Discovery Communications, Inc. (Form: 8-K)  

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     
Date of Report (Date of Earliest Event Reported):   November 7, 2008

Discovery Communications, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

     
Delaware 001-34177 35-2333914
_____________________
(State or other jurisdiction
_____________
(Commission
______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
One Discovery Place, Silver Spring, Maryland   20910
_________________________________
(Address of principal executive offices)
  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   240-662-2000

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Top of the Form

Item 2.02 Results of Operations and Financial Condition.

On November 7, 2008, Discovery Communications, Inc. released its earnings for the quarter ended September 30, 2008. A copy of Discovery's press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.





Item 9.01 Financial Statements and Exhibits.

99.1 Press release dated November 7, 2008.






Top of the Form

SIGNATURES

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

         
    Discovery Communications, Inc.
          
November 7, 2008   By:   /s/ Bradley E. Singer
       
        Name: Bradley E. Singer
        Title: Chief Financial Officer


Top of the Form

Exhibit Index


     
Exhibit No.   Description

 
99.1
  Press Release dated November 7,2008
EX-99.1

DISCOVERY COMMUNICATIONS REPORTS THIRD QUARTER 2008 RESULTS

    Revenues increased to $845 million

    Adjusted OIBDA increased to $311 million

    Net income from continuing operations increased to $94 million

    Free Cash Flow increased to $200 million

Silver Spring, Maryland – November 7, 2008: Discovery Communications, Inc. (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the third quarter ended September 30, 2008. The discussion below assumes the transaction between Discovery Holding Company and Advance/Newhouse Programming Partnership that resulted in Discovery Communications becoming a public company, as described in the Other Items section on page 4, occurred on January 1, 2007 and as such includes 100% of Discovery Communications’ results for both 2008 and 2007. Please see the as adjusted financial statements beginning on page 13 for an explanation of why management believes this presentation is appropriate.

David Zaslav, Discovery’s Chief Executive Officer, said, “We are very pleased with the strong performance we delivered in the third quarter, our first as a fully public company. Our ability to generate 11% revenue and 23% Adjusted OIBDA as adjusted (1) growth in these challenging economic and capital market conditions demonstrates the strength of our brands, the diversity of our revenue streams and the global demand for our content. As we move forward as a public company we remain steadfastly focused on delivering leading nonfiction programming that can be leveraged time and again across our domestic and international platforms. With our unique content and our unparalleled global reach, our objective is to continue to grow and enhance value for our stakeholders despite the uncertain economic environment.”

Revenues of $845 million increased 11% over the as adjusted (1) third quarter a year ago, primarily driven by 16% growth at International Networks and 6% growth at U.S. Networks. Adjusted Operating Income Before Depreciation and Amortization (“OIBDA”) increased 23% to $311 million led by 58% growth at International Networks and 9% growth at U.S. Networks. Adjusted OIBDA margin increased to 37% for the third quarter 2008 from 33% for the same prior year period. We define Adjusted OIBDA as revenue less cost of services and selling, general and administrative expense excluding marked to market equity-based compensation under our long-term incentive plans, amortization of deferred launch incentives, depreciation and amortization, restructuring, and impairment charges.

Third quarter net income from continuing operations of $94 million ($0.31 per share) increased $64 million versus the as adjusted results (1) of $30 million ($0.11 per share) for the third quarter a year ago. The increased results primarily reflect the higher Adjusted OIBDA as well as a $65 million benefit in the current year related to the unrealized change in the fair value of the marked to market equity-based compensation which was an expense of $44 million in the third quarter a year ago.

Free cash flow was $200 million for the third quarter and $339 million for the first nine months of 2008, an increase of $271 million from the as adjusted results (1) for the first nine months of 2007. We define free cash flow as Cash Flows from Operating Activities less Acquisitions of property and equipment.

     

  (1)   See the as adjusted financial statements beginning on page 13 for 2007 results.

1

SEGMENT RESULTS

                                                 
($ in millions)   Three Months Ended   Nine Months Ended
    September 30,   September 30,
            2007                   2007        
 
    2008     (As adjusted)   Change     2008     (As adjusted)   Change
 
                                               
Revenues (1) (2)(3)
                                               
U.S. Networks
  $ 498     $ 468       6 %   $ 1,526     $ 1,381       10 %
International Networks
    300       258       16 %     864       723       20 %
Commerce, Education & Other
    45       35       29 %     126       134       (6 %)
Corporate
    2       (1 )     N/M       23             N/M  
 
                                               
 
  $ 845     $ 760       11 %   $ 2,539     $ 2,238       13 %
Adjusted OIBDA (1) (2)(3)
                                               
U.S. Networks
  $ 257     $ 235       9 %   $ 811     $ 698       16 %
International Networks
    103       65       58 %     280       173       62 %
Commerce, Education & Other
    5       (3 )     N/M       2       4       (50 %)
Corporate
    (54 )     (44 )     (23 %)     (145 )     (136 )     (7 %)
 
                                               
 
  $ 311     $ 253       23 %   $ 948     $ 739       28 %
(1) 2007 excludes Travel Channel results through its disposition on May 14, 2007. See the
supplemental financial schedules on page 10 for Travel Channel results.
       
