e10vkza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(Amendment No. 2)
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-51205
DISCOVERY HOLDING COMPANY
(Exact name of Registrant as specified in its charter)
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State of Delaware
(State or other jurisdiction of
incorporation or organization)
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20-2471174
(I.R.S. Employer Identification No.) |
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12300 Liberty Boulevard
Englewood, Colorado
(Address of principal executive offices)
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80112
(Zip Code) |
Registrants telephone number, including area code: (720) 875-4000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of exchange on which registered |
Series A Common Stock, par value $.01 per share
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Nasdaq Global Select Market |
Series B Common Stock, par value $.01 per share
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Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act of 1933. Yes þ No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act) Yes o No þ
The aggregate market value of the voting stock held by nonaffiliates of Discovery Holding
Company computed by reference to the last sales price of such stock, as of the closing of trading
on June 30, 2007, was approximately $6.1 billion.
The number of shares outstanding of Discovery Holding Companys common stock as of March 31,
2008 was:
Series A Common Stock 269,180,104 shares
Series B Common Stock 11,869,696 shares
EXPLANATORY NOTE
The
Registrant is filing this Amendment No. 2 on Form 10-K/A to its Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 to include the signature
of the independent registered public accounting firm on the audit
reports for Discovery Communications, Inc. and Discovery
Communications Holding, LLC, the financial statements for which
companies are included in Part IV. Accordingly, the Registrant
hereby amends and replaces in its entirety Item 15 of its Annual
Report on Form 10-K for the year ended December 31, 2007.
Except as described above, this amendment does not update or modify in any way the disclosures in
the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and does
not purport to reflect any information or events subsequent to the filing thereof.
PART IV.
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Item 15.
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Exhibits
and Financial Statement
Schedules.
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(a) (1) Financial Statements
Included in Part II of this Report:
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
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(i)
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All schedules have been omitted because they are not applicable,
not material or the required information is set forth in the
financial statements or notes thereto.
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(ii)
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Separate financial statements for Discovery Communications
Holding, LLC:
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IV-3
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IV-4
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IV-5
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IV-6
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IV-7
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IV-8
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IV-9
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(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
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2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession:
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2.1
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Reorganization Agreement among Liberty Media Corporation,
Discovery Holding Company (DHC) and Ascent Media
Group, Inc. (incorporated by reference to Exhibit 2.1 to
DHCs Registration Statement on Form 10, dated
July 15, 2005 (File
No. 000-51205)
(the Form 10)).
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3 Articles of Incorporation and Bylaws:
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3.1
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Restated Certificate of Incorporation of DHC (incorporated by
reference to Exhibit 3.1 to the Form 10).
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3.2
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Bylaws of DHC (incorporated by reference to Exhibit 3.2 to
the Form 10).
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4 Instruments Defining the Rights of Securities
Holders, including Indentures:
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4.1
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Specimen Certificate for shares of the Series A common
stock, par value $.01 per share, of DHC (incorporated by
reference to Exhibit 4.1 to the Form 10).
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IV-1
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4.2
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Specimen Certificate for shares of the Series B common
stock, par value $.01 per share, of DHC (incorporated by
reference to Exhibit 4.2 to the Form 10).
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4.3
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Rights Agreement between DHC and EquiServe Trust Company,
N.A., as Rights Agent (incorporated by reference to
Exhibit 4.3 to the Form 10).
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10 Material Contracts:
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10.1
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Amended and Restated Limited Liability Company Agreement of
Discovery Communications Holding, LLC, dated as of May 14,
2007, by and among Advance/Newhouse Programming Partnership, LMC
Discovery, Inc. and John S. Hendricks.*
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10.2
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Form of Tax Sharing Agreement between Liberty Media Corporation
and DHC (incorporated by reference to Exhibit 10.6 to the
Form 10).
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10.3
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Discovery Holding Company 2005 Incentive Plan (As Amended and
Restated Effective August 15, 2007) (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
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10.4
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Discovery Holding Company 2005 Non-Employee Director Incentive
Plan (As Amended and Restated Effective August 15, 2007)
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
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10.5
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Discovery Holding Company Transitional Stock Adjustment Plan (As
Amended and Restated Effective August 15, 2007)
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
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10.6
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Agreement between DHC and John C. Malone (incorporated by
reference to Exhibit 10.10 to the Form 10).
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10.7
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Agreement, dated June 24, 2005, between Discovery and DHC
(incorporated by reference to Exhibit 10.11 to the
Form 10).
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10.8
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Indemnification Agreement, dated as of June 24, 2005,
between Cox and DHC (incorporated by reference to
Exhibit 10.12 to the Form 10).
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10.9
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Indemnification Agreement, dated as of June 24, 2005,
between NewChannels and DHC (incorporated by reference to
Exhibit 10.13 to the Form 10).
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10.10
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Form of Indemnification Agreement with Directors and Executive
Officers (incorporated by reference to Exhibit 10.14 to the
Form 10).
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21 Subsidiaries of Discovery Holding Company.*
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23.1
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Consent of KPMG LLP.*
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23.2
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Consent of PricewaterhouseCoopers LLP, filed herewith.
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31.1
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Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
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31.2
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Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
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31.3
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Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
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32 Section 1350 Certification, filed herewith.
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* |
Filed with DHCs Annual Report on
Form 10-K
for the year ended December 31, 2007 on February 15,
2008.
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IV-2
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors and Stockholders of
Discovery Communications, Inc.:
In our opinion, the accompanying consolidated balance sheet and
related consolidated statements of operations, of changes in
stockholders deficit, and of cash flows, present fairly,
in all material respects, the financial position of Discovery
Communications, Inc. and its subsidiaries at December 31,
2006, and the results of their operations and their cash flows
for the period from January 1, 2007 through May 14,
2007, and for each of the two years in the period ended
December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 16 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions effective January 1, 2007.
PricewaterhouseCoopers LLP
McLean, Virginia
February 14, 2008
IV-3
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors and Members of
Discovery Communications Holding, LLC:
In our opinion, the accompanying consolidated balance sheet and
related consolidated statements of operations, of changes in
members equity, and of cash flows, present fairly, in all
material respects, the financial position of Discovery
Communications Holding, LLC and its subsidiaries at
December 31, 2007 and the results of their operations and
their cash flows for the period from May 15, 2007 through
December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
McLean, Virginia
February 14, 2008
IV-4
DISCOVERY
COMMUNICATIONS HOLDING, LLC
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Successor
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Predecessor
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Company
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Company
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December 31, 2007
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December 31, 2006
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in thousands, except share data
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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44,951
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$
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52,263
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Accounts receivable, less allowances of $22,419 and $25,175
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741,745
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657,552
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Inventories
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10,293
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35,716
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Deferred income taxes
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103,723
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76,156
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Content rights, net
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79,162
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64,395
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Other current assets
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97,359
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84,554
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Total current assets
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1,077,233
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970,636
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Property and equipment, net
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397,430
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424,041
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Content rights, net, less current portion
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1,048,193
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1,253,553
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Deferred launch incentives
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242,655
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207,032
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Goodwill
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4,870,187
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365,266
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Intangibles, net
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181,656
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107,673
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Investments in and advances to unconsolidated affiliates
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100,724
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15,564
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Other assets
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42,352
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32,788
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TOTAL ASSETS
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$
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7,960,430
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$
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3,376,553
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LIABILITIES AND MEMBERS EQUITY/STOCKHOLDERS
DEFICIT
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Current liabilities
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Accounts payable and accrued liabilities
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$
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267,818
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$
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316,804
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Accrued payroll and employee benefits
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183,823
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122,431
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Launch incentives payable
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1,544
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17,978
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Content rights payable
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56,334
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57,694
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Current portion of long-term incentive plan liabilities
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141,562
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43,274
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Current portion of long-term debt
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32,006
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7,546
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Income taxes payable
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23,629
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55,264
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Unearned revenue
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78,155
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68,339
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Other current liabilities
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65,624
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45,194
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Total current liabilities
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850,495
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734,524
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Long-term debt, less current portion
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4,109,085
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2,633,237
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Derivative financial instruments, less current portion
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49,110
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8,282
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Launch incentives payable, less current portion
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6,114
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10,791
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Long-term incentive plan liabilities, less current portion
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41,186
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Content rights payable, less current portion
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2,459
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3,846
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Deferred income taxes
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10,619
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46,289
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Other liabilities
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175,565
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64,861
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Total liabilities
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5,203,447
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3,543,016
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Mandatorily redeemable interests in subsidiaries
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48,721
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94,825
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Commitments and contingencies
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Members Equity/Stockholders deficit
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Class A common stock; $.01 par value; zero shares
authorized, issued or outstanding at December 31, 2007;
100,000 shares authorized, 51,119 shares issued, less
719 shares of treasury stock at December 31, 2006
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1
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Class B common stock; $.01 par value; zero shares
authorized, issued or outstanding at December 31, 2007;
60,000 shares authorized, 50,615 shares issued and
held in treasury stock at December 31, 2006
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Additional paid-in capital
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21,093
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Members equity (51,119 member units issued, less 13,319
repurchased and retired)
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2,533,694
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Retained earnings (deficit)
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184,712
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(306,135
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Accumulated other comprehensive (loss) income
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(10,144
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23,753
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Total members equity/stockholders deficit
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2,708,262
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(261,288
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TOTAL LIABILITIES AND MEMBERS EQUITY/STOCKHOLDERS
DEFICIT
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$
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7,960,430
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$
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3,376,553
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The accompanying notes are an integral part of these
consolidated financial statements.
