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SECURITIES AND EXCHANGE COMMISSION
the Securities Exchange Act of 1934
Filed by a Party other than the Registranto
Check the appropriate box:
x | Preliminary Proxy Statement |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o | Definitive Proxy Statement |
o | Definitive Additional Materials |
o | Soliciting Material Pursuant to §240.14a-12 |
o | No fee required. |
x | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: | |||
Discovery Holding Company Series A Common Stock, par value $.01 per share | ||||
Discovery Holding Company Series B Common Stock, par value $.01 per share | ||||
Discovery Communications, Inc. Series A Common Stock, par value $.01 per share | ||||
Discovery Communications, Inc. Series B Common Stock, par value $.01 per share | ||||
Discovery Communications, Inc. Series C Common Stock, par value $.01 per share | ||||
Discovery Communications, Inc. Series A Convertible Participating Preferred Stock, par value $.01 per share | ||||
Discovery Communications, Inc. Series C Convertible Participating Preferred Stock, par value $.01 per share | ||||
(2) | Aggregate number of securities to which transaction applies: | |||
As of May 31, 2008, there were (1) 269,209,385 shares of DHC Series A Common Stock outstanding (which for this purpose includes shares subject to outstanding equity incentive awards), and (2) 14,866,221 shares of DHC Series B Common Stock outstanding (which for this purpose includes shares subject to outstanding equity incentive awards). Based on the foregoing, following the transaction, there would be outstanding (1) 134,604,693 shares of New Discovery Series A Common Stock (which for this purpose includes shares subject to outstanding equity incentive awards), (2) 7,433,111 shares of New Discovery Series B Common Stock (which for this purpose includes shares subject to outstanding equity incentive awards), and (3) 142,037,803 shares of New Discovery Series C Common Stock (which for this purpose includes shares subject to outstanding equity incentive awards). Based on the foregoing, 70,308,038 shares of New Discovery Series A Convertible Participating Preferred Stock and 70,308,038 shares of New Discovery Series C Convertible Participating Preferred Stock would be issued in the Transaction (exclusive of any shares that may subsequently be placed in escrow in favor of the preferred stockholders). | ||||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
The filing fee is being calculated based upon an aggregate transaction value of $6,947,123,554.08, which is obtained by: (1) multiplying the number of outstanding shares of DHC Series A Common Stock and DHC Series B Common Stock listed above by the averages of the high and low prices reported for each series of DHC Common Stock on the Nasdaq Global Select Market on June 4, 2008 (which were $26.27 for the Series A and $26.05 for the Series B), (2) subtracting therefrom the book value ($654,919,000 as of March 31, 2008) of Ascent Media Corporation (which is currently included in the market capitalization of DHC but will not be part of the Transaction (as defined in the accompanying preliminary proxy statement/prospectus)), and (3) adding thereto the book value ($143,933,000 as of March 31, 2008) of the assets to be contributed by Advance/Newhouse in exchange for the issuance of the New Discovery convertible preferred stock. | ||||
(4) | Proposed maximum aggregate value of transaction: | |||
$6,947,123,554.08 | ||||
(5) | Total fee paid: | |||
$273,021.96, estimated pursuant to Section 14(g) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, on the basis of $39.30 per million of the estimated maximum aggregate value of the transaction. | ||||
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: | |
(2) | Form, Schedule or Registration Statement No.: | |
(3) | Filing Party: | |
(4) | Date Filed: | |
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
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The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement of which this proxy statement/prospectus forms a part is declared effective by the Securities and Exchange Commission. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted. |
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12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (877)772-1518
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a Delaware Company
Englewood, Colorado 80112
(720) 875-4000
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• | Use the toll-free telephone number shown on the proxy card; | |
• | Use the Internet website shown on the proxy card; or | |
• | Complete, sign, date and promptly return the enclosed proxy card in the postage-paid envelope. It requires no postage if mailed in the United States. |
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APPENDIX A: | Information Concerning Discovery Communications Holding, LLC Including | |
Its Wholly-Owned Subsidiary Discovery Communications, LLC | ||
Part 1: Business Description | ||
Part 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Part 3: Historical Consolidated Financial Statements | ||
APPENDIX B: | Transaction Agreement, dated as of June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., DHC Merger Sub, Inc., Advance/Newhouse Programming Partnership, and with respect to Section 5.14 only Advance Publications, Inc., and Newhouse Broadcasting Corporation | |
APPENDIX C: | Agreement and Plan of Merger, dated as of June 4, 2008, by and among Discovery Holding Company, Discovery Communications, Inc., and DHC Merger Sub, Inc. | |
APPENDIX D: | Form of Restated Certificate of Incorporation of Discovery Communications, Inc. | |
APPENDIX E: | Form of Bylaws of Discovery Communications, Inc. |
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Q: | What is the proposed Transaction? | |
A: | DHC and Advance/Newhouse have agreed to combine their interests in Discovery pursuant to the terms of a transaction agreement(Transaction Agreement). Advance/Newhouse will contribute its entire interest in Discovery and Animal Planet to a new parent company named Discovery Communications, Inc.(New Discovery), in exchange for two series of convertible preferred stock of New Discovery, and DHC will merge with a wholly-owned subsidiary of New Discovery. After the contribution by Advance/Newhouse in exchange for the convertible preferred stock and the merger of DHC, DHC stockholders and Advance/Newhouse will be stockholders of New Discovery and Discovery will be an indirect wholly-owned subsidiary of New Discovery. | |
Q: | Why is the Transaction happening? | |
A: | DHC wishes to complete the Transaction in order to create a pure-play programming company, New Discovery, in a manner that is generally expected to be tax-free to both DHC and its stockholders and Advance/Newhouse. Completion of the Transaction will allow the board of directors and management of New Discovery to focus almost entirely on the programming businesses of Discovery. The Transaction is expected to allow New Discovery to issue equity on more favorable terms with less dilution to existing equity holders in DHC with respect to their interest in Discovery in connection with future acquisitions and management compensation than DHC could under its current ownership structure. Moreover, we expect that the stock of New Discovery will constitute an improved currency, when compared with current alternatives, in connection with issuing equity to raise capital and in acquisitions of other media and entertainment businesses. The Transaction, together with the spin-off of Ascent Media Corporation(AMC), except for its sound business(AMC spin-off), will also enable New Discovery to more effectively tailor employee benefit plans and retention programs, when compared with current alternatives, to provide improved incentives to the employees and future hires of Discovery that will better and more directly align the incentives for management at New Discovery and DHC with their performance. | |
Q: | What will holders of DHC common stock receive as a result of the Transaction? | |
A: | If the Transaction is completed, each share of DHC Series A common stock or DHC Series B common stock owned by a DHC stockholder at the effective time of the merger will be exchanged for 0.50 of a share of the same series of New Discovery common stockand0.50 of a share of New Discovery Series C common stock. All three series of New Discovery common stock (Series A, B and C) will have the same rights, powers and preferences, except (1) the Series B common stock will be convertible into the Series A common stock and (2) the Series B will have 10 votes per share, the Series A will have one vote per share, and the Series C will not have any voting rights except as required by Delaware law. | |
Q: | What will Advance/Newhouse receive as a result of the Transaction? | |
A: | In exchange for its contribution to New Discovery of its entire indirect interest in Discovery and Animal Planet in accordance with the Transaction Agreement, Advance/Newhouse will receive shares of New Discovery Series A convertible preferred stock and New Discovery Series C convertible preferred stock. The convertible preferred stocks will initially be convertible, on an as-converted basis, into one-third of the common equity of New Discovery. Accordingly, the Series A convertible preferred stock will be convertible into a number of shares of New Discovery Series A common stock equal to one-half of the aggregate number of shares of New Discovery Series A and Series B common stock issued in the merger, and the Series C convertible preferred stock will initially be convertible into a number of shares of New Discovery Series C common stock equal to |
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one-half of the shares of New Discovery Series C common stock issued in the merger, in each case subject to anti-dilution adjustments. Advance/Newhouse will be entitled to additional shares of the same series of convertible preferred stock following the merger upon exercise of certain options and stock appreciation rights in respect of New Discovery common stock that will be outstanding immediately after the merger. The New Discovery preferred stock will vote as a single class with the holders of New Discovery common stock on all matters submitted for a vote to the common stockholders of New Discovery, except for the election of directors. The New Discovery convertible preferred stock will have the right to elect three members of New Discovery’s board of directors (who we refer to as thepreferred stock directors) and will have special voting rights on selected matters including fundamental changes in the business of New Discovery, certain acquisitions and dispositions and future issuances of New Discovery capital stock. | ||
Q: | Where will New Discovery common stock trade? | |
A: | We expect the New Discovery Series A and Series B common stock to be listed on the Nasdaq Global Select Market under “DISCA” and “DISCB,” the same symbols under which DHC Series A and Series B common stock currently trade, and the New Discovery Series C common stock to be listed on the Nasdaq Global Select Market under the symbol “DISCK”. | |
Q: | What stockholder approvals are required before the Transaction can be completed? | |
A: | In order for the Transaction to be completed, the DHC stockholders must approve both the merger proposal and the preferred stock issuance proposal at the Annual Meeting. If either proposal is not approved, then the Transaction will not happen. The approval of the transaction proposals require the affirmative vote of the holders of at least a majority of the aggregate voting power of the shares of both series of DHC common stock outstanding on the record date for the Annual Meeting, voting together as a single class. | |
Q: | What do DHC stockholders need to do to vote on the transaction proposals? | |
A: | After carefully reading and considering the information contained in this proxy statement/prospectus, you should complete, sign, date and return the enclosed proxy card by mail, or vote by the telephone or through the Internet, in each case as soon as possible so that your shares are represented and voted at the Annual Meeting. Stockholders who have shares registered in the name of a broker, bank or other nominee should follow the voting instruction card provided by their broker, bank or other nominee in instructing them how to vote their shares. We recommend that you vote by proxy even if you plan to attend the Annual Meeting. You may change your vote at the Annual Meeting. | |
Q: | If my DHC shares are held in “street name” by a broker, bank or other nominee, will the broker, bank or other nominee vote those shares for me on the transaction proposals? | |
A: | If you hold your shares in street name and do not provide voting instructions to your broker, bank or other nominee, your shares willnot be voted on the transaction proposals. Accordingly, your broker, bank or other nominee will vote your shares held in “street name” only if you provide instructions on how to vote. If a broker, who is a record holder of shares, indicates on a form of proxy that the broker does not have discretionary authority to vote those shares on any proposal, or if those shares are voted in circumstances in which proxy authority is defective or has been withheld with respect to any proposal, these shares are considered“broker non-votes” and will have the same effect as a vote“AGAINST” the transaction proposals. You should follow the directions your broker, bank or other nominee provides to you regarding how to vote your shares. | |
Q: | What if I do not vote on the transaction proposals? | |
A: | If you fail to respond with a vote on the transaction proposals, it will have the same effect as a vote“AGAINST” the transaction proposals. If you respond but do not indicate how you want to vote, your proxy will be counted as a vote“FOR”the transaction proposals. If you respond and indicate that you are abstaining from voting, your proxy will have the same effect as a vote“AGAINST” the transaction proposals. | |
Q: | May I change my vote on the transaction proposals after returning a proxy card or voting by telephone or over the Internet? |
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A: | Yes. Before your proxy is voted at the Annual Meeting, you may change your vote on the transaction proposals by telephone or over the Internet (if you originally voted by telephone or over the Internet), by voting in person at the Annual Meeting or by delivering a signed proxy revocation or a new signed proxy with a later date to: Discovery Holding Company,c/o [Computershare Trust Company, N.A., P.O. Box , , ]. | |
Any signed proxy revocation or new signed proxy must be received before the start of the Annual Meeting. Your attendance at the Annual Meeting will not, by itself, revoke your proxy. | ||
If your shares are held in an account by a broker, bank or other nominee who you previously contacted with voting instructions, you should contact your broker, bank or other nominee to change your vote. | ||
Q: | When do you expect to complete the Transaction? | |
A: | We expect to complete the Transaction as quickly as possible once all the conditions to the Transaction, including obtaining the approvals of each of the transaction proposals at the Annual Meeting, are satisfied or, if applicable, waived. We currently expect to complete the Transaction within a few days following the Annual Meeting. | |
Q: | If the Transaction is completed, what should I do with my shares? | |
A: | If you are a holder of certificated shares of DHC common stock, you will receive written instructions from the stock transfer agent after the Transaction is completed on how to exchange your shares of DHC common stock for shares of New Discovery common stock. | |
If you hold shares of DHC common stock through book-entry (whether through a bank, broker or nominee or through the transfer agent’s book-entry registry), those shares will be debited from your account, and your account will be credited with the applicable number and series of shares of New Discovery and cash in lieu of any fractional share interest you are entitled to receive with respect to such shares of DHC common stock. | ||
Q: | Who can help answer my questions about the voting procedures and the Transaction? | |
A: | DHC has retained [ ] to serve as an information agent and proxy solicitor in connection with the Annual Meeting and the Transaction. | |
DHC stockholders who have questions about the Annual Meeting, including the voting procedures, or the transaction proposals should call [ ] at [ ] with their questions. | ||
In addition, DHC stockholders may call DHC’s Investor Relations Department at(877) 772-1518. |
Q: | What is the AMC spin-off? | |
A: | In the AMC spin-off, DHC will distribute to its current stockholders, on a pro rata basis, all of the issued and outstanding shares of stock of a newly formed, wholly-owned subsidiary, AMC, which holds cash and all of the businesses of DHC’s wholly-owned subsidiaries, Ascent Media CANS, LLC (dba AccentHealth) and Ascent Media Group, LLC (collectively,Ascent Media), except for certain businesses of Ascent Media that provide sound, music, mixing, sound effects and other related post-production audio services(Ascent Media Sound). | |
Q: | Is the AMC spin-off conditioned on the completion of the Transaction? | |
A: | Yes, the AMC spin-off is conditioned on all of the conditions precedent to the Transaction (other than the spin-off itself, and other matters that will be completed at the closing of the Transaction) having been satisfied or, to the extent waivable, waived. | |
Q: | Why is the AMC spin-off happening? | |
A: | The obligations of DHC and Advance/Newhouse to complete the Transaction are subject to the completion of the AMC spin-off. The AMC spin-off will facilitate the Transaction by resolving differing views with respect to the value of Ascent Media that could otherwise preclude the consummation of the Transaction on terms |
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acceptable to both DHC and Advance/Newhouse. DHC wishes to complete the Transaction for the reasons summarized above. | ||
Further, the AMC spin-off will provide certain benefits for investors in AMC, including making it easier for investors to understand and value the Ascent Media assets, which DHC’s board of directors believes may currently be overshadowed by DHC’s interest in Discovery. | ||
Q: | Where can I find more information about the AMC spin-off? | |
A: | An information statement concerning the AMC spin-off will be mailed to all DHC stockholders as of the record date for the AMC spin-off, which is expected to be shortly after the Annual Meeting if the transaction proposals are approved. You should read the information statement when you receive it carefully as it will contain important information about the mechanics of the AMC spin-off as well as detailed information about the assets of Ascent Media that are involved in the AMC spin-off. |
Q: | Why is DHC having its Annual Meeting instead of a Special Meeting at this time? | |
A: | DHC’s common stock is traded on the Nasdaq Global Select Market, and it is a requirement of The Nasdaq Stock Market that all issuers of securities traded on that market hold an annual meeting once a year. The Annual Meeting will satisfy this requirement. If the transaction proposals are approved and the Transaction is completed, New Discovery, as the successor to DHC, will not be required to hold an annual meeting until 2009. | |
Q: | In addition to the transaction proposals, what other proposals are to be considered and voted upon at the Annual Meeting? | |
A: | DHC stockholders will be attending to annual business matters and are being asked to consider and vote on the following two proposals, in addition to the transaction proposals: | |
• the“election of directors proposal,” a proposal to re-elect John C. Malone and Robert R. Bennett to serve as Class III members of DHC’s board of directors until DHC’s 2011 annual meeting of stockholders or until their successors are elected; and | ||
• the“auditors ratification proposal,”a proposal to approve the selection of KPMG LLP as DHC’s independent auditors for the fiscal year ending December 31, 2008. | ||
We will also transact such other business as may properly be presented at the meeting or at any postponements or adjournments of the meeting. However, we are not aware of any other matters to be acted upon at the Annual Meeting. | ||
Q: | What stockholder approval is required to approve the election of directors proposal? | |
A: | The election of Messrs. Malone and Bennett requires a plurality of the affirmative votes of the shares of DHC’s Series A and Series B common stock outstanding on the record date, voting together as a single class, that are voted in person or by proxy at the Annual Meeting. This means that the nominees will be elected if they receive more affirmative votes than any other person. | |
If you submitted a proxy card on which you indicate that you abstain from voting, it will have no effect on the election of directors proposal. | ||
Broker non-votes will have no effect on the election of directors proposal. | ||
Q: | How will the vote on the transaction proposals impact the DHC directors elected pursuant to the election of directors proposal? | |
A: | If the transaction proposals receive the requisite stockholder approval at the Annual Meeting, the DHC directors elected pursuant to the election of directors proposal will serve, together with DHC’s other directors, until the closing of the Transaction. At that time, the DHC board of directors, including the members elected as Class III directors at the Annual Meeting, will become common stock directors of New Discovery, along with one new independent director and two executive officers of Discovery. Advance/Newhouse, as the holder of the New |
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Discovery convertible preferred stock, will appoint the three preferred stock directors, but will not vote on the election of any common stock director. Two of the initial preferred stock directors will be Robert J. Miron, Chairman of Advance/Newhouse, and Steven O. Newhouse, Co-Chairman of Advance.net. | ||
If the transaction proposals do not receive the requisite stockholder approval, or if for any other reason the Transaction is not completed, then the persons elected as Class III directors at the Annual Meeting will serve until the 2011 annual meeting of DHC stockholders or until their successors are elected. | ||
Q: | What stockholder approval is required to approve the auditors ratification proposal? | |
A: | The auditors ratification proposal requires the affirmative vote of the holders of at least a majority of the aggregate voting power of the shares of DHC common stock outstanding on the record date for the Annual Meeting and present at the Annual Meeting, in person or by proxy, voting together as a single class. | |