(2) All results exclude the Discovery Channel Stores which ceased operations in the third
quarter of 2007 and have been treated as part of discontinued operations.
       
(3) See the supplemental financial schedules for reconciliations of adjusted OIBDA to
       
operating income as well as 2007 financial data to previously reported results from
       
Discovery Holding Company.
                                               

U.S. Networks

                                                 
($ in millions)   Three Months Ended   Nine Months Ended
    September 30,   September 30,
            2007                   2007        
 
    2008     (As adjusted)   Change     2008     (As adjusted)   Change
 
                                               
Revenues
                                               
Advertising
  $ 249     $ 238       5 %   $ 776     $ 710       9 %
Distribution
    231       213       8 %     691       631       10 %
Other
    18       17       6 %     59       40       48 %
 
                                               
 
  $ 498     $ 468       6 %   $ 1,526     $ 1,381       10 %
Adjusted OIBDA
  $ 257     $ 235       9 %   $ 811     $ 698       16 %
Adjusted OIBDA Margin
    52 %     50 %             53 %     51 %        

U.S. networks’ revenue in the third quarter of 2008 increased 6% to $498 million primarily driven by distribution and advertising revenue growth. Distribution revenue grew 8% largely from higher rates across the fully distributed networks, subscriber growth at the emerging networks and lower launch-support amortization. Advertising revenue increased 5% from higher sellouts and pricing, partially offset by lower ratings at TLC and Discovery Channel.

Adjusted OIBDA increased 9% to $257 million reflecting the 6% revenue growth and flat operating expenses as lower marketing costs on Discovery Channel, TLC and Animal Planet were offset by continued investment in digital media as well as by slightly higher programming expenses. The increase in programming costs during the quarter primarily reflects a content impairment charge of $17 million related to the management team reorganization at TLC and higher programming costs at Discovery, Science and Planet Green, mostly offset by a $20 million decrease in content amortization as a result of the impairment charge recorded in the fourth quarter of 2007.

International Networks

                                                 
($ in millions)   Three Months Ended   Nine Months Ended
    September 30,   September 30,
            2007                   2007        
 
    2008     (As adjusted)   Change     2008     (As adjusted)   Change
 
                                               
Revenues
                                               
Advertising
  $ 83     $ 83       0 %   $ 237     $ 218       9 %
Distribution
    188       154       22 %     548       447       23 %
Other
    29       21       38 %     79       58       36 %
 
                                               
 
  $ 300     $ 258       16 %   $ 864     $ 723       20 %
Adjusted OIBDA
  $ 103     $ 65       58 %   $ 280     $ 173       62 %
Adjusted OIBDA Margin
    34 %     25 %             32 %     24 %        

International networks’ revenue for the third quarter increased 16% to $300 million led by 22% distribution revenue growth primarily from subscriber increases in EMEA (Europe (excluding U.K.), Middle East and Africa) and Latin America. Advertising revenue was flat as strong growth in EMEA and Latin America from increased volume and higher rates was offset by lower advertising revenue in the U.K. due to an interpretation of a contract provision resulting in a limitation in our ability to monetize our audience. Excluding the U.K., advertising revenue increased 29% over the third quarter a year ago at International networks. The quarter also included 38% growth in other revenue driven by the sale of Discovery programs in the U.K. and by Antenna Audio’s expanded client base.

Adjusted OIBDA increased 58% to $103 million reflecting the 16% revenue growth, partially offset by 2% higher operating expenses primarily a result of increased programming expenses. Excluding the impact of foreign currency fluctuations, revenues increased 13% and Adjusted OIBDA increased 50% versus the third quarter of 2007.

Commerce, Education and Other

                                                 
($ in millions)   Three Months Ended   Nine Months Ended
    September 30,   September 30,
            2007                   2007        
 
    2008     (As adjusted)   Change     2008     (As adjusted)   Change
 
                                               
Revenues
  $ 45     $ 35       29 %   $ 126     $ 134       (6 %)
Adjusted OIBDA
  $ 5     $ (3 )     N/M     $ 2     $ 4       (50 %)
Adjusted OIBDA Margin
    11 %     N/M               N/M       3 %        

Commerce, Education and Other revenue increased 29% to $45 million and Adjusted OIBDA increased to $5 million as compared with an Adjusted OIBDA loss of $3 million in the third quarter a year ago. The $8 million increase in Adjusted OIBDA was primarily due to higher education revenues from the streaming of new products as well as sponsorship and licensing deals. Additionally, the quarter included license revenues from When We Left Earth as well as DVD sales under the Blockbuster agreement announced during the second quarter.

The current quarter also included revenues of $20 million and Adjusted OIBDA of $2 million for Creative Sound Services which is included for the full quarter in 2008 following the transaction described in Other Items. This compares with revenues of $15 million and an Adjusted OIBDA loss of $1 million in 2007. For the nine months ended September 30, 2008 revenues were $56 million and Adjusted OIBDA was $2 million as compared with revenues of $59 million and Adjusted OIBDA of $2 million for the nine months ended September 30, 2007.

