Inc. in July 2006. Included in distribution revenue are contra-revenue items, such as launch amortization, which were $52,639,000 and $54,000,0001% for the ~~six~~three months ended June 30, 2007 and 2006, respectively. Many of Discovery’s domestic networks are currently distributed to substantially all of the cable television and direct broadcast satellite homes in the U.S. Accordingly, the rate of growth in U.S. distribution revenue in future periods is expected to be less than historical rates.

~~At the international networks, distribution revenue increased $23,423,000 or 9% for the six months ended June 30, 2007,~~March 31, 2008, as compared to the corresponding prior year period. Such increase was principally comprised of combined revenue growth in Europe and Latin America of $29,392,000 and a favorable foreign exchange impact in Europe and the U.K. of $11,139,000, offset by a $26,286,000 revenue decline in the U.K. The net increase in revenue resulted from an increase in end-of-period paying subscription units of 12% 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 $21,777,000 for the six months ended June 30, 2007, as compared to $3,160,000 for the corresponding prior year period.

Advertising revenue, which includes revenue from paid programming, increased $46,244,000 or 10% at the U.S. networks and increased $17,121,000 or 14% at the international networks, for the six months ended June 30, 2007 as compared to the corresponding prior year period. The increase in advertising revenue at the U.S. networks was primarily due to ~~higher advertising sell-out rates and higher ratings on certain channels along with higher audience delivery on most channels, notably the Discovery Channel and TLC. The increase in international~~U.S. 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.

Included in other revenue is education revenue, which increased $12,635,000 or 73%, and commerce revenue, which increased $20,962,000 or 43%. The increase in education revenue comes from a 13% increase in average paying school subscription units and from improved customer yields as a result of the increased focus on Discovery’s direct-to-school distribution platform,~~unitedstreaming~~, as well as the division’s other premium direct-to-school subscription services. The increase in commerce revenue is driven by a $7,072,000 increase in the retail store business and a $14,382,000 increase in the direct-to-consumer~~e-commerce~~ ~~business. After initiating a strategic review of its commerce business, Discovery announced its plan on May 17, 2007 to reposition its commerce strategy to emphasizee-commerce~~ and relationships with leading retailers, while at the same time closing Discovery’s 103 mall-based and stand-alone Discovery Channel Stores. The growth in commerce revenue has been driven by a rapid acceleration in store sales as a result of price discounting under the store liquidation strategy and by a surge in sales of Planet Earth DVDs following the premiere of this series in March 2007. Store

~~I-21~~

~~closures are expected to conclude in the third quarter of 2007 at which time the store business will be presented as discontinued operations.~~

~~Cost of Revenue.~~ Cost of revenue increased 9% for the six months ended June 30, 2007, as compared to the corresponding prior year period. As a percent of revenue, cost of revenue was 34% and 35% for the six months ended June 30, 2007 and 2006, respectively. The $41,925,000 increase over the prior year period primarily resulted from a $25,817,000 increase in content amortization expense due to continued investment in ~~original productions across~~digital media and an impact related to the ~~U.S. networks~~expansion of network teams to support the re-branding strategies for Planet Green and ~~from $3 million~~Investigation Discovery, offset by the disposition of ~~accelerated amortization of certain programs on~~Travel Channel. Also contributing to the ~~Discovery Home channel. As announced on April 5, 2007,~~increase is the Discovery Home channel will be re-branded as Discovery PlanetGreen beginning in 2008, so additional accelerated amortization expenses on Discovery Home programs can be expected during the remainder of 2007. Programming portfolio assets will continue to be subject to evaluation in 2007 relative to reviews and strategic plans of the new management put in place for certain other channels. The increase in cost of revenue is also the result of several new networks launched in Europe, and a $3,918,000 impact of ~~the German free-to-air channel branded as DMAX which was acquired in March 2006.~~