IV-5
DISCOVERY
COMMUNICATIONS HOLDING, LLC
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Successor
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Company
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Predecessor Company
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May 15, 2007
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January 1, 2007
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Year Ended
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Year Ended
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through
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through
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December 31,
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December 31,
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December 31, 2007
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May 14, 2007
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2006
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2005
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in thousands
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OPERATING REVENUE
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Advertising
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$
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874,894
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$
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470,139
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$
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1,243,500
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$
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1,187,823
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Distribution
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930,386
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547,093
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1,434,901
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1,198,686
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Other
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222,626
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82,195
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205,270
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157,849
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Total operating revenue
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2,027,906
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1,099,427
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2,883,671
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2,544,358
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OPERATING EXPENSES
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Cost of revenue, exclusive of depreciation and amortization
shown below
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799,716
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373,191
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1,032,789
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907,664
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Selling, general and administrative
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823,918
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486,129
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1,143,349
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978,415
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Depreciation and amortization
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82,807
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73,943
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122,037
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112,653
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Gain from disposition of business
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(134,671
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Total operating expenses
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1,571,770
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933,263
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2,298,175
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1,998,732
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INCOME FROM OPERATIONS
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456,136
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|
|
|
166,164
|
|
|
|
585,496
|
|
|
|
545,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(180,157
|
)
|
|
|
|
(68,600
|
)
|
|
|
(194,255
|
)
|
|
|
(184,585
|
)
|
Realized and unrealized (losses) gains from non-hedged
derivative instruments, net
|
|
|
(10,986
|
)
|
|
|
|
2,350
|
|
|
|
22,558
|
|
|
|
22,499
|
|
Minority interests in consolidated subsidiaries
|
|
|
(7,133
|
)
|
|
|
|
(1,133
|
)
|
|
|
(2,451
|
)
|
|
|
(43,696
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
5,093
|
|
|
|
|
3,529
|
|
|
|
7,060
|
|
|
|
4,660
|
|
Other, net
|
|
|
(448
|
)
|
|
|
|
(335
|
)
|
|
|
1,467
|
|
|
|
9,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(193,631
|
)
|
|
|
|
(64,189
|
)
|
|
|
(165,621
|
)
|
|
|
(192,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
|
262,505
|
|
|
|
|
101,975
|
|
|
|
419,875
|
|
|
|
353,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
25,303
|
|
|
|
|
52,163
|
|
|
|
190,381
|
|
|
|
173,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
|
|
237,202
|
|
|
|
|
49,812
|
|
|
|
229,494
|
|
|
|
180,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income tax benefit
|
|
|
(52,490
|
)
|
|
|
|
(12,533
|
)
|
|
|
(22,318
|
)
|
|
|
(20,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
|
(52,490
|
)
|
|
|
|
(12,533
|
)
|
|
|
(22,318
|
)
|
|
|
(20,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
184,712
|
|
|
|
$
|
37,279
|
|
|
$
|
207,176
|
|
|
$
|
159,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-6
DISCOVERY
COMMUNICATIONS HOLDING, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
May 15, 2007
|
|
|
|
January 1, 2007
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
through
|
|
|
|
through
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31, 2007
|
|
|
|
May 14, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in thousands
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
184,712
|
|
|
|
$
|
37,279
|
|
|
$
|
207,176
|
|
|
$
|
159,620
|
|
Adjustments to reconcile net income to cash provided by (used
in) operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
111,208
|
|
|
|
|
77,186
|
|
|
|
133,634
|
|
|
|
123,209
|
|
Amortization of deferred launch incentives and representation
rights
|
|
|
58,425
|
|
|
|
|
37,158
|
|
|
|
77,778
|
|
|
|
83,411
|
|
Provision (reversal) for losses on accounts receivable
|
|
|
(2
|
)
|
|
|
|
1,855
|
|
|
|
3,691
|
|
|
|
12,217
|
|
Expenses arising from long-term incentive plans
|
|
|
78,527
|
|
|
|
|
62,850
|
|
|
|
39,233
|
|
|
|
49,465
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(5,093
|
)
|
|
|
|
(3,529
|
)
|
|
|
(7,060
|
)
|
|
|
(4,660
|
)
|
Deferred income taxes
|
|
|
(70,978
|
)
|
|
|
|
10,511
|
|
|
|
108,903
|
|
|
|
109,383
|
|
Realized and unrealized gains on derivative financial
instruments, net
|
|
|
10,986
|
|
|
|
|
(2,350
|
)
|
|
|
(22,558
|
)
|
|
|
(22,499
|
)
|
Gain from disposition of business
|
|
|
(134,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash minority interest charges
|
|
|
7,133
|
|
|
|
|
1,133
|
|
|
|
2,451
|
|
|
|
43,696
|
|
Gain on sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
(1,467
|
)
|
|
|
(12,793
|
)
|
Other non-cash (income) charges
|
|
|
1,733
|
|
|
|
|
(4,263
|
)
|
|
|
2,447
|
|
|
|
9,675
|
|
Changes in assets and liabilities, net of business
combinations and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(45,808
|
)
|
|
|
|
(29,507
|
)
|
|
|
(84,598
|
)
|
|
|
(37,207
|
)
|
Inventories
|
|
|
21,666
|
|
|
|
|
4,805
|
|
|
|
(4,560
|
)
|
|
|
1,853
|
|
Other assets
|
|
|
27,682
|
|
|
|
|
(23,872
|
)
|
|
|
(7,434
|
)
|
|
|
(18,748
|
)
|
Content rights, net of payables
|
|
|
110,811
|
|
|
|
|
(2,689
|
)
|
|
|
(84,377
|
)
|
|
|
(108,155
|
)
|
Accounts payable and accrued liabilities
|
|
|
119,769
|
|
|
|
|
(93,260
|
)
|
|
|
73,646
|
|
|
|
47,913
|
|
Representation rights
|
|
|
|
|
|
|
|
|
|
|
|
93,233
|
|
|
|
(6,000
|
)
|
Deferred launch incentives
|
|
|
(25,623
|
)
|
|
|
|
(197,624
|
)
|
|
|
(49,386
|
)
|
|
|
(35,731
|
)
|
Long-term incentive plan liabilities
|
|
|
(76,315
|
)
|
|
|
|
(7,773
|
)
|
|
|
(841
|
)
|
|
|
(325,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operations
|
|
|
374,162
|
|
|
|
|
(132,090
|
)
|
|
|
479,911
|
|
|
|
68,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(55,965
|
)
|
|
|
|
(24,588
|
)
|
|
|
(90,138
|
)
|
|
|
(99,684
|
)
|
Business combinations, net of cash acquired
|
|
|
(306,094
|
)
|
|
|
|
|
|
|
|
(194,905
|
)
|
|
|
(400
|
)
|
Purchase of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583
|
)
|
Investments in and advances to unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(363
|
)
|
Redemption of interests in subsidiaries
|
|
|
|
|
|
|
|
(44,000
|
)
|
|
|
(180,000
|
)
|
|
|
(92,874
|
)
|
Proceeds from sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
1,467
|
|
|
|
14,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(362,059
|
)
|
|
|
|
(68,588
|
)
|
|
|
(463,576
|
)
|
|
|
(179,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
1,286,362
|
|
|
|
|
211,277
|
|
|
|
316,813
|
|
|
|
1,785,955
|
|
Principal payments of long-term debt
|
|
|
(11,742
|
)
|
|
|
|
(2,356
|
)
|
|
|
(307,030
|
)
|
|
|
(1,697,068
|
)
|
Deferred financing fees
|
|
|
(4,690
|
)
|
|
|
|
(16
|
)
|
|
|
(1,144
|
)
|
|
|
(4,810
|
)
|
Repurchase of members interest
|
|
|
(1,284,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from minority shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603
|
|
Other financing
|
|
|
(17,590
|
)
|
|
|
|
(2,473
|
)
|
|
|
(9,963
|
)
|
|
|
32,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by financing activities
|
|
|
(32,204
|
)
|
|
|
|
206,432
|
|
|
|
(1,324
|
)
|
|
|
116,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,658
|
|
|
|
|
4,377
|
|
|
|
2,761
|
|
|
|
3,723
|
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(17,443
|
)
|
|
|
|
10,131
|
|
|
|
17,772
|
|
|
|
10,209
|
|
Cash and cash equivalents, beginning of period
|
|
|
62,394
|
|
|
|
|
52,263
|
|
|
|
34,491
|
|
|
|
24,282
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
44,951
|
|
|
|
$
|
62,394
|
|
|
$
|
52,263
|
|
|
$
|
34,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-7
DISCOVERY
COMMUNICATIONS HOLDING, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
(Loss)
|
|
|
|
|
|
|
Class A
|
|
|
Capital/
|
|
|
Retained
|
|
|
Foreign
|
|
|
Gain
|
|
|
from
|
|
|
|
|
|
|
Common Stock
|
|
|
Members
|
|
|
Earnings
|
|
|
Currency
|
|
|
(Loss) on
|
|
|
Hedging
|
|
|
|
|
|
|
At Par
|
|
|
Redeemable
|
|
|
Equity
|
|
|
(Deficit)
|
|
|
Translation
|
|
|
Investment
|
|
|
Activities
|
|
|
TOTAL
|
|
|
|
in thousands
|
|
|
Predecessor Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
21,093
|
|
|
$
|
(672,931
|
)
|
|
$
|
22,732
|
|
|
$
|
1,179
|
|
|
$
|
|
|
|
$
|
(627,926
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax of $9.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments, net of tax of $0.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
Unamortized gain on cash flow hedge, net of tax of
$1.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
21,093
|
|
|
$
|
(513,311
|
)
|
|
$
|
6,715
|
|
|
$
|
1,078
|
|
|
$
|
2,066
|
|
|
$
|
(482,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax of $8.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments, net of tax of $0.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(355
|
)
|
|
|
|
|
|
|
|
|
Amortization of gain on cash flow hedge, net of tax of
$0.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(209
|
)
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
21,093
|
|
|
$
|
(306,135
|
)
|
|
$
|
21,173
|
|
|
$
|
723
|
|
|
$
|
1,857
|
|
|
$
|
(261,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period January 1, 2007 through
May 14, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax of $4.7 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments, net of tax of $0.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,552
|
|
|
|
|
|
|
|
|
|
Amortization of gain on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
Cumulative effect for the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 14, 2007
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
21,093
|
|
|
$
|
(273,867
|
)
|
|
$
|
28,864
|
|
|
$
|
2,275
|
|
|
$
|
1,780
|
|
|
$
|
(219,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation of Successor Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pushdown of investor basis
|
|
|
|
|
|
|
|
|
|
|
4,392,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,392,804
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period May 15, 2007 through
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of tax of $4.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments, net of tax of $1.8 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,011
|
|
|
|
|
|
|
|
|
|
Changes from hedging activities, net of tax of $12.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,509
|
)
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,568
|
|
Repurchase of members interest
|
|
|
|
|
|
|
|
|
|
|
(1,859,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,859,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
2,533,694
|
|
|
$
|
184,712
|
|
|
$
|
7,354
|
|
|
$
|
3,011
|
|
|
$
|
(20,509
|
)
|
|
$
|
2,708,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-8
DISCOVERY
COMMUNICATIONS HOLDING, LLC
1. Basis
of Presentation and Description of Business
Basis
of Presentation
Discovery Communications Holding, LLC (Discovery or
the Company) was formed through a conversion
completed by Discovery Communications, Inc. (DCI or
the Predecessor Company) on May 14, 2007. As
part of the conversion, DCI became Discovery Communications, LLC
(DCL), a wholly-owned subsidiary of Discovery, and
the former shareholders of DCI, including Cox Communications
Holdings, Inc. (Cox), Advance/Newhouse Programming
Partnerships, and Discovery Holding Company (DHC)
became members of Discovery. Subsequent to this conversion, each
of the members of Discovery held the same ownership interests in
Discovery as their previous capital stock ownership interest had
been in DCI.
The formation of Discovery required pushdown
accounting and each shareholders basis has been pushed
down to Discovery. The pushdown of the investors bases
resulted in the recording of approximately $4.6 billion of
additional goodwill, which had been previously recorded on the
investors books. No other basis differentials existed on
the investors books; therefore, no other assets or
liabilities were adjusted. The application of push down
accounting represents the termination of the predecessor
reporting entity, DCI, and the creation of the successor
reporting entity, Discovery. Accordingly, the results for the
year ended December 31, 2007 are required to be presented
as two distinct periods. The Predecessor period
refers to the period from January 1 through May 14, 2007,
while the Successor period refers to the period from
May 15 through December 31, 2007. Accordingly, a vertical
black line is shown to separate the Company financial statements
from those of the Predecessor Company for periods ended prior to
May 15, 2007. As the entire pushdown was associated with
non-amortizable
goodwill, there was no adjustment to the income statement during
the Successor period as a result of this transaction.
Subsequent to the formation of Discovery, Cox exchanged its 25%
ownership interest in Discovery for all of the capital stock of
a subsidiary of Discovery that held the Travel Channel and
travelchannel.com (collectively, the Travel
Business) and approximately $1.3 billion in cash.
Discovery retired the membership interest previously owned by
Cox. The distribution of the Travel Business, which was valued
at $575.0 million, resulted in a $134.7 million
tax-free gain included in continuing operations. The gain was
net of $280.8 million in reporting unit goodwill and
$159.5 million in net assets. The net impact to goodwill as
a result of the pushdown of investor basis and disposition of
the Travel Business was $4.3 billion.
Description
of Business
Discovery is a global media and entertainment company that
provides original and purchased cable and satellite television
programming across multiple platforms in the United States and
over 170 other countries. Discovery also develops and sells
proprietary merchandise, other products and educational product
lines in the United States and internationally. Discovery
operates through three divisions: (1) U.S. networks,
(2) international networks, and (3) Discovery commerce
and education.
2. Summary
of Significant Accounting Policies
Principles
of Consolidation
The consolidated financial statements include the accounts of
all majority-owned and controlled subsidiaries. In addition, the
Company evaluates its relationships with other entities to
identify whether they are variable interest entities as defined
by Financial Accounting Standards Board (FASB)
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 as
revised in December 2003 (FIN 46R) and to
assess whether it is the primary beneficiary of such entities.
Variable Interest Entities (VIEs)are generally
entities that lack sufficient equity to finance their activities
without additional financial support from other parties or whose
equity holders possess rights not proportionate to their
ownership. The equity method of accounting is used for
affiliates over which the Company exercises significant
influence but does not control.
IV-9
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
All inter-company accounts and transactions have been eliminated
in consolidation.
Use
of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
periods. Actual results may differ from those estimates and
could have a material impact on the consolidated financial
statements.