Corporate

Corporate expenses increased $13 million to $56 million in the third quarter, primarily due to costs associated with the transaction described in Other Items as well as $4 million in costs related to the formation of the OWN joint venture.

OTHER ITEMS

In September 2008, Discovery Holding Company, Inc. (“DHC”) and Advance/Newhouse Programming Partnership (“Advance/Newhouse”) closed a transaction that included the combination of DHC’s approximate 67% interest in Discovery Communications, LLC (“Discovery”) with Advance/Newhouse’s approximate 33% interest in Discovery. Included in the transaction, DHC spun-off its interests in Ascent Media Corporation except for certain businesses that provide sound-related services which remain with Discovery Communications. As a result of the transaction, DHC ceased to be a reporting company and Discovery Communications, Inc. became the successor reporting entity to DHC. The attached consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows assume the above transaction occurred as of January 1, 2008, in accordance with generally accepted accounting principles (GAAP). The prior year results included in the attached financial statements reflect the previously reported results of DHC, which accounted for its interest in Discovery in equity in earnings of unconsolidated affiliates. Additionally, the results of Ascent Media Corporation with the exception of the Creative Sound Services business have been treated as discontinued operations for 2008 and 2007. See our Form 10-Q filed with the Securities and Exchange Commission on November 7, 2008 for a more detailed description of the transaction and for further explanation of the financial statement presentation. See the supplemental financial schedules beginning on page 13 for a reconciliation of DHC’s previously reported results to as adjusted financial statements for 2007.

FULL YEAR 2008 OUTLOOK

For the full year ended December 31, 2008, Discovery Communications expects total revenue between $3,440 million and $3,485 million, Adjusted OIBDA between $1,255 million and $1,305 million and net income from continuing operations of $300 million to $340 million. Our outlook incorporates current foreign exchange rates for revenues and expenses and current share price for marked to market equity based compensation calculations.

2

NON-GAAP FINANCIAL MEASURES

Adjusted OIBDA and Free Cash Flow

In addition to the results prepared in accordance with GAAP provided in this release, the Company has presented Adjusted OIBDA and free cash flow.  The Company defines Adjusted OIBDA as revenue less cost of revenue and selling, general and administrative expense excluding marked to market equity-based compensation under our long-term incentive plans and amortization of deferred launch incentives. The Company excludes equity-based compensation under long-term incentive plans due to its significant volatility from being marked to market. The Company excludes the amortization of deferred launch incentive payments because these payments are infrequent and the amortization does not represent cash payments in the current reporting period. In addition to these items, Adjusted OIBDA also excludes depreciation and amortization, restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Management uses Adjusted OIBDA to assess the operational strength and performance of its operating segments, as well as the Company as a whole, and to view operating results, perform analytical comparisons, identify strategies to improve performance and allocate resources to each operating segment. The Company believes Adjusted OIBDA is an important measure to investors because it allows them to analyze operating performance of each business and the Company overall using the same metric management uses and provides investors a measure to analyze operating performance of each business division and the Company overall against historical data.

The Company defines free cash flow as cash provided by operations less acquisitions of property and equipment. The Company uses free cash flow as it believes it is an important indicator for management and investors of the Company’s liquidity, including its ability to reduce debt, make strategic investments and return capital to shareholders.

Since Adjusted OIBDA and free cash flow are non-GAAP measures, they should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance reported in accordance with GAAP. Please review the supplemental financial schedules beginning on page 10 for reconciliations to GAAP measures.

2007 Results

See page 13 for an explanation of how as adjusted results for 2007 have been calculated and why management believes this presentation would be meaningful to investors.

Travel Channel

The Company presents 2007 results without the Travel Channel, which was exchanged on May 14, 2007. See our Form 10-Q filed with the Securities and Exchange Commission on November 7, 2008 for a more detailed description of this transaction. Management believes this presentation is useful to investors because it allows them to analyze operating performance of the U.S. networks and total company against comparable historical data. See page 13 for reconciliation to results including Travel Channel.

Conference Call Information

Discovery Communications will host a conference call today at 8:30 a.m EST to discuss its third quarter 2008 results. To listen to the call, visit http://www.discoverycommunications.com.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to the Company as of the date hereof, and the Company’s actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 6, 2008 and its Quarterly Report on Form 10-Q filed with the SEC on November 7, 2008. Forward-looking statements include statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. Forward-looking statements in this release include, without limitation, the full year 2008 outlook. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

     
Contacts:
 
Corporate Communications
  Investor Relations
 
   
Michelle Russo (240) 662-2901
michelle_russo@discovery.com
  Craig Felenstein (212) 548-5109
craig_felenstein@discovery.com

3

                                 
DISCOVERY COMMUNICATIONS, INC.                
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS                
(unaudited; amounts in millions, except share amounts)        
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2008   2007(a) 2008 2007(a)
Revenues
                               
Advertising
  $ 332     $     $ 1,014     $  
Distribution
    419             1,239        
Other
    94       15       286       59  
 