If you submit a proxy card on which you indicate that you abstain from voting, it will have the same effect as a vote“AGAINST”the auditors ratification proposal. | ||
Broker non-votes will have no effect on the auditors ratification proposal. | ||
Q: | What do I need to do to vote on the annual business proposals? | |
A: | After carefully reading and considering the information relating to the annual business proposals contained in this proxy statement/prospectus, you should complete, sign, date and return the enclosed proxy card, or vote by the telephone or through the Internet, in each case as soon as possible so that your shares are represented and voted at the Annual Meeting. Stockholders who have shares registered in the name of a broker, bank or other nominee should follow the voting instruction card provided by their broker, bank or other nominee in instructing them how to vote their shares on each of the annual business proposals. We recommend that you vote by proxy even if you plan to attend the Annual Meeting. You may change your vote at the Annual Meeting. | |
Q: | If my DHC shares are held in “street name” by a broker, bank or other nominee, will the broker, bank or other nominee vote my shares on each of the annual business proposals? | |
A: | If you hold your shares in street name and do not provide voting instructions to your broker, bank or other nominee, your shares may, in the discretion of the broker, bank or other nominee, be voted on the election of directors proposal and the auditors ratification proposal. |
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• | each share of DHC Series A common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series A common stock and 0.50 shares of New Discovery Series C common stock; and | |
• | each share of DHC Series B common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series B common stock and 0.50 shares of New Discovery Series C common stock. |
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• | that the Transaction will provide DHC stockholders with a direct interest in Discovery, which will effectively become a public company; | |
• | that the Transaction will create a pure-play programming company, New Discovery, in a manner that is generally expected to be tax-free to both DHC and its stockholders and Advance/Newhouse, and completion of the Transaction will allow the board of directors and management of New Discovery to focus almost entirely on the programming businesses of Discovery; | |
• | that the Transaction will enable DHC stockholders, as well as potential investors and analysts, to obtain significantly improved disclosure regarding Discovery, including more transparent financial information; | |
• | that the stock of New Discovery is expected to constitute an improved currency, when compared with current alternatives, in connection with issuing equity to raise capital and in acquisitions of other media and entertainment businesses; | |
• | that the Transaction, together with the AMC spin-off, will enable New Discovery to more effectively tailor employee benefit plans and retention programs, when compared with current alternatives, to provide |
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improved incentives to the employees and future hires of Discovery that will better and more directly align the incentives for management at DHC and Discovery with their performance; and |
• | the other matters referred to under “The Transaction — Purposes and Reasons for the Transaction; Recommendation of the DHC Board.” |
• | John S. Hendricks, currently Chairman of Discovery; | |
• | David M. Zaslav, currently President and Chief Executive Officer of Discovery; | |
• | John C. Malone, currently Chief Executive Officer and Chairman of the Board of Directors of DHC; | |
• | Robert R. Bennett, currently President and a director of DHC; | |
• | Paul A. Gould, currently a director of DHC; | |
• | M. LaVoy Robison, currently a director of DHC; | |
• | J. David Wargo, currently a director of DHC; and | |
• | Robert R. Beck, a new independent director. |
• | Robert J. Miron, Chairman of Advance/Newhouse; | |
• | Steven O. Newhouse, Co-Chairman of Advance.net; and | |
• | Lawrence S. Kramer, a new independent director. |
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• | the requisite stockholder approval of the transaction proposals having been obtained at the Annual Meeting; | |
• | the shares of New Discovery common stock having been approved for listing on the Nasdaq Global Select Market, subject only to official notice of issuance; | |
• | the registration statement on Form 10, as amended, for the AMC spin-off having been declared effective under the Exchange Act, and no stop order suspending the effectiveness thereof having been issued or threatened by the SEC; | |
• | each of New Discovery and Advance/Newhouse having received favorable opinions as to certain tax matters; and | |
• | the New Discovery rights agreement having been executed and delivered and in full force and effect. |
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• | all conditions precedent to consummation of the Transaction have not been obtained by December 31, 2008; or | |
• | any court or governmental authority issues an order, decree or ruling, or takes other action, permanently restraining, enjoining or otherwise prohibiting the Transaction. |
• | New Discovery has no financial or operating history on which to evaluate its future performance; | |
• | It will be difficult for a third party to acquire New Discovery, as the restated charter and bylaws of New Discovery include a number of provisions that could prevent or delay a change of control of New Discovery; | |
• | Mr. John Malone, a director of New Discovery, and Advance/Newhouse will each have significant voting power with respect to any matters considered by New Discovery stockholders, and Advance/Newhouse will have significant special class voting rights over certain corporate actions by New Discovery by virtue of its ownership of the Series A convertible preferred stock; | |
• | the entertainment and media programming businesses in which New Discovery will operate are highly competitive; | |
• | the business of New Discovery will be inherently risky, as its revenues will be derived, and its ability to distribute its content will depend, primarily on shifting consumer tastes and preferences; and | |
• | the various other risks and uncertainties described under “Risk Factors” and elsewhere in this proxy statement/prospectus. |
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• | Election of directors proposal: a proposal to re-elect John C. Malone and Robert R. Bennett to serve as Class III members of DHC’s board of directors until the 2011 annual meeting of DHC (or New Discovery) stockholders or until their successors are elected; and | |
• | Auditors ratification proposal: a proposal to ratify the selection of KPMG LLP as DHC’s independent auditors for the fiscal year ending December 31, 2008. |
March 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
amounts in thousands | ||||||||||||||||||||||||
Summary Balance Sheet Data: | ||||||||||||||||||||||||
Current assets | $ | 414,277 | 371,707 | 317,362 | 400,386 | 198,969 | 131,437 | |||||||||||||||||
Investment in Discovery | $ | 3,330,030 | 3,271,553 | 3,129,157 | 3,018,622 | 2,945,782 | 2,863,0003 | |||||||||||||||||
Goodwill | $ | 1,909,823 | 1,909,823 | 2,074,789 | 2,133,518 | 2,135,446 | 2,130,897 | |||||||||||||||||
Total assets | $ | 5,935,838 | 5,865,752 | 5,870,982 | 5,819,236 | 5,564,828 | 5,396,627 | |||||||||||||||||
Current liabilities | $ | 137,402 | 120,137 | 121,887 | 93,773 | 108,527 | 60,595 | |||||||||||||||||
Stockholders’ equity | $ | 4,524,573 | 4,494,321 | 4,549,264 | 4,575,425 | 4,347,279 | 4,260,269 |
Three Months Ended | ||||||||||||||||||||||||||||
March 31, | Years Ended December 31, | |||||||||||||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
amounts in thousands, except per share amounts | ||||||||||||||||||||||||||||
Summary Statement of Operations Data: | ||||||||||||||||||||||||||||
Net revenue | $ | 189,305 | 173,882 | 707,214 | 688,087 | 694,509 | 631,215 | 506,103 | ||||||||||||||||||||
Operating income (loss)(1) | $ | (7,629 | ) | (1,201 | ) | (167,643 | ) | (115,137 | ) | (1,402 | ) | 16,935 | (2,404 | ) | ||||||||||||||
Share of earnings of Discovery | $ | 66,402 | 21,557 | 141,781 | 103,588 | 79,810 | 84,011 | 37,271 | ||||||||||||||||||||
Net earnings (loss)(1) | $ | 33,991 | 20,464 | (68,392 | ) | (46,010 | ) | 33,276 | 66,108 | (52,394 | ) | |||||||||||||||||
Basic and diluted net earnings (loss) per common share — Series A and Series B | $ | .12 | .07 | (.24 | ) | (.16 | ) | .12 | — | — | ||||||||||||||||||
Unaudited pro forma basic and diluted net earnings (loss) per common share — Series A and Series B(2) | $ | — | — | — | — | — | .24 | (.19 | ) |
(1) | Includes impairment of goodwill and other long-lived assets of $165,347,000, $93,402,000, $51,000 and $562,000 for the years ended December 31, 2007, 2006, 2004 and 2003, respectively. |
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(2) | Unaudited pro forma basic and diluted net earnings (loss) per common share for the periods prior to DHC’s July 21, 2005 spin-off(DHC spin-off) from Liberty Media Corporation(Liberty) is based on 280,199,000 common shares which is the number of shares of DHC common stock issued in the DHC spin-off. |
Successor(1) | Predecessor (1) | ||||||||||||||||||||||||
March 31, | December 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||
amounts in thousands | |||||||||||||||||||||||||
Summary Balance Sheet Data: | |||||||||||||||||||||||||
Current assets | $ | 1,090,312 | 1,077,233 | 970,636 | 831,369 | 835,450 | 858,383 | ||||||||||||||||||
Goodwill and intangible assets, net | $ | 5,041,554 | 5,051,843 | 472,939 | 397,927 | 445,221 | 466,968 | ||||||||||||||||||
Programming rights, long term | $ | 1,045,593 | 1,048,193 | 1,253,553 | 1,175,988 | 1,027,379 | 881,735 | ||||||||||||||||||
Total assets | $ | 7,921,337 | 7,960,430 | 3,376,553 | 3,174,620 | 3,235,686 | 3,194,211 | ||||||||||||||||||
Current liabilities | $ | 681,805 | 850,495 | 734,524 | 692,465 | 880,561 | 1,538,798 | ||||||||||||||||||
Long-term debt | $ | 4,088,607 | 4,109,085 | 2,633,237 | 2,590,440 | 2,498,287 | 1,833,942 | ||||||||||||||||||
Mandatorily redeemable interest in subsidiaries | $ | 48,721 | 48,721 | 94,825 | 272,502 | 319,567 | 410,252 | ||||||||||||||||||
Members’ equity/stockholders’ (deficit) | $ | 2,801,594 | 2,708,262 | (261,288 | ) | (482,358 | ) | (627,926 | ) | (801,765 | ) |
Successor(1) | Predecessor(1) | ||||||||||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||||||||||
May 15, | January 1, | ||||||||||||||||||||||||||||||||
2007 | 2007 | ||||||||||||||||||||||||||||||||
Three Months Ended | through | through | |||||||||||||||||||||||||||||||
March 31, | December 31, | May 14, | Years Ended December 31, | ||||||||||||||||||||||||||||||
2008 | 2007 | 2007 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||
(Successor(1)) | (Predecessor(1)) | ||||||||||||||||||||||||||||||||
amounts in thousands | |||||||||||||||||||||||||||||||||
Summary Statement of Operations Data: | |||||||||||||||||||||||||||||||||
Revenue | $ | 794,578 | 710,198 | 2,027,906 | 1,099,427 | 2,883,671 | 2,544,358 | 2,240,670 | 1,863,677 | ||||||||||||||||||||||||
Operating income | $ | 284,069 | 135,275 | 456,136 | 166,164 | 585,497 | 545,626 | 523,249 | 375,294 | ||||||||||||||||||||||||
Interest expense | $ | (68,720 | ) | (44,558 | ) | (180,157 | ) | (68,600 | ) | (194,255 | ) | (184,585 | ) | (167,429 | ) | (159,425 | ) | ||||||||||||||||
Earnings from continuing operations | $ | 105,218 | 51,414 | 237,202 | 49,812 | 229,494 | 180,188 | 192,350 | 100,313 |
(1) | Discovery Communications Holding was formed in the second quarter of 2007 as part of a restructuring (theRestructuring) completed by Discovery, in which Discovery was converted from a corporation into a limited liability company and became a wholly-owned subsidiary of Discovery Communications Holding, and the former shareholders of Discovery, including DHC and Advance/Newhouse, became members of Discovery Communications Holding. Discovery Communications Holding is the successor reporting entity to Discovery. In connection with the Restructuring, Discovery Communications Holding applied “pushdown” accounting and each shareholder’s basis in Discovery as of May 14, 2007 has been pushed down to Discovery |
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Communications Holding. The result was $4.3 billion in goodwill being recorded by Discovery Communications Holding. Since goodwill is not amortizable, there is no income statement impact for this change in basis. |
March 31, 2008 | ||||
(amounts in thousands) | ||||
ASSETS | ||||
Cash | $ | 72,606 | ||
Other current assets | 1,032,836 | |||
Property and equipment, net | 383,357 | |||
Content rights | 1,091,022 | |||
Goodwill | 7,130,994 | |||
Other assets | 802,792 | |||
Total assets | $ | 10,513,607 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
Current liabilities | $ | 691,950 | ||
Long-term debt | 4,088,607 | |||
Deferred tax liabilities | 133,676 | |||
Other liabilities | 284,905 | |||
Total liabilities | 5,199,138 | |||
Minority interest | 48,721 | |||
Stockholders’ equity | ||||
Preferred stock | 143,993 | |||
Common stock | 2,811 | |||
Additional paid-in capital | 6,337,364 | |||
Accumulated deficit | (1,219,492 | ) | ||
Accumulated other comprehensive income | 1,072 | |||
Total equity | 5,265,748 | |||
Total liabilities and stockholders’ equity | $ | 10,513,607 | ||
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Three | ||||||||
Months Ended | Year Ended | |||||||
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(amounts in thousands, | ||||||||
except per share amounts) | ||||||||
Revenue | $ | 810,040 | 3,152,929 | |||||
Cost of sales | (243,632 | ) | (1,210,617 | ) | ||||
Selling, general and administrative expenses | (250,714 | ) | (1,317,514 | ) | ||||
Depreciation and amortization | (46,502 | ) | (192,766 | ) | ||||
Gain from dispositions | — | 283 | ||||||
Operating income | 269,192 | 432,315 | ||||||
Interest expense | (68,720 | ) | (291,857 | ) | ||||
Other expense, net | (22,439 | ) | (2,891 | ) | ||||
Earnings from continuing operations before income taxes | 178,033 | 137,567 | ||||||
Income tax expense | (80,172 | ) | (29,229 | ) | ||||
Earnings from continuing operations | $ | 97,861 | 108,338 | |||||
Basic and fully diluted pro forma earnings from continuing operations per common share | $ | 0.23 | 0.26 | |||||
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Discovery Communications Holding | ||||||||||||||||
DHC | New Discovery | Pro Forma | ||||||||||||||
Historical | Pro Forma | Historical | Equivalent | |||||||||||||
Basic and fully diluted net earnings (loss) per common share: | ||||||||||||||||
Three months ended March 31, 2008 | $ | .12 | .23 | 2,783.54 | 2,565.19 | |||||||||||
Year ended December 31, 2007 | $ | (.24 | ) | .26 | — | 2,899.78 | ||||||||||
Period from January 1, 2007 through May 14, 2007 (Predecessor period) | $ | — | — | 739.66 | — | |||||||||||
Period from May 15, 2007 through | ||||||||||||||||
December 31, 2007 (Successor period) | $ | — | — | 4,886.56 | — | |||||||||||
Book value per common share as of: | ||||||||||||||||
March 31, 2008 | $ | 16.10 | 12.49 | 74,116.24 | 139,300.97 | |||||||||||
Cash dividends | $ | — | — | — | — |
DHC | ||||||||||||||||
Series A | Series B | |||||||||||||||
High | Low | High | Low | |||||||||||||
2006 | ||||||||||||||||
First quarter | $ | 15.65 | $ | 13.88 | $ | 15.96 | $ | 13.58 | ||||||||
Second quarter | $ | 15.18 | $ | 13.61 | $ | 15.21 | $ | 13.73 | ||||||||
Third quarter | $ | 14.82 | $ | 12.81 | $ | 14.54 | $ | 12.97 | ||||||||
Fourth quarter | $ | 16.96 | $ | 14.18 | $ | 16.85 | $ | 13.97 | ||||||||
2007 | ||||||||||||||||
First quarter | $ | 19.48 | $ | 15.52 | $ | 19.46 | $ | 15.70 | ||||||||
Second quarter | $ | 24.70 | $ | 19.12 | $ | 24.70 | $ | 19.25 | ||||||||
Third quarter | $ | 29.33 | $ | 21.92 | $ | 29.25 | $ | 21.98 | ||||||||
Fourth quarter | $ | 29.81 | $ | 22.55 | $ | 30.25 | $ | 25.40 | ||||||||
2008 | ||||||||||||||||
First quarter | $ | 25.51 | $ | 19.57 | $ | 31.00 | $ | 21.85 | ||||||||
Second quarter through June [ ] | $ | [ ] | $ | [ ] | $ | [ ] | $ | [ ] |
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• | authorizing a capital structure with multiple series of common stock: a Series B that entitles the holders to ten votes per share, a Series A that entitles the holders to one vote per share and a Series C that, except as otherwise required by applicable law, entitles the holders to no voting rights; | |
• | authorizing the Series A convertible preferred stock with special voting rights, which prohibits New Discovery from taking any of the following actions, among others, without the prior approval of the holders of a majority of the outstanding shares of such stock: |
• | increasing the number of members of the Board of Directors above 11; | |
• | making any material amendment to the restated charter or bylaws of New Discovery; | |
• | engaging in a merger, consolidation or other business combination with any other entity; or | |
• | appointing or removing the Chairman of the Board or the CEO of New Discovery. |
• | authorizing the issuance of “blank check” preferred stock, which could be issued by New Discovery’s board of directors to increase the number of outstanding shares and thwart a takeover attempt; |
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• | classifying New Discovery’s common stock directors with staggered three year terms and having three directors elected by the holders of the Series A convertible preferred stock, which may lengthen the time required to gain control of New Discovery’s board of directors; | |
• | limiting who may call special meetings of stockholders; | |
• | prohibiting stockholder action by written consent (subject to certain exceptions), thereby requiring stockholder action to be taken at a meeting of the stockholders; | |
• | establishing advance notice requirements for nominations of candidates for election to New Discovery’s board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; | |
• | requiring stockholder approval by holders of at least 80% of New Discovery’s voting power or the approval by at least 75% of New Discovery’s board of directors with respect to certain extraordinary matters, such as a merger or consolidation of New Discovery, a sale of all or substantially all of New Discovery’s assets or an amendment to New Discovery’s restated charter; | |
• | requiring the consent of the holders of at least 75% of the outstanding Series B common stock (voting as a separate class) to certain share distributions and other corporate actions in which the voting power of the Series B common stock would be diluted by, for example, issuing shares having multiple votes per share as a dividend to holders of Series A common stock; and | |
• | the existence of authorized and unissued stock which would allow New Discovery’s board of directors to issue shares to persons friendly to current management, thereby protecting the continuity of its management, or which could be used to dilute the stock ownership of persons seeking to obtain control of New Discovery. |
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• | general economic and business conditions and industry trends; | |
• | spending on domestic and foreign television advertising; | |
• | consumer acceptance of the programming content developed for each of Discovery’s networks; | |
• | changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders and other technology, and their impact on television advertising revenue; | |
• | the regulatory and competitive environment of the industries in which we operate; | |
• | continued consolidation of the broadband distribution industry; | |
• | uncertainties inherent in the development and integration of new business lines, acquired operations and business strategies; | |
• | rapid technological changes; | |
• | uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies; | |
• | future financial performance, including availability, terms and deployment of capital; | |
• | fluctuations in foreign currency exchange rates and political unrest in international markets; | |
• | the ability of suppliers and vendors to deliver products, equipment, software and services; | |
• | availability of qualified personnel; | |
• | changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings; | |
• | changes in the nature of key strategic relationships with partners and joint ventures; | |
• | competitor responses to our products and services, and the products and services of the entities in which we have interests; and | |
• | threatened terrorist attacks and ongoing military action in the Middle East and other parts of the world. |
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• | ‘‘— Part 1: Description of Business;” | |
• | “— Part 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and | |
• | “— Part 3: Historical Consolidated Financial Statements;” |
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• | each share of DHC Series A common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series A common stock and 0.50 shares of New Discovery Series C common stock; and | |
• | each share of DHC Series B common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series B common stock and 0.50 shares of New Discovery Series C common stock. |
• | DHC and Discovery will be wholly-owned subsidiaries of a new public company named “Discovery Communications, Inc.,” or New Discovery; | |
• | the current public stockholders of DHC will be the public stockholders of New Discovery; and | |
• | Advance/Newhouse will be a stockholder of New Discovery (rather than a member of Discovery Communications Holding), owning all of the outstanding shares of Series A and Series C convertible preferred stock of New Discovery. |
• | that the Transaction will create a pure-play programming company, New Discovery, in a manner that is generally expected to be tax-free to both DHC and its stockholders and Advance/Newhouse; | |
• | that completion of the Transaction will allow the board of directors and management of New Discovery to focus almost entirely on the programming businesses of Discovery; | |
• | that the Transaction will enable DHC stockholders, as well as potential investors and analysts, to obtain significantly improved disclosure regarding Discovery, including more transparent financial information; |