~~SG&A Expenses.~~ SG&A expenses increased 1% for the six months ended June 30, 2007, as compared to the corresponding prior year period. This increase is comprised of $11,392,000 and $36,036,000 increases for U.S. networks and international networks, respectively, as compared to the corresponding prior year period, partially offset by a $31,348,000 decrease for the education business.unfavorable foreign currency exchange rates. As a percent of revenue, SG&A expense was ~~37%~~35% and ~~41%~~39% for the ~~six~~three months ended ~~June 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. In U.S. networks, the increase is primarily due to increased headcount from a 2006 acquisition combined with compensation increases, partially offset by a decrease in marketing expense. In international networks, the increase is primarily due to a $28,730,000 or 40% increase in personnel expense, resulting from 2006 acquisitions and infrastructure expansions in Europe which increased headcount and office locations. In the education business, the decrease is primarily due to a $9,080,000 or 40% reduction in personnel expense as a result of business restructuring, combined with a $20,841,000 or 101% reduction in marketing expense as Discovery re-focuses the direction of the education business.

While international networks revenue increased $56,513,000, operating cash flow remained constant in 2007 as compared to 2006 due to losses associated with the DMAX free-to-air channel launch in 2006 and the decline in operating cash flows in the U.K. as a result of the renewed distribution agreement and difficult market conditions.

~~Restructuring Charges.~~ During the first quarter of 2007, Discovery recorded restructuring charges of $10,999,000 related to a number of organizational and strategic adjustments. The purpose of these adjustments 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. The charge primarily results from severance due to a reduction in headcount. In the second quarter of 2007, Discovery recorded restructuring charges of $10,098,000 mainly related to severance for certain commerce business employees. There was no restructuring charge in 2006.

Expenses ~~Arising~~arising from ~~Long-term Incentive Plans.~~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 ~~are treated similar to a derivative by determining their fair value each reporting period. Upon redemption, participants receive a cash payment based on~~is calculated using the ~~change in market price of DHC Series A common stock.~~Black Scholes Model. The change in unit value of LTIP awards outstanding is recorded as compensation expense over the period outstanding. ~~Compensation expense aggregated $85,012,000 for~~Upon redemption of the ~~six months ended June 30,~~LTIP awards, participants receive a cash payment based on the value of the award as described in the terms of the LTIP. In the third quarter of 2007, ~~compared~~Discovery amended the LTIP such that the redemption dates occur annually over a 4 year period instead of bi-annually over an 8 year period. Due to ~~$9,976,000 for~~ the ~~same period in 2006. The increase is primarily the result of increases~~decrease in the DHC Series A common stock price ~~offset by~~during the three months ended March 31, 2008, a ~~decrease in~~benefit of $40,510,000 was recorded to compensation expense compared to compensation expense of $11,721,000 for the three months ended March 31, 2007. Partially offsetting the benefit for the three months ended March 31, 2008 is $4,653,000 of compensation expense arising from a long-term incentive plan related to one of Discovery’s subsidiaries, for which there was no expense in the ~~difference in value accrued for units paid or forfeited during the quarter, largely as a result of the restructuring.~~corresponding prior year period. If the remaining vested LTIP awards at ~~June 30, 2007~~March 31, 2008 were redeemed, the aggregate cash payments by Discovery would be approximately ~~$79,420,000.~~$65,610,000.

Restructuring charges. During the first quarter of 2007, Discovery recorded restructuring charges of $10,999,000 related to a number of organizational and strategic adjustments which consisted mainly of severance due to a reduction in headcount. The purpose of these adjustments 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. There was no similar restructuring charge in 2008.

Depreciation and ~~Amortization.~~amortization. The increase in depreciation and amortization for the ~~six~~three months ended ~~June 30, 2007~~March 31, 2008 is due to an increase in ~~new assets placed in service during 2006.~~

~~I-22~~

$4.5 million of accrued preferred returns. Preferred returns had been recorded as a component of interest expense based on a constant rate of return through the full term.