                               
Total revenues
    845       15       2,539       59  
Cost of revenues
    262       11       758       37  
Selling, general and administrative
    224       7       845       24  
Depreciation and amortization
    50       1       146       2  
Exit and restructuring costs
    13             17        
Total operating costs and expenses
    549       19       1,766       63  
 
                               
Operating income (loss)
    296       (4 )     773       (4 )
Other (expense) income
                               
Equity in earnings of Discovery Communications Holding, LLC
          10             158  
Equity in loss of unconsolidated affiliates
    (1 )           (2 )      
Interest expense, net
    (61 )           (196 )      
Other, net
    (7 )           (2 )     6  
Total other (expense) income, net
    (69 )     10       (200 )     164  
Income from continuing operations before income taxes and minority interest
    227       6       573       160  
Provision for income taxes
    (93 )     (4 )     (285 )     (62 )
Minority interests in consolidated subsidiaries, net of tax
    (40 )           (119 )      
Net income from continuing operations
    94       2       169       98  
 
                               
Net income from discontinued operations
    40       5       42       4  
Net Income
  $ 134     $ 7     $ 211     $ 102  
 
                               
Net Income Per Common Share
                               
Basic and fully diluted:
                               
Net income from continuing operations
  $ 0.31     $ 0.01     $ 0.59     $ 0.35  
Net income from discontinued operations
    0.13       0.02       0.15       0.01  
 
                               
Net income
  $ 0.44     $ 0.03     $ 0.74     $ 0.36  
 
                               
Basic and fully diluted average shares outstanding
    302       280       287       280  
 
                               

  (a)   The 2007 results presented are on a GAAP basis and are those of our predecessor, Discovery Holding Company, which accounted for its investment in Discovery using the equity method. See page 14 for the as adjusted statement of operations for the three months ended September 30, 2007 and page 15 for the as adjusted statement of operations for the nine months ended September 30, 2007.  

4

                 
DISCOVERY COMMUNICATIONS, INC.    
CONDENSED CONSOLIDATED BALANCE SHEETS    
(unaudited; amounts in millions)    
    September 30,   December 31,
    2008   2007(a)
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 92     $ 8  
Accounts receivable, net
    764       10  
Content rights, net
    79        
Other current assets
    171       2  
Assets of discontinued operations
          352  
 
               
Total current assets
    1,106       372  
Investment in Discovery Communications Holdings, LLC
          3,272  
Investments in and advances to unconsolidated affiliates
    80        
Noncurrent content rights, net
    1,149        
Property and equipment, net
    412       5  
Goodwill and intangibles
    7,488       1,783  
Other assets
    210        
Assets of discontinued operations
          434  
 
               
Total assets
  $ 10,445     $ 5,866  
 
               
LIABILITIES, REDEEMABLE INTERESTS IN SUBSIDIARIES, AND STOCKHOLDER’S EQUITY
               
Current liabilities
               
Accounts payable and accrued liabilities
  $ 418     $ 6  
Current portion of long-term debt
    349        
Other current liabilities
    253       2  
Liabilities of discontinued operations
          112  
 
               
Total current liabilities
    1,020       120  
Long-term debt
    3,555        
Derivative financial instruments
    48        
Other liabilities
    254       1,228  
Liabilities of discontinued operations
          23  
 
               
Total liabilities
    4,877       1,371  
Redeemable interests in subsidiaries
    49        
Stockholder’s equity
               
Preferred stock
    2        
Common stock
    3       3  
Additional paid-in capital
    6,559       5,728  
Accumulated deficit
    (1,042 )     (1,253 )
Accumulated other comprehensive (loss) income
    (3 )     17  
 
               
Total stockholder’s equity
    5,519       4,495  
 
               
Total liabilities, redeemable interests in
  $       $    
subsidiaries, and stockholder’s equity
    10,445       5,866  
 
               

  (a)   The 2007 results presented are on a GAAP basis and are those of our predecessor, Discovery Holding Company, which accounted for its investment in Discovery using the equity method. See page 16 for the December 31, 2007 as adjusted balance sheets.  

5

                 
DISCOVERY COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)
    Nine Months Ended
    September 30,
    2008   2007(a)
Cash Flows from Operating Activities
               
Net income
  $ 211     $ 102  
Adjustments to reconcile net income to cash provided by operating activities
               
Depreciation and amortization
    248       50  
Share-based compensation
    (47 )     2  
Equity in earnings of Discovery Communications Holding, LLC
          (158 )
Equity in loss of unconsolidated affiliates
    2        
Deferred income taxes
    122       63  
Minority interests in consolidated subsidiaries, net of tax
    119        
Gain on dispositions
    (76 )      
Other charges
    7       (8 )
Changes in operating assets and liabilities, net of Ascent Media Corporation spin-off
               
Accounts receivable, net
    (29 )     (4 )
Content rights, net
    (74 )      
Accounts payable and accrued liabilities
    (18 )     (10 )
Other, net
    (42 )     (4 )
Cash provided by operating activities
    423       33  
 