Recent
Accounting Pronouncements
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
including an amendment of FASB Statement No. 115
(FAS 159). FAS 159 gives entities the
irrevocable option to carry most financial assets and
liabilities at fair value, with changes in fair value recognized
in earnings. FAS 159 is effective for the Company as of the
beginning of the Companys 2008 fiscal year. The Company
expects to adopt fair value accounting for its equity investment
in HSWi (see Note 4). The impact could be material to the
financial statements depending upon changes in fair value. The
Company is currently assessing the potential effect of
FAS 159 on its other assets and liabilities.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157
defines fair value and establishes a framework to make the
measurement of fair value in generally accepted accounting
principles more consistent and comparable. FAS 157 requires
expanded disclosures about the extent to which fair value is
used to measure assets and liabilities, the methods and
assumptions used to measure fair value and the effect of fair
value measures on earnings. FAS 157 will be effective for
the Companys 2008 fiscal year. The Company is currently
assessing the potential effect of FAS 157 on its financial
statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (FAS 141R). FAS 141R
replaces Statement of Financial Accounting Standards
No. 141, Business Combinations
(FAS 141), although it retains the fundamental
requirement in FAS 141 that the acquisition method of
accounting be used for all business combinations. FAS 141R
establishes principles and requirements for how the acquirer in
a business combination (a) recognizes and measures the
assets acquired, liabilities assumed and any noncontrolling
interest in the acquiree, (b) recognizes and measures the
goodwill acquired in a business combination or a gain from a
bargain purchase and (c) determines what information to
disclose regarding the business combination. FAS 141R
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the
Companys 2009 fiscal year.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements
(FAS 160). FAS 160 establishes accounting
and reporting standards for the noncontrolling interest in a
subsidiary, commonly referred to as minority interest. Among
other matters, FAS 160 requires (a) the noncontrolling
interest be reported within equity in the balance sheet and
(b) the amount of consolidated net income attributable to
the parent and to the noncontrolling interest to be clearly
presented in the statement of income. FAS 160 is effective
for the Companys 2009 fiscal year. FAS 160 is to be
applied prospectively, except for the presentation and
disclosure requirements, which shall be applied retrospectively
for all periods presented. The Company is currently assessing
the potential effect of FAS 160 on its financial statements.
IV-10
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Revenue
Recognition
The Company derives revenue from three primary sources:
(1) advertising revenue for commercial spots aired on the
Companys networks and websites, (2) distribution
revenue from cable system and satellite operators
(distributors), and (3) Other, which is largely
e-commerce
and educational sales.
Advertising revenue is recorded net of agency commissions and
audience deficiency liabilities in the period advertising spots
are broadcast. Distribution revenue is recognized over the
service period, net of launch incentives and other vendor
consideration.
E-commerce
and educational product revenues are recognized either at the
point-of-sale
or upon product shipment. Educational service sales are
generally recognized ratably over the term of the agreement.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
costs of $107.7 million, $71.6 million,
$207.7 million and $208.6 million were incurred from
May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively.
Cash
and Cash Equivalents
Highly liquid investments with original maturities of ninety
days or less are recorded as cash equivalents. Restricted cash
of $7.6 million and $7.1 million is included in other
current assets as of December 31, 2007 and 2006,
respectively. Book overdrafts representing outstanding checks in
excess of funds on deposit are a component of accounts payable
and total $10.9 million and $30.9 million in 2007 and
2006, respectively.
Derivative
Financial Instruments
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (FAS 133), requires every
derivative instrument to be recorded on the balance sheet at
fair value as either an asset or a liability. The statement also
requires that changes in the fair value of derivatives be
recognized currently in earnings unless specific hedge
accounting criteria are met. The Company uses financial
instruments designated as cash flow hedges. The effective
changes in fair value of derivatives designated as cash flow
hedges are recorded in accumulated other comprehensive income
(loss). Amounts are reclassified from accumulated other
comprehensive income (loss) as interest expense is recorded for
debt. The Company uses the cumulative dollar offset method to
assess effectiveness. To be highly effective, the ratio
calculated by dividing the cumulative change in the value of the
actual swap by the cumulative change in the hypothetical swap
must be between 80% and 125%. The ineffective portion of a
derivatives change in fair value is immediately recognized
in earnings. The Company uses derivatives instruments
principally to manage the risk associated with the movements of
foreign currency exchange rates and changes in interest rates
that will affect the cash flows of its debt transactions. See
Note 17 for additional information regarding derivative
instruments held by the Company and risk management strategies.
Inventories
Inventories are carried at the lower of cost or market. Cost is
determined using the weighted average cost method.
Content
Rights
Costs incurred in the direct production, co-production or
licensing of content rights are capitalized and stated at the
lower of unamortized cost, fair value, or net realizable value.
The Company evaluates the net realizable value of content by
considering the fair value of the underlying produced and
co-produced content and the net realizable values of the
licensed content quarterly.
IV-11
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
The costs of produced and co-produced content airing on the
Companys networks are capitalized and amortized based on
the expected realization of revenues, resulting in an
accelerated basis over four years for developed networks
(Discovery Channel, TLC and Animal Planet) in the United States,
and a straight-line basis over no longer than five years for
developing networks (all other networks in the United States)
and all networks in the International division. The cost of
licensed content is capitalized and amortized over the term of
the license period based on the expected realization of
revenues, resulting in an accelerated basis for developed
networks in the United States, and a straight-line basis for all
International networks, developing networks in the United States
and educational ventures. The costs of content for electronic,
video and hardcopy educational supplements are amortized on a
straight-line basis over a three to five year period.
All produced and co-produced content is classified as long-term.
The portion of the unamortized licensed content balance that
will be amortized within one year is classified as a current
asset. The Companys co-production arrangements generally
represent the sharing of production cost. The Company records
its share of costs gross and records no amounts for the portion
of costs borne by the other party as the Company does not share
any associated economics of exploitation.
Property
and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is recognized on a straight-line
basis over the estimated useful lives of three to seven years
for equipment, furniture and fixtures, five to forty years for
building structure and construction, and six to twelve years for
satellite transponders. Leasehold improvements are amortized on
a straight-line basis over the lesser of their estimated useful
lives or the terms of the related leases, beginning on the date
the asset is put into use. Equipment under capital lease
represents the present value of the minimum lease payments at
the inception of the lease, net of accumulated depreciation.
Capitalized
Software Costs
All capitalized software costs are for internal use.
Capitalization of costs occurs during the application
development stage. Costs incurred during the pre and post
implementation stages are expensed as incurred. Capitalized
costs are amortized on a straight-line basis over their
estimated useful lives of one to five years. Unamortized
capitalized costs totaled $57.1 million and
$61.4 million at December 31, 2007 and 2006
respectively. Software costs of $8.7 million,
$7.2 million, $21.6 million and $23.2 million
were capitalized from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively.
Amortization of capitalized software costs totaled
$12.7 million, $7.3 million, $18.3 million, and
$19.3 million from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively. There were
no write-offs for capitalized software costs during 2007, 2006
and 2005.
Recoverability
of Long-Lived Assets, Goodwill, and Intangible
Assets
The Company annually assesses the carrying value of its acquired
intangible assets, including goodwill, and its other long-lived
assets, including deferred launch incentives, to determine
whether impairment may exist, unless indicators of impairment
become evident requiring immediate assessment. Goodwill
impairment is identified by comparing the fair value of the
reporting unit to its carrying value. If the fair value of the
reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the implied fair value of
the goodwill within the reporting unit is less than its carrying
value. Intangible assets and other long-lived assets are grouped
for purposes of evaluating recoverability at the lowest level
for which independent cash flows are identifiable. If the
carrying amount of an intangible asset, long-lived asset, or
asset grouping exceeds its fair value, an impairment loss is
recognized. Fair values for reporting units, goodwill and other
asset groups are determined based on discounted cash flows,
market multiples, or comparable assets as appropriate. During
the Predecessor period, DCI recorded an asset impairment of
$26.2 million for education assets related to its consumer
business, which is included as a component of depreciation and
amortization. During the Successor period, the Company recorded
a $28.3 million
IV-12
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
write-off of leasehold improvements related to store closures
which is included in loss from discontinued operations.
The determination of recoverability of goodwill and other
intangibles and long-lived assets requires significant judgment
and estimates regarding future cash flows, fair values, and the
appropriate grouping of assets. Such estimates are subject to
change and could result in impairment losses being recognized in
the future. If different reporting units, asset groupings, or
different valuation methodologies had been used, the impairment
test results could have differed.
Deferred
Launch Incentives
Consideration issued to cable and satellite distributors in
connection with the execution of long-term network distribution
agreements is deferred and amortized on a straight-line basis as
a reduction to revenue over the terms of the agreements.
Obligations for fixed launch incentives are recorded at the
inception of the agreement. Following the renewal of a
distribution agreement, the remaining deferred consideration is
amortized over the extended period. Amortization of deferred
launch incentives and interest on unpaid deferred launch
incentives was $61.4 million, $39.0 million,
$79.1 million and $74.1 million from May 15, 2007
through December 31, 2007, from January 1, 2007
through May 14, 2007, in 2006 and in 2005, respectively.
During 2007, 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 which is being
amortized over a 5 year period.
Foreign
Currency Translation
The Companys foreign subsidiaries assets and
liabilities are translated at exchange rates in effect at the
balance sheet date, while results of operations are translated
at average exchange rates for the respective periods. The
resulting translation adjustments are included as a separate
component of members equity/stockholders deficit in
accumulated other comprehensive income (loss). Intercompany
accounts of a trading nature are revalued at exchange rates in
effect at each month end and are included as part of operating
income in the consolidated Statements of Operations.
Long-term
Incentive Plans
Prior to August 2005, DCI maintained two unit-based, cash
settled, long-term incentive plans. Under these plans, unit
awards, which vest over a period of years, were granted to
eligible employees and increased or decreased in value based on
a specified formula of DCIs business metrics. DCI
accounted for these units similar to stock appreciation rights
and applied the guidance in FASB Interpretation Number 28,
Accounting for Stock Issued to Employees
(FIN 28). Accordingly, DCI adjusted
compensation expense for changes in the accrued value of these
awards over the period outstanding.
In August 2005, DCI discontinued one of its long-term incentive
plans and settled all amounts with cash payments. In October
2005, DCI established a new long-term incentive plan for certain
eligible employees. Substantially all participants in the
remaining plan redeemed their vested units for cash payment and
received units in the new plan.
Under the new plan, eligible employees receive cash settled unit
awards indexed to the price of Class A DHC stock. As the
units are indexed to the equity of another entity, the Company
treats the units similar to a derivative, by determining their
fair value each reporting period. The Company attributes
compensation expense for the new awards on a straight-line
basis; the Company attributes compensation expense for the
initial grant of partially vested units by continuing to apply
the FIN 28 model that was utilized over the awards
original vesting periods. Once units are fully vested, the
Company recognizes all
mark-to-market
adjustments to fair value in each period as compensation
expense. In March 2005, the Securities and Exchange Commission
(the SEC) issued Staff
IV-13
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Accounting Bulletin No. 107 (SAB 107)
regarding the classification of compensation expense associated
with share-based payment awards. By applying the provisions of
SAB 107, all long term incentive compensation expense is
recorded as a component of selling, general and administrative
expenses.
The Company classifies as a current liability the lesser of 100%
of the intrinsic value of the units that are vested or will
become vested within one year or the Black-Scholes value of
units that have been attributed. Upon voluntary termination of
employment, the Company distributes 100% of unit benefits if
employees agree to certain provisions. Prior to a plan amendment
in August 2007, the Company classified as a current liability
75% of the intrinsic value of vested units or units vesting
within one year, as this amount corresponded to the value
potentially payable should all participants separate from the
Company. Upon voluntary termination of employment, the Company
distributed 75% of unit benefits. The remainder was paid at the
one-year anniversary of termination date. The August 2007 plan
amendment eliminated the deferral of the final 25%. As such,
employees are paid 100% of their vested amount upon separation
from the Company.
Mandatorily
Redeemable Interest in Subsidiaries
For those instruments with an estimated redemption value,
mandatorily redeemable interest in subsidiaries is accreted or
decreted to an estimated redemption value ratably over the
period to the redemption date. Accretion and decretion are
recorded as a component of minority interest expense. For
instruments with a specified rate of return, DCI records
interest expense as incurred. Cash receipts and payments for the
sale or purchase of mandatorily redeemable interests in
subsidiaries are included as a component of investing cash flows.