~~Realized and~~ Unrealized ~~Gains~~gains from ~~Derivative Instruments,~~derivative instruments, net. ~~Realized and unrealized~~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~~instruments include a combination of swaps, caps, collars and ~~swaptions.~~other structured instruments. As a result of unrealized mark to market adjustments, Discovery recognized ~~$4,948,000 and $12,221,000 in net gains on these instruments~~an unrealized loss of $16,095,000 during the ~~six~~three months ended ~~June 30, 2007~~March 31, 2008 and ~~2006, respectively.~~an unrealized gain of $1,065,000 for the three months ended March 31, 2007. The foreign exchange hedging instruments used by Discovery are spot, forward and option contracts. Additionally, Discovery enters intonon-designated forward contracts to hedge non-dollar denominated cash flows and foreign currency balances.

Minority ~~Interests~~interests in ~~Consolidated Subsidiaries.~~consolidated subsidiaries. Minority ~~interest represents~~interests primarily represent the portion of earnings of consolidated entities which are allocable to the minority partners as well as the increases and decreases in the estimated redemption value of mandatorily redeemable interests in subsidiaries which are initially recorded at fair value. The increase for the three months ended March 31, 2008 as compared to the corresponding prior year period is the result of increased profits earned by these consolidated subsidiaries, mainly driven by royalties on the Planet Earth DVD sales.

Other. Other income in ~~2007~~2008 and ~~2006~~2007 relates primarily to Discovery’s equity share of earnings onof its joint ventures.

Income ~~Taxes.~~taxes. Discovery’s effective tax rate was ~~6% and 42%~~45% for each of the ~~six~~three months ended ~~June 30, 2007~~March 31, 2008 and ~~2006, respectively.~~2007. Discovery’s effective tax rate differed from the federal income tax rate of 35% primarily due to foreign and state taxes.

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


	Three Months Ended
	March 31,
	2007

Revenue	$	17,628
Operating cash flow	$	(10,631	)
Loss from discontinued operations before income taxes	$	(13,384	)
Loss from discontinued operations, net of tax	$	(8,300	)

Net earnings. Discovery’s net earnings were $105,218,000 and $43,114,000 for the three months ended March 31, 2008 and 2007, respectively. The changes in net earnings are due to the aforementioned fluctuations in revenue and expense.

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 primarily consist of 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. Certain prior period amounts have been reclassified between segments to conform to Discovery’s 2008 operating structure.

I-23

believes this presentation provides a more meaningful comparison of the ~~disposition~~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


	Three Months Ended
	March 31,
	2008			2007
	amounts in thousands

Revenue
Advertising	$	238,792			208,972
Distribution		223,996			211,338
Other		28,049			15,544

Total revenue		490,837			435,854
Cost of revenue		(124,965	)		(134,524	)
SG&A expenses		(118,380	)		(101,079	)

Operating cash flow	$	247,492			200,251

Operating cash flow margin		50	%		46	%

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

Revenue. For the three months ended March 31, 2008, advertising revenue increased 14%, distribution revenue increased 6%, and other revenue increased 80%, 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 rate increases across most networks. 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. Contra revenue items included in distribution revenue, such as launch amortization and marketing consideration, totaled $21,328,000 and $21,057,000 for the three months ended March 31, 2008 and 2007, respectively. 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 primarily from Discovery’s representation of the Travel Channel and the acquisition of How Stuff Works in December 2007.

Cost of revenue. For the three months ended March 31, 2008, cost of revenue decreased $9,559,000 or 7%, as compared to the corresponding prior year period, primarily due to a decrease in content amortization expense of $13,863,000. The decrease in content amortization expense was primarily a result of the effect of the $129,091,000 content impairment charge recorded in 2007 which drove a $17,702,000 decrease in content amortization expense for the three months ended March 31, 2008 as compared to the corresponding prior year period. Partially offsetting this reduction is new content amortization expense for programming that began to air during the three months ended March 31, 2008. Starting in the second 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 $17,301,000 or 17% for the three months ended March 31, 2008, as compared to the corresponding prior year period. The increase is primarily driven by $10,812,000 of expenses related to the continued investment in digital media, including acquisitions from the third and fourth quarters of 2007, and a $3,690,000 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 was $12,259,000 and $5,756,000 for the three months ended March 31, 2008 and 2007, respectively, and is included in total U.S. networks revenue. Operating expenses for these businesses were $22,241,000 and $8,926,000 for the three months ended March 31, 2008 and 2007, respectively. Discovery expects to continue to invest in digital media due to its recent acquisitions of