               
Cash Flows from Investing Activities
               
Net cash acquired from Newhouse Transaction
    45        
Business acquisitions, net of cash acquired
    (8 )      
Acquisitions of property and equipment
    (84 )     (36 )
Proceeds from sale of securities
    24        
Proceeds from dispositions
    139        
Other investing activities, net
          2  
Cash provided by (used in) investing activities
    116       (34 )
 
               
Cash Flows from Financing Activities
               
Ascent Media Corporation spin-off
    (356 )      
Net repayments on revolver loan
    (80 )      
Principal payments of long-term debt
    (200 )      
Payments of capital leases
    (12 )      
Net cash from option exercises
          4  
Other financing activities, net
    (10 )      
Cash (used in) provided by financing activities
    (658 )     4  
 
               
Effect of exchange rate changes on cash and cash equivalents
    2        
 
               
Change in Cash and Cash Equivalents
    (117 )     3  
Cash and cash equivalents of discontinued operations, beginning of period
    201       153  
Cash and cash equivalents of continuing operations, beginning of period
    8       1  
 
               
Cash and Cash Equivalents, End of Period
  $ 92     $ 157  
 
               

  (a)   The 2007 results presented are on a GAAP basis and are those of our predecessor, Discovery Holding Company, which accounted for its investment in Discovery using the equity method. See page 17 for the nine months ended September 30, 2007 as adjusted statement of cash flows.  

6

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF TRAVEL CHANNEL RESULTS
(unaudited; amounts in millions)

                         
    Nine Months Ended September 30, 2007(a)
    US Networks   Travel   US Networks
    excluding Travel   Channel   including Travel
    Channel           Channel
Revenues
                       
Advertising
  $ 710     $ 40     $ 750  
Distribution
    631       22       653  
Other
    40             40  
 
                       
Total revenues
  $ 1,381     $ 62     $ 1,443  
 
                       
Adjusted OIBDA
  $ 698     $ 20     $ 718  
 
                       
                         
    Nine Months Ended September 30, 2007(a)
    Total Company           Total Company
    excluding Travel   Travel   including Travel
    Channel   Channel   Channel
Revenues
                       
Advertising
  $ 928     $ 40     $ 968  
Distribution
    1,078       22       1,100  
Other
    232             232  
 
                       
Total revenues
  $ 2,238     $ 62     $ 2,300  
 
                       
Adjusted OIBDA
  $ 739     $ 20     $ 759  
 
                       

  (a)   The 2007 results presented are as adjusted. See page 13 for an explanation of how these results have been calculated and why management believes this presentation would be meaningful to investors.  

7

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION
(unaudited; amounts in millions)

                                                         
    Three Months Ended September 30, 2008
    Adjusted Operating                
    Income Before                   Amortization of   Marked to Market        
    Depreciation and   Depreciation and   cable distribution   Equity-based    
    Amortization   Amortization   investments   Compensation   Other (b) Operating Income
U.S. Networks
  $ 257     $     (12 )   $ (6 )   $     $ (13 )   $ 226  
International Networks
  103           (12 )     (11 )                 80  
Commerce, Education and Other
  5           (2)                       3  
Corporate
  (54 )           (24 )   --   65   --     (13 )
 
                                                       
Total
  $ 311     $     (50 )   $ (17 )   $ 65     $ (13 )   $ 296  
 
                                                       
                                                         
    Three Months Ended September 30, 2007(a)
    Adjusted Operating                
    Income Before                   Amortization of   Marked to Market        
    Depreciation and   Depreciation and   cable distribution   Equity-based    
    Amortization   Amortization   investments   Compensation   Other (c) Operating Income
U.S. Networks
  $ 235     $     (6 )   $ (13 )   $     $     $ 216  
International Networks
  65           (9)     (11 )                 45  
Commerce, Education and Other
  (3 )           (2)                       (5 )
Corporate
  (44 )           (15 )   --     (44 )     (4 )     (107 )
 
                                                       
Total
  $ 253     $     (32 )   $ (24 )   $ (44 )   $ (4 )   $ 149  
 
                                                       

  (a)   The 2007 results presented are as adjusted and include Travel Channel results. See page 13 for an explanation of how these results have been calculated and why management believes this presentation would be meaningful to investors.  

  (b)   For the three months ended September 30, 2008, Other includes costs primarily related to employee relocation and termination of a production agreement.  

  (c)   For the three months ended September 30, 2007, Other includes costs related to employee terminations due to a number of organizational and strategic adjustments.  

8

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION
(unaudited; amounts in millions)

                                                         
    Nine Months Ended September 30, 2008
    Adjusted Operating                
    Income Before                   Amortization of   Marked to Market        
    Depreciation and   Depreciation and   cable distribution   Equity-based    
    Amortization   Amortization   investments   Compensation   Other (b) Operating Income
U.S. Networks
  $ 811     $     (40 )   $ (26 )   $     $ (13 )   $ 732  
International Networks
  280           (32)     (33 )                 215  
Commerce, Education and Other
  2           (7)                 (4 )     (9 )
Corporate
  (145 )           (67)           47             (165 )
 
                                                       
Total
  $ 948     $     (146 )   $ (59 )   $ 47     $ (17 )   $ 773  
 
                                                       
                                                         