Minority
Interest
In addition to the accretion and decretion on redeemable
minority interests, the Company records minority interest
expense for the portion of the earnings of consolidated entities
which are applicable to the minority interest partners.
Treasury
Stock
Treasury stock is accounted for using the cost method by DCI,
the Predecessor. The repurchased shares are held in treasury and
are presented as if retired. There was no treasury stock
activity from January 1, 2007 through May 14, 2007 or
for the year ended December 31, 2006. Discovery, the
Successor, purchased and retired the membership equity of Cox.
(See Note 1 Basis of Presentation and Description of
Business.)
Discontinued
Operations
In determining whether a group of assets disposed of should be
presented as a discontinued operation, the Company makes a
determination as to whether the group of assets being disposed
of comprises a component of the entity, which requires cash
flows that can be clearly distinguished from the rest of the
entity. The Company also determines whether the cash flows
associated with the group of assets have been or will be
significantly eliminated from the ongoing operations of the
Company as a result of the disposal transaction and whether the
Company has no significant continuing involvement in the
operations of the group of assets after the disposal
transaction. If these determinations can be made affirmatively,
the results of operations of the group of assets being disposed
of (as well as any gain or loss on the disposal transaction) are
aggregated for separate presentation apart from continuing
operating results of the Company in the consolidated financial
statements. The Company has elected not to segregate the cash
flows from discontinued operations in its presentation of the
Statements of Cash Flows.
Income
Taxes
Income taxes are recorded using the asset and liability method
of accounting for income taxes. Deferred income taxes reflect
the net tax effect of temporary differences between the carrying
amounts of assets and
IV-14
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
liabilities for financial reporting purposes and the amounts
used for income tax purposes. A valuation allowance is provided
for deferred tax assets if it is more likely than not such
assets will be unrealized.
Effective January 1, 2007, DCI adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in a companys
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 the Company has taken or
expects to take a tax position in its tax return and the Company
believes it is more likely than not that such tax position will
be upheld by the relevant taxing authority upon settlement, the
Company may record the benefits of such tax position in its
consolidated financial statements. The tax benefit to be
recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon
ultimate settlement. Upon adoption of FIN 48, DCI recorded
a $5.0 million net tax liability recorded directly to
accumulated deficit.
|
|
3.
|
Supplemental
Disclosures to Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
May 15
|
|
|
January 1
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
|
|
|
|
December 31,
|
|
|
May 14,
|
|
|
|
|
|
|
2007
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
in thousands
|
Cash paid for acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
419,154
|
|
|
|
$
|
|
|
|
$
|
223,293
|
|
|
$
|
400
|
|
Fair value of liabilities Assumed
|
|
|
(113,060
|
)
|
|
|
|
|
|
|
|
(28,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
$
|
306,094
|
|
|
|
$
|
|
|
|
$
|
194,905
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
179,669
|
|
|
|
$
|
77,849
|
|
|
$
|
196,195
|
|
|
$
|
171,151
|
|
Cash paid for income taxes
|
|
$
|
58,323
|
|
|
|
$
|
16,554
|
|
|
$
|
70,215
|
|
|
$
|
27,678
|
|
On December 17, 2007, Discovery completed its acquisition
of HowStuffWorks.com (HSW), an on-line source of
explanations of how the world actually works. This acquisition
provides an additional platform for Discoverys library of
video content and positions its brands as a hub for satisfying
curiosity on both television and on-line. The results of
operations have been included in the consolidated financial
statements since December 17, 2007. The aggregate purchase
price was $264.9 million, including $14.9 million of
transaction costs. The Company also assumed net working capital
of $1.1 million, content of $9.0 million, and deferred
tax liabilities of $44.6 million. As of December 31,
2007, $4.6 million of the purchase price has not yet been
paid. Of the $269.6 million of acquired intangibles,
$95.8 million was ascribed to intangibles subject to
amortization with useful lives between two and five years and
the balance of $173.8 million to non-tax deductible
goodwill. Acquired intangibles include trademarks, customer
lists, and other items with weighted average useful lives of
4 years. The Company funded the purchase through additional
borrowings under its credit facilities. HSWs content is
highly ranked by the worlds leading search engines and
provides a natural link to the Companys video library. The
purchase provides the Company with an expanded platform for
content, additional ad sales outlet, and brand enhancement.
As part of the transaction, Discovery acquired approximately
49.5% of HSW International, Inc. (HSWi) outstanding
shares, resulting in an investment balance of
$79.4 million. Discovery has gained voting rights which are
capped at 45% of the outstanding votes, three non-controlling
board seats and certain other governance rights. As a result of
its noncontrolling interest, the Company has recorded its
investment in HSWi under the equity method. Discovery will hold
approximately 77% of these shares over a period of at least
12-24 months.
Per terms of
IV-15
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
the agreement, the Company may distribute the HSWi stock or sell
and distribute substantially all of the proceeds to former HSW
shareholders. The Company initially recorded a liability of
$53.7 million at closing, which represents its estimated
obligation to the HSW shareholders. The Company has estimated
the fair value of its investment and associated liability with
information from an investment bank. The Company will adjust the
liability each period to fair value through adjustments to
earnings. The valuation considers forecasted operating results
and market valuation factors. The estimated liability at
December 31, 2007 is unchanged from December 17, 2007.
HSWi has a perpetual royalty free license to exploit HSW content
in certain foreign markets.
On July 31, 2007, the Company acquired Treehugger.com, an
eco-lifestyle website for $10.0 million. As of
December 31, 2007, $1.8 million of this purchase price
has not yet been paid. The results of operations have been
included in the consolidated financial statements since that
date. The acquisition furthers the Companys goal of
developing original programming related to the environment,
sustainable development, conservation and organic living. The
Company also has certain contingent considerations in connection
with this acquisition payable in the event specific business
metrics are achieved totaling up to $6.0 million over
2 years, which could result in the recording of additional
goodwill.
Subsequent to the formation of Discovery, the Company acquired
an additional 5% interest in Animal Planet L.P.
(APLP) from Cox for $37.0 million. This
transaction increased the Companys ownership interest in
APLP from 80% to 85% and has been recorded as a step
acquisition. The $37.0 million has been recorded as brand
intangibles of $7.0 million, affiliate relationships of
$10.0 million, and goodwill of $17.0 million. The
brand intangibles and affiliate relationships will be amortized
over 10 years.
The following table summarizes the combined estimated fair
values of the assets acquired and the liabilities assumed at the
dates of acquisition in 2007 for HSW, Animal Planet additional
5% interest and Treehugger.com. The HSW fair value allocation of
assets and liabilities is preliminary because the acquisition
closed December 17, 2007 and the fair value determination
of assets and liabilities are subject to finalization.
|
|
|
|
|
|
|
HSW, Animal Planet and
|
|
Asset (Liability)
|
|
Treehugger, Combined
|
|
|
|
in thousands
|
|
|
Current assets and content
|
|
$
|
22,399
|
|
Investment in HSWi stock
|
|
|
79,375
|
|
Other tangible assets
|
|
|
1,313
|
|
Finite-lived intangibles (including brand names, customer lists
and trademarks)
|
|
|
119,421
|
|
Goodwill
|
|
|
196,646
|
|
Liabilities assumed
|
|
|
(14,753
|
)
|
Deferred taxes
|
|
|
(44,585
|
)
|
Estimated redemption liability to HSW shareholders
|
|
|
(53,722
|
)
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
$
|
306,094
|
|
|
|
|
|
|
During February 2006, DCI acquired 98% of DMAX (formerly known
as XXP), a
free-to-air
network in Germany. The results of operations have been included
in the consolidated financial statements since that date. The
acquisition of a
free-to-air
network is intended to support strengthening global presence.
The aggregate purchase price was $60.2 million primarily in
cash. Of the $54.3 million of acquired intangible assets,
$23.0 million was assigned to contract-based distribution
channels subject to amortization with a useful life of
approximately 5 years and the remaining balance of
$31.3 million to goodwill. During 2007, Discovery acquired
the remaining 2% in conjunction with the return of purchase
escrow balances, for a net cash return amount of
$8.1 million.
In March 2006, DCI acquired all of the outstanding common shares
of Antenna Audio Limited (Antenna), a provider of
audio tours and multimedia at museums and cultural attractions
around the globe. The results of
IV-16
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Antennas operations have been included in the consolidated
financial statements since that date. DCI acquired Antenna to
facilitate the expansion of its Travel brand and media content
to other platforms. The aggregate purchase price was
$64.4 million, primarily in cash. Of the $49.1 million
of acquired intangibles, $6.4 million was assigned to
assets subject to amortization with useful lives between two and
seven years and the balance of $42.7 million to goodwill.
Antenna and the Travel Channel had been integrated within a
single reporting.
In 2006, DCI also acquired the following four entities for a
total cost of $70.4 million, which was paid primarily in
cash:
|
|
|
|
|
Petfinder.com, a facilitator of pet adoptions and
PetsIncredible, a producer and distributor of pet-training
videos. During 2007, the former owners earned payment of certain
contingent consideration in connection with this acquisition,
resulting in the addition of $11.0 million in goodwill.
|
|
|
|
Clearvue and SVE, Inc., a provider of curriculum-oriented media
educational products.
|
|
|
|
Academy123, Inc., a provider of on-line supplemental,
educational content focusing largely on mathematics and
sciences. In May 2007, Discovery recorded an asset impairment of
$20.6 million, including $11.5 million of goodwill,
for goodwill and intangible assets established during 2006
related to Academy 123, Inc. The business had not been
integrated into the education reporting unit, and management
decided to scale back its education business to consumers.
|
|
|
|
Thinklink, Inc., a provider of formative assessment testing
services to schools servicing students in grades K through 12.
|
Goodwill recognized for these transactions amounted to
$27.9 million in 2006. Purchased identifiable intangible
assets for these acquisitions are being amortized on a
straight-line basis over lives ranging from one to ten years
(weighted-average life of 4.4 years).
The following table summarizes the estimated fair values of the
assets acquired and the liabilities assumed at the dates of
acquisition in 2006.
|
|
|
|
|
|
|
DMAX, Antenna and
|
|
|
|
Other Acquisitions,
|
|
Asset (Liability)
|
|
Combined
|
|
|
|
in thousands
|
|
|
Current assets and content
|
|
$
|
40,365
|
|
Other tangible assets
|
|
|
7,765
|
|
Finite-lived intangible assets
|
|
|
73,378
|
|
Goodwill
|
|
|
101,785
|
|
Liabilities assumed
|
|
|
(28,388
|
)
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
$
|
194,905
|
|
|
|
|
|
|
|
|
5.
|
Discontinued
Operations
|
Following a comprehensive strategic review of its businesses,
the Company decided to close its 103 mall based and stand alone
Discovery Stores (Retail) in the third quarter of 2007. The
Company will continue to leverage its products through retail
arrangements and its
e-commerce
platform. As there is no continuing involvement in the retail
stores or significant migration of retail customers to
e-commerce,
the results of the Retail business are accounted for as
discontinued operations in the consolidated financial statements
for the periods presented herein, in accordance with Statement
of Financial Accounting Standards No. 144, Accounting
for the Impairment and Disposal of Long-lived Assets
(FAS 144).
IV-17
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
The following amounts related to Retail have been segregated
from continuing operations and included in loss from
discontinued operations in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
May 15 through
|
|
|
January 1 through
|
|
|
|
|
|
|
December 31, 2007
|
|
|
May 14, 2007
|
|
2006
|
|
2005
|
|
|
|
|
|
in thousands
|
Revenue
|
|
$
|
30,491
|
|
|
|
$
|
27,362
|
|
|
$
|
129,317
|
|
|
$
|
127,396
|
|
Loss from discontinued operations before income taxes
|
|
$
|
(81,115
|
)
|
|
|
$
|
(18,312
|
)
|
|
$
|
(35,911
|
)
|
|
$
|
(31,652
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
(52,490
|
)
|
|
|
$
|
(12,533
|
)
|
|
$
|
(22,318
|
)
|
|
$
|
(20,568
|
)
|
No interest expense was allocated to discontinued operations for
the periods presented herein since there was no debt
specifically attributable to discontinued operations or required
to be repaid following the closure of the retail stores. For the
Successor period, the loss from discontinued operations includes
$31.1 million in lease terminations and other exit costs,
$8.8 million for severance and other employee-related costs
and $28.3 million in asset impairment charges, along with
normal business operations.