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• | that while the Transaction will be dilutive to the public stockholders of DHC, the economic benefits of their indirect ownership in Discovery will remain largely the same as Discovery will no longer have a minority stockholder; | |
• | that New Discovery’s management will be comprised of the current management team at Discovery, thereby ensuring a smooth integration of Discovery into New Discovery; | |
• | that the Transaction has been structured so as not to trigger any change of control provisions in the benefit plans of DHC or Discovery or the debt instruments of Discovery; | |
• | that the Transaction is expected to allow New Discovery to issue equity on more favorable terms with less dilution to existing equity holders in DHC with respect to their interest in Discovery in connection with future acquisitions and management compensation than DHC could under its current ownership structure; | |
• | that the stock of New Discovery is expected to constitute an improved currency, when compared with current alternatives, in connection with issuing equity to raise capital and in acquisitions of other media and entertainment businesses; and | |
• | that the Transaction, together with the AMC spin-off, will enable New Discovery to more effectively tailor employee benefit plans and retention programs, when compared with current alternatives, to provide improved incentives to the employees and future hires of Discovery that will better and more directly align the incentives for management at DHC and New Discovery with their performance. |
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• | approximately $750,000 of printing and mailing expenses associated with this proxy statement/prospectus; | |
• | approximately [$ ] in legal and accounting fees; | |
• | approximately $270,000 in SEC filing fees; and | |
• | approximately [$ ] in other miscellaneous expenses (including the payment of Advance/Newhouse’s HSR filing fee). |
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• | an effective registration statement under the Securities Act covering the resale of those shares; | |
• | in compliance with Rule 144 under the Securities Act; or | |
• | any other applicable exemption under the Securities Act. |
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• | an individual who is a citizen or a resident of the United States; | |
• | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state or political subdivision thereof; | |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | |
• | a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions, or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury regulations. |
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• | Other than with respect to fractional shares of New Discovery common stock for which cash is received, no gain or loss will be recognized to DHC stockholders solely as a result of the exchange of DHC common stock for New Discovery common stock pursuant to the merger. | |
• | The aggregate tax basis of the shares of New Discovery common stock (including any fractional shares in respect of which cash is received) received by DHC stockholders pursuant to the merger will be the same as the aggregate tax basis of the DHC common stock (adjusted in connection with the AMC spin-off as described below) exchanged for such New Discovery common stock pursuant to the merger. The aggregate tax basis will be allocated between shares of New Discovery Series A common stock and New Discovery Series C common stock received in accordance with their relative fair market values at the time of the merger. | |
• | The holding period of the shares of New Discovery common stock received by DHC stockholders in the merger will include the holding period of the DHC common stock exchanged for such New Discovery common stock pursuant to the merger, provided that such shares of DHC stock were held as a capital asset on the merger date. | |
• | A DHC stockholder that receives cash in lieu of a fractional share of New Discovery common stock pursuant to the merger will be treated as though it first received a distribution of the fractional share in the merger and then sold it for the amount of such cash. Such stockholder will generally recognize capital gain or loss, provided that the fractional share is considered to be held as a capital asset, measured by the difference between the cash received for such fractional share and the stockholder’s tax basis in that fractional share, as determined above. Such capital gain or loss will generally be a long-term capital gain or loss if the stockholder’s holding period for its share of DHC stock exceeds one year on the date of the merger. | |
• | Neither DHC, New Discovery nor Merger Sub will recognize gain or loss as a result of the merger. |
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• | No gain or loss should be recognized by DHC upon the distribution of shares of common stock of AMC to DHC stockholders pursuant to the AMC spin-off. | |
• | Other than with respect to fractional shares of common stock of AMC for which cash is received, no gain or loss should be recognized by, and no amount should be included in the income of, a DHC stockholder upon the receipt of shares of common stock of AMC pursuant to the AMC spin-off. | |
• | A DHC stockholder that receives shares of common stock of AMC in the AMC spin-off should have an aggregate adjusted basis in its shares of common stock of AMC (including any fractional share in respect of which cash is received) and its shares of DHC stock immediately after the AMC spin-off equal to the aggregate adjusted basis of such stockholder’s shares of DHC stock held prior to the AMC spin-off, which should be allocated in accordance with their relative fair market values. | |
• | The holding period of the shares of common stock of AMC received in the AMC spin-off by a DHC stockholder should include the holding period of such stockholder’s shares of DHC stock, provided that such shares of DHC stock were held as a capital asset on the distribution date. |
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• | the Transaction Agreement, which establishes the overall framework for the transactions as well as the terms and conditions of the Advance/Newhouse contribution; | |
• | the merger agreement, which establishes the terms and conditions of the merger of Merger Sub and DHC; | |
• | the form of escrow agreement, which establishes the terms and conditions of an escrow arrangement for certain shares of New Discovery convertible preferred stock Advance/Newhouse receives in the Transaction; | |
• | the reorganization agreement, which establishes certain terms and conditions relating to the AMC spin-off; | |
• | the form of tax sharing agreement, which establishes the allocation between DHC and New Discovery on the one hand and AMC on the other hand, of liabilities for taxes arising prior to, as a result of, and subsequent to the AMC spin-off; and | |
• | certain other ancillary agreements contemplated by the agreements listed above. |
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• | shares of New Discovery Series A convertible preferred stock convertible into, on an as-converted basis, a number of shares of Series A common stock equal to 331/3% of the number of shares of New Discovery Series A common stock and New Discovery Series B common stock issued in the merger; | |
• | shares of New Discovery Series C convertible preferred stock convertible into, on an as-converted basis, a number of shares of Series C common stock equal to 331/3% of the number of shares of New Discovery Series C common stock issued in the merger; | |
• | additional shares of New Discovery Series A convertible preferred stock convertible into, on an as-converted basis, a number of shares of Series A common stock equal to 331/3% of the aggregate number of shares of New Discovery Series A common stock and New Discovery Series B common stock that may be issued by New Discovery pursuant to stock options and stock appreciation rights in effect immediately following the merger; and | |
• | additional shares of New Discovery Series C convertible preferred stock convertible into, on an as-converted basis, a number of shares of Series C common stock equal to 331/3% of the aggregate number of shares of New Discovery Series C common stock that may be issued by New Discovery pursuant to stock options and stock appreciation rights in effect immediately following the merger. |
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• | corporate organization and qualification; | |
• | corporate power and authority, absence of conflicts and board approval of the Transaction Agreement; | |
• | capitalization of each of DHC, New Discovery and Merger Sub; | |
• | subsidiaries; | |
• | documents filed with the Securities and Exchange Commission and financial statements included in such documents; | |
• | information supplied in connection with this proxy statement/prospectus and the registration statement of which it is a part; | |
• | absence of certain changes or events since December 31, 2007; | |
• | no default under any material contracts; | |
• | compliance with applicable laws; | |
• | legal proceedings; | |
• | material transactions or arrangements with affiliates; | |
• | brokers and finders; | |
• | tax and employee matters; and | |
• | compliance with takeover laws. |
• | organization and qualification; | |
• | power and authority, absence of conflicts and requisite approvals of the Transaction Agreement; | |
• | ownership of Discovery and Animal Planet interests; | |
• | information supplied in connection with this proxy statement/prospectus and the registration statement of which it is a part; | |
• | legal proceedings; | |
• | brokers and finders; and | |
• | acknowledgement of private placement of securities Advance/Newhouse will receive in the Transaction. |
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• | convene a stockholders meeting for the purpose of considering and voting on the Transaction Agreement; | |
• | prepare and file with the SEC this proxy statement/prospectus and registration statement of which it is a part and to have such filings declared effective by the SEC as soon as reasonably practicable after filing; and | |
• | cause the shares of the New Discovery common stock issuable in the merger to be eligible for quotation on the Nasdaq Global Select Market. |
• | obtaining all necessary consents and approvals from governmental authorities or other persons; | |
• | defending any lawsuits or other actions challenging the Transaction Agreement or the consummation of the Transaction; and | |
• | providing notice or obtaining consents from any third-parties necessary for the consummation of the transactions contemplated by the Transaction Agreement. |
• | divest itself of any part of its ownership interest of DHC, New Discovery, Discovery, Animal Planet or AMC; | |
• | agree to any condition or requirement that would render such person’s ownership of such securities, shares, interests or assets illegal or subject to the imposition of a fine or penalty; |
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• | agree to any condition or requirement that would impose material restrictions or limitations on such person’s full rights of ownership (including, without limitation, voting) of such securities, shares, interests or assets, or | |
• | agree to any condition or requirement that would materially restrict its business or operations as currently conducted. |
• | the absence of any law, injunction, order, statute or regulation prohibiting or preventing the consummation of the Transaction; | |
• | all authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, certain specified governmental authorities (including under theHart-Scott-Rodino Antitrust Improvements Act of 1976 and under the merger regulations of the Republic of Germany) necessary for the consummation of the Transaction having been filed, expired or obtained; | |
• | DHC having obtained the requisite approval of DHC stockholders to the Transaction; | |
• | the restated charter of New Discovery having been filed with the Delaware Secretary of State; | |
• | the declaration of effectiveness of the registration statement of New Discovery of which this document is a part by the SEC and the absence of any stop order suspending effectiveness or proceedings seeking a stop order or suspension of effectiveness with respect to such registration statement; | |
• | each of the Transaction Agreement, merger agreement, reorganization agreement, registration rights agreement and escrow agreement having been executed; | |
• | the shares of New Discovery common stock to be issued pursuant to the merger having been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance; | |
• | the registration statement on Form 10 of AMC having been declared effective by the SEC and the absence of any stop order suspending effectiveness or proceedings seeking a stop order or suspension of effectiveness with respect to such registration statement; | |
• | the shares of common stock of AMC to be issued in the AMC spin-off to holders of DHC common stock having been approved for listing on The Nasdaq Stock Market, subject to official notice of issuance; and | |
• | all steps required to complete the AMC spin-off having been satisfied, completed or waived, as applicable. |
• | all representations and warranties of DHC will be true and correct as of the date of the Transaction Agreement and the unconditional time, or as of a specified earlier date, except for inaccuracies in the representations made by DHC (other than representations relating to ownership of the shares of Discovery |
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and interests of Animal Planet which must be true and correct in all respects) that would not have a material adverse effect on the business and operations of New Discovery or on the ability of DHC and New Discovery to consummate the Transaction; |
• | each of DHC, New Discovery and Merger Sub will have performed in all material respects all obligations and agreements, and materially complied with all covenants and conditions required to be performed or complied with; and | |
• | receipt of the opinion of Ernst and Young LLP or another nationally recognized accounting firm or law firm to the effect that, for U.S. federal income tax purposes, the contribution (in conjunction with the merger) will qualify as a tax-free exchange within the meaning of Section 351 of the Code. |
• | all representations and warranties of Advance/Newhouse will be true and correct as of the date of the Transaction Agreement and the unconditional time, or as of a specified earlier date, except for inaccuracies in the representations made by Advance/Newhouse (other than representations relating to ownership of the shares of Discovery and interests of Animal Planet which must be true and correct in all respects) that would not have a material adverse effect on the ability of Advance/Newhouse to consummate the Transaction; | |
• | Advance/Newhouse will have performed in all material respects all obligations and agreements, and materially complied with all covenants and conditions required to be performed or complied with; | |
• | the New Discovery rights agreement will have been executed and delivered and in full force and effect and no act will have been taken or, to the knowledge of DHC, New Discovery or Merger Sub, threatened, seeking to invalidate the rights agreement or any transactions contemplated by the rights agreement; and | |
• | receipt of the opinion of Skadden, Arps, Slate, Meagher & Flom LLP or another nationally recognized law firm to the effect that, for U.S. federal income tax purposes, the AMC spin-off should qualify as a reorganization under Sections 368(a) and 355 of the Code, and the merger (in conjunction with the contribution) will qualify as a tax-free exchange within the meaning of Section 351 of the Code. |
• | by mutual written agreement of DHC and Advance/Newhouse; | |
• | by either DHC or Advance/Newhouse, if the approval of DHC’s stockholders is not obtained at the Annual Meeting; | |
• | by either DHC or Advance/Newhouse, if any of the conditions precedent to such party’s obligations has become incapable of being fulfilled; | |
• | by either DHC or Advance/Newhouse, if any court or other governmental authority has issued an order or taken any other action permanently restraining or otherwise prohibiting the Transaction and such order, or other action has become final and nonappealable; or | |
• | by either DHC or Advance/Newhouse, if the unconditional time does not occur on or prior to December 31, 2008. |
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• | any actual and direct losses incurred by any such person arising out of or resulting from any breach of DHC and New Discovery’s representation that DHC owns shares of Discovery and interests of Animal Planet; | |
• | any actual and direct losses incurred by any such person arising out of or resulting from any failure by DHC to perform any covenant or agreement made by DHC in the Transaction Agreement in all material respects; | |
• | any liability for taxes incurred by Advance/Newhouse as a consequence of the release of any of the Advance/Newhouse escrow shares from the escrow to the extent that the Advance/Newhouse contribution (in conjunction with the merger) otherwise qualified as a tax-free exchange within the meaning of Section 351 of the Code; and | |
• | any actual or direct losses incurred by such person arising out of or relating to any claim made by a third party that arises: |
• | solely out of the ownership or operation of the business, assets or liabilities of AMC after the closing of the Transaction; or | |
• | out of any state of facts relating to DHC, New Discovery or AMC (but not including any liability of Discovery) existing at or prior to the closing of the Transaction. |
• | any losses incurred by any such person arising out of or resulting from any failure by DHC to perform any covenant or agreement made by DHC in the Transaction Agreement in all material respects; | |
• | any liability of any of DHC, New Discovery or AMC (but not including any liability of Discovery and its subsidiaries or the company holding the assets of Ascent Media Sound and its subsidiaries) arising out of a state of facts existing at or prior to, the closing date of the Transaction; and | |
• | any liabilities or other obligations incurred, created or assumed by the company holding the assets of Ascent Media Sound or its subsidiaries prior to the closing of the Transaction for which New Discovery or its subsidiaries (other than the company holding the assets of Ascent Media Sound or its subsidiaries) become obligated after the closing of the Transaction. |
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• | any breach of a representation or warranty made by Advance/Newhouse in the Transaction Agreement; and | |
• | any losses incurred by any such party arising out of or resulting from any breach or failure by Advance/Newhouse to perform any covenant or agreement made by Advance/Newhouse in the Transaction Agreement. |
• | each share of DHC Series A common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series A common stock and 0.50 shares of New Discovery Series C common stock; |
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• | each share of DHC Series B common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.50 shares of New Discovery Series B common stock and 0.50 shares of New Discovery Series C common stock; | |
• | each share of DHC Series A common stock and DHC Series B common stock held in treasury of DHC immediately prior to the effective time of the merger will be cancelled and retired without payment of any consideration therefor and without any conversion thereof; and | |
• | each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the merger will be converted into one share of the common stock of the surviving entity and the shares of common stock of the surviving entity so issued in such conversion will constitute the only outstanding shares of capital stock of the surviving entity. |
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• | upon each issuance of shares of New Discovery Series A common stock pursuant to the exercise of a stock appreciation right granted in connection with the merger, the escrow agent will promptly release from escrow and distribute to Advance/Newhouse, a number of shares of New Discovery Series A convertible preferred stock convertible into1/2 of the number of shares of New Discovery Series A common stock so issued and any escrow property (other than such shares) that are attributable to such released shares of convertible preferred stock; | |
• | upon each issuance of shares of New Discovery Series C common stock pursuant to the exercise of a stock appreciation right granted in connection with the merger, the escrow agent will promptly release from escrow and distribute to Advance/Newhouse, a number of shares of New Discovery Series C convertible preferred stock convertible into1/2 of the number of shares of New Discovery Series C common stock so issued and any escrow property (other than such shares) that are attributable to such released shares of convertible preferred stock; | |
• | upon each issuance of shares of New Discovery Series A common stock or New Discovery Series B common stock pursuant to the exercise of a New Discovery Series A option or Series B option granted in connection with the merger, the escrow agent will promptly release from escrow and distribute to Advance/Newhouse, a number of shares of New Discovery Series A convertible preferred stock convertible into shares of New Discovery Series A common stock equal to1/2 of the quotient of (x) the aggregate number of shares of New Discovery Series A common stock or New Discovery Series B common stock subject to such option multiplied by the spread between the fair market value of such shares of New Discovery common stock |
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issuable upon exercise of such option on the date of exercise and the exercise price of such option and (y) the fair market value of shares of New Discovery Series A common stock or New Discovery Series B common stock subject to such option, and any escrow property (other than such shares) that are attributable to such released shares of convertible preferred stock; |
• | upon each issuance of shares of New Discovery Series C common stock pursuant to the exercise of a New Discovery Series C option granted in connection with the merger, the escrow agent will promptly release from escrow and distribute to Advance/Newhouse, shares of New Discovery Series C convertible preferred stock convertible into a number of shares of New Discovery Series C common stock equal to1/2 of the quotient of (x) the aggregate number of shares of New Discovery Series C common stock subject to such option multiplied by the spread between the fair market value of such shares of New Discovery Series C common stock issuable upon exercise of such Series C option on the date of exercise and the exercise price of such Series C option and (y) the fair market value of shares of New Discovery Series C common stock subject to such Series C option, and any escrow property (other than such shares) that are attributable to such released shares of convertible preferred stock; | |