    Nine Months Ended September 30, 2007(a)
    Adjusted Operating                
    Income Before                   Amortization of   Marked to Market        
    Depreciation and   Depreciation and   cable distribution   Equity-based    
    Amortization   Amortization   investments   Compensation   Other (c) Operating Income
U.S. Networks
  $ 718     $     (19 )   $ (42 )   $     $     $ 657  
International Networks
  173           (26 )     (33 )                 114  
Commerce, Education and Other
  4           (13 )                 (26 )     (35 )
Corporate
  (136 )           (39 )   --   (129)   119   (186 )
 
                                                       
Total
  $ 759     $     (97 )   $ (75 )   $ (129 )   $ 93     $ 550  
 
                                                       

  (a)   The 2007 results presented are as adjusted and include Travel Channel results. See page 13 for an explanation of how these results have been calculated and why management believes this presentation would be meaningful to investors.  

  (b)   For the nine months ended September 30, 2008, Other at U.S. Networks includes costs primarily related to employee relocation and termination of a production agreement. Commerce, Education and Other includes costs related to closure of Commerce’s distribution center and stores headquarter offices.  

  (c)   For the nine months ended September 30, 2007, Other at Commerce, Education and Other includes write-offs of intangible assets. Corporate represents a gain on the disposition of a business offset by costs related to employee terminations due to a number of organizational and strategic adjustments.  

9

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
AS ADJUSTED FINANCIAL RESULTS
(unaudited; amounts in millions)

The following as adjusted financial statements assume the transaction between DHC and Advance/Newhouse, as well as Discovery Communication’s exchange of the Travel Channel, were completed as of January 1, 2007. The as adjusted results do not purport to be indicative of the results that would have been obtained if these events had been completed by January 1, 2007. See our Form 10-Q filed with the Securities and Exchange Commission on November 7, 2008 for a more detailed description of the transaction and for further explanation of the financial statement presentation.

The as adjusted financial statements for 2007 have not been prepared in accordance with GAAP. Management believes that this presentation is meaningful to investors, because it presents the results of Discovery Communications, the reporting successor to DHC. Discovery Communications will be the reporting entity going forward and a comparison of DHC’s results for 2007 to Discovery Communications’ results for 2008 would not provide investors with meaningful information regarding changes in financial performance of Discovery Communications from 2007 to 2008.

The information in the Discovery Holding Company historical and Discovery Communications historical columns in the following as adjusted financial statements is derived from the historical financial statements of Discovery Holding Company and Discovery Communications, respectively. Certain reclassifications, with no impact to operating income, have been made to the 2007 financial information to conform to the 2008 presentation.

10

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF DISCOVERY HOLDING COMPANY HISTORICAL
TO DISCOVERY COMMUNICATIONS
(unaudited; amounts in millions, except share amounts)

                                         
    Three Months Ended September 30, 2007
            Add:                   Discovery
            Discovery                   Communications,
    DHC Historical   Communications   Less: Minority           Inc.
    (a)   Historical   Interest Adjustment           as adjusted
Revenues
                                       
Advertising
  $     $ 321     $             $ 321  
Distribution
          367                     367  
Other
    15       57                     72  
 
                                       
Total revenues
    15       745                     760  
 
                                       
Cost of revenues
    11       239                     250  
Selling, general and administrative
    7       318                     325  
Depreciation and amortization
    1       31                     32  
Exit and restructuring costs
          4                     4  
Total operating costs and expenses
    19       592                     611  
 
                                       
Operating (loss) income
    (4 )     153                     149  
 
                                       
Other income (expense)
                                       
Equity in earnings of unconsolidated affiliates
    10       2       (10 )     (b)       2  
Interest expense, net
          (72 )                   (72 )
Other, net
          (4 )                   (4 )
 
                                       
Total other income (expense), net
    10       (74 )     (10 )             (74 )
 
                                       
Income from continuing operations before income taxes and minority interests
    6       79       (10 )             75  
Provision for income taxes
    (4 )     (34 )                     (38 )
Minority interests in consolidated subsidiaries, net of tax
          (1 )     (6 )     (c)       (7 )
 
                                       
Net income from continuing operations
    2       44       (16 )             30  
 
                                       
Net income (loss) from discontinued operations
    5       (28 )                   (23 )
Net income
  $ 7       16       (16 )             7  
 
                                       
Net income per share from continuing
  $                               $    
operations, basic and fully diluted
    0.01                               0.11  
Net income per share from discontinued operations, basic and fully diluted
    0.02                               (0.08 )
 
                                       
Net income per share, basic and fully diluted
  $ 0.03                             $ 0.03  
 
                                       
Average shares outstanding, basic and fully diluted
    280                               280  

  (a)   DHC results of operations include DHC corporate costs and the results of Creative Sound Services, with the results of Ascent Media Corporation recorded as discontinued operations.

  (b)   Represents the elimination of DHC’s historical share of earnings of Discovery for the three months ended            September 30, 2007.

  (c)   Represents the minority interest expense for the proportion of Discovery’s historical share of earnings not recognized by DHC for the three months ended September 30, 2007.