Summarized balance sheet information for discontinued operations
for Retail is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
Current assets
|
|
$
|
|
|
|
|
$
|
38,106
|
|
Total assets
|
|
$
|
|
|
|
|
$
|
67,707
|
|
Current liabilities
|
|
$
|
(6,349
|
)
|
|
|
$
|
(29,961
|
)
|
Total liabilities
|
|
$
|
(6,349
|
)
|
|
|
$
|
(39,339
|
)
|
IV-18
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Content Rights
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
Produced content rights
|
|
|
|
|
|
|
|
|
|
Completed
|
|
$
|
1,346,985
|
|
|
|
$
|
1,476,830
|
|
In process
|
|
|
195,025
|
|
|
|
|
161,942
|
|
Co-produced content rights
|
|
|
|
|
|
|
|
|
|
Completed
|
|
|
499,127
|
|
|
|
|
681,105
|
|
In process
|
|
|
53,984
|
|
|
|
|
86,359
|
|
Licensed content rights
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
209,082
|
|
|
|
|
213,691
|
|
Prepaid
|
|
|
21,690
|
|
|
|
|
10,386
|
|
|
|
|
|
|
|
|
|
|
|
Content rights, at cost
|
|
|
2,325,893
|
|
|
|
|
2,630,313
|
|
Accumulated amortization
|
|
|
(1,198,538
|
)
|
|
|
|
(1,312,365
|
)
|
|
|
|
|
|
|
|
|
|
|
Content rights, net
|
|
|
1,127,355
|
|
|
|
|
1,317,948
|
|
Current portion, licensed content rights
|
|
|
(79,162
|
)
|
|
|
|
(64,395
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
1,048,193
|
|
|
|
$
|
1,253,553
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of content rights is recorded as a component of
cost of revenue and was $558.0 million,
$257.0 million, $696.0 million and $601.1 million
from May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively. Amortization of content rights includes
incremental amortization for certain programs to net realizable
value of $171.7 million, $1.9 million,
$40.1 million and $16.6 million from May 15, 2007
through December 31, 2007, from January 1, 2007
through May 14, 2007, in 2006 and in 2005, respectively.
The $171.7 million of incremental amortization includes an
impairment charge of $129.1 million at U.S. networks,
where new programming leadership evaluated the networks
programming portfolio assets and identified certain programming
which no longer fit the go forward strategy of the networks. The
Company wrote off those assets no longer intended for use.
The Company estimates that approximately 96% of unamortized
costs of content rights at December 31, 2007 will be
amortized within the next three years. The Company expects to
amortize $434.3 million of unamortized content rights, not
including in-process, not released, and prepaid productions,
during the next twelve months.
IV-19
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
|
|
7.
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Property and Equipment
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
Equipment and software
|
|
$
|
478,616
|
|
|
|
$
|
411,583
|
|
Land
|
|
|
28,781
|
|
|
|
|
28,781
|
|
Buildings
|
|
|
154,227
|
|
|
|
|
153,737
|
|
Furniture, fixtures, leasehold improvements and other
|
|
|
151,417
|
|
|
|
|
217,884
|
|
Assets in progress
|
|
|
14,471
|
|
|
|
|
11,833
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
827,512
|
|
|
|
|
823,818
|
|
Accumulated depreciation and amortization
|
|
|
(430,082
|
)
|
|
|
|
(399,777
|
)
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
397,430
|
|
|
|
$
|
424,041
|
|
|
|
|
|
|
|
|
|
|
|
The cost and accumulated depreciation of equipment under capital
leases was $53.3 million and $19.8 million,
respectively, at December 31, 2007, and $39.7 million
and $13.2 million, respectively, at December 31, 2006
respectively. Depreciation and amortization of property and
equipment, including equipment under capital lease, was
$57.3 million, $40.4 million, $78.4 million and
$74.5 million from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively.
Depreciation and amortization of property and equipment for
Retail discontinued operations was $0.1 million,
$3.2 million, $10.2 million and $10.4 million
from May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively, exclusive of impairment write-downs.
|
|
8.
|
Sale of
Equity Investments
|
In April 2006 and January 2005, DCI recorded gains of
$1.5 million and $12.8 million, respectively, as a
component of other non-operating expenses for the sale of
certain investments accounted for under the cost method. The
gains represent the difference between the proceeds received and
the net book value of the investments.
9. Goodwill
and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Goodwill and Intangible Assets
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
Goodwill
|
|
$
|
4,870,187
|
|
|
|
$
|
365,266
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, net of accumulated amortization of $2,272 and $1,905
|
|
$
|
62,193
|
|
|
|
$
|
12,322
|
|
Customer lists, net of accumulated amortization of $76,919 and
$136,049
|
|
|
67,282
|
|
|
|
|
26,500
|
|
Other, net of accumulated amortization of $77,026 and $55,355
|
|
|
52,181
|
|
|
|
|
68,851
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
181,656
|
|
|
|
$
|
107,673
|
|
|
|
|
|
|
|
|
|
|
|
IV-20
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
During 2007, changes in the net carrying amount of goodwill were
as follows:
|
|
|
|
|
Reconciliation of net carrying amount of goodwill
|
|
in thousands
|
|
|
Balance at January 1, 2007 (Predecessor)
|
|
$
|
365,266
|
|
Impairment (Predecessor) (Note 4)
|
|
|
(11,478
|
)
|
Translation (Predecessor)
|
|
|
2,047
|
|
Push down of investor basis (Successor) (Note 1)
|
|
|
4,591,581
|
|
Disposals (Successor) (Note 1)
|
|
|
(280,838
|
)
|
Acquisitions (Successor) (Note 4)
|
|
|
198,109
|
|
Translation (Successor)
|
|
|
5,500
|
|
|
|
|
|
|
Balance at December 31, 2007 (Successor)
|
|
$
|
4,870,187
|
|
|
|
|
|
|
In April 2007, DCI completed a strategic analysis of the
Education business and does not expect to generate revenue from
the assets acquired from the Academy 123, Inc. acquisition.
Goodwill of $11.5 million and intangible assets of
$9.1 million were written-off as a component of
amortization expense.
Goodwill is not amortized. Trademarks are amortized on a
straight-line basis over 3 to 10 years. Customer lists are
amortized on a straight-line basis over the estimated useful
lives of three to seven years. Non-compete assets are amortized
on a straight-line basis over the contractual term of one to
seven years. Other intangibles are amortized on a straight-line
basis over the estimated useful lives of three to ten years. The
weighted-average amortization period for intangible assets is
5.1 years.
Amortization of intangible assets, totaled $22.3 million,
$36.7 million, $43.6 million and $38.2 million
from May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively. The Company estimates that unamortized costs
of intangible assets at December 31, 2007 will be amortized
over the next five years as follows: $52.5 million in 2008,
$40.9 million in 2009, $37.2 million in 2010,
$20.4 million in 2011, and $12.2 million in 2012.
IV-21
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
10. Investments
The following table outlines the Companys less than
wholly-owned ventures and the method of accounting during 2007:
|
|
|
|
|
Accounting
|
Affiliates:
|
|
Method
|
|
Joint Ventures with the BBC:
|
|
|
JV Programs LLC (JVP)
|
|
Consolidated
|
Joint Venture Network LLC (JVN)
|
|
Consolidated
|
Animal Planet Europe
|
|
Consolidated
|
Animal Planet Latin America
|
|
Consolidated
|
People & Arts Latin America
|
|
Consolidated
|
Animal Planet Asia
|
|
Consolidated
|
Animal Planet Japan
|
|
Consolidated
|
Animal Planet Canada
|
|
Equity
|
Other Ventures:
|
|
|
Animal Planet United States (see Note 12)
|
|
Consolidated
|
Discovery Canada
|
|
Equity
|
Discovery Japan
|
|
Equity
|
Discovery Health Canada
|
|
Equity
|
Discovery Kids Canada
|
|
Equity
|
Discovery Civilization Canada
|
|
Equity
|
HSWi (See Note 4)
|
|
Equity
|
Joint
Ventures with the BBC
The Company and the BBC have formed several cable and satellite
television network joint ventures, JVP, a venture to produce and
acquire factual-based content, and JVN, a venture to provide
debt funding to these joint ventures.
In addition to its own funding requirements, the Company has
assumed the BBC funding requirements, giving the Company
preferential cash distribution with these ventures. The Company
controls substantially all of the BBC ventures and consolidates
them accordingly. As the BBC does not have risk of loss, no BBC
cumulative losses were allocated to minority interest for
consolidated joint ventures with the BBC, and the Company
recognizes both its and the BBCs share of cumulative
losses in the equity method venture with the BBC. After
December 31, 2006, JVP obtained a level of cumulative
profitability. Minority interest expense of $4.3 million
and $1.1 million for the BBCs share of earnings in
JVP was recognized from May 15, 2007 through
December 31, 2007 and from January 1, 2007 through
May 14, 2007, respectively.
Other
Ventures
The Company is a partner in international joint venture cable
and satellite television networks. The Company also acquired an
equity interest in HSWi stock as a result of its acquisition of
HSW. DCI provided no funding to the equity ventures in 2007,
2006 or 2005. At December 31, 2007, the Companys
maximum exposure to loss as a result of its involvement with the
equity joint ventures is the $47.0 million investment book
value and future operating losses, should they occur, of the
equity joint ventures that the Company is obligated to fund.
IV-22
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Debt
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
$1,000,000.0 Term Loan A due quarterly December 2008 to October
2010
|
|
$
|
1,000,000
|
|
|
|
$
|
1,000,000
|
|
$1,555,000.0 Revolving Loan, due October 2010
|
|
|
337,500
|
|
|
|
|
249,500
|
|
260,000.0 Revolving Loan, due April 2009
|
|
|
94,174
|
|
|
|
|
187,828
|
|
$1,500,000.0 Term Loan B due quarterly September 2007 to May 2014
|
|
|
1,492,500
|
|
|
|
|
|
|
8.06% Senior Notes, semi-annual interest, due March 2008
|
|
|
180,000
|
|
|
|
|
180,000
|
|
7.45% Senior Notes, semi-annual interest, due September 2009
|
|
|
55,000
|
|
|
|
|
55,000
|
|
8.37% Senior Notes, semi-annual interest, due March 2011
|
|
|
220,000
|
|
|
|
|
220,000
|
|
8.13% Senior Notes, semi-annual interest, due September 2012
|
|
|
235,000
|
|
|
|
|
235,000
|
|
Floating Rate Senior Notes, semi-annual interest, due December
2012
|
|
|
90,000
|
|
|
|
|
90,000
|
|
6.01% Senior Notes, semi-annual interest, due December 2015
|
|
|
390,000
|
|
|
|
|
390,000
|
|
£10,000.0 Uncommitted Facility, due August 2008
|
|
|
8,785
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
37,172
|
|
|
|
|
32,355
|
|
Other notes payable
|
|
|
960
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,141,091
|
|
|
|
|
2,640,783
|
|
Current portion
|
|
|
(32,006
|
)
|
|
|
|
(7,546
|
)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,109,085
|
|
|
|
$
|
2,633,237
|
|
|
|
|
|
|
|
|
|
|
|
In May 2007, Discovery entered into a $1,500.0 million,
seven year term loan credit agreement. Borrowings under this
agreement bear interest at London Interbank Offered Rate
(LIBOR) plus an applicable margin of 2.0% or the
higher of (a) the Federal Funds Rate plus
1/2
of 1% or (b) prime rate set by Bank of America
plus an applicable margin of 1.0%. The company capitalized
$4.7 million of deferred financing costs as a result of
this transaction. At the end of 2007 there was
$1,492.5 million outstanding under the term loan agreement
(net of mandatory principal repayments) with a weighted average
interest rate of 6.83%. The average interest rate under this
credit agreement was 7.44% for the period May 15, 2007
through December 31, 2007.