• | the escrow will terminate at such time as all stock appreciation rights and converted options have been exercised or the time period within which such stock appreciation rights and converted options may be exercised has expired, following which the escrow agent will promptly distribute any escrow shares and escrow property remaining in escrow to New Discovery. |
• | DHC will transfer to AMC, or cause its subsidiaries to transfer to AMC, all of the outstanding ownership interests in Ascent Media; and | |
• | Ascent Media Group, LLC will transfer to DHC, or one of its subsidiaries, all of the outstanding ownership interests in AMC Sound. |
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• | a share distribution (i) consisting of shares of Series C common stock (or securities convertible therefor) to holders of Series A common stock, Series B common stock and Series C common stock, on an equal per share basis, or (ii) consisting of (x) shares of Series A common stock (or securities convertible therefor) to holders of Series A common stock, on an equal per share basis, (y) shares of Series B common stock (or securities convertible therefor) to holders of Series B common stock, on an equal per share basis, and (z) shares of Series C common stock (or securities convertible therefor) to holders of Series C Common Stock, on an equal per share basis; or | |
• | a share distribution consisting of shares of any class or series of securities of New Discovery or any other person, other than Series A common stock, Series B common stock or Series C common stock (or securities convertible therefor) on the basis of a distribution of (1) identical securities, on an equal per share basis, to holders of Series A common stock, Series B common stock and Series C common stock; or (2) separate classes or series of securities, on an equal per share basis, to holders of Series A common stock, Series B common stock and Series C common stock; or (3) a separate class or series of securities to the holders of one or more series of New Discovery’s common stock and, on an equal per share basis, a different class or series of securities to the holders of all other series of New Discovery’s common stock,providedthat, in the case of (2) or (3) above, the securities so distributed do not differ in any respect other than their relative voting rights and related differences in designation, conversion and share distribution provision and the holders of Series A common stock, Series B common stock and Series C common stock receiving securities of the class or series such that the relative voting rights of the securities of the class or series of securities to be received by the holders of each series of common stock corresponds, to the extent practicable, to the relative voting rights of each such series of New Discovery’s common stock, andprovided further that, in each case, the distribution is otherwise made on an equal per share basis; and provided further that the holders of New Discovery Series B common stock have a consent right with respect to certain distributions of voting securities on New Discovery Series C common stock and certain distributions pursuant to which the holders of New Discovery Series B common stock would receive voting securities with lesser voting rights than those of the New Discovery Series B common stock. |
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• | increase in the size of the board in excess of 11 directors; | |
• | fundamental change in the business of New Discovery and its subsidiaries; | |
• | investment, joint venture or acquisition constituting a material departure from the current lines of business of New Discovery; | |
• | the material amendment, alteration or repeal of any provision of New Discovery’s restated charter or bylaws (or the organizational documents of any New Discovery subsidiary); | |
• | related party transactions between New Discovery and its subsidiaries and any related party unless similar to comparable transactions with third parties or on arm’s length terms; | |
• | merger, consolidation or other business combination by New Discovery into another entity other than transactions with its direct or indirect wholly-owned subsidiaries; | |
• | disposition or acquisition by New Discovery or any of its subsidiaries of any assets or properties exceeding $250 million in aggregate value or acquisition in which stock consideration is paid having voting rights superior to the voting rights of the Series A convertible preferred stock; | |
• | authorization, issuance, reclassification or recombination of any equity securities of New Discovery or its material subsidiaries other than certain specified exceptions; | |
• | action resulting in the voluntary liquidation, dissolution or winding up of New Discovery or any of its material subsidiaries; | |
• | substantial change in Discovery’s service distribution policy and practices; | |
• | dividend on, or distribution to holders of, equity securities of New Discovery or any subsidiary of New Discovery subject to specified exceptions; | |
• | indebtedness by New Discovery or any of its subsidiaries that exceeds four times the annualized cash flow of New Discovery for the previous four consecutive quarterly periods or results in debt service for the next twelve months exceeding sixty-six percent of its annualized cash flow; | |
• | appointment or removal of the Chairman of the board or Chief Executive Officer of New Discovery; | |
• | public offering of any securities of New Discovery or any of its subsidiaries subject to certain specified exceptions; and | |
• | adoption of New Discovery’s annual business plan or any material deviation therefrom. |
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• | the designation of the series; | |
• | the number of authorized shares of the series, which number New Discovery’s board may thereafter increase or decrease but not below the number of such shares then outstanding; | |
• | the dividend rate or amounts, if any, payable on the shares and, in the case of cumulative dividends, the date or dates from which dividends on all shares of the series will be cumulative and the relative preferences or rights of priority or participation with respect to such dividends; | |
• | the rights of the series in the event of New Discovery’s voluntary or involuntary liquidation, dissolution or winding up and the relative preferences or rights of priority of payment; |
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• | the rights, if any, of holders of the series to convert into or exchange for other classes or series of stock or indebtedness and the terms and conditions of any such conversion or exchange, including provision for adjustments within the discretion of New Discovery’s board; | |
• | the voting rights, if any, of the holders of the series; | |
• | the terms and conditions, if any, for us to purchase or redeem the shares; and | |
• | any other relative rights, preferences and limitations of the series. |
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• | New Discovery’s merger or consolidation with or into any other corporation, provided, that the foregoing voting provision will not apply to any such merger or consolidation (1) as to which the laws of the State of Delaware, as then in effect, do not require the consent of New Discovery stockholders, or (2) that at least 75% of the members of New Discovery’s board of directors then in office have approved; | |
• | the sale, lease or exchange of all, or substantially all, of New Discovery’s assets, provided, that the foregoing voting provisions will not apply to any such sale, lease or exchange that at least 75% of the members of New Discovery’s board of directors then in office have approved; or | |
• | New Discovery’s dissolution, provided, that the foregoing voting provision will not apply to such dissolution if at least 75% of the members of New Discovery’s board of directors then in office have approved such dissolution. |
• | one preferred share purchase right (which we refer to as aSeries A right) for each share of New Discovery Series A common stock and each share of New Discovery Series A convertible preferred stock outstanding immediately after the effectiveness of the merger, which Series A right will entitle the registered holder to purchase from us one one-thousandth of a share of New Discovery Series A Junior Participating Preferred Stock, par value $0.01 per share (which we refer to as theSeries A junior preferred stock), at a purchase price of $100.00 per one-thousandth of a share, subject to adjustment; | |
• | one preferred share purchase right (which we refer to as aSeries B right) for each share of New Discovery Series B common stock outstanding immediately after the effectiveness of the merger, which Series B right will entitle the registered holder to purchase from us one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share (which we refer to as theSeries B junior preferred stock), at a purchase price of $100.00 per one-thousandth of a share, subject to adjustment; and | |
• | one preferred share purchase right (which we refer to as aSeries C rightand, collectively with the Series A rights and Series B rights, therights) for each share of New DHC Series C common stock and New Discovery Series C convertible preferred stock outstanding immediately after the effectiveness of the merger, which Series C right will entitle the registered holder to purchase from us one one-thousandth of a share of Series C Junior Participating Preferred Stock, at a purchase price of $100.00 per one-thousandth of a share, subject to adjustment. |
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• | 10 days following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 10% or more of the outstanding shares of New Discovery’s common stock (anacquiring person), other than as a result of repurchases of stock by New Discovery or purchases or holdings by certain Exempt Persons; and | |
• | 10 business days (or such later date as may be determined by action of New Discovery’s board of directors prior to such time as any person or group of affiliated persons becomes anacquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in any person or group of affiliated persons becoming an “acquiring person.” |
• | in the event of a stock dividend on, or a subdivision, combination or reclassification of, the applicable series of junior preferred stock; | |
• | if any person acquires, or obtains the right to subscribe for or purchase the applicable junior preferred stock at a price, or securities convertible into the applicable junior preferred stock with a conversion price, less than the then current market price of the applicable junior preferred stock; or |
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• | upon the distribution to holders of the applicable series of junior preferred stock of evidences of indebtedness, cash (excluding regular quarterly cash dividends), assets (other than dividends payable in junior preferred stock) or subscription rights or warrants. |
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DHC | New Discovery | |
The authorized capital stock of DHC consists of(i) 1,250,000,000 shares of common stock, par value $.01 per share, of which 600,000,000 shares are designated DHC Series A common stock, 50,000,000 shares are designated DHC Series B common stock and 600,000,000 shares are designated DHC Series C common stock and (ii) 50,000,000 shares of DHC preferred stock, par value $.01 per share. DHC’s restated charter authorizes the board of directors to authorize the issuance of one or more series of preferred stock. | The authorized capital stock of New Discovery consists of (i) 3,800,000,000 shares of common stock, par value $.01 per share, of which 1,700,000,000 shares are designated New Discovery Series A common stock, 100,000,000 shares are designated New Discovery Series B common stock and 2,000,000,000 shares are designated New Discovery Series C common stock and (ii) 510,000,000 shares of New Discovery preferred stock, par value $.01 per share, of which 75,000,000 shares are designated Series A convertible preferred stock 75,000,000 shares are designated Series C convertible preferred stock and 360,000,000 shares are shares of preferred stock that are undesignated as to series. New Discovery’s restated charter authorizes the board of directors to authorize the issuance of one or more series of preferred stock. |
DHC | New Discovery | |
Under DHC’s restated charter, holders of DHC Series A common stock are entitled to one vote for each share of such stock held, and holders of DHC Series B common stock are entitled to ten votes for each share of such stock held, on all matters submitted to a vote of DHC stockholders at any annual or special meeting. Holders of DHC Series C common stock are not entitled to any voting powers, except as required by Delaware law (in which case holders of DHC Series C common stock are entitled to 1/100th of a vote per share). | The voting rights of holders of common stock of New Discovery are the same as the voting rights of holders of DHC common stock. Additionally, so long as the ANPP Stockholder Group or any ANPP Permitted Transferees holds shares of New Discovery Series A convertible preferred stock constituting at least 80% of the Base Amount, New Discovery’s restated charter requires the consent of the holders of a majority of the shares of Series A convertible preferred stock with respect to any Special Class Vote Matter. Further, holders of Series A convertible preferred stock have the right to vote on the election of the Series A preferred stock directors and on all matters voted on by the holders of Series A common stock, other than the election of common stock directors. |
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DHC | New Discovery | |
Under Delaware law, stockholders of a Delaware corporation do not have the right to cumulate their votes in the election of directors, unless that right is granted in the charter of the corporation. DHC’s restated charter does not permit cumulative voting by DHC stockholders. | Same as DHC. |
DHC | New Discovery | |
DHC’s board of directors has five members. DHC’s restated charter provides that the minimum number of directors is three and the maximum number of directors is nine, and that the exact number of directors may be fixed by the board of directors. | New Discovery’s board of directors will initially consist of eleven directors, eight of which will constitute common stock directors and three of which will constitute Series A preferred stock directors; however, the size of New Discovery’s board of directors will automatically be reduced (i) by one member upon the death, resignation, removal or disqualification of the person who first serves as Chairman of the board of directors immediately following the merger and (ii) upon the holders of the Series A preferred stock ceasing to have the right to elect Series A preferred stock directors, by the number of Series A preferred stock directors then in office. New Discovery’s restated charter and bylaws will provide that the minimum number of directors is three and the maximum number of directors is fifteen, and that the exact number of directors may be fixed by the board of directors. |
DHC | New Discovery | |
DHC’s restated charter provides that its board of directors is divided into three classes of directors with each class being elected to a staggered three-year term. The holders of preferred stock may be granted the right to separately elect additional directors. | New Discovery’s restated charter provides that its common stock directors will be elected by holders of common stock. Common stock directors are divided into three classes of directors with each class being elected to a staggered three-year term. New Discovery’s restated charter provides that holders of Series A convertible preferred stock will be entitled to elect three preferred stock directors. |
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DHC | New Discovery | |
Under DHC’s restated charter, a director may be removed from office only for cause upon the affirmative vote of the holders of a majority of the aggregate voting power of the outstanding shares of DHC Series A common stock, DHC Series B common stock and any series of preferred stock entitled to vote upon matters that may be submitted to an DHC stockholder vote. | Under New Discovery’s restated charter, a common stock director may be removed from office only for cause upon the affirmative vote of the holders of a majority of the aggregate voting power of the outstanding shares of Series A common stock, Series B common stock and any series of preferred stock entitled to vote upon the election of common stock directors. A preferred stock director may be removed from office (i) for cause upon the affirmative vote of the holders of a majority of the aggregate voting power of the outstanding shares of Series A common stock, Series B common stock, Series A convertible preferred stock and any series of preferred stock entitled to vote upon the election of common stock directors voting together as a single class and (ii) without cause by holders of a majority of the shares of Series A convertible preferred stock. |
DHC | New Discovery | |
DHC’s restated charter provides that vacancies resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the number of directors on the board of directors, will be filled only by the affirmative vote of a majority of the remaining directors then in office (even though less than a quorum) or by the sole remaining director. | Same as DHC with respect to vacancies in the offices of common stock directors. Vacancies in offices of preferred stock directors will be filled by holders of Series A convertible preferred stock. |
DHC | New Discovery | |
Under Delaware law, a corporation may include in its charter a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; however, the provision may not eliminate or limit the liability of a director for a breach of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, unlawful payments of dividends, certain stock repurchases or redemptions or any transaction from which the director derived an improper personal benefit. DHC’s restated charter limits the personal liability of DHC directors for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware law. | Same as DHC. |
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DHC | New Discovery | |
Delaware law provides that, subject to certain limitations in the case of derivative suits brought by a corporation’s stockholders in its name, a corporation may indemnify any person who is made a party to any third-party action, suit or proceeding (other than an action by or in the right of the corporation) on account of being a current or former director, officer, employee or agent of the corporation (or is or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding through, among other things, a majority of directors who were not parties to the suit or proceeding, if the person(i) acted in good faith and in a manner reasonably believed to be in the best interests of the corporation (or in some circumstances, at least not opposed to its best interests), and (ii) in a criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Delaware corporate law also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification may be made in respect of any claim, issue or matter as to which the person is adjudged to be liable to the corporation unless the Delaware Court of Chancery or the court in which the action or suit was brought determines upon application that the person is fairly and reasonably entitled to indemnity for the expenses which the court deems to be proper. To the extent that a current or former director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by Delaware corporate law to indemnify such person for reasonable expenses incurred thereby. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of that person to repay the amount if it is ultimately determined that that person is not entitled to be so indemnified. DHC’s restated charter provides for(i) the indemnification of its current or former directors and officers to the fullest extent permitted by law, and (ii) the prepayment of expenses (including attorneys’ fees) upon receipt of an undertaking to repay such amounts if it is ultimately determined that the director or officer is not entitled to indemnification. | Same as DHC. |
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DHC | New Discovery | |
DHC’s restated charter specifically denies DHC stockholders the power to consent in writing, without a meeting, to the taking of any action, other than the rights of holders of DHC Series B common stock to act by written consent with respect to certain matters. | Same as DHC, but New Discovery’s restated charter additionally permits the holders of Series A convertible preferred stock to act by written consent with respect to matters on which they are entitled to vote separately as a single class (e.g. for preferred directors and on Special Voting Matters). |
DHC | New Discovery | |
DHC’s restated charter requires, for the amendment, alteration or repeal of any provision of or the addition or insertion of any provision in DHC’s restated charter, the affirmative vote of the holders of at least 80% of the aggregate voting power of the outstanding shares of DHC Series A common stock, DHC Series B common stock and any series of preferred stock entitled to vote upon matters submitted to a stockholder vote, unless the amendment(i) is not required to be approved by DHC stockholders under Delaware Law or (ii) has been approved by 75% of the DHC directors then in office. | New Discovery’s restated charter requires, for the amendment, alteration or repeal of any provision of or the addition or insertion of any provision in New Discovery’s restated charter, the affirmative vote of the holders of at least 80% of the aggregate voting power of the outstanding shares of New Discovery Series A common stock, New Discovery Series B common stock and Series A convertible preferred stock (on an as converted into common stock basis) and any series of preferred stock entitled to vote upon matters submitted to a stockholder vote, unless the amendment (i) is not required to be approved by New Discovery stockholders under Delaware Law or (ii) has been approved by 75% of the New Discovery directors then in office. Additionally, New Discovery’s restated charter requires the approval of the holders of a majority of the outstanding shares of Series A convertible preferred stock for any amendment, alteration or repeal of any material provision of or the addition or insertion of any provision (other then provisions relating to filing of certificates of designations relating to preferred stock or any other amendment otherwise approved by such holders or that does not materially adversely affect the rights of Series A convertible preferred stock) therein. |