11

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF DISCOVERY HOLDING COMPANY TO
DISCOVERY COMMUNICATIONS
(unaudited; amounts in millions, except share amounts)

                                         
    Nine Months Ended September 30, 2007
            Add:                   Discovery
    DHC   Discovery                   Communications,
    Historical   Communications   Less: Minority           Inc.
    (a)   Historical   Interest Adjustment           as adjusted
Revenues
                                       
Advertising
  $     $ 968     $             $ 968  
Distribution
          1,100                     1,100  
Other
    59       173                     232  
 
                                       
Total revenues
    59       2,241                     2,300  
 
                                       
Cost of revenues
    37       736                     773  
Selling, general and administrative
    24       949                     973  
Depreciation and amortization
    2       95                     97  
Exit and restructuring costs
          16                     16  
Asset Impairment
          26                     26  
Gain from disposition of business
          (135 )                   (135 )
 
                                       
Total operating costs and expenses
    63       1,687                     1,750  
 
                                       
Operating income (loss)
    (4 )     554                     550  
 
                                       
Other income (expense)
                                       
Equity in earnings of unconsolidated affiliates
    158       6       (158 )     (b)       6  
Interest expense, net
          (179 )                   (179 )
Other, net
    6       2                     8  
 
                                       
Total other income (expense), net
    164       (171 )     (158 )             (165 )
 
                                       
Income from continuing operations before income taxes and minority
    160       383       (158 )             385  
Provision for income taxes
    (62 )     (74 )                   (136 )
Minority interests in consolidated subsidiaries, net of tax
          (2 )     (88 )     (c)       (90 )
 
                                       
Net income from continuing operations
    98       307       (246 )             159  
 
                                       
Net income (loss) from discontinued operations
    4       (61 )                   (57 )
Net income
  $ 102       246       (246 )             102  
 
                                       
Net income per share from continuing operations, basic and fully diluted
  $ 0.35                             $ 0.57  
Net income per share from discontinued operations, basic and fully
    0.01                               (0.21 )
 
                                       
Net income per share, basic and fully diluted
  $ 0.36                             $ 0.36  
 
                                       
Average shares outstanding, basic and fully diluted
    280                               280  

  (a)   DHC results of operations include DHC corporate cost and the results of Creative Sound Services, with the results of Ascent Media Corporation recorded as discontinued operations.

  (b)   Represents the elimination of DHC’s historical share of earnings of Discovery for the nine months ended            September 30, 2007.

  (c)   Represents the minority interest expense for the proportion of Discovery’s historical share of earnings not recognized by DHC for the nine months ended September 30, 2007.

12

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF DISCOVERY HOLDING COMPANY TO
DISCOVERY COMMUNICATIONS
(unaudited; amounts in millions)

                                 
    As of December 31, 2007
    Discovery   Add:   Less:   Discovery
    Holding   Discovery   Other Adjustments   Communications,
    Company Historical   Communications   (a)   Inc.
            Historical           as adjusted
ASSETS
                               
Current assets
                               
Cash and cash equivalents
  $ 8     $ 45     $     $ 53  
Accounts receivable, net
    10       742             752  
Content rights, net
          79             79  
Other current assets
    2       211             213  
Assets of discontinued operations
    352             (352 )      
 
                               
Total current assets
    372       1,077       (352 )     1,097  
 
                               
Investment in and advances to unconsolidated affiliates
    3,272       101       (3,272 )     101  
Noncurrent content rights, net
          1,048       46       1,094  
Property and equipment, net
    5       397             402  
Goodwill and other intangibles, net
    1,783       5,052       752       7,587  
Other assets
          285             285  
Assets of discontinued operations
    434             (434 )      
 
                               
Total assets
  $ 5,866     $ 7,960     $ (3,260 )   $ 10,566  
 
                               
LIABILITIES, REDEEMABLE INTERESTS IN SUBSIDIARIES, AND STOCKHOLDER’S EQUITY
                               
Current liabilities
                               
Accounts payable and accrued liabilities
  $ 6     $ 533     $     $ 539  
Current portion of long-term debt
          275             275  
Other current liabilities
    2       285       115       402  
Liabilities of discontinued operations
    112             (112 )      
 
                               
Total current liabilities
    120       1,093       3       1,216  
 
                               
Long-term debt
          3,866             3,866  
Derivative financial instruments
          49             49  
Other liabilities
    1,228       195       (1,106 )     317  
Liabilities of discontinued operations
    23             (23 )      
 
                               
Total liabilities
    1,371       5,203       (1,126 )     5,448  
 
                               
Redeemable interests in subsidiaries
          49             49  
Stockholder’s equity
                               
Preferred stock
                       
Common stock
    3                   3  
Members’ equity
          2,534       (2,534 )      
Additional paid-in capital
    5,728             586       6,314  
Accumulated deficit
    (1,253 )     184       (184 )     (1,253 )
Accumulated other comprehensive income (loss)
    17       (10 )     (2 )     5  
 
                               
Total stockholder’s equity
    4,495       2,708       (2,134 )     5,069  
 
                               
Total liabilities, redeemable interests in
  $       $       $       $    
subsidiaries, and stockholder’s equity
    5,866       7,960       (3,260 )     10,566  
 
                               

  (a)   Represents elimination of Ascent Media Corporation, excluding Creative Sound Services, as well as DHC’s historical investment in Discovery.