I-25

PetFinder.com, TreeHugger.com and HowStuffWorks.com, as well as any future organic investments in this arena, with operating cash flow losses remaining below 5% of Discovery’s consolidated operating cash flow.

International Networks


	Three Months Ended
	March 31,
	2008			2007
	amounts in thousands

Revenue
Advertising	$	65,295			55,067
Distribution		178,687			143,974
Other		22,903			17,606

Total revenue		266,885			216,647
Cost of revenue		(102,049	)		(95,345	)
SG&A expenses		(95,529	)		(93,887	)

Operating cash flow	$	69,307			27,415

Operating cash flow margin		26	%		13	%

Revenue. Distribution revenue increased 24%, or $34,713,000, for the three months ended March 31, 2008, as compared to the corresponding prior year period, principally comprised of combined revenue growth in Europe, Latin America and Asia of $22,063,000 and a favorable foreign exchange impact of $10,765,000. The increase in revenue resulted from increases in average paying subscription units of 15% primarily due to pay TV subscriber growth in many markets in Europe, combined with contractual rate increases in certain markets. Advertising revenue increased 19%, or $10,228,000, for the three months ended March 31, 2008, primarily due to higher viewership in Europe combined with an increased subscriber base in most markets worldwide and ~~state taxes~~favorable foreign exchange impacts of $3,564,000. Other revenue increased 30%, or $5,297,000, primarily due to growth at Antenna Audio.

Cost of revenue. Cost of revenue increased 7%, or $6,704,000, for the three months ended March 31, 2008, as compared to the corresponding prior year period, driven by an $8,907,000 increase in ~~2006.~~content amortization expense due to continued investment in original productions and language customization to support additional local feeds for growth in local ad sales. In addition, transponder costs were $2,488,000 higher than the corresponding prior year period due to additional feeds in Europe. These increases were partially offset by reduced spending and efficiencies in production operations of $4,711,000.

SG&A expenses. SG&A expenses increased 2%, or $1,642,000, for the three months ended March 31, 2008, as compared to the corresponding prior year period. The increase is primarily due to an increase in personnel costs of $5,013,000 which includes an unfavorable foreign exchange impact of $2,040,000, offset by decreases in marketing and other general expenses.

For the three months ended March 31, 2008 and 2007, the international networks revenue and operating cash flow 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 cash flow will be negatively impacted. Had there been no impact from changes in exchange rates, international networks would have increased revenue by 15% instead of 23% and operating expenses would have remained relatively flat during the three months ended March 31, 2008, as compared to 2007.

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Commerce and Education


	Three Months Ended
	March 31,
	2008			2007
	amounts in thousands

Revenue	$	24,510			23,131
Cost of revenue		(12,336	)		(12,560	)
SG&A expenses		(12,130	)		(14,056	)

Operating Cash Flow	$	44			(3,485	)

Operating cash flow margin		0	%		(15	)%

Revenue. Commerce and education revenue increased 6% for the three months ended March 31, 2008, as compared to the corresponding prior year period, primarily due to an increase in commerce revenue which was driven by continued DVD sales of Planet Earth, along with other popular series such as Human Body, Body Atlas and Dirty Jobs. Education revenue improved slightly 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 was relatively flat for the three months ended March 31, 2008, as compared to the corresponding prior year period, but decreased slightly as a percentage of revenue due to lower content amortization.

SG&A expenses. SG&A expenses decreased $1,926,000 or 14% for the three months ended March 31, 2008, as compared to the corresponding prior year period, primarily due to a legal settlement occurring in the first quarter of 2007.