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DHC | New Discovery | |
Delaware law provides that stockholders have the power to amend the bylaws of a corporation unless the charter grants such power to the board of directors, in which case either the stockholders or the board of directors may amend the bylaws. DHC’s restated charter authorizes the board of directors, by the affirmative vote of not less than 75% of the directors then in office, to adopt, amend or repeal any provision of the bylaws. | Same as DHC. Additionally, New Discovery’s restated charter requires the approval of a majority of holders of Series A convertible preferred stock for any amendment, alteration or repeal of any material provision of or the addition or insertion of any provision (other then provisions relating to filing of certificates of designations relating to preferred stock or any other amendment otherwise approved by such holders or that does not materially adversely affect the rights of Series A convertible preferred stock) so long as the ANPP Stockholder Group and ANPP Permitted Transferees collectively hold shares of Series A convertible preferred stock constituting 80% of the Base Amount. |
DHC | New Discovery | |
DHC’s restated charter and bylaws provide that the secretary may call special meetings of the stockholders, only at the request of 75% of the members of the board of directors then in office. | Same as DHC. |
DHC | New Discovery | |
Under Delaware law, a sale or other disposition of all or substantially all of a corporation’s assets, a merger or consolidation of a corporation with another corporation or a dissolution of a corporation requires the affirmative vote of the corporation’s board of directors (except in limited circumstances) plus, with limited exceptions, the affirmative vote of a majority of the outstanding stock entitled to vote on the transaction. DHC’s restated charter requires the affirmative vote of holders of at least 80% of the aggregate voting power of the outstanding shares of DHC Series A common stock, DHC Series B common stock and any series of preferred stock entitled to vote upon matters submitted to a DHC stockholder vote to authorize:(i) a merger or consolidation with and into any other corporation, unless(a) the laws of the state of Delaware do not require stockholder consent or(b) 75% of the members of the board of directors have approved the merger or consolidation, (ii) the sale, lease or exchange of all, or substantially all, assets of DHC, unless 75% of the members of the board of directors then in office have approved the transaction or (iii) the dissolution of DHC, unless 75% of the members of the board of directors then in office have approved the dissolution. | Same as DHC. Additionally, New Discovery’s restated charter requires the approval of a majority of holders of Series A convertible preferred stock for (i) any merger, consolidation or other business combination by New Discovery into another entity, other than certain specified exceptions, (ii) the disposition or acquisition by New Discovery or any of its subsidiaries of any assets or properties (including stock or other equity interests of a third party) exceeding $250 million, or acquisition in which stock consideration is provided with voting rights that are senior to the voting rights of the Series A convertible preferred stock and (iii) any actions resulting in voluntary liquidation, dissolution or winding up of New Discovery or any of its material subsidiaries. |
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DHC | New Discovery | |
Subject to certain exceptions, Section 203 of the Delaware corporate statute generally prohibits public corporations from engaging in significant business transactions, including mergers, with a holder of 15% or more of the corporation’s stock, referred to as an interested stockholder, for a period of three years after the interested stockholder becomes an interested stockholder, unless the charter contains a provision expressly electing not to be governed by such a section. DHC’s restated charter expressly elects not to be governed by Section 203. | Same as DHC. |
DHC | New Discovery | |
Under DHC’s bylaws, for director nominations or other business to be properly brought before an DHC annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of DHC and any such proposed business other than the nominations of persons for election to the board of directors, must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive offices of DHC not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by DHC). | Under New Discovery’s bylaws, to be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive offices of New Discovery not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting (provided, however, that (i) in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, (ii) if no annual meeting was held in the preceding year or (iii) in the case of a special meeting, notice by the stockholder must be so delivered not earlier than the close of business on the one hundredth (100th) day prior to such meeting and not later than the close of business on the later of the seventieth (70th) day prior to such meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by New Discovery). |
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UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
• | DHC will spin-off to its shareholders AMC, a subsidiary holding cash and all of the businesses of its wholly-owned subsidiaries, Ascent Media CANS, LLC (dba AccentHealth) and Ascent Media Group, LLC, except for certain businesses of Ascent Media Group, LLC that provide sound, music, mixing, sound effects and other related services (which businesses will remain with New Discovery following the completion of the Transaction); | |
• | Immediately following the AMC spin-off, Advance/Newhouse will contribute its interests in Discovery Communications Holding and Animal Planet to New Discovery in exchange for Series A and Series C convertible preferred stock of New Discovery that would be convertible at any time into New Discovery common stock initially representing one-third of the outstanding shares of New Discovery common stock; and | |
• | DHC will merge with a transitory merger subsidiary of New Discovery, the new holding company, and DHC’s existing shareholders will receive shares of New Discovery common stock. |
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Less: | Add: | |||||||||||||||||||
Discovery | ||||||||||||||||||||
Communications | Pro forma | New | ||||||||||||||||||
DHC | AMC | Holding | adjustments for | Discovery | ||||||||||||||||
historical | historical(1) | historical(1) | Transaction | pro forma | ||||||||||||||||
amounts in thousands | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash | $ | 222,577 | 218,625 | 68,654 | — | 72,606 | ||||||||||||||
Other current assets | 191,700 | 180,522 | 1,021,658 | — | 1,032,836 | |||||||||||||||
Investment in Discovery | 3,330,030 | — | — | 143,993 | (3) | — | ||||||||||||||
(3,474,023 | )(4) | |||||||||||||||||||
Property and equipment, net | 262,744 | 258,512 | 379,125 | — | 383,357 | |||||||||||||||
Content rights | — | — | 1,045,593 | 45,429 | (4) | 1,091,022 | ||||||||||||||
Goodwill and other nonamortizable intangible assets | 1,909,823 | 127,405 | 4,873,518 | 475,058 | (4) | 7,130,994 | ||||||||||||||
Other intangible assets | — | — | 168,036 | 269,138 | (4) | 437,174 | ||||||||||||||
Other assets | 18,964 | 18,099 | 364,753 | — | 365,618 | |||||||||||||||
Total assets | $ | 5,935,838 | 803,163 | 7,921,337 | (2,540,405 | ) | 10,513,607 | |||||||||||||
Liabilities and Equity | ||||||||||||||||||||
Current liabilities | $ | 137,402 | 127,257 | 681,805 | — | 691,950 | ||||||||||||||
Long-term debt | — | — | 4,088,607 | — | 4,088,607 | |||||||||||||||
Deferred tax liabilities | 1,252,033 | (146 | ) | 16,454 | (1,252,153 | )(5) | 133,676 | |||||||||||||
117,196 | (4) | |||||||||||||||||||
Other liabilities | 21,830 | 21,081 | 284,156 | — | 284,905 | |||||||||||||||
Total liabilities | 1,411,265 | 148,192 | 5,071,022 | (1,134,957 | ) | 5,199,138 | ||||||||||||||
Minority interest | — | — | 48,721 | — | 48,721 | |||||||||||||||
Preferred stock | — | — | — | 143,993 | (3) | 143,993 | ||||||||||||||
Common stock | 2,811 | — | — | — | 2,811 | |||||||||||||||
Additionalpaid-in-capital | 5,728,701 | 643,490 | 2,801,594 | (2,801,594 | )(4) | 6,337,364 | ||||||||||||||
1,252,153 | (5) | |||||||||||||||||||
Accumulated deficit | (1,219,492 | ) | — | — | — | (1,219,492 | ) | |||||||||||||
Accumulated other comprehensive earnings | 12,553 | 11,481 | — | — | 1,072 | |||||||||||||||
Total equity | 4,524,573 | 654,971 | 2,801,594 | (1,405,448 | ) | 5,265,748 | ||||||||||||||
Total liabilities and equity | $ | 5,935,838 | 803,163 | 7,921,337 | (2,540,405 | ) | 10,513,607 | |||||||||||||
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Less: | Add: | |||||||||||||||||||
Discovery | ||||||||||||||||||||
Communications | Pro forma | New | ||||||||||||||||||
DHC | AMC | Holding | adjustments for | Discovery | ||||||||||||||||
historical | historical(1) | historical(1) | Transaction | pro forma | ||||||||||||||||
amounts in thousands, except per share amounts | ||||||||||||||||||||
Revenue | $ | 189,305 | 173,843 | 794,578 | — | 810,040 | ||||||||||||||
Cost of sales | (138,060 | ) | (125,664 | ) | (230,435 | ) | (801 | )(6) | (243,632 | ) | ||||||||||
Selling, general and administrative expenses | (42,412 | ) | (34,052 | ) | (242,354 | ) | — | (250,714 | ) | |||||||||||
Depreciation and amortization | (16,540 | ) | (16,002 | ) | (37,720 | ) | (8,244 | )(7) | (46,502 | ) | ||||||||||
Gain from dispositions | 78 | 78 | — | — | — | |||||||||||||||
Operating income (loss) | (7,629 | ) | (1,797 | ) | 284,069 | (9,045 | ) | 269,192 | ||||||||||||
Interest expense | — | — | (68,720 | ) | — | (68,720 | ) | |||||||||||||
Share of earnings of Discovery | 66,402 | — | — | (66,402 | )(8) | — | ||||||||||||||
Other income (expense), net | 1,684 | 1,533 | (22,590 | ) | — | (22,439 | ) | |||||||||||||
Earnings (loss) from continuing operations before income taxes | 60,457 | (264 | ) | 192,759 | (75,447 | ) | 178,033 | |||||||||||||
Income tax expense | (26,466 | ) | 116 | (87,541 | ) | 33,951 | (9) | (80,172 | ) | |||||||||||
Earnings (loss) from continuing operations | $ | 33,991 | (148 | ) | 105,218 | (41,496 | ) | 97,861 | ||||||||||||
Basic and fully diluted earnings (loss) from continuing operations per common share | $ | 0.12 | 0.23 | |||||||||||||||||
Basic and fully diluted weighted average outstanding common shares | 281,044 | 421,566 | ||||||||||||||||||
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Less: | Add: | |||||||||||||||||||||||
Discovery | Pro forma | |||||||||||||||||||||||
Communications | adjustments for | Pro forma | New | |||||||||||||||||||||
DHC | AMC | Holding | Cox | adjustments for | Discovery | |||||||||||||||||||
historical | historical(1) | historical(1) | Transaction(2) | Transaction | pro forma | |||||||||||||||||||
amounts in thousands, except per share amounts | ||||||||||||||||||||||||
Revenue | $ | 707,214 | 631,425 | 3,127,333 | (50,193 | ) | — | 3,152,929 | ||||||||||||||||
Cost of sales | (491,034 | ) | (431,367 | ) | (1,172,907 | ) | 25,163 | (3,206 | )(6) | (1,210,617 | ) | |||||||||||||
Selling, general and administrative expenses | (151,448 | ) | (129,824 | ) | (1,310,047 | ) | 14,157 | — | (1,317,514 | ) | ||||||||||||||
Depreciation and amortization | (67,732 | ) | (65,544 | ) | (156,750 | ) | (854 | ) | (32,974 | )(7) | (192,766 | ) | ||||||||||||
Impairment of goodwill | (165,347 | ) | (165,347 | ) | — | — | — | |||||||||||||||||
Gain from dispositions | 704 | 421 | 134,671 | (134,671 | ) | — | 283 | |||||||||||||||||
Operating income (loss) | (167,643 | ) | (160,236 | ) | 622,300 | (146,398 | ) | (36,180 | ) | 432,315 | ||||||||||||||
Interest expense | — | — | (248,757 | ) | (43,100 | ) | — | (291,857 | ) | |||||||||||||||
Share of earnings of Discovery | 141,781 | — | — | — | (141,781 | )(8) | — | |||||||||||||||||
Other income (expense), net | 16,627 | 10,455 | (9,063 | ) | — | — | (2,891 | ) | ||||||||||||||||
Earnings (loss) from continuing operations before income taxes | (9,235 | ) | (149,781 | ) | 364,480 | (189,498 | ) | (177,961 | ) | 137,567 | ||||||||||||||
Income tax expense | (59,157 | ) | (2,640 | ) | (77,466 | ) | 24,672 | 80,082 | (9) | (29,229 | ) | |||||||||||||
Earnings (loss) from continuing operations | $ | (68,392 | ) | (152,421 | ) | 287,014 | (164,826 | ) | (97,879 | ) | 108,338 | |||||||||||||
Basic and fully diluted earnings (loss) from continuing operations per common share | $ | (0.24 | ) | 0.26 | ||||||||||||||||||||
Basic and fully diluted weighted average outstanding common shares | 280,520 | 420,780 | ||||||||||||||||||||||
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• | DHC will spin off to its shareholders AMC, a subsidiary holding cash and all of the businesses of its wholly-owned subsidiaries, Ascent Media CANS, LLC (dba AccentHealth) and Ascent Media Group, LLC, except for certain businesses of Ascent Media Group, LLC that provide sound, music, mixing, sound effects and other related services; | |
• | Immediately following the AMC spin-off, Advance/Newhouse will contribute its interest in Discovery Communications Holding and its interest in Animal Planet to New Discovery in exchange for preferred stock of New Discovery that would be convertible at any time into New Discovery common stock initially representing one-third of the outstanding shares of New Discovery common stock; and | |
• | DHC will merge with a transitory subsidiary of New Discovery, a new holding company, and DHC’s existing Series A common shareholders will receive 0.5 of a share of New Discovery Series A common stock plus 0.5 of a share of New Discovery Series C common stock, and DHC’s existing Series B common shareholders will receive 0.5 of a share of New Discovery Series B common stock plus 0.5 of a share of New Discovery Series C common stock. |
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Useful Life | ||||||||
Program library | $ | 45,429 | 15 years | |||||
Affiliate contracts | 119,127 | 8 years | ||||||
Advertising relationships | 150,011 | 10 years | ||||||
Goodwill and other nonamortizable intangible assets | 475,058 | indefinite | ||||||
Deferred tax liability | (117,196 | ) | ||||||
$ | 672,429 | |||||||
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1. | Executive Officers and Directors |
Name | Position | |
John S. Hendricks Born March 29, 1952 | Chairman and a common stock director of New Discovery. Mr. Hendricks is the Founder of Discovery and has served as Chairman of Discovery since September 1982. Mr. Hendricks served as Chief Executive Officer of Discovery from September 1982 to June 2004; and Interim Chief Executive Officer of Discovery from December 2006 to January 2007. Mr. Hendricks continues to provide leadership vision for Discovery’s major content initiatives that reinforce and enhance brand and value, have long shelf life, and have global appeal. Mr. Hendricks also chairs Discovery’s Global Content Committee. | |
David M. Zaslav Born January 15, 1960 | President, Chief Executive Officer and a common stock director of New Discovery. Mr. Zaslav has served as President and Chief Executive Officer of Discovery since January 2007. Mr. Zaslav served as President, Cable & Domestic Television and New Media Distribution of NBC Universal, Inc., a media and entertainment company (NBC), from May 2006 to December 2006. Mr. Zaslav served as Executive Vice President of NBC, and President of NBC Cable, a division of NBC, from October 1999 to May 2006. Mr. Zaslav is a director of TiVo Inc. | |
Mark G. Hollinger Born August 26, 1959 | Chief Operating Officer and Senior Executive Vice President, Corporate Operations, of New Discovery. Mr. Hollinger has served as Chief Operating Officer of Discovery since January 2008; and as Senior Executive Vice President, Corporate Operations of Discovery since January 2003. Mr. Hollinger served as General Counsel of Discovery from 1991 to January 2008, and as President, Global Businesses and Operations of Discovery from February 2007 to January 2008. | |
Roger F. Millay Born September 24, 1957 | Chief Financial Officer and Senior Executive Vice President of New Discovery. Mr. Millay has served as Chief Financial Officer and Senior Executive Vice President of Discovery since September 2006. Mr. Millay served as Senior Vice President and Chief Financial Officer of Airgas, Inc., a distributor of industrial, medical, and specialty gases, and welding, safety and related products, from September 1999 to September 2006. In January 2008, Mr. Millay indicated his intention to leave Discovery. Discovery is currently conducting a search for a new Chief Financial Officer. Mr. Millay has agreed to stay in his current capacity at Discovery until September 30, 2008, unless Discovery selects an earlier departure date. | |
Joseph A. LaSala, Jr. Born November 5, 1954 | Senior Executive Vice President, General Counsel and Secretary of New Discovery. Mr. LaSala has served as Senior Executive Vice President, General Counsel and Secretary of Discovery since January 2008. Mr. LaSala served as Senior Vice President, General Counsel and Secretary for Novell, Inc., a provider of enterprise software and related services, from January 2003 to January 2008. |
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Name | Position | |
Adria Alpert Romm Born March 2, 1955 | Senior Executive Vice President, Human Resources of New Discovery. Ms. Romm has served as Senior Executive Vice President, Human Resources of Discovery since March 2007. Ms. Romm served as Senior Vice President of Human Resources of NBC from 2004 to 2007. Prior to 2004, Ms. Romm served as a Vice President in Human Resources for the NBC TV network and NBC staff functions. | |
Bruce L. Campbell Born November 26, 1967 | President, Digital Media & Corporate Development of New Discovery. Mr. Campbell has served as President, Digital Media & Corporate Development of Discovery since March 2007. Mr. Campbell served as Executive Vice President, Business Development of NBC from December 2005 to March 2007, and Senior Vice President, Business Development of NBC from January 2003 to November 2005. | |
John C. Malone Born March 7, 1941 | A common stock director of New Discovery. Mr. Malone has served as Chief Executive Officer and Chairman of the Board of DHC since March 2005, and a director of DHC since May 2005. Mr. Malone has served as Chairman of the Board and a director of Liberty since 1990. Mr. Malone served as Chairman of the Board of Tele-Communications, Inc. (TCI) from November 1996 to March 1999; and Chief Executive Officer of TCI from January 1994 to March 1999. Mr. Malone is Chairman of the Board of Liberty Global, Inc. (Liberty Global) and The DirecTV Group, Inc.; and a director of IAC/InterActiveCorp and Expedia, Inc. | |
Robert R. Bennett Born April 19, 1958 | A common stock director of New Discovery. Mr. Bennett has served as President of DHC since March 2005, and a director of DHC since May 2005. Mr. Bennett served as President of Liberty from April 1997 to February 2006 and as Chief Executive Officer of Liberty from April 1997 to August 2005. Mr. Bennett held various executive positions with Liberty since its inception in 1990. Mr. Bennett is a director of Liberty and Sprint Nextel Corporation. | |
Paul A. Gould Born September 27, 1945 | A common stock director of New Discovery. Mr. Gould has served as a director of DHC since May 2005. Mr. Gould has served as a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking services company, for more than the last five years. Mr. Gould is a director of Liberty, Ampco-Pittsburgh Corporation and Liberty Global. | |
M. LaVoy Robison Born September 6, 1935 | A common stock director of New Discovery. Mr. Robison has served as a director of DHC since May 2005. Mr. Robison has been executive director and a board member of The Anschutz Foundation (a private foundation) since January 1998. Mr. Robison is a director of Liberty. | |
J. David Wargo Born October 1, 1953 | A common stock director of New Discovery. Mr. Wargo has served as a director of DHC since May 2005. Mr. Wargo has served as President of Wargo & Company, Inc., a private investment company specializing in the communications industry, since January 1993. Mr. Wargo is a director of Strayer Education, Inc. and Liberty Global. | |
Robert R. Beck Born July 2, 1940 | A common stock director of New Discovery. [Since 2003,] Mr. Beck has served as an independent consultant, advising on complex financial and business matters. | |
Robert J. Miron Born July 7, 1937 | A preferred stock director of New Discovery. Mr. Miron has served as Chairman of Advance/Newhouse Communications and Bright House Networks, LLC (Bright House) since July 2002; and as President of Advance/Newhouse Communications and Bright House from April 1995 to July 2002. Mr. Miron served as President of Newhouse Broadcasting Corporation from October 1986 to April 1995. | |
Steven O. Newhouse.. Born March 15, 1957 | A preferred stock director of New Discovery. Mr. Newhouse has served as Co-Chairman and President of Advance.net since January 2000. |
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Name | Position | |
Lawrence S. Kramer.. Born April 24, 1950 | A preferred stock director of New Discovery. Mr. Kramer has served as senior advisor at Polaris Venture Partners, a national venture capital firm since July 2007. From January 2005 to mid 2006, Mr. Kramer served as first president of CBS Digital Media, a division of CBS Television Network (CBS). After that, Mr. Kramer held a consulting role at CBS until April 2008. Prior to joining CBS, Mr. Kramer was Chairman and CEO of Marketwatch, Inc., a financial news business. Mr. Kramer is a director of Answers Corporation and Xinhua Finance Media Ltd. |
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• | John S. Hendricks, Founder and Chairman of the Board of Discovery; | |
• | David M. Zaslav, President and Chief Executive Officer of Discovery; | |
• | Mark G. Hollinger, Senior Executive Vice President and Chief Operating Officer of Discovery; | |
• | Roger F. Millay, Senior Executive Vice President and Chief Financial Officer of Discovery; and | |