13

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF DISCOVERY HOLDING COMPANY TO
DISCOVERY COMMUNICATIONS, INC.
(unaudited; amounts in millions)

                         
    Nine Months Ended September 30, 2007
    Discovery   Add:   Discovery
    Holding   Discovery   Communications,
    Company Historical   Communications   Inc.
            Historical   as adjusted
Cash Provided By Operating Activities
  $ 33     $ 126     $ 159  
 
                       
Investing Activities
                       
Business acquisitions, net of cash acquired
          (12 )     (12 )
Acquisition of property and equipment
    (36 )     (55 )     (91 )
Redemption of interests in subsidiaries
          (44 )     (44 )
Other investing activities, net
    2             2  
 
                       
Cash provided by (used in) investing activities
  $ (34 )   $ (111 )   $ (145 )
 
                       
Financing Activities
                       
Net borrowings on revolver loan
          1,332       1,332  
Payments of capital leases
          (5 )     (5 )
Repurchase of member interest
          (1,322 )     (1,322 )
Other financing activities, net
    4       (24 )     (20 )
 
                       
Cash provided by (used in) financing activities
  $ 4     $ (19 )   $ (15 )
 
                       
Effect of exchange rate changes on cash and cash equivalents
          7       7  
 
                       
Change in Cash and Cash Equivalents
    3       3       6  
Cash and cash equivalents of discontinued operations, beginning of period
    153             153  
Cash and cash equivalents of continuing operations, beginning of period
    1       52       53  
 
                       
Ascent Media Corporation cash, as adjusted
                (157 )
 
                       
Cash and Cash Equivalents, End of Period
  $ 157     $ 55     $ 55  
 
                       

14

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited; amounts in millions)

    CALCULATION OF FREE CASH FLOW
                                                                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2008   2007(a) Change 2008 2007(a) Change
Cash provided by operating activities
  $     241     $ 163     $ 78     $ 423     $   159   $   264
Acquisition of property and equipment
          (41 )     (30 )     (11 )   (84 )           (91 )           7
 
                                                                       
Free cash flow
  $     200     $ 133     $ 67     $ 339     $   68   $   271
 
                                                                       

  (a)   The 2007 results presented are as adjusted. See page 13 for an explanation of how these results have been calculated and why management believes this presentation would be meaningful to investors.  

    RECONCILIATION OF 2008 OUTLOOK TO GAAP MEASURES
                                 
    Full Year 2008
Net income from continuing operations..................................................................... ....
  $   300   To
  $ 340  
Interest, net.......................................................................................... ................
            265     To
  255
Depreciation and amortization............................................................... ...................
          190   To
  190
Other, including amortization of cable distribution investments, marked to market equity based compensation, restructuring costs, equity earnings in unconsolidated affiliates, unrealized and realized gains and losses from derivatives, income tax expense, minority interests in consolidated subsidiaries
          500   To
  520
Adjusted OIBDA.................................................................................... .............
  $   1,255   To
  $ 1,305  
 
                               

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DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; amounts in millions)

         
BORROWINGS
    September 30, 2008
$1.0 billion Term Loan A, due quarterly December 2008 to October 2010....................................
  $ 1,000  
$1.6 billion Revolving loan, due October 2010........................................................................
    340  
260 million Revolving loan, due April 2009...........................................................................
    11  
$1.5 billion Term Loan B, due quarterly September 2007 to May 2014..........................................
    1,481  
7.45% Senior Notes, semi-annual interest, due September 2009...................................................
    55  
8.37% Senior Notes, semi-annual interest, due March 2011.........................................................
    220  
8.13% Senior Notes, semi-annual interest, due September 2012...................................................
    235  
Floating Rate Senior Notes, semi-annual interest, due December 2012..........................................
    90  
6.01% Senior Notes, semi-annual interest, due December 2015......................................................
    390  
Obligations under capital leases...........................................................................................
    81  
Other notes payable.........................................................................................................
    1  
 
       
Total debt...............................................................................................................
  $ 3,904  
Cash and cash equivalents................................................................................................
    (92 )
 
       
Net debt..................................................................................................................
  $ 3,812  
 
       
                                                 
LONG-TERM INCENTIVE PLANS
    As of October 31, 2008
    Total Units   Weighted   Vested Units   Weighted
Long-Term   Outstanding   Average   Outstanding   Average
Incentive Plans   (in millions)   Exercise Price   (in millions)   Exercise Price
October 2005 Discovery Appreciation Plan
    20.8             $ 18.97                      
October 2008 Stock Appreciation Rights
                                               
Vesting in March 2009
    2.6             $ 14.45                      
Vesting in March 2010
    2.6             $ 14.45                      
October 2008 Options
    9.5             $ 15.24       3.0             $ 16.59  
 
                                               
Total long-term incentive plans
    35.5             $ 16.22       3.0             $ 16.59  
 
                                               

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