In September 2007, the Companys United Kingdom subsidiary,
Discovery Communications Europe Limited (DCEL)
executed a £10 million uncommitted facility to
supplement working capital requirements. The facility is
available through August 1, 2008 and is guaranteed by
Discovery. At December 31, 2007 there was
£4.4 million (approximately $8.8 million)
outstanding under this facility.
In March 2006, DCEL entered into a 70.0 million three
year multicurrency revolving credit agreement (UK credit
agreement) which enables the Company to draw Euros and
British Pounds. In April 2006, the UK credit agreement was
amended and restated to provide for syndication and to increase
the revolving commitments to 260.0 million. The
Company guarantees DCELs obligations under the UK credit
agreement. Borrowings under this agreement bear interest at
LIBOR plus an applicable margin based on the Companys
leverage ratios. The cost of the UK credit agreement also
includes a fee on the revolving commitments (ranging from 0.1%
to 0.3%) based on the Companys leverage ratio. DCEL
capitalized £0.7 million (approximately
$1.4 million) of deferred financing costs as a result of
this transaction. At the end of 2007 there was
£47.5 million (approximately
U.S. $94.2 million) outstanding under the
multicurrency credit agreement with a weighted average interest
rate of 6.75%. At the end of 2006 there was
£95.9 million (approximately $187.8 million)
outstanding under the multicurrency credit agreement with a
weighted average interest rate of 5.91%. The interest rate
averaged 7.05% and 6.42% from May 15, 2007
IV-23
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
through December 31, 2007 and from January 1, 2007
through May 14, 2007, respectively. The UK credit agreement
matures April 2009.
In March 2006 DCI borrowed additional funds under its US Credit
Facility (Revolving Loan and Term A) to redeem the maturing
$300.0 million Senior Notes. At the end of 2007 there was
$1,337.5 million outstanding ($1,000 million Term A
and $337.5 million Revolving Loan) under the facility with
a weighted average interest rate of 5.61%. The amount available
under the facility was $1,214.9 million, net of amounts
committed for standby letters of credit of $2.6 million
issued. At the end of 2006 there was $1,249.5 million
outstanding under the facility with a weighted average interest
rate of 6.35%. The amount available under the facility was
$1,302.8 million, net of amounts committed for standby
letters of credit of $2.7 million issued. The average
interest rate under the U.S. Credit Facility was 6.11%,
6.22% and 6.01% from May 15, 2007 through December 31,
2007, from January 1, 2007 through May 14, 2007 and
2006, respectively. The Companys debt agreements have
certain restrictions on the payment of dividends from
subsidiaries.
The Company uses derivative instruments to modify its exposure
to interest rate fluctuations on its debt. The Term Loans,
Revolving Facility, and Senior Notes contain covenants that
require the Company to meet certain financial ratios and place
restrictions on the payment of dividends, sale of assets,
borrowing level, mergers, and purchases of capital stock,
assets, and investments.
Future principal payments under the current debt arrangements,
excluding obligations under capital leases and other notes
payable, are as follows: $266.3 million in 2008,
$539.2 million in 2009, $915.0 million in 2010,
$235.0 million in 2011, $340.0 million in 2012 and
$1,807.5 million thereafter. Of the $266.3 million of
principal payments due in 2008, $242.5 million is excluded
from the current portion of long-term debt as of
December 31, 2007 because the Company has the intent and
ability to refinance its obligations on a long-term basis.
Future minimum payments under capital leases are as follows:
$9.0 million in 2008 and 2009, $6.8 million in 2010,
$6.2 million in 2011, $3.0 million in 2012 and
$10.0 million thereafter.
|
|
12.
|
Mandatorily
Redeemable Interests in Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Mandatorily Redeemable Interests in Subsidiaries
|
|
2007
|
|
|
|
2006
|
|
|
|
in thousands
|
|
Animal Planet LP
|
|
$
|
|
|
|
|
$
|
48,950
|
|
People & Arts Latin America and Animal Planet Channel
Group
|
|
|
48,721
|
|
|
|
|
45,875
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable interests in subsidiaries
|
|
$
|
48,721
|
|
|
|
$
|
94,825
|
|
|
|
|
|
|
|
|
|
|
|
Animal
Planet LP
As of December 31, 2006, one of the DCIs stockholders
held 44,000 senior preferred partnership units of Animal Planet
LP (APLP) that had a redemption value of
$44.0 million and carried a rate of return ranging from
8.75% to 13%. Payments were made quarterly and totaled
$4.6 million during 2006. APLPs senior preferred
partnership units were called by DCI in January 2007 for
$44.0 million, plus accrued interest of $0.5 million.
At December 31, 2006, DCI recorded this security at the
redemption value of $44.0 million plus accrued returns of
$5.0 million. Preferred returns were recorded as a
component of interest expense based on a constant rate of return
of 10.75% through the full term and aggregated $4.7 million
in 2006 and 2005. DCI reversed $5.0 million of accrued
interest upon exercise of the call.
People &
Arts Latin America and Animal Planet Channel Group
The BBC has the right, upon a failure of the People &
Arts Latin America or the Animal Planet Channel Group (comprised
of Animal Planet Europe, Animal Planet Asia, and Animal Planet
Latin America), the Channel Groups,
IV-24
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
to achieve certain financial performance benchmarks to put its
interests back to the Company for a value determined by a
specified formula every three years which commenced
December 31, 2002. The Company accretes the mandatorily
redeemable equity in a subsidiary to its estimated redemption
value through the applicable redemption date. The redemption
value estimate is based on a contractual formula considering the
projected results of each network within the channel group.
Based on the Companys calculated performance benchmarks,
the Company believes the BBC has the right to put their
interests as of December 2005. The BBC has 90 days
following the valuation of the Channel Groups by an independent
appraiser to exercise their right. During 2006 DCI was notified
that the BBC is evaluating whether to execute their rights under
the agreement. As of December 31, 2007, the BBC and the
Company are assigning a valuation firm to formally assess the
performance benchmarks and the BBCs right to put. The
Company has accreted to an estimated redemption value of
$48.7 million as of December 31, 2007, based on
certain estimates and legal interpretations. Changes in these
assumptions could materially impact current estimates. Accretion
to the redemption value has been recorded as a component of
minority interest expense of $1.7 million,
$1.1 million, $9.1 million and $34.6 million from
May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and
2005, respectively.
|
|
13.
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Future Minimum Payments
|
|
Leases
|
|
|
Content
|
|
|
Other
|
|
|
Total
|
|
|
|
in thousands
|
|
|
2008
|
|
$
|
80,691
|
|
|
$
|
269,175
|
|
|
$
|
106,187
|
|
|
$
|
456,053
|
|
2009
|
|
|
65,991
|
|
|
|
66,616
|
|
|
|
85,546
|
|
|
|
218,153
|
|
2010
|
|
|
56,518
|
|
|
|
41,287
|
|
|
|
71,246
|
|
|
|
169,051
|
|
2011
|
|
|
41,360
|
|
|
|
40,176
|
|
|
|
23,852
|
|
|
|
105,388
|
|
2012
|
|
|
35,417
|
|
|
|
40,667
|
|
|
|
4,148
|
|
|
|
80,232
|
|
Thereafter
|
|
|
133,741
|
|
|
|
41,469
|
|
|
|
400
|
|
|
|
175,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
413,718
|
|
|
$
|
499,390
|
|
|
$
|
291,379
|
|
|
$
|
1,204,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses recorded in connection with operating leases, including
rent expense, for continuing and discontinued operations were
$91.2 million, $53.1 million, $142.5 million and
$142.1 million from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively. Expenses
recorded in connection with operating leases, including rent
expense, for discontinued operations were $37.2 million,
$8.8 million, $24.0 million and $25.4 million
from May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively. The Company receives contributions from
certain landlords to fund leasehold improvements. Such
contributions are recorded as deferred rent and amortized as
reductions to lease expense over the lease term. Certain of the
Companys leases provide for rental rates that increase or
decrease over time. The Company recognizes operating lease
minimum rentals on a straight-line basis over the lease term.
The Companys deferred rent balance was $24.2 million
at December 31, 2007 and $37.4 million at
December 31, 2006. Approximately $7.0 million of
Discoverys deferred rent balance was written off and
included in discontinued operations following the closure of the
retail stores.
Discovery has certain contingent considerations in connection
with the acquisition of Treehugger.com payable in the event
specific business metrics are achieved totaling up to
$6.0 million over 2 years (see Note 4).
The Company is involved in litigation incidental to the conduct
of its business. In addition, the Company is involved in
negotiations with organizations holding the rights to music used
in the Companys content. As global music rights societies
evolve, the Company uses all information available to estimate
appropriate obligations. During 2005, DCI analyzed its music
rights reserves and recorded a net reduction to cost of revenue
of approximately $11.0 million. The Company believes the
reserves related to these music rights are adequate
IV-25
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
and does not expect the outcome of such litigation and
negotiations to have a material adverse effect on the
Companys results of operations, cash flows, or financial
position.
|
|
14.
|
Employee
Savings Plans
|
The Company maintains employee savings plans, defined
contribution savings plans and a supplemental deferred
compensation plan for certain management employees, together the
Savings Plans. The Company contributions to the
Savings Plans were $6.2 million, $5.5 million,
$9.9 million and $8.2 million from May 15, 2007
through December 31, 2007, from January 1, 2007
through May 14, 2007 in 2006 and in 2005, respectively.
|
|
15.
|
Long-term
Incentive Plans
|
In October 2005, DCI established a new long-term incentive plan.
At inception of the plan, eligible participants in one of
DCIs previously established long-term incentive plans
chose to either continue in that plan or to redeem their vested
units at the December 31, 2004 valuation and receive
partially vested units in the new plan. Substantially all
participants in the previously established plan redeemed their
vested units and received partially vested units in the new
plan. Certain eligible employees were granted new units in the
new plan.
Units partially vested in the new plan have vesting similar to
units in the previously established plan. New units awarded vest
25% per year. The units in the new plan are indexed to the
market price of Class A DHC stock. On August 17, 2007,
the Company amended the plan so that each year 25% of the units
awarded will expire and the employees will receive a cash
payment for the increase in value. Prior to the amendment, units
were paid out every two years over an eight year period. The
Company has authorized the issuance of up to 31.9 million
units under this plan.
Prior to October 2005, DCI maintained two unit-based, long-term
incentive plans with substantially similar terms. Units were
awarded to eligible employees following their one-year
anniversary of hire and vested 25% per year thereafter. Upon
exercise, participants received the increase in value from the
date of issuance. The value of the units was based on changes in
DCIs value as estimated by an external investment-banking
firm utilizing a specified formula of DCI business metrics. The
valuation also included a business group specific discount rate
and terminal value based on business risk. The intrinsic value
for unit appreciation had been recorded as compensation expense
over the period the units were outstanding. In August 2005, DCI
discontinued one of these plans, which resulted in the full
vesting and cash redemption of units at the December 31,
2004 valuation, including a 25% premium on appreciated value.
Upon voluntary termination of employment, the Company
distributes the intrinsic value of the participants vested
units, if participants agree to comply with post-employment
obligations for one year in order to receive remaining benefits.
The Companys cash disbursements under the new plan
aggregated $75.6 million, $7.8 million and
$0.3 million from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007 and in 2006, respectively. There were no
payments during 2005 related to the new plan. DCIs cash
disbursements under the prior plans aggregated
$325.8 million during 2005.
The fair value of the units issued under the new plan has been
determined using the Black-Scholes option-pricing model. The
expected volatility represents the calculated volatility of the
DHC stock price over each of the various contractual terms. As a
result of the limited trading history of the DHC stock, this
amount for units paid out
IV-26
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
after two years is determined based on an analysis of DHCs
industry peer group over the corresponding periods. The weighted
average assumptions used in this option-pricing model were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
May 15 -
|
|
|
January 1 -
|
|
|
|
|
Weighted Average Assumptions
|
|
December 31, 2007
|
|
|
May 14, 2007
|
|
2006
|
|
2005
|
Risk-free interest rate
|
|
|
3.20
|
%
|
|
|
|
4.72
|
%
|
|
|
4.78
|
%
|
|
|
4.36
|
%
|
Expected term (years)
|
|
|
1.48
|
|
|
|
|
3.87
|
|
|
|
3.86
|
|
|
|
4.75
|
|
Expected volatility
|
|
|
27.93
|
%
|
|
|
|
23.78
|
%
|
|
|
27.06
|
%
|
|
|
30.36
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The weighted average grant date fair values of units granted was
$29.65, $18.66, $16.51 and $15.81 from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively. The
weighted average fair value of units outstanding was $11.68 and
$6.71 as of December 31, 2007 and 2006, respectively.