• | Bruce L. Campbell, President, Digital Media & Corporate Development of Discovery. |
• | attracting and retaining a high-performing executive management team who will help Discovery to attain its strategic objectives and build long-term company value; | |
• | emphasizing variable performance-based compensation components by linking individual compensation with corporate operating metrics as well as individual professional achievements; and | |
• | aligning the interests of management with the members of Discovery using equity-type incentive awards. |
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• | Competitive Compensation. Discovery believes that its executive compensation program must provide compensation to the Discovery Named Executive Officers that, based on general business and industry knowledge and experience, is competitive with the compensation paid to similarly situated employees of companies in Discovery’s industry and companies with which Discovery competes for talent. | |
• | “Pay for Performance” Philosophy. Discovery believes its compensation program should align the interests of the Discovery Named Executive Officers with the interests of the company and its members by strengthening the link between pay and company and individual performance. Of the total compensation mix for the Discovery Named Executive Officers during 2007, the most significant elements of each Discovery Named Executive Officer’s compensation package consisted of awards under the Discovery Appreciation Program and his annual bonus award. The awards under the DAP increase in value only if the stock price of DHC increases, which depends largely on Discovery’s performance. In addition, three of the Discovery Named Executive Officers’ bonus awards, those for Messrs. Campbell, Hollinger and Millay, were tied directly to company and individual performance measures under the Discovery Incentive Compensation Plan. In connection with attracting Mr. Zaslav to join Discovery as Chief Executive Officer, Discovery entered into an employment agreement with him under which he is entitled to minimum guaranteed annual bonuses for the original term of the agreement, and after the first year is eligible to earn additional amounts based on achievement of qualitative and quantitative performance objectives. Mr. Hendricks also receives annual bonuses based on his performance as determined by the member representatives. |
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• | first, determining the target bonus of each employee, which is equal to a pre-established percentage of his base salary (for the target bonus of each Discovery Named Executive Officer participating in the ICP, please refer to the Grants of Plan Based Awards table below). | |
• | second, establishing the amount payable pursuant to the achievement of Discovery as a whole and any applicable line of business performance measures (which as noted above is based on adjusted operating cash flow and net revenue with respect to the Discovery Named Executive Officers participating in the ICP); and | |
• | then, multiplying that amount by an individual multiplier (ranging from 0 to 1.5) that is reflective of the individual’s “performance classification.” |
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Over | Actual | |||||||||||||||
Business Unit | Threshold | Target | Achievement | Results | ||||||||||||
($ Millions) | ||||||||||||||||
Net Revenue | ||||||||||||||||
Discovery Communications, LLC | 2,847.5 | 2,997.4 | 3,147.3 | 3,127.3 | ||||||||||||
Discovery Networks International | 837.9 | 931.0 | 1,024.1 | 985.0 | ||||||||||||
US Networks | 1,815.0 | 1,910.5 | 1,986.9 | 1,972.3 | ||||||||||||
Adjusted Operating Cash Flow | ||||||||||||||||
Discovery Communications, LLC | 732.9 | 771.5 | 888.8 | 886.4 | ||||||||||||
Discovery Networks International | 131.4 | 146.0 | 186.2 | 212.7 | ||||||||||||
US Networks | 730.2 | 768.7 | 839.7 | 793.6 |
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Other | ||||||||||||||||||||||||
DAP | ICP | Cash | Total Cash | |||||||||||||||||||||
Salary | Bonus | Payments | Payments | Compensation | Compensation | |||||||||||||||||||
($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||
John S. Hendricks | 1,000,000 | 500,000 | 28,692,131 | — | 24,803 | 30,216,934 | ||||||||||||||||||
David M. Zaslav | 1,953,846 | 5,500,000 | — | — | 106,364 | 7,560,210 | ||||||||||||||||||
Mark G. Hollinger | 967,692 | — | 3,046,456 | 1,344,291 | 24,750 | 5,383,189 | ||||||||||||||||||
Roger F. Millay | 550,000 | — | — | 451,110 | 22,500 | 1,023,610 | ||||||||||||||||||
Bruce L. Campbell | 615,385 | 461,539 | — | 361,074 | 9,000 | 1,446,998 |
Non-Equity | ||||||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||||||
Stock | Option | Plan | All Other | |||||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Compensation | Total | ||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($)(1) | ($)(2) | ($)(3) | ($) | ||||||||||||||||||||||||
John S. Hendricks | 2007 | 1,000,000 | 500,000 | — | 56,199,809 | — | 154,370 | (4) | 57,854,179 | |||||||||||||||||||||||
Founder and | 2006 | 1,000,000 | 1,875,000 | — | 12,200,606 | — | 80,869 | (4) | 15,156,475 | |||||||||||||||||||||||
Chairman of the Board | ||||||||||||||||||||||||||||||||
David M. Zaslav | 2007 | 1,953,846 | 5,500,000 | (5) | — | 11,145,669 | — | 504,844 | (6) | 19,104,359 | ||||||||||||||||||||||
President and | 2006 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||||||
Mark G. Hollinger | 2007 | 967,692 | — | — | 6,617,496 | 1,344,291 | 28,352 | 8,957,831 | ||||||||||||||||||||||||
Senior Executive Vice | 2006 | 719,423 | — | — | 1,251,236 | 596,160 | 28,046 | 2,594,865 | ||||||||||||||||||||||||
President and Chief Operating Officer | ||||||||||||||||||||||||||||||||
Roger F. Millay | 2007 | 550,000 | — | — | 2,273,259 | 451,110 | 212,418 | (7) | 3,486,787 | |||||||||||||||||||||||
Senior Executive Vice | 2006 | * | 129,038 | 160,000 | (8) | — | 84,885 | 97,734 | 93,655 | (9) | 565,312 | |||||||||||||||||||||
President and Chief | ||||||||||||||||||||||||||||||||
Financial Officer | ||||||||||||||||||||||||||||||||
Bruce L. Campbell | 2007 | * | 615,385 | 461,539 | (10) | — | 1,340,689 | 361,074 | (11) | 9,873 | 2,788,560 | |||||||||||||||||||||
President, Digital Media | 2006 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
& Corporate Development |
* | Partial year |
(1) | The dollar amounts in this column reflect the compensation expense recognized for financial statement reporting purposes with respect to the DAP awards held by the Discovery Named Executive Officers for each of the applicable fiscal years. These amounts do not reflect actual payments made to the Discovery Named Executive Officers. See the table captioned “Option Exercises” for information about amounts paid during 2007 on account of the DAP awards, as the DAP awards are payable in cash only. The compensation expense reflected in the table is calculated in accordance with FAS 133, “Accounting for Derivative Instruments and Hedging Activities,” because the DAP awards relate to stock of DHC, not stock of Discovery or a consolidating parent company of Discovery. However, because the DAP awards are similar to “liability awards” under FAS 123R, “FAS Statement No. 123 (Revised 2004) Share-Based Payment,” the compensation expense actually recognized by Discovery is equal to the expense that would be recognized by Discovery under FAS 123R. | |
These dollar amounts include compensation expense attributable to awards granted during 2007 and 2006 and awards granted prior thereto that remained unvested during 2007 and 2006, as the case may be, and exclude the impact of estimates for forfeitures as these are service-based vesting awards. For a description of the assumptions applied in these calculations, see footnote 15 to the consolidated financial statements of Discovery Communications Holding for the year ended December 31, 2007 (which are included as |
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Appendix A-3 hereto). For more information regarding the DAP awards, please see “Compensation Discussion and Analysis — Elements of Compensation — Discovery Appreciation Program” above. |
(2) | These amounts reflect the cash performance awards earned by the applicable Discovery Named Executive Officers during 2007 and 2006 under Discovery’s Incentive Compensation Plan, which is more fully described under “Compensation Discussion and Analysis — Elements of Compensation — Incentive Compensation Plan” above. The 2007 award amounts were determined and paid out during the first quarter of 2008, and the 2006 award amounts were determined and paid out during the first quarter of 2007. | |
(3) | Discovery offers its executives basic life insurance as well as executive level disability and long-term care coverage. Discovery also offers matching contributions to an executive’s 401(k) plan and supplemental retirement plan, subject to certain limitations. Below are the payments made on behalf of the Discovery Named Executive Officers to the foregoing plans: |
Disability/Long | Matching Contributions | |||||||||||||||||||
Basic Life ($) | Term Care ($) | 401(k) ($) | SRP ($) | |||||||||||||||||
Mr. Hendricks | 2007 | 1,092 | — | 10,125 | 14,365 | |||||||||||||||
2006 | 1,092 | — | 9,900 | 14,850 | ||||||||||||||||
Mr. Zaslav | 2007 | 1,092 | 3,967 | — | — | |||||||||||||||
2006 | — | — | — | — | ||||||||||||||||
Mr. Hollinger | 2007 | 1,092 | 2,510 | 10,125 | 14,625 | |||||||||||||||
2006 | 786 | 2,510 | 9,900 | 14,850 | ||||||||||||||||
Mr. Millay | 2007 | 600 | 2,399 | 9,173 | 13,327 | |||||||||||||||
2006 | 600 | 472 | — | — | ||||||||||||||||
Mr. Campbell | 2007 | 873 | — | 9,000 | — | |||||||||||||||
2006 | — | — | — | — |
For more information regarding these benefits, please see “Compensation Discussion and Analysis — Elements of Compensation — Retirement Benefits” and “— Health, Welfare and Other Personal Benefits” above. | ||
(4) | Discovery has an agreement with NetJets pursuant to which it leases the right to a specified amount of travel each calendar year on NetJets’ aircraft. Discovery allows Mr. Hendricks a portion of Discovery’s allotted travel time on the NetJets aircraft for his personal use. Discovery provided agross-up to Mr. Hendricks to cover taxes for imputed income arising when Mr. Hendricks’ spouse accompanied him on business travel, but did not provide a taxgross-up to Mr. Hendricks for his personal use of the aircraft. The amount of thisgross-up for 2007 and 2006 was $313 and $3,055, respectively, and is included in the table. In addition, the aggregate incremental cost to Discovery for Mr. Hendricks’ personal use of the aircraft during 2007 in the amount of $78,326 is included in the table. Also included in the table for 2006 are reimbursements to him for limited home-office expenses. The table also includes annual premiums of $50,149 for Mr. Hendricks’ split dollar life insurance policy as described in “Compensation Discussion and Analysis — Elements of Compensation — Health Welfare and other Personal Benefits” above. | |
(5) | Includes Mr. Zaslav’s signing bonus of $2.5 million as well as an annual bonus of $3 million paid in 2008 with respect to services rendered by him under his employment agreement in 2007. | |
(6) | Discovery allows Mr. Zaslav a portion of Discovery’s allotted travel time on the NetJets aircraft for his personal use. Discovery provided agross-up to Mr. Zaslav to cover taxes for imputed income arising when Mr. Zaslav’s spouse accompanied him on business travel. In addition, Discovery provided Mr. Zaslav agross-up to cover taxes arising from his commuting use of aircraft for the first seven months of 2007. The amount of thisgross-up for 2007 is included in the table. In addition, the aggregate incremental cost to Discovery for Mr. Zaslav’s personal use of the aircraft (including commuting) during 2007 in the amount of $252,415 (and related personal use of car services in the amount of $15,945) is included in the table. Also included in the table are Mr. Zaslav’s relocation expenses of $106,124, a taxgross-up for imputed income associated with the reimbursement of certain relocation and other expenses, his car allowance, and various reimbursements to him for miscellaneous travel and home-office expenses. Mr. Zaslav received an aggregate amount of $106,364 in taxgross-ups for these items for 2007, which is included in the table. |
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(7) | Includes reimbursement to Mr. Millay of relocation expenses in the amount of $186,919. | |
(8) | Reflects Mr. Millay’s signing bonus. | |
(9) | Includes reimbursement to Mr. Millay of relocation expenses in the amount of $92,583. | |
(10) | Reflects the minimum bonus amount to which Mr. Campbell was entitled under his employment agreement. | |
(11) | Reflects the balance of Mr. Campbell’s 2007 bonus amount which was paid pursuant to the ICP. |
All Other | ||||||||||||||||||||||||||||
Option | Grant | |||||||||||||||||||||||||||
Awards: | Exercise | Date Fair | ||||||||||||||||||||||||||
Number of | or Base | Value of | ||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Shares | Price of | Stock and | |||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Underlying | of Option | Option | ||||||||||||||||||||||
Name | Date | ($) | ($) | ($)(1) | Options (#) | Awards ($/sh) | Awards ($) | |||||||||||||||||||||
John S. Hendricks | 10/1/2007 | 1,663,324 | (2) | 31.01 | 9,069,907 | |||||||||||||||||||||||
David M. Zaslav | 1/2/2007 | 4,000,000 | (2) | 17.70 | 14,380,237 | |||||||||||||||||||||||
Mark G. Hollinger | (3) | 0 | 729,863 | 1,532,712 | ||||||||||||||||||||||||
10/1/2007 | 199,999 | (2) | 31.01 | 1,090,571 | ||||||||||||||||||||||||
Roger F. Millay | (3) | 0 | 330,000 | 693,000 | ||||||||||||||||||||||||
Bruce L. Campbell | (3) | 0 | 473,425 | 994,193 | ||||||||||||||||||||||||
3/19/2007 | 700,000 | (2) | 19.50 | 4,406,872 |
(1) | Amounts in excess of this maximum may be paid on a discretionary basis. | |
(2) | Reflects the number of units granted under the applicable DAP award. Each award vests as to 25% of the units on each anniversary of the grant date and is payable in cash. For more information regarding the DAP awards, please see “Compensation Discussion and Analysis — Elements of Compensation — Discovery Appreciation Program” above. | |
(3) | These grants were made under Discovery’s Incentive Compensation Plan with respect to the year ended December 31, 2007. The performance metrics and potential payout amounts under a Discovery Named Executive Officer’s 2007 ICP grant were determined in the first quarter of 2007. For more information regarding these grants, please see “Compensation Discussion and Analysis — Elements of Compensation — Incentive Compensation Plan” above. |
Option Awards(1) | ||||||||||||||||
Number of | Number of | |||||||||||||||
Securities | Securities | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | Option | Option | |||||||||||||
Options (#) | Options (#) | Exercise | Expiration | |||||||||||||
Name | Exercisable(2) | Unexercisable | Price ($) | Date(3) | ||||||||||||
John S. Hendricks | — | 1,663,324 | (4) | 31.01 | — | |||||||||||
2,765,294 | 345,663 | (5) | 12.52 | — | ||||||||||||
1,252,679 | 626,340 | (5) | 15.81 | — | ||||||||||||
David M. Zaslav | — | 4,000,000 | (6) | 17.70 | — | |||||||||||
Mark G. Hollinger | — | 199,999 | (4) | 31.01 | — | |||||||||||
62,500 | 187,500 | (7) | 17.22 | — | ||||||||||||
396,062 | 198,032 | (5) | 15.81 | — | ||||||||||||
5,250 | 657 | (5) | 12.52 | — | ||||||||||||
Roger F. Millay | 187,500 | 562,500 | (7) | 17.22 | — | |||||||||||
Bruce L. Campbell | — | 700,000 | (8) | 19.50 | — |
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(1) | All awards listed in the table consist of awards that were made under the Discovery Appreciation Program. Each award vests as to 25% on each anniversary of its grant date and is payable in cash. For more information regarding the DAP awards, please see “Compensation Discussion and Analysis — Elements of Compensation — Discovery Appreciation Program” above. | |
(2) | The units listed in this column consist of the portion of each outstanding DAP award that has vested but with respect to which payment has not yet been made due to the delayed payment cycle of the pre-2007 DAP awards described in “Compensation Discussion and Analysis — Elements of Compensation — Discovery Appreciation Program” above. These amounts will be paid to Messrs. Hendricks and Hollinger within 60 days after the next vesting date, and to Mr. Millay within 60 days after his departure date. | |
(3) | DAP awards have no expiration date. Payment is made in cash in connection with vesting. | |
(4) | Grant date of award was October 1, 2007. | |
(5) | Grant date of award was October 1, 2005. | |
(6) | Grant date of award was January 2, 2007. | |
(7) | Grant date of award was December 5, 2006. | |
(8) | Grant date of award was March 19, 2007. |
Option Awards | ||||||||
Number of | Value | |||||||
Shares Acquired | Realized on | |||||||
on Exercise | Exercise | |||||||
Name | (#)(1) | ($)(2) | ||||||
John S. Hendricks | 1,663,324 | 28,692,131 | ||||||
David M. Zaslav | — | — | ||||||
Mark G. Hollinger | 199,999 | 3,046,456 | (3) | |||||
Roger F. Millay | — | �� | — | |||||
Bruce L. Campbell | — | — |
(1) | These awards were made under the Discovery Appreciation Program. The amounts consist of payments that were made on a delayed payment cycle basis for pre-2007 DAP awards as described in “Compensation Discussion and Analysis — Elements of Compensation — Discovery Appreciation Program” above. Payment was made in cash and no shares were issued. The numbers listed in this column reflect the number of units that vested and gave rise to the value realization event. | |
(2) | Represents amount of cash actually received with respect to units listed in corresponding column of table. | |
(3) | Of this amount, $75,800 was deferred by Mr. Hollinger as a contribution to his Supplemental Retirement Plan. |
Executive | Registrant | Aggregate | ||||||||||||||||||
Contributions | Contributions | Earnings | Aggregate | Aggregate | ||||||||||||||||
in last | in last | in last | Withdrawals/ | Balance at | ||||||||||||||||
Name | fiscal yr ($) | fiscal yr ($) | fiscal yr ($) | Distributions ($) | 12/31/07 ($) | |||||||||||||||
John S. Hendricks | 264,692 | (2) | 14,365 | (3) | 10,957 | — | 389,024 | |||||||||||||
David M. Zaslav | — | — | — | — | — | |||||||||||||||
Mark G. Hollinger | 154,916 | (4) | 14,625 | (3) | 7,914 | — | 689,506 | |||||||||||||
Roger F. Millay | 17,769 | (5) | 13,327 | (3) | 1,083 | — | 30,614 | |||||||||||||
Bruce L. Campbell | — | — | — | — | — |
(1) | This table provides information with respect to Discovery’s Supplemental Retirement Plan for employees at the level of vice president and above. For more information regarding the SRP, please see “Compensation Discussion and Analysis — Elements of Compensation — Retirement Benefits” above. |
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(2) | Of this amount, $77,192 is reported under Salary for 2007 and $187,500 is reported under Bonus for 2006 in the Summary Compensation Table. | |
(3) | This amount is reported under All Other Compensation in the Summary Compensation Table. | |
(4) | Of this amount, $95,300 is reported under Salary for 2007 and $59,616 is reported under Bonus for 2006 in the Summary Compensation Table. | |
(5) | This amount is reported under Salary for 2007 in the Summary Compensation Table. |
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• | the applicable Discovery Named Executive Officer ceasing to be employed by Discovery as of December 31, 2007; | |
• | the ending unit value under the DAP as of that date equaling $27.40 (which is 110% of the average closing market prices of the DHC Series A common stock during the 10-trading days before and including the assumed termination date and the 10-trading days after the assumed termination date); | |
• | all accrued salary at that assumed termination date having previously been paid; | |
• | all accrued vacation for 2007 having been used; and | |
• | where the below calculations require the inclusion of an ending unit value under the DAP at a specified future date (such as upon expiration of any employment term), that the applicable ending unit value is $27.40. |
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Event | Value of DAP Awards ($) | |||
By Discovery for Death or Disability; By Discovery other than for Cause within 1 year of a Change in Control(1) | 68,046,415 | |||
By Discovery following conviction of any act of fraud or any other felony in connection with Discovery(2) | — | |||
By Discovery for cause not following conviction of any act of fraud or any other felony in connection with Discovery(3) | 55,648,043 | |||
By Mr. Hendricks; By Discovery other than for Cause, Death or Disability(4) | 55,648,043 |
(1) | Represents acceleration of all DAP units. | |
(2) | Represents forfeiture of all DAP units (vested and unvested), assuming unanimous stockholder vote for forfeiture of all units in this case. | |
(3) | Represents payment for all vested DAP units and forfeiture of all unvested DAP units, and assumes board or stockholders (as required) vote for forfeiture of unvested units in this case. | |
(4) | Represents payment for all vested DAP units and forfeiture of all unvested DAP units, and assumes board or stockholders (as required) vote for forfeiture of unvested units in this case. |
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Bonus | Continued | Continued | Value of | COBRA | ||||||||||||||||
Payment | Salary | Bonus | DAP | Premiums | ||||||||||||||||
Event | ($) | ($)* | ($)* | Awards ($) | ($)* | |||||||||||||||
By Discovery Other than for Death, Disability or Cause; By Mr. Zaslav for Good Reason | 3,000,000 | 6,000,000 | 9,000,000 | 38,782,000 | 27,190 | |||||||||||||||
By Discovery Other than for Cause or By Mr. Zaslav for Good Reason, within 1 year of a Change in Control | 3,000,000 | 6,000,000 | 9,000,000 | 38,782,000 | 27,190 | |||||||||||||||
Death or Disability | 3,000,000 | — | — | 38,782,000 | 27,190 | |||||||||||||||
By Discovery for Cause; By Mr. Zaslav Other than for Good Reason | — | — | — | — | — |
* | Payable over the course of the severance period |
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Value of DAP | ICP | |||||||
Event | Awards ($) | Payment ($) | ||||||
By Discovery for Death or Disability; By Discovery other than for Cause within 1 year of a Change in Control | 9,514,621 | $ | 729,863 | |||||
By Discovery for Cause | — | — | ||||||
By Mr. Hollinger; By Discovery other than for Cause, Death or Disability | 5,302,641 | — |
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Retention | Prorated 2008 | Value of | ||||||||||||||
Event | Salary ($) | Payment ($) | ICP Payment ($) | DAP Awards ($) | ||||||||||||
Pursuant to Retention Agreement | 416,730 | 1,500,000 | 247,500 | 1,907,906 | ||||||||||||