Corporate

Corporate operating cash flow losses decreased $12,505,000 or 29% for the three months ended March 31, 2008, as compared to the corresponding prior year period, primarily due to increased ancillary revenue from a joint venture primarily due to an unprecedented level of seasonal sales driven by the success of the Planet Earth programming in 2007, which is not expected to continue at the same level. Corporate costs decreased 2% driven by a reduction in headcount from corporate restructurings which occurred throughout 2007.

Liquidity and Capital Resources

~~Discovery used $40,137,000~~Discovery’s principal sources of liquidity are cash flows from operations and ~~provided $159,285,000~~borrowings under its credit facility, and its principal uses of cash ~~from operations during~~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 six months ended June 30, 2007 and 2006, respectively. Included in cash from operations was $198,600,000 and $27,493,000 of deferred launch payments for the six months ended June 30, 2007 and 2006, respectively, driving a significant use of cash during 2007.next 12 months.

During the ~~six~~three months ended ~~June 30, 2007, Discovery spent $36,635,000 on~~March 31, 2008, Discovery’s primary uses of cash were principal payments under its bank facilities and senior notes totaling $190,500,000, capital expenditures ~~$44,000,000 to acquire mandatorily redeemable securities related to minority interests in certain subsidiaries,~~of $13,955,000, and ~~paid $1,321,509,000 in connection~~payments under its LTIP of $12,411,000. Discovery funded these investing and financing activities with ~~the Cox Transaction. During the six months ended June 30, 2006, Discovery paid $180,137,000 for business combinations, net~~cash from operations of ~~the cash acquired, paid $80,000,000 to acquire mandatorily redeemable securities related to minority interests in certain subsidiaries~~$68,951,000 and ~~spent $25,775,000 on capital expenditures.~~bank borrowings of $165,500,000.

~~In addition to cash provided by operations, Discovery funds its activities with proceeds borrowed under~~Discovery’s various debt facilities ~~including~~include two term loans, two revolving loan facilities and various senior notes payable. The second term loan was ~~issued~~entered into on May 14, 2007 for $1.5 billion in connection with the Cox Transaction. ~~During the six months ended June 30, 2007 and 2006, net borrowings under debt facilities were $1,474,762,000 and $191,815,000, respectively.~~ Total commitments of these facilities were ~~$5,576,000,000~~$5,445,000,000 at ~~June 30, 2007.~~March 31, 2008. Debt outstanding on these facilities aggregated ~~$4,087,000,000~~$4,078,501,000 at ~~June 30, 2007,~~March 31, 2008, providing excess debt availability of ~~$1,489,000,000.~~$1,366,499,000. 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.

~~The~~Discovery’s $1.5 billion term loan is secured by the assets of Discovery, , excluding assets held by its subsidiaries. The remaining term ~~and~~loan, revolving loans and senior notes are unsecured. The debt facilities contain ~~covenants that~~

~~I-23~~I-27

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 iswas in compliance with all debt covenants ~~at June 30, 2007.~~as of March 31, 2008.

~~During 2007,~~In 2008, including amounts discussed above, Discovery expects its uses of cash to ~~spend up to $100,000,000~~be approximately $266,285,000 for debt repayments, $90,000,000 for capital expenditures ~~$250,000,000~~and $260,000,000 for interest ~~expense~~expense. Discovery will also be required to make payments under its ~~current debt facilities~~LTIP Plan. However, amounts expensed and ~~$50,000,000~~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 ~~satisfy~~the plan. If the remaining vested LTIP ~~obligations.~~awards at March 31, 2008 were redeemed, the aggregate cash payments by Discovery would be approximately $65,610,000. Discovery believes that its cash flow from operations and borrowings available under its credit facilities will be sufficient to fund its ~~working capital requirements.~~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 with content suppliers that expire over various dates. Discovery also has other contractual commitments arising in the ordinary course of business.