Compensation expense in connection with the new plan was
$78.5 million, $62.9 million, $39.2 million and
$29.1 million from May 15, 2007 through
December 13, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively. Included
in the 2005 expense is $12.8 million related to the
exchange of the partially vested units which represents the
difference between the fair value of the award and the intrinsic
value of the award attributable to prior vesting. The accrued
fair values of units outstanding under the new plan were
$141.6 million and $84.5 million at December 31,
2007 and 2006.
The following table summarizes information about unit
transactions (units in millions) for the new plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 15 -
|
|
|
|
January 1 -
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
May 14, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Units
|
|
|
Price
|
|
|
|
Units
|
|
|
Price
|
|
|
Units
|
|
|
Price
|
|
|
Units
|
|
|
Price
|
|
Outstanding at Beginning of period
|
|
|
26.7
|
|
|
$
|
16.01
|
|
|
|
|
26.3
|
|
|
$
|
15.00
|
|
|
|
24.2
|
|
|
$
|
14.82
|
|
|
|
|
|
|
$
|
|
|
Units exchanged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
|
|
12.77
|
|
Units granted
|
|
|
6.4
|
|
|
|
29.65
|
|
|
|
|
7.8
|
|
|
|
18.66
|
|
|
|
3.5
|
|
|
|
16.36
|
|
|
|
16.4
|
|
|
|
15.81
|
|
Units exercised
|
|
|
(1.1
|
)
|
|
|
15.69
|
|
|
|
|
(2.3
|
)
|
|
|
14.01
|
|
|
|
(0.1
|
)
|
|
|
13.12
|
|
|
|
|
|
|
|
|
|
Units redeemed/cancelled
|
|
|
(5.2
|
)
|
|
|
15.29
|
|
|
|
|
(5.1
|
)
|
|
|
15.82
|
|
|
|
(1.3
|
)
|
|
|
15.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
26.8
|
|
|
|
19.42
|
|
|
|
|
26.7
|
|
|
|
16.01
|
|
|
|
26.3
|
|
|
|
15.00
|
|
|
|
24.2
|
|
|
|
14.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at Period-end
|
|
|
6.6
|
|
|
$
|
13.97
|
|
|
|
|
6.5
|
|
|
$
|
13.84
|
|
|
|
8.5
|
|
|
$
|
13.78
|
|
|
|
1.6
|
|
|
$
|
11.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company classified as a current liability the entire long
term incentive plan liability of $141.6 million. At
December 31, 2007, there was $137.3 million of
unrecognized compensation cost related to unvested units, which
the Company expects to recognize over a weighted average period
of 2.4 years. The weighted average remaining years of
contractual life for outstanding and vested unit awards was 1.48
and 0.75, respectively, for unit awards outstanding as of
December 31, 2007. The aggregate intrinsic value of units
outstanding at December 31, 2007 and 2006 is
$228.0 million and $82.0 million respectively. The
vested intrinsic value of outstanding units was
$94.2 million and $36.7 million at December 31,
2007 and 2006, respectively.
IV-27
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Domestic and foreign income (loss) before income taxes and
discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 15 -
|
|
|
|
January 1 -
|
|
|
|
|
|
|
|
Income From Continuing Operations
|
|
December 31,
|
|
|
|
May 14,
|
|
|
|
|
|
|
|
Before Taxes
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Domestic
|
|
$
|
254,772
|
|
|
|
$
|
86,601
|
|
|
$
|
444,504
|
|
|
$
|
358,065
|
|
Foreign
|
|
|
7,733
|
|
|
|
|
15,374
|
|
|
|
(24,629
|
)
|
|
|
(4,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
$
|
262,505
|
|
|
|
$
|
101,975
|
|
|
$
|
419,875
|
|
|
$
|
353,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations for the years
ended December 31, 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
May 15 -
|
|
|
|
January 1 -
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
May 14,
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
2007
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in thousands
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
52,346
|
|
|
|
$
|
20,526
|
|
|
$
|
4,591
|
|
|
$
|
(1,479
|
)
|
State
|
|
|
7,079
|
|
|
|
|
5,064
|
|
|
|
5,695
|
|
|
|
(3,205
|
)
|
Foreign
|
|
|
28,185
|
|
|
|
|
16,634
|
|
|
|
59,879
|
|
|
|
57,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
87,610
|
|
|
|
|
42,224
|
|
|
|
70,165
|
|
|
|
52,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(65,091
|
)
|
|
|
|
4,618
|
|
|
|
114,986
|
|
|
|
106,182
|
|
State
|
|
|
9,879
|
|
|
|
|
9,023
|
|
|
|
3,707
|
|
|
|
16,298
|
|
Foreign
|
|
|
1,989
|
|
|
|
|
3,395
|
|
|
|
(3,637
|
)
|
|
|
(3,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit) expense
|
|
|
(53,223
|
)
|
|
|
|
17,036
|
|
|
|
115,056
|
|
|
|
118,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(9,084
|
)
|
|
|
|
(7,097
|
)
|
|
|
5,160
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
25,303
|
|
|
|
$
|
52,163
|
|
|
$
|
190,381
|
|
|
$
|
173,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-28
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Components of deferred tax assets and liabilities as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
2007
|
|
|
|
2006
|
|
Deferred Income Tax Assets and Liabilities
|
|
Current
|
|
|
Non-current
|
|
|
|
Current
|
|
|
Non-current
|
|
|
|
in thousands
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss carryforwards
|
|
$
|
21,851
|
|
|
$
|
21,145
|
|
|
|
$
|
19,855
|
|
|
$
|
27,712
|
|
Compensation
|
|
|
58,762
|
|
|
|
9,489
|
|
|
|
|
30,981
|
|
|
|
15,563
|
|
Accrued expenses
|
|
|
11,161
|
|
|
|
13,232
|
|
|
|
|
12,088
|
|
|
|
14,981
|
|
Reserves and allowances
|
|
|
8,613
|
|
|
|
|
|
|
|
|
10,938
|
|
|
|
|
|
Tax credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,574
|
|
Derivative financial instruments
|
|
|
|
|
|
|
6,992
|
|
|
|
|
|
|
|
|
3,141
|
|
Investments
|
|
|
|
|
|
|
13,337
|
|
|
|
|
|
|
|
|
10,445
|
|
Depreciation
|
|
|
|
|
|
|
16,169
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
68,293
|
|
|
|
|
|
|
|
|
104,078
|
|
Uncertain tax positions
|
|
|
|
|
|
|
28,089
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
4,769
|
|
|
|
17,024
|
|
|
|
|
4,301
|
|
|
|
20,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,156
|
|
|
|
193,770
|
|
|
|
|
78,163
|
|
|
|
205,391
|
|
Valuation allowance
|
|
|
|
|
|
|
(10,250
|
)
|
|
|
|
|
|
|
|
(26,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
105,156
|
|
|
|
183,520
|
|
|
|
|
78,163
|
|
|
|
178,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,164
|
)
|
Content rights and deferred launch incentives
|
|
|
|
|
|
|
(156,654
|
)
|
|
|
|
|
|
|
|
(200,732
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
(5,744
|
)
|
|
|
|
|
|
|
|
(12,936
|
)
|
Unrealized gains on investments
|
|
|
|
|
|
|
(24,970
|
)
|
|
|
|
|
|
|
|
(861
|
)
|
Other
|
|
|
(1,433
|
)
|
|
|
(6,771
|
)
|
|
|
|
(2,007
|
)
|
|
|
(4,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(1,433
|
)
|
|
|
(194,139
|
)
|
|
|
|
(2,007
|
)
|
|
|
(225,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets (liabilities), net
|
|
$
|
103,723
|
|
|
$
|
(10,619
|
)
|
|
|
$
|
76,156
|
|
|
$
|
(46,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-29
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
Income tax benefit (expense) from continuing operations differs
from the amounts computed by applying the U.S. Federal
income tax rate of 35.0% as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
May 15 -
|
|
|
January 1 -
|
|
Year Ended December 31,
|
Reconciliation of Effective Tax Rate from Continuing
Operations
|
|
December 31, 2007
|
|
|
May 14, 2007
|
|
2006
|
|
2005
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (decrease) in tax rate arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of Federal benefit
|
|
|
2.4
|
|
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
3.2
|
|
Foreign income taxes, net of Federal benefit
|
|
|
7.5
|
|
|
|
|
12.8
|
|
|
|
7.7
|
|
|
|
9.7
|
|
Non-taxable gain
|
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel deferred tax liabilities
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in US reserve
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible goodwill write-off
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
Domestic production deduction
|
|
|
(1.1
|
)
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.8
|
|
|
|
|
(0.6
|
)
|
|
|
1.1
|
|
|
|
1.1
|
|
Effective income tax rate
|
|
|
9.6
|
%
|
|
|
|
51.2
|
%
|
|
|
45.3
|
%
|
|
|
49.0
|
%
|
The disposal of the Travel Business resulted in a gain of
$134.7 million for book purposes, but the transaction was
not recognized for tax purposes under Internal Revenue Code
Sections 355 and 368. The transaction also resulted in a
reduction of the Companys deferred tax liabilities related
to the Travel Channel of $54.0 million.
As of December 31, 2007, the Company has federal operating
loss carryforwards of $93.3 million that begin to expire in
2021 and state operating loss carryforwards of
$296.9 million in various state jurisdictions available to
offset future taxable income that expire in various amounts
through 2025. In 2007, the Company acquired federal operating
loss carryforwards of $89.6 million. The state operating
loss carryforwards are subject to a valuation allowance of
$5.4 million. The change in the valuation allowance from
prior year reflects the elimination of fully reserved state
operating loss carryforwards upon disposal of the Retail
business.
Deferred tax assets are reduced by a valuation allowance
relating to the state tax benefits attributable to net operating
losses in certain jurisdictions where realizability is not more
likely than not.
The Companys ability to utilize foreign tax credits is
currently limited by its overall foreign loss under
Section 904(f) of the Internal Revenue Code. The Company
has no alternative minimum tax credits.
The Company files U.S. federal, state, and foreign income
tax returns. With few exceptions, the Company is no longer
subject to audit by the Internal Revenue Service
(IRS), state tax authorities, or
non-U.S. tax
authorities for years prior to 2003.
It is reasonably possible that the total amount of unrecognized
tax benefits related to tax positions taken (or expected to be
taken) on 2005, 2006, and 2007
non-U.S. tax
returns could decrease by as much as $32.8 million within
the next twelve months as a result of settlement of audit issues
and/or
payment of uncertain tax liabilities, which could impact the
effective tax rate.
The IRS is not currently examining the Companys
consolidated federal income tax return. However, some of the
Companys joint ventures are under examination for the 2004
tax year. The Company does not expect any significant
adjustments.
As a result of the implementation of FIN 48, the Company
recognized an increase of $36.3 million in its liability
for unrecognized tax benefits, which was offset in part by a
corresponding increase of $31.3 million in deferred tax
assets. The remaining $5.0 million was accounted for as a
reduction to the January 1, 2007 balance of
IV-30
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
retained earnings. A reconciliation of the beginning and ending
amount of unrecognized tax benefits (without related interest
amounts) is as follows:
|
|
|
|
|
Reconciliation of Unrecognized Tax Benefits
|
|
|
|
|
Balance at January 1, 2007 (Predecessor)
|
|
$
|
91,375
|
|
Reductions for tax positions of prior years (Predecessor)
|
|
|
(412
|
)
|
Additions based on tax positions related to the current year
(Successor)
|
|
|
11,650
|
|
Additions for tax positions of prior years (Successor)
|
|
|
16,830
|
|
Reductions for tax positions of prior years (Successor)
|
|
|
(28,674
|
)
|
Settlements (Successor)
|
|
|
(2,035
|
)
|
|
|
|
|
|
Balance at December 31, 2007 (Successor)
|
|
$
|
88,734
|
|
|
|
|
|
|
Included in the balance at December 31, 2007, are
$9.5 million of tax positions for which the ultimate
deductibility is highly certain but for which there is
uncertainty about the timing of such deductibility. Because of
the impact of deferred tax accounting, other than interest and
penalties, the disallowance of the shorter deductibility period
would not affect the annual effective tax rate but would
accelerate the payment of cash to the taxing authority to an
earlier period.