Death | — | — | — | 7,631,625 | ||||||||||||
Disability | — | — | — | 7,631,625 |
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Value of DAP | ||||||||||||
Event | Salary ($) | Bonus ($) | Awards ($) | |||||||||
By Discovery Other than for Death, Disability or Cause; By Mr. Campbell for Good Reason | 2,572,040 | 1,929,030 | 5,526,850 | |||||||||
By Discovery for Cause; By Mr. Campbell Other than for Good Reason, including on retirement | — | — | — | |||||||||
Death | — | — | 5,526,850 | |||||||||
Disability | 5,526,850 |
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• | Discovery Channel Global Education Partnership (DCGEP) (Director and Chairman). Discovery’s cash and in-kind contributions totaled $1,386,641 in 2007. The DCGEP is a nonprofit organization that provides educational media and television services to schools in third-world countries with an emphasis in Africa. Discovery is a founding member and other companies and individuals also make contributions to the DCGEP. | |
• | Lowell Observatory (Member of non-governing Advisory Council). Lowell Observatory is a nonprofit astronomical research organization. Discovery is the named sponsor of the next-generation Lowell telescope, which is known as The Discovery Channel Telescope. Discovery provided a10-year grant of $10 million, $8 million of which has been paid to date ($2 million was paid in 2007) and $2 million of which will be payable in 2008. Discovery has naming rights to the telescope and is a media partner for the telescope, its discoveries and related public educational outreach activities. | |
• | American Film Institute (AFI) (Member of Board of Governors). Discovery and AFI collaborate on the annual SilverDocs Film Festival, a documentary festival, which AFI and Discovery jointly created. As part of the partnership effort to fund and operate the annual SilverDocs Film Festival, Discovery makes cash payments each year. The cash payments totaled $830,244 in 2007. |
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Amount and Nature of | Percent | Voting | ||||||||||||||
Name of Beneficial Owner | Title of Class | Beneficial Ownership | of Class | Power | ||||||||||||
(In thousands) | ||||||||||||||||
David M. Zaslav | Series A | — | — | — | ||||||||||||
Chief Executive Officer, | Series B | — | — | |||||||||||||
President and Director | Series C | — | — | |||||||||||||
Mark G. Hollinger | Series A | — | * | * | ||||||||||||
Chief Operating Officer and | Series B | — | — | |||||||||||||
Senior Executive Vice President | Series C | — | — | |||||||||||||
Roger F. Millay | Series A | — | — | — | ||||||||||||
Chief Financial Officers and | Series B | — | — | |||||||||||||
Senior Executive Vice President | Series C | — | — | |||||||||||||
Joseph A. LaSala, Jr. | Series A | — | — | — | ||||||||||||
Senior Executive Vice | Series B | — | — | |||||||||||||
President, General Counsel & Secretary | Series C | — | — | |||||||||||||
Adria Alpert Romm | Series A | — | — | — | ||||||||||||
Senior Executive Vice | Series B | — | — | |||||||||||||
President, Human Resources | Series C | — | — | |||||||||||||
Bruce L. Campbell | Series A | — | — | — | ||||||||||||
President, Digital Media and | Series B | — | — | |||||||||||||
Corporate Development | Series C | — | — | |||||||||||||
John S. Hendricks | Series A | — | — | — | ||||||||||||
Chairman of the Board | Series B | — | — | |||||||||||||
and Director | Series C | — | — | |||||||||||||
John C. Malone | Series A | 1,149 | (1) | * | 23.0 | % | ||||||||||
Director | Series B | 6,094 | (2) | 92.3 | % | |||||||||||
Series C | 7,243 | (1) | 5.1 | % | ||||||||||||
Robert R. Bennett | Series A | 164 | (3) | * | 4.1 | % | ||||||||||
Director | Series B | 834 | (4) | 11.3 | % | |||||||||||
Series C | 998 | (3) | * | |||||||||||||
Paul A. Gould | Series A | 101 | (5) | * | * | |||||||||||
Director | Series B | 87 | 1.3 | % | ||||||||||||
Series C | 188 | (5) | — | |||||||||||||
Robert J. Miron | Series A | — | — | — | ||||||||||||
Director | Series B | — | — | |||||||||||||
Series C | — | — | ||||||||||||||
M. LaVoy Robison | Series A | 7 | (5) | * | * | |||||||||||
Director | Series B | — | — | |||||||||||||
Series C | 7 | (5) | — | |||||||||||||
J. David Wargo | Series A | 10 | (6) | * | * | |||||||||||
Director | Series B | — | — | |||||||||||||
Series C | 10 | (6) | — | |||||||||||||
Robert R. Beck | Series A | — | — | — | ||||||||||||
Director | Series B | — | — | |||||||||||||
Series C | — | — | ||||||||||||||
Lawrence S. Kramer | Series A | — | — | — | ||||||||||||
Director | Series B | — | — | |||||||||||||
Series C | — | — | ||||||||||||||
Steven O. Newhouse | Series A | — | — | — | ||||||||||||
Director | Series B | — | — | |||||||||||||
Series C | — | — | ||||||||||||||
All directors and executive | Series A | 1,586 | 1.2 | % | 27.1 | % | ||||||||||
officers as a Group | Series B | 7,015 | 94.4 | % | ||||||||||||
(16 persons) | Series C | 8,446 | 5.9 | % |
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* | Less than one percent | |
(1) | See footnotes (1), (2) and (3) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” | |
(2) | See footnotes (1) and (3) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” | |
(3) | See footnotes (3), (4) and (5) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” | |
(4) | See footnotes (3) and (5) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” | |
(5) | See footnote (3) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” | |
(6) | See footnotes (3) and (6) to the Security Ownership of Management table under “Management of DHC — Security Ownership of Certain Beneficial Owners and Management.” |
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DHC ANNUAL MEETING
Time, Place & Date | [ ], 2008 [ ] a.m., local time [ ] [ ] [ ], Colorado [ ] | |
The Annual Meeting may be adjourned or postponed to another date, time or place for proper purposes, including for the purpose of soliciting additional proxies. | ||
Purposes | • To consider and vote on the merger proposal; | |
• To consider and vote on the preferred stock issuance proposal; | ||
• To consider and vote on the re-election of John C. Malone and Robert R. Bennett as Class III directors pursuant to the election of directors proposal; | ||
• To consider and vote on the auditors ratification proposal; and | ||
• To transact other business as may properly be presented at the Annual Meeting or any postponements or adjournments thereof. | ||
At the present time, DHC knows of no other matters that will be presented at the Annual Meeting. | ||
Quorum | In order to carry on the business of the Annual Meeting, DHC must have a quorum present. This means that at least a majority of the aggregate voting power represented by the outstanding shares of DHC common stock, as of the record date, must be represented at the Annual Meeting, either in person or by proxy. For purposes of determining a quorum, your shares will be included as represented at the meeting even if you indicate on your proxy that you abstain from voting. In addition, if a broker, who is a record holder of shares, indicates on a form of proxy that the broker does not have discretionary authority to vote those shares on any proposal, or if those shares are voted in circumstances in which proxy authority is defective or has been withheld with respect to any proposal, these shares (which we refer to asbroker non-votes) will be treated as present for purposes of determining the presence of a quorum. See “— Voting Procedures for Shares Held in Street Name — Effect of Broker Non-Votes” below. | |
Record Date | 5:00 p.m., New York City time, on [ ], 2008 | |
Shares Entitled to Vote | Holders of DHC Series A common stock and DHC Series B common stock, as recorded in DHC’s stock register as of the record date for the Annual Meeting, may vote at the Annual Meeting. | |
Votes You Have | At the Annual Meeting, holders of DHC Series A common stock will have one vote for each share of DHC Series A common stock that DHC’s records show they owned as of the record date for the Annual Meeting. | |
At the Annual Meeting, holders of DHC Series B common stock will have ten votes for each share of DHC Series B common stock that |
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DHC’s records show they owned as of the record date for the Annual Meeting. | ||
Recommendation of the Board of Directors | Transaction proposals. DHC’s board of directors has unanimously approved the Transaction, including the Transaction Agreement, the merger agreement, the merger and the preferred stock issuance, and determined that the Transaction is advisable and in the best interests of DHC and its stockholders. Accordingly, DHC’s board of directors recommends that DHC stockholders vote“FOR”each of the transaction proposals. | |
Annual Business Proposals. DHC’s board of directors has also approved the annual business proposals. Accordingly, DHC’s board of directors recommends that DHC stockholders vote“FOR”each of the annual business proposals. | ||
Votes Required | Transaction proposals. Approval of each of the transaction proposals requires the affirmative vote of the holders of at least a majority of the aggregate voting power of the DHC Series A common stock and DHC Series B common stock outstanding as of the record date for the Annual Meeting, voting together as a single class. | |
The directors and executive officers of DHC, who together beneficially own shares of DHC common stock representing approximately [ ]% of DHC’s aggregate voting power, have indicated to DHC that they intend to vote“FOR”the transaction proposals at the Annual Meeting. | ||
Annual Business Proposals. The election of each of Messrs. Malone and Bennett as Class III directors pursuant to the election of directors proposal requires the affirmative vote of the holders of a plurality of the votes of the shares of DHC Series A common stock and DHC Series B common stock outstanding on the record date and present, in person or by proxy, and voting at the Annual Meeting, in person or by proxy. | ||
Approval of the DHC auditors ratification proposal requires the affirmative vote of the holders of at least a majority of the aggregate voting power of the shares of DHC Series A common stock and DHC Series B common stock outstanding on the record date for the Annual Meeting and present, in person or by proxy, at the Annual Meeting, voting together as a single class. | ||
Shares Outstanding | As of the record date for the Annual Meeting, there were [ ] shares of DHC Series A common stock and [ ] shares of DHC Series B common stock outstanding and entitled to vote at the Annual Meeting. | |
Numbers of Holders | As of the record date for the Annual Meeting, there were approximately [ ] record holders of DHC Series A common stock and [ ] record holders of DHC Series B common stock (which amounts do not include the number of stockholders whose shares are held of record by banks, brokers or other nominees, but include each such institution as one holder). |
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Voting Procedures for Record Holders | Holders of record of DHC common stock as of the record date for the Annual Meeting may vote in person thereat. Alternatively, they may give a proxy by completing, signing, dating and returning the proxy card that is being included with the mailing of this proxy statement/prospectus, or by voting by telephone or over the Internet. Unless subsequently revoked, shares of DHC common stock represented by a proxy submitted as described below and received at or before the Annual Meeting will be voted in accordance with the instructions on the proxy. | |
YOUR VOTE IS IMPORTANT.It is recommended that you vote by proxy even if you plan to attend the Annual Meeting. You may change your vote at the Annual Meeting. To submit a written proxy by mail, you should complete, sign, date and mail the proxy in accordance with its instructions. | ||
If any other matters are properly presented before the Annual Meeting, the persons you choose as proxies will have discretion to vote or to act on these matters according to their best judgment, unless you indicate otherwise on your proxy. | ||
If a proxy is signed and returned by a DHC record holder without indicating any voting instructions, the shares of DHC common stock represented by the proxy will be voted“FOR”the approval of each of the transaction proposals and“FOR”the approval of each of the annual business proposals. | ||
If a proxy is signed and returned by a DHC record holder and the DHC record holder indicates that it is abstaining from voting, the proxy will have the same effect as a vote“AGAINST”each of the transaction proposals and the auditors ratification proposal, but it will have no effect on the vote on the election of directors proposal. | ||
Failure of a DHC record holder to submit a proxy representing shares of DHC common stock or vote in person at the Annual Meeting will have the same effect as a vote“AGAINST”each of the transaction proposals but it will have no effect on the vote on either of the annual business proposals. | ||
Voting Procedures for Shares Held in | General | |
Street Name | If you hold your shares in the name of a bank, broker or other nominee, you should follow the instructions provided by your bank, broker or nominee when voting your shares of DHC common stock or when granting or revoking a proxy. If you do not provide voting instructions to your broker, your broker may, in their discretion, vote your shares of DHC common stock on the election of directors proposal and the auditors ratification proposal. However, absent specific instructions from you, your broker is not permitted to vote your shares of DHC common stock on either of the transaction proposals. | |
Effect of Broker Non-Votes | ||
Broker non-votes will be counted as present and represented at the Annual Meeting but will not be voted on any of the enumerated proposals or any other matter submitted to stockholders. |
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Shares represented by broker non-votes will be deemed shares not entitled to vote and will not be included for purposes of determining the aggregate voting power and number of shares present and entitled to vote on the annual business proposals. As a result, broker non-votes will have no effect on any of the annual business proposals. However, a broker non-vote will have the same effect as a vote“AGAINST”each of the transaction proposals. | ||
YOUR VOTE IS IMPORTANT. | ||
Revoking a Proxy | Before your proxy is voted, you may change your vote by telephone or over the Internet (if you originally voted by telephone or over the Internet), by voting in person at the Annual Meeting or by delivering a signed proxy revocation or a new signed proxy with a later date to Discovery Holding Company,[c/o [Computershare Trust Company, N.A., P.O. Box , , ]]. Any signed proxy revocation or new signed proxy must be received before the start of the Annual Meeting. | |
Your attendance at the Annual Meeting will not, by itself, revoke your proxy. | ||
If your shares are held in an account by a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote. | ||
Solicitation of Proxies | The accompanying proxy for the Annual Meeting is being solicited on behalf of DHC’s board of directors. In addition to this mailing, DHC’s employees may solicit proxies personally, electronically or by telephone. DHC pays the cost of soliciting these proxies. DHC also reimburses brokers and other nominees for their expenses in sending these materials to you and getting your voting instructions. | |
In addition to this mailing, DHC has hired[ ]to solicit proxies on DHC’s behalf.[ ]will receive [$ ] from DHC as compensation for such services, plus expenses. | ||
Auditors | KPMG LLP serves as DHC’s independent auditors. A representative of KPMG is expected to attend the Annual Meeting with the opportunity to make a statement and/or respond to appropriate questions from DHC stockholders at the Annual Meeting. |
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2007 | 2006 | |||||||
Audit fees | $ | 1,969,000 | 2,044,000 | |||||
Audit related fees(1) | 33,000 | 152,000 | ||||||
Audit and audit related fees | 2,002,000 | 2,196,000 | ||||||
Tax fees(2) | 527,000 | 283,000 | ||||||
Total fees | $ | 2,529,000 | 2,479,000 | |||||
(1) | Audit related fees include fees incurred for due diligence related to potential business combinations and audits of financial statements of certain employee benefits plans. | |
(2) | Tax fees consisted of tax compliance and consultations regarding the tax implications of certain transactions. |
• | audit services as specified in the policy, including (i) financial audits of DHC and its subsidiaries, (ii) services associated with DHC’s periodic reports, registration statements and other documents filed or issued in connection with a securities offering (including comfort letters and consents), (iii) attestations of DHC management’s reports on internal controls and (iv) consultations with management as to accounting or reporting of transactions; | |
• | audit related services as specified in the policy, including (i) due diligence services, (ii) financial audits of employee benefit plans, (iii) attestation services not required by statute or regulation, (iv) certain audits incremental to the audit of DHC’s consolidated financial statements and (v) closing balance sheet audits related to dispositions; and | |
• | tax services as specified in the policy, including federal, state, local and international tax planning, compliance and review services, and tax due diligence and advice regarding mergers and acquisitions. |
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Name | Position | |
John C. Malone Born March 7, 1941 | Chief Executive Officer and Chairman of the Board of DHC since March 2005, and a director of DHC since May 2005. Mr. Malone has served as Chairman of the Board and a director of Liberty since 1990. Mr. Malone served as Chairman of the Board of TCI from November 1996 to March 1999; and Chief Executive Officer of TCI from January 1994 to March 1999. Mr. Malone is Chairman of the Board of Liberty Global and The DirecTV Group, Inc.; and a director of IAC/InterActiveCorp and Expedia, Inc. | |
Robert R. Bennett Born April 19, 1958 | President of DHC since March 2005, and a director of DHC since May 2005. Mr. Bennett served as President of Liberty from April 1997 to February 2006 and as Chief Executive Officer of Liberty from April 1997 to August 2005. Mr. Bennett held various executive positions with Liberty since its inception in 1990. Mr. Bennett is a director of Liberty and Sprint Nextel Corporation. | |
David J.A. Flowers Born May 17, 1954 | Senior Vice President and Treasurer of DHC since March 2005. Mr. Flowers has served as Senior Vice President of Liberty since October 2000 and Treasurer of Liberty since April 1997. Mr. Flowers served as a Vice President of Liberty from June 1995 to October 2000. | |
Albert E. Rosenthaler Born August 29, 1959 | Senior Vice President of DHC since March 2005. Mr. Rosenthaler has served as Senior Vice President of Liberty since April 2002. Prior to joining Liberty, Mr. Rosenthaler was a tax partner in the accounting firm of Arthur Andersen LLP for more than five years. | |
Christopher W. Shean Born July 16, 1965 | Senior Vice President and Controller of DHC since March 2005. Mr. Shean has served as Senior Vice President of Liberty since January 2002 and Controller of Liberty since October 2000. Mr. Shean served as a Vice President of Liberty from October 2000 to January 2002. | |
Charles Y. Tanabe Born November 27, 1951 | Senior Vice President, General Counsel and Secretary of DHC since March 2005. Mr. Tanabe has served as Executive Vice President of Liberty since January 2007 and General Counsel of Liberty since January 1999. Mr. Tanabe served as Senior Vice President of Liberty from January 1999 to December 2006 and Secretary of Liberty from April 2001 to January 2007. | |
Paul A. Gould Born September 27, 1945 | A director of DHC since May 2005. Mr. Gould has served as a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking services company, for more than the last five years. Mr. Gould is a director of Liberty, Ampco-Pittsburgh Corporation and Liberty Global. | |
M. LaVoy Robison Born September 6, 1935 | A director of DHC since May 2005. Mr. Robison has been executive director and a board member of The Anschutz Foundation (a private foundation) since January 1998. Mr. Robison is a director of Liberty. | |
J. David Wargo Born October 1, 1953 | A director of DHC since May 2005. Mr. Wargo has served as President of Wargo & Company, Inc., a private investment company specializing in the communications industry, since January 1993. Mr. Wargo is a director of Strayer Education, Inc. and Liberty Global. |
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• | is not an employee or member of DHC’s management or the management of any of its subsidiaries; | |
• | has no material relationship with DHC (either directly or as a partner, stockholder or officer of an organization that has a relationship with DHC); for this purpose material relationships can, for example, include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships; | |
• | has no other relationship with DHC or its subsidiaries that would interfere with the exercise of independent judgment as a director; and | |
• | does not accept any consulting, advisory or other compensatory fee from DHC, except fees received for services as a director (including fees for serving on a committee of DHC’s board of directors). |
• | is, or, during the three years preceding the determination date (which period of three years is referred to as thedetermination period), was employed by DHC or any of its subsidiaries, or has a family member who is or was during the determination period an executive officer of DHC or any of its subsidiaries; | |
• | is, or has an immediate family member who is, an executive officer, partner or controlling stockholder of an organization that made payments to or received payments from DHC for property or services in the current or any of the past three fiscal years, in an amount which exceeded the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year, other than payments solely from investments in DHC securities or payments under non-discretionary charitable contribution matching programs; | |
• | received, or has an immediate family member who received, any payment in excess of $60,000 from DHC or any of its subsidiaries during any period of twelve consecutive months within the determination period, other than (a) director and committee fees, (b) payments arising solely from investments in DHC securities, |
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(c) compensation to an immediate family member who is a non-executive employee of DHC or any of its subsidiaries, (d) benefits under a tax-qualified retirement plan, (e) non-discretionary compensation, or (f) certain permitted loans; |