Discovery is subject to a contractual agreement that may require Discovery to acquire the minority interest of certain of its subsidiaries. The right of the minority partner to put its interest back to Discovery for a value determined by a specified formula every three years commenced on December 31, 2002. Discovery accretes the mandatorily redeemable equity in a subsidiary to its estimated redemption value through the applicable redemption date. The most recent put right has been exercisable since December 2005. During 2006, Discovery was notified that the minority partner was evaluating whether to execute its rights under the agreement. As of June 30, 2007, the minority partner had not advised Discovery of its intention. Discovery is now accreting this minority interest to the December 2008 redemption date and estimates the redemption value to be $47.3 million as of June 30, 2007.

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


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.

~~Item 4.~~~~Controls and Procedures~~


Item 4.	*Controls and Procedures*

In accordance with Exchange ActRules 13a-15 and15d-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 ~~June 30, 2007~~March 31, 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 ~~six~~three months ended ~~June 30, 2007~~March 31, 2008 that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

~~I-24~~I-28


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~June 30, 2007~~March 31, 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


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

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


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


~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited)~~
~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Earnings (unaudited)~~
~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited)~~
~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders’ Equity Six months ended June 30, 2007 (unaudited)~~
~~DISCOVERY HOLDING COMPANY AND SUBSIDIARIES~~
	Item 2.Management’s Discussion and Analysis of Financial Condition and Results Of Operations
	Item ~~3.Quantitative~~3. Quantitative and Qualitative Disclosures about Market Risk
	Item ~~4.Controls~~4. Controls and Procedures
~~DISCOVERY HOLDING COMPANY~~
PART II —-- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item ~~4. Submission of Matters to a Vote of Security Holders~~
	~~Item~~ 6. Exhibits
~~SIGNATURES~~Certification of John C. Malone
~~EXHIBIT INDEX~~Certification of David J.A. Flowers
~~Rule 13a-14(a)/15d-14(a)~~ Certification of Christopher W. Shean
~~Rule 13a-14(a)/15d-14(a)~~ Certification
~~Rule 13a-14(a)/15d-14(a) Certification~~
pursuant to Section ~~1350 Certification~~906


		June 30,			December 31,				March 31,			December 31,
		2007			2006				2008			2007
		amounts in thousands							amounts in thousands

ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	174,663			154,775			$	222,577			209,449
Trade receivables, net			140,505			147,436				172,624			144,342
Prepaid expenses			12,904			11,522				15,324			14,815
Other current assets			4,086			3,629				3,752			3,101

Total current assets			332,158			317,362				414,277			371,707
Investments in marketable securities			53,508			51,837				—			23,545
Investment in Discovery Communications Holding, LLC (“Discovery”) (note 7)			3,282,062			3,129,157
Investment in Discovery Communications Holding, LLC (“Discovery”) (note 6)										3,330,030			3,271,553
Property and equipment, net			282,294			280,775				262,744			269,742
Goodwill (note 6)			2,075,288			2,074,789
Goodwill (note 5)										1,909,823			1,909,823
Other assets, net			16,234			17,062				18,964			19,382

Total assets		$	6,041,544			5,870,982			$	5,935,838			5,865,752


LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	30,970			43,656			$	48,555			26,298
Accrued payroll and related liabilities			30,173			32,292				22,839			26,127
Other accrued liabilities			30,991			29,924				42,536			42,761
Deferred revenue			27,777			16,015				23,472			24,951

Total current liabilities			119,911			121,887				137,402			120,137
Deferred income tax liabilities			1,237,066			1,174,594				1,252,033			1,228,942
Other liabilities			30,539			25,237				21,830			22,352