FIN 48 requires uncertain tax positions to be recognized
and presented on a gross basis (i.e., without regard to likely
offsets for deferred tax assets, deductions,
and/or
credits that would result from payment of uncertain tax
amounts). On a net basis, the balance at December 31, 2007
is $45.2 million (including related interest amounts) after
offsetting deferred tax assets, deductions,
and/or
credits on the Companys tax returns.
The Companys policy is to classify tax interest and
penalties related to unrecognized tax benefits as tax expense.
Interest expense related to unrecognized tax benefits recognized
was approximately $2.1 million, $1.3 million,
$0.8 million, and $0.9 million from May 15, 2007
through December 31, 2007, from January 1, 2007
through May 14, 2007, in 2006 and in 2005, respectively.
The Company had accrued approximately $6.4 million and
$2.3 million of total interest payable in the tax accounts
as of December 31, 2007, and 2006, respectively. Additional
interest of $0.7 million was accrued upon adoption of
FIN 48 in the first quarter of its fiscal year 2007, with a
corresponding reduction to retained earnings.
|
|
17.
|
Financial
Instruments
|
The Company uses derivative financial instruments to modify its
exposure to market risks from changes in interest rates and
foreign exchange rates. The Company does not hold or enter into
financial instruments for speculative trading purposes.
The Companys interest expense is exposed to movements in
short-term interest rates. Derivative instruments, including
both fixed to variable and variable to fixed interest rate
instruments, are used to modify this exposure. These instruments
include swaps and swaptions to modify interest rate exposure.
The variable to fixed interest rate instruments have a notional
principal amount of $2,270.0 million and
$1,025.0 million and have a weighted average interest rate
of 4.68% and 5.09% at December 31, 2007 and 2006,
respectively. The fixed to variable interest rate agreements
have a notional principal amount of $225.0 million and have
a weighted average interest rate of 9.65% and 9.86% at
December 31, 2007 and 2006, respectively. At
December 31, 2007, the Company held an unexercised interest
rate swap put with a notional amount of $25.0 million at a
fixed rate of 5.44%. As a result of unrealized mark-to-market
adjustments, ($10.0) million, $1.4 million,
$10.4 million and $29.1 million in gains (losses) on
these instruments were recorded from May 15, 2007 through
December 31, 2007, from January 1, 2007 through
May 14, 2007, in 2006 and in 2005, respectively.
The fair value of these derivative instruments, which aggregate
($49.6) million and $8.5 million at December 31,
2007 and 2006, respectively, is recorded as a component of
long-term liabilities and other current liabilities
IV-31
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
in the consolidated balance sheets. Changes in the fair value of
these derivative instruments are recorded as a component of
operating cash flows.
Of the total of $2,270.0 million, a notional amount of
$1,460.0 million of these derivative instruments are 100%
effective cash flow hedges. The value of these hedges at
December 31, 2007 was ($32.5) million with changes in
the mark-to-market value recorded as a component of other
comprehensive income (loss), net of taxes. Should any portion of
these instruments become ineffective due to a restructuring in
the Companys debt, the monthly changes in fair value would
be reported as a component of other income on the Statement of
Operations. The Company does not expect any hedge
ineffectiveness in the next twelve months.
The foreign exchange instruments used are spot, forward, and
option contracts. Additionally, the Company enters into
non-designated forward contracts to hedge non-dollar denominated
cash flows and foreign currency balances. At December 31,
2007 and 2006, the notional amount of foreign exchange
derivative contracts was $174.2 million and
$364.1 million, respectively. As a result of unrealized
mark-to-market adjustments, ($3.3) million,
($0.9) million, $2.0 million and ($2.3) million
in gains (losses) were recognized on these instruments from
May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively. The fair value of these derivative
instruments is recorded as a component of long-term liabilities
and other current liabilities in the consolidated balance
sheets. These derivative instruments did not receive hedge
accounting treatment.
Fair
Value of Financial Instruments
The fair values of cash and cash equivalents, receivables, and
accounts payable approximate their carrying values. Marketable
equity securities are carried at fair value and fluctuations in
fair value are recorded through other comprehensive income
(loss). Losses on investments that are other than temporary
declines in value are recorded in the statement of operations.
The carrying amount of the Companys borrowings was
$4,141.1 million and the fair value was
$4,186.7 million at December 31, 2007. The carrying
amount of the Companys borrowings was
$2,641.0 million and the fair value was
$2,702.0 million at December 31, 2006.
The carrying amount of all derivative instruments represents
their fair value. The net fair value of the Companys short
and long-term derivative instruments is ($51.2) million at
December 31, 2007; 4%, 11%, 61%, 23%, and 1% of these
derivative instrument contracts will expire in 2008, 2009, 2010,
2011 and thereafter, respectively.
The fair value of derivative contracts was estimated by
obtaining interest rate and volatility market data from brokers.
As of December 31, 2007, an estimated 100 basis point
parallel shift in the interest rate yield curve would change the
fair value of the Companys portfolio by approximately
$45.2 million.
Credit
Concentrations
The Company continually monitors its positions with, and the
credit quality of, the financial institutions that are
counterparties to its financial instruments and does not
anticipate nonperformance by the counterparties. In addition,
the Company limits the amount of investment credit exposure with
any one institution.
The Companys trade receivables and investments do not
represent a significant concentration of credit risk at
December 31, 2007 due to the wide variety of customers and
markets in which the Company operates and their dispersion
across many geographic areas.
|
|
18.
|
Related
Party Transactions
|
The Company identifies related parties as investors in their
consolidated subsidiaries, the Companys joint venture
partners and equity investments, and the Companys
executive management. Transactions with related
IV-32
DISCOVERY
COMMUNICATIONS HOLDING, LLC
Notes to
Consolidated Financial
Statements (Continued)
parties typically result from distribution of networks,
production of content, or media uplink services. Gross revenue
earned from related parties was $21.3 million,
$46.9 million, $90.0 million and $73.7 million
from May 15, 2007 through December 31, 2007, from
January 1, 2007 through May 14, 2007, in 2006 and in
2005, respectively. Accounts receivable from these entities were
$6.5 million and $15.0 million at December 31,
2007 and 2006, respectively. Purchases from related parties
totaled $54.8 million, $31.8 million,
$83.3 million and $71.4 million from May 15, 2007
through December 31, 2007, from January 1, 2007
through May 14, 2007, in 2006 and in 2005, respectively; of
these purchases, $5.1 million, $3.0 million,
$8.4 million and $23.1 million related to capitalized
assets from January 1, 2007 through May 14, 2007,
May 15, 2007 through December 31, 2007, in 2006 and in
2005 respectively. Amounts payable to these parties totaled
$0.6 million and $2.4 million at December 31,
2007 and 2006, respectively.
IV-33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DISCOVERY HOLDING COMPANY
John C. Malone
Chief Executive Officer
Dated: June 2, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ John
C. Malone
John
C. Malone
|
|
Chairman of the Board, Director and Chief Executive Officer
|
|
June 2, 2008
|
|
|
|
|
|
/s/ Robert
R. Bennett
Robert
R. Bennett
|
|
Director and President
|
|
June 2, 2008
|
|
|
|
|
|
/s/ Paul
A. Gould
Paul
A. Gould
|
|
Director
|
|
June 2, 2008
|
|
|
|
|
|
/s/ M.
LaVoy Robison
M.
LaVoy Robison
|
|
Director
|
|
June 2, 2008
|
|
|
|
|
|
/s/ J.
David Wargo
J.
David Wargo
|
|
Director
|
|
June 2, 2008
|
|
|
|
|
|
/s/ David
J.A. Flowers
David
J.A. Flowers
|
|
Senior Vice President and Treasurer (Principal Financial Officer)
|
|
June 2, 2008
|
|
|
|
|
|
/s/ Christopher
W. Shean
Christopher
W. Shean
|
|
Senior Vice President and Controller (Principal Accounting
Officer)
|
|
June 2, 2008
|
IV-34
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession:
|
|
2.1
|
|
|
Reorganization Agreement among Liberty Media Corporation,
Discovery Holding Company (DHC) and Ascent Media
Group, Inc. (incorporated by reference to Exhibit 2.1 to
DHCs Registration Statement on Form 10, dated
July 15, 2005 (File
No. 000-51205)
(the Form 10)).
|
3 Articles of Incorporation and Bylaws:
|
|
3.1
|
|
|
Restated Certificate of Incorporation of DHC (incorporated by
reference to Exhibit 3.1 to the Form 10).
|
|
3.2
|
|
|
Bylaws of DHC (incorporated by reference to Exhibit 3.2 to
the Form 10).
|
4 Instruments Defining the Rights of Securities
Holders, including Indentures:
|
|
4.1
|
|
|
Specimen Certificate for shares of the Series A common
stock, par value $.01 per share, of DHC (incorporated by
reference to Exhibit 4.1 to the Form 10).
|
|
4.2
|
|
|
Specimen Certificate for shares of the Series B common
stock, par value $.01 per share, of DHC (incorporated by
reference to Exhibit 4.2 to the Form 10).
|
|
4.3
|
|
|
Rights Agreement between DHC and EquiServe Trust Company,
N.A., as Rights Agent (incorporated by reference to
Exhibit 4.3 to the Form 10).
|
10 Material Contracts:
|
|
10.1
|
|
|
Amended and Restated Limited Liability Company Agreement of
Discovery Communications Holding, LLC, dated as of May 14,
2007, by and among Advance/Newhouse Programming Partnership, LMC
Discovery, Inc. and John S. Hendricks.*
|
|
10.2
|
|
|
Form of Tax Sharing Agreement between Liberty Media Corporation
and DHC (incorporated by reference to Exhibit 10.6 to the
Form 10).
|
|
10.3
|
|
|
Discovery Holding Company 2005 Incentive Plan (As Amended and
Restated Effective August 15, 2007) (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
|
|
10.4
|
|
|
Discovery Holding Company 2005 Non-Employee Director Incentive
Plan (As Amended and Restated Effective August 15, 2007)
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
|
|
10.5
|
|
|
Discovery Holding Company Transitional Stock Adjustment Plan (As
Amended and Restated Effective August 15, 2007)
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company for the quarter ended
September 30, 2007 (File
No. 000-51205)
as filed on November 7, 2007).
|
|
10.6
|
|
|
Agreement between DHC and John C. Malone (incorporated by
reference to Exhibit 10.10 to the Form 10).
|
|
10.7
|
|
|
Agreement, dated June 24, 2005, between Discovery and DHC
(incorporated by reference to Exhibit 10.11 to the
Form 10).
|
|
10.8
|
|
|
Indemnification Agreement, dated as of June 24, 2005,
between Cox and DHC (incorporated by reference to
Exhibit 10.12 to the Form 10).
|
|
10.9
|
|
|
Indemnification Agreement, dated as of June 24, 2005,
between NewChannels and DHC (incorporated by reference to
Exhibit 10.13 to the Form 10).
|
|
10.10
|
|
|
Form of Indemnification Agreement with Directors and Executive
Officers (incorporated by reference to Exhibit 10.14 to the
Form 10).
|
|
|
|
|
|
21 Subsidiaries of Discovery Holding Company.*
|
|
23.1
|
|
|
Consent of KPMG LLP.*
|
|
23.2
|
|
|
Consent of PricewaterhouseCoopers LLP, filed herewith.
|
|
31.1
|
|
|
Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
|
|
31.2
|
|
|
Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
|
|
31.3
|
|
|
Rule 13a-14(a)/15d
14(a) Certification, filed herewith.
|
32 Section 1350 Certification, filed herewith.
|
|
|
* |
Filed with DHCs Annual Report on
Form 10-K
for the year ended December 31, 2007 on February 15,
2008.
|