Total liabilities			1,387,516			1,321,718				1,411,265			1,371,431

Commitments and contingencies (notes 8 and 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 268,580,700 shares at June 30, 2007 and 268,194,966 shares at December 31, 2006			2,686			2,682
Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 11,877,196 shares at June 30, 2007 and 12,025,088 shares at December 31, 2006			119			120
Series A common stock, $.01 par value. Authorized 600,000,000 shares; issued and outstanding 269,180,104 shares at March 31, 2008 and 269,159,928 shares at December 31, 2007										2,692			2,691
Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 11,869,696 shares at March 31, 2008 and December 31, 2007										119			119
Series C common stock, $.01 par value. Authorized 600,000,000 shares; no shares issued			—			—				—			—
Additional paid-in capital			5,718,860			5,714,379				5,728,701			5,728,213
Accumulated deficit			(1,090,410	)		(1,183,831	)			(1,219,492	)		(1,253,483	)
Accumulated other comprehensive earnings			22,773			15,914				12,553			16,781

Total stockholders’ equity			4,654,028			4,549,264				4,524,573			4,494,321

Total liabilities and stockholders’ equity		$	6,041,544			5,870,982			$	5,935,838			5,865,752


															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		—		—		—			—		—		94,681			—		94,681
Other comprehensive earnings		—		—		—			—		—		—			6,859		6,859
Stock compensation		—		—		—			—		401		—			—		401
Cumulative effect of accounting change (note 8)		—		—		—			—		—		(1,260	)		—		(1,260	)
Conversion of Series B to Series A		—		1		(1	)		—		—		—			—		—
Stock option exercises		—		3		—			—		4,080		—			—		4,083

Balance at June 30, 2007	$	—		2,686		119			—		5,718,860		(1,090,410	)		22,773		4,654,028


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

Outstanding		1,723,520	$	15.40		2,996,525	$	18.87		1,132,036	$	15.31		2,996,525	$	18.87

Exercisable		1,267,561	$	15.92		2,936,525	$	18.93		908,002	$	15.45		2,936,525	$	18.93


	Six Months
	Ended
	June 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


					Three Months Ended
	Six Months Ended June 30,				March 31,
	2007		2006		2008		2007
	amounts in thousands				amounts in thousands

Revenue
United States	$	278,674		245,808	$	150,172		137,212
United Kingdom		59,834		62,446		33,042		30,140
Other countries		12,594		11,103		6,091		6,530

	$	351,102		319,357	$	189,305		173,882


													Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						March 31,
	2007			2006			2007			2006			2008			2007
				amounts in thousands									amounts in thousands

Segment Revenue
Creative Services group	$	105,730			103,400			216,442			201,930		$	91,782			110,712
Network Services group		71,490			62,389			134,660			117,427			97,523			63,170
Corporate and other		—			—			—			—			—			—

	$	177,220			165,789			351,102			319,357		$	189,305			173,882

Segment Operating Cash Flow
Creative Services group	$	11,198			10,962			25,481			24,060		$	3,817			14,284
Network Services group		10,813			9,576			19,101			19,073			17,170			8,288
Corporate and other		(7,295	)		(10,214	)		(14,504	)		(19,465	)		(10,948	)		(7,210	)

	$	14,716			10,324			30,078			23,668		$	10,039			15,362


	Votes for		Votes Withheld

Paul A. Gould		319,760,741		67,868,315
M. LaVoy Robison		360,052,476		27,576,580


	Votes for		Votes Against		Abstentions

2. Ratification of KPMG LLP as the Company’s independent auditors for the fiscal year ended December 31, 2007. There were no brokernon-votes with respect to this proposal		362,954,003		722,121		23,952,932


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*


	DISCOVERY HOLDING COMPANY

Date: ~~August~~May 8, ~~2007~~2008	By:	/s/ John C. Malone John C. Malone Chief Executive Officer

Date: ~~August~~May 8, ~~2007~~2008	By:	/s/ David J.A. Flowers David J.A. Flowers Senior Vice President and Treasurer (Principal Financial Officer)

Date: ~~August~~May 8, ~~2007~~2008	By:	/s/ Christopher W. Shean Christopher W. Shean Senior Vice President and Controller (Principal Accounting Officer)


~~(6)~~	Goodwill


~~(9)~~(8)	Commitments and Contingencies


~~(10)~~(9)	Related Party Transactions