• | is, or has an immediate family member who is, a current partner of the external auditor of DHC or any of its subsidiaries or was a partner or employee with the external auditor of DHC or any of its subsidiaries who worked on the audit of DHC or any of its subsidiaries at any time during the determination period; or | |
• | is, or during the determination period was, or has a family member who is, or during the determination period was, employed as an executive officer by a company as to which an executive officer of DHC serves, or during the determination period served, as a director and member of the compensation committee of such other company. |
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• | appointing or replacing DHC’s independent auditors; | |
• | reviewing and approving in advance the scope of and fees for DHC’s annual audit and reviewing the results of DHC’s audits with its independent auditors; | |
• | reviewing and approving in advance the scope of and the fees for non-audit services of DHC’s independent auditors; | |
• | reviewing audited financial statements with DHC’s management and independent auditors and making recommendations regarding inclusion of such audited financial statements in certain of DHC’s public filings; | |
• | overseeing the performance of services by DHC’s independent auditors, including holding quarterly meetings to review the quarterly reports of DHC’s independent auditors, discussing with DHC’s independent auditors issues regarding the ability of DHC’s independent auditors to perform such services, obtaining, annually, a letter from DHC’s independent auditors addressing certain internal quality-control issues, reviewing with DHC’s independent auditors any audit-related problems or difficulties and the response of DHC’s management, and addressing other general oversight issues; | |
• | reviewing compliance with and the adequacy of DHC’s existing major accounting and financial reporting policies; | |
• | overseeing the implementation and maintenance of an internal audit function, discussing with DHC’s independent auditors and DHC’s management the internal audit function’s responsibilities, budget and staff, periodically reviewing with DHC’s independent auditors the results and findings of the internal audit function and coordinating with DHC’s management to ensure that the issues associated with such results and findings are addressed; | |
• | reviewing and overseeing compliance with, and establishing procedures for the treatment of alleged violations of, applicable securities laws, SEC and Nasdaq Stock Market rules regarding audit committees and the code of business conduct and ethics adopted by DHC’s board of directors; and | |
• | preparing a report for DHC’s annual proxy statement. |
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Paul A. Gould
M. LaVoy Robison
J. David Wargo
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Option | All Other | |||||||||||||||||||
Salary | Awards | Compensation | Total | |||||||||||||||||
Name and Principal Position | Year | ($)(1) | ($)(2) | ($)(3) | ($) | |||||||||||||||
John C. Malone | 2007 | 390 | 278,896 | 150,000 | 429,286 | |||||||||||||||
Chief Executive Officer and Chairman of the Board (principal executive officer) | 2006 | 390 | 355,303 | 75,000 | 430,693 | |||||||||||||||
Robert R. Bennett | 2007 | 500,000 | 51,588 | (4) | — | 551,588 | ||||||||||||||
President | 2006 | 468,750 | — | — | 468,750 | |||||||||||||||
David J.A. Flowers | 2007 | 31,250 | 61,133 | — | 92,383 | |||||||||||||||
Senior Vice President and Treasurer (principal financial officer) | 2006 | 28,750 | 88,850 | — | 117,600 | |||||||||||||||
Albert E. Rosenthaler | 2007 | 62,500 | 70,374 | — | 132,874 | |||||||||||||||
Senior Vice President | 2006 | 43,125 | 119,208 | — | 162,333 | |||||||||||||||
Christopher W. Shean | 2007 | 125,000 | 62,364 | — | 187,364 | |||||||||||||||
Senior Vice President and Controller (principal accounting officer) | 2006 | 115,000 | 82,647 | — | 197,647 | |||||||||||||||
Charles Y. Tanabe | 2007 | 170,000 | 62,073 | — | 232,073 | |||||||||||||||
Senior Vice President, General Counsel and Secretary | 2006 | 143,000 | 93,770 | — | 236,770 |
(1) | During 2006 and 2007, each DHC Named Executive Officer was also an executive officer or employee of Liberty. Pursuant to a services agreement between DHC and Liberty, Liberty allocates a portion of the compensation it pays to the DHC Named Executive Officers to DHC as described above in “Compensation Discussion and Analysis.” In addition to the salary amount for each DHC Named Executive Officer included in the table, Liberty allocates to DHC an amount for employee benefits equal to 15% of the allocated amount of the salary that is allocated to DHC for that DHC Named Executive Officer. The amounts in the table represent amounts allocated to DHC by Liberty for the years ended December 31, 2007 and 2006. | |
(2) | The dollar amounts recognized for financial statement reporting purposes have been calculated in accordance with FAS 123R. For a description of the assumptions applied in these calculations, see Note 4 to DHC’s consolidated financial statements for the year ended December 31, 2007 (which are included in DHC’s Annual Report onForm 10-K, as amended, as filed with the SEC). | |
(3) | Pursuant to Mr. Malone’s employment agreement with Liberty, he is entitled to receive an annual allowance for personal expenses (which was $500,000 during 2006 and increased to $1 million during 2007), such as payment for or reimbursement of professional fees and other expenses incurred for estate, tax planning and other services and personal use of corporate aircraft and flight crew. Liberty has allocated 15% of this allowance during each of 2007 and 2006 to DHC pursuant to the services agreement. | |
(4) | On May 16, 2007, Mr. Bennett received a grant of options to acquire 10,000 shares of DHC Series A stock for his service to DHC. The dollar amounts recognized for financial statement purposes, as calculated in accordance with FAS 123R, under these options is included in the table. |
All other option | ||||||||||||||||
awards: Number of | Exercise or base | Grant date fair | ||||||||||||||
securities | price of option | value of stock and | ||||||||||||||
Name | Grant date | underlying options | awards | option awards | ||||||||||||
Robert R. Bennett | ||||||||||||||||
Series A | May 16, 2007 | 10,000(1 | ) | $ | 22.90 | $ | 77,382 |
(1) | Vests on May 16, 2008. |
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Option awards | ||||||||||||||||
Number of | Number of | |||||||||||||||
securities | securities | |||||||||||||||
underlying | underlying | |||||||||||||||
unexercised | unexercised | Option | Option | |||||||||||||
options- | options- | exercise | expiration | |||||||||||||
Name | Exercisable | Unexercisable | price ($) | date | ||||||||||||
John C. Malone | ||||||||||||||||
Series A | 13,333 | 6,667 | (1) | 14.67 | 6/14/08 | |||||||||||
Series B | 1,148,540 | — | 19.06 | 2/28/11 | ||||||||||||
120,000 | 60,000 | (1) | 15.91 | 6/14/08 | ||||||||||||
Robert R. Bennett | ||||||||||||||||
Series A | 100,000 | — | 13.00 | 7/31/13 | ||||||||||||
100,000 | — | 11.84 | 8/6/14 | |||||||||||||
— | 10,000 | (2) | 22.90 | 5/16/17 | ||||||||||||
Series B | 1,667,985 | — | 19.06 | 2/28/11 | ||||||||||||
David J.A. Flowers | ||||||||||||||||
Series A | 147,686 | — | 17.54 | 2/28/11 | ||||||||||||
16,000 | 4,000 | (3) | 13.00 | 7/31/13 | ||||||||||||
15,000 | 10,000 | (4) | 11.84 | 8/6/14 | ||||||||||||
Albert E. Rosenthaler | ||||||||||||||||
Series A | — | 5,000 | (3) | 13.00 | 7/31/13 | |||||||||||
— | 10,000 | (4) | 11.84 | 8/6/14 | ||||||||||||
Christopher W. Shean | ||||||||||||||||
Series A | — | 5,000 | (3) | 13.00 | 7/31/13 | |||||||||||
— | 10,000 | (4) | 11.84 | 8/6/14 | ||||||||||||
Charles Y. Tanabe | ||||||||||||||||
Series A | 101,915 | — | 17.54 | 2/28/11 | ||||||||||||
— | 5,000 | (3) | 13.00 | 7/31/13 | ||||||||||||
— | 9,000 | (4) | 11.84 | 8/6/14 |
(1) | Vests as to 100% on June 14, 2008. | |
(2) | Vests as to 100% on May 16, 2008. | |
(3) | Vests as to 100% on July 31, 2008. | |
(4) | Vests as to 50% on each of August 6, 2008 and 2009. |
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Option awards | ||||||||
Number of | ||||||||
shares | Value | |||||||
acquired on | realized on | |||||||
Name | exercise | exercise ($) | ||||||
Albert E. Rosenthaler | ||||||||
Series A | 86,280 | 1,207,334 | ||||||
Christopher W. Shean | ||||||||
Series A | 68,845 | 839,732 | ||||||
Charles Y. Tanabe | ||||||||
Series A | 128,500 | 1,329,189 |
Fees Earned | Option | |||||||||||
Name(1) | or Paid in Cash ($)(2) | Awards ($)(3)(4) | Total ($) | |||||||||
Paul A. Gould | 63,000 | 66,494(5 | ) | 129,494 | ||||||||
M. LaVoy Robison | 75,000 | 66,494(6 | ) | 141,494 | ||||||||
J. David Wargo | 63,000 | 66,494(7 | ) | 129,494 |
(1) | Excludes John C. Malone and Robert R. Bennett, each of whom is a director of DHC and a DHC Named Executive Officer. | |
(2) | Each of the DHC directors who is not an officer or employee of DHC is paid a retainer of $50,000 per year, payable quarterly in arrears, plus a fee of $1,000 for each board meeting he attends. In addition, the chairman and each other member of the audit committee of DHC’s board of directors is paid a fee of $5,000 and $2,000, respectively, for each audit committee meeting he attends. Each member of the executive committee and the compensation committee who is not an employee of DHC receives a fee of $1,000 for each committee meeting he attends. Fees to DHC directors are payable in cash. In addition, DHC reimburses members of its board for travel expenses incurred to attend any meetings of its board or any committee thereof. | |
(3) | The dollar amounts recognized for financial statement purposes have been calculated in accordance with FAS 123R. For a description of the assumptions applied in these calculations, see Note 13 to DHC’s consolidated financial statements for the year ended December 31, 2007 (which are included in DHC’s Annual Report onForm 10-K, as amended, as filed with the SEC). | |
(4) | Pursuant to the Discovery Holding Company 2005 Nonemployee Director Incentive Plan, on May 16, 2007, DHC’s board of directors granted each of the nonemployee directors options (thedirector options) to purchase 10,000 shares of DHC Series A common stock at an exercise price equal to $22.90, which was the closing price of DHC Series A common stock on the grant date. The director options received by each director had a grant date fair value of $77,382. The director options will become exercisable on the date of the Annual Meeting, or on such earlier date that the grantee ceases to be a director because of death or disability, and will terminate without becoming exercisable if the grantee resigns or is removed from the board before the date of the Annual Meeting. The director options will, upon becoming exercisable, be exercisable until May 16, 2017, or, if earlier, until the first business day following the first anniversary of the date the grantee ceases to be a director (or, if the grantee dies within that period, until the first business day following the expiration of the one-year period beginning on the date of the grantee’s death). | |
(5) | In addition to the director options, as of February 29, 2008, Mr. Gould held an aggregate 14,175 outstanding option awards, all of which were granted prior to 2007. |
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(6) | In addition to the director options, as of February 29, 2008, Mr. Robison held an aggregate 13,300 outstanding option awards, all of which were granted prior to 2007. | |
(7) | In addition to the director options, as of February 29, 2008, Mr. Wargo held an aggregate 11,048 outstanding option awards, all of which were granted prior to 2007. |
Number of | ||||||||||||
securities | ||||||||||||
available for | ||||||||||||
Number of | future issuance | |||||||||||
securities to be | under equity | |||||||||||
issued upon | Weighted average | compensation plans | ||||||||||
exercise of | exercise price of | (excluding | ||||||||||
outstanding | outstanding | securities | ||||||||||
options, warrants | options, warrants | reflected in the | ||||||||||
Plan Category | and rights | and rights | first column) | |||||||||
Equity compensation plans approved by security holders: | ||||||||||||
Discovery Holding Company 2005 Incentive Plan: | ||||||||||||
Series A common stock | 10,000 | $ | 22.90 | 9,990,000 | (1) | |||||||
Series B common stock | — | $ | — | — | ||||||||
Discovery Holding Company 2005 Nonemployee Director Incentive Plan | ||||||||||||
Series A common stock | 60,000 | $ | 18.69 | 4,940,000 | (1) | |||||||
Series B common stock | — | $ | — | — | ||||||||
Discovery Holding Company Transitional Stock Adjustment Plan(2) | ||||||||||||
Series A common stock | 1,082,292 | $ | 15.42 | — | ||||||||
Series B common stock | 2,996,525 | $ | 18.87 | — | ||||||||
Equity compensation plans not approved by security holders — None | — | — | — | |||||||||
Total | 4,148,817 | $ | 17.91 | 14,930,000 | ||||||||
(1) | Each plan permits grants of, or with respect to, shares of DHC Series A common stock or Series B common stock subject to a single aggregate limit. | |
(2) | The DHC transitional plan was adopted in connection with the DHC spin-off to provide for the supplemental award of options to purchase shares of DHC common stock and restricted shares of DHC Series A common stock, in each case, pursuant to adjustments made to Liberty stock incentive awards in accordance with the anti-dilution provisions of Liberty’s stock incentive plans. |
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Name and Address of | Amount and Nature of | Percent of | Voting | |||||||||||||
Beneficial Owner | Title of Class | Beneficial Ownership | Class | Power | ||||||||||||
Harris Associates L.P. | Series A | 26,937,050 | (1) | 10.0 | % | 6.7 | % | |||||||||
Two North LaSalle Street Suite 500 Chicago, IL 60602 | ||||||||||||||||
T. Rowe Price Associates, Inc. | Series A | 15,491,272 | (2) | 5.8 | % | 0.7 | % | |||||||||
100 E. Pratt Street Baltimore, MD 21202 |
(1) | The number of shares of common stock is based upon Amendment No. 3 to the Schedule 13G dated February 12, 2008, filed by Harris Associates L.P., an investment adviser, and its general partner, Harris Associates Inc., with respect to DHC Series A common stock. Harris Associates is deemed to be the beneficial owner of 26,937,050 shares of DHC Series A common stock, as a result of acting as investment adviser. The Schedule 13G reflects that Harris Associates has shared voting power over 24,731,330 shares of DHC Series A common stock. | |
(2) | The number of shares of common stock is based upon Amendment No. 1 to the Schedule 13G dated February 14, 2008, filed by T. Rowe Price Associates, Inc., an investment adviser, with respect to DHC Series A common stock. T. Rowe Price is deemed to be the beneficial owner of 15,491,272 shares of DHC Series A common stock. The Schedule 13G reflects that T. Rowe Price has sole voting power over 2,700,515 shares of DHC Series A common stock. |
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Amount and Nature of | Percent | |||||||||||||||
Name of Beneficial Owner | Title of Class | Beneficial Ownership | of Class | Voting Power | ||||||||||||
(In thousands) | ||||||||||||||||
John C. Malone | Series A | 2,298 | (1)(2)(3) | * | 31.0 | % | ||||||||||
Series B | 12,187 | (1)(3) | 92.3 | % | ||||||||||||
Robert R. Bennett | Series A | 328 | (3)(4)(5) | * | 4.1 | % | ||||||||||
Series B | 1,668 | (3)(5) | 11.3 | % | ||||||||||||
Paul A. Gould | Series A | 202 | (3) | * | * | |||||||||||
Series B | 174 | 1.3 | % | |||||||||||||
M. LaVoy Robison | Series A | 14 | (3) | * | * | |||||||||||
Series B | — | |||||||||||||||
J. David Wargo | Series A | 20 | (3)(6) | * | * | |||||||||||
Series B | — | * | ||||||||||||||
David J.A. Flowers | Series A | 206 | (3)(4) | * | * | |||||||||||
Series B | — | |||||||||||||||
Albert E. Rosenthaler | Series A | 1 | (4) | * | * | |||||||||||
Series B | — | |||||||||||||||
Christopher W. Shean | Series A | 1 | (4) | * | * | |||||||||||
Series B | — | |||||||||||||||
Charles Y. Tanabe | Series A | 103 | (3)(4)(7) | * | * | |||||||||||
Series B | — | |||||||||||||||
All directors and executive | Series A | 3,172 | (2)(3)(4)(5)(6)(8) | 1.2 | % | 34.4 | % | |||||||||
officers as a Group (9 persons) | Series B | 14,029 | (3)(5)(8) | 94.4 | % |
* | Less than one percent | |
(1) | Includes 480,889 shares of DHC Series A common stock and 340,943 shares of DHC Series B common stock held by Mr. Malone’s wife, Mrs. Leslie Malone, as to which shares Mr. Malone has disclaimed beneficial ownership. | |
(2) | Includes 330 and 1,217,920 shares of DHC Series A common stock held by two trusts with respect to which Mr. Malone is the sole trustee and, with his wife, retains a unitrust interest in the trust. | |
(3) | Includes beneficial ownership of shares that may be acquired upon exercise of stock options exercisable within 60 days after May 31, 2008. Messrs. Malone and Bennett have the right to convert the options to purchase shares of DHC Series B common stock into options to purchase shares of DHC Series A common stock. |
Series A | Series B | |||||||
John C. Malone | 6,667 | 60,000 | ||||||
Robert R. Bennett | 200,000 | 1,667,985 | ||||||
Paul A. Gould | 14,175 | — | ||||||
M. LaVoy Robison | 13,300 | — | ||||||
J. David Wargo | 11,048 | — | ||||||
David J.A. Flowers | 178,686 | — | ||||||
Charles Y. Tanabe | 101,915 | — |
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(4) | Includes shares of DHC Series A common stock held by the Liberty 401(k) Savings Plan as follows: |
Robert R. Bennett | 2,688 | |||
David J.A. Flowers | 1,213 | |||
Albert E. Rosenthaler | 529 | |||
Christopher W. Shean | 563 | |||
Charles Y. Tanabe | 628 |
(5) | Includes 109,826 shares of DHC Series A common stock and 40 shares of DHC Series B common stock owned by Hilltop Investments, Inc., which is jointly owned by Mr. Bennett and his wife, Mrs. Deborah Bennett. | |
(6) | Includes 3,137 shares of DHC Series A common stock held in various accounts managed by Mr. Wargo, as to which shares Mr. Wargo has disclaimed beneficial ownership. | |
(7) | Includes 306 shares of DHC Series A common stock held by Mr. Tanabe’s wife, Arlene Bobrow, as to which shares Mr. Tanabe has disclaimed beneficial ownership. | |
(8) | Includes 481,195 shares of DHC Series A common stock and 340,943 shares of DHC Series B common stock held by relatives of certain directors and executive officers, as to which shares beneficial ownership by such directors and executive officers has been disclaimed. |
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• | DHC’s Annual Report onForm 10-K for the year ended December 31, 2007, filed on February 15, 2008; | |
• | DHC’s Annual Report onForm 10-K/A for the year ended December 31, 2007, filed on April 29, 2008; |
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• | DHC’s Annual Report onForm 10-K/A for the year ended December 31, 2007, filed on June 2, 2008; and | |
• | DHC’s Quarterly Report onForm 10-Q for the period ended March 31, 2008, filed on May 8, 2008. |
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Strategy |
• | Maintaining Discovery’s focus on creative excellence in non-fiction programming and expanding the portfolio’s brand entitlement by developing compelling content that increases audience growth, builds advertising relationships, has global utility and supports continued distribution revenue on all platforms. | |
• | Exploiting Discovery’s distribution strength in the U.S. — with three channels reaching more than 90 million U.S. subscribers and six channels reaching approximately 50 million to 70 million U.S. subscribers — to build additional branded channels and businesses that can sustain long-term growth and occupy a desired programming niche with strong consumer appeal. For example, Discovery recently announced the repositioning of several emerging television networks to build stronger consumer brands through specific category ownership that supports more passionate audience loyalty and increased advertiser and affiliate interest and integration. | |
• | Maintaining a leadership position in non-fiction entertainment in international markets, and continuing to grow and improve the performance of the international operations. This will be achieved through expanding local advertising sales capabilities, creating licensing and digital growth opportunities, and improving operating efficiencies by strengthening development and promotional collaboration between U.S. and international network groups. | |
• | Developing and growing compelling and profitable content experiences on new platforms that are aligned with its core branded channels. Specifically, extending ownership of non-fiction entertainment and “satisfying curiosity” to all digital media devices around the world to enhance the consumer entertainment experience, further monetize Discovery’s extensive programming library, and create additional vehicles on which to offer new products and services that deliver new revenue streams. |
Recent Developments |
• | Business Restructuring: Improved margins through revenue growth and cost efficiencies across Discovery’s divisions. Management implemented a growth strategy to address underperforming assets, closed all of its 103 retail stores and shifted the focus of its commerce business toe-commerce and licensing in order to broaden the reach of Discovery-branded products. Discovery also streamlined its education business to focus on direct-to-school products includingDiscovery Education streamingand significantly reduced the investment in direct-to-consumer services. These actions, coupled with an overall focus on improved efficiency, resulted in an approximate 25% reduction in global personnel in 2007. As a result of these restructurings, Discovery improved the operating performance of the properties that it continues to use and operate. | |
• | Global Content Sharing: Strengthened development and promotional collaboration between U.S. and international networks to improve operating margins, promote content sharing and build global brand strength. | |
• | Television Network Rebrands: In January 2008, Discovery Times Channel was rebranded as Investigation Discovery as a means to exploit Discovery’s extensive library of fact-based investigation and current affairs programming. In June 2008, Discovery rebranded Discovery Home as Planet Green, the only24-hour eco-lifestyle television network committed to documenting, preserving and celebrating the planet. In January |
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2008, Discovery announced a proposed50-50 joint venture with Oprah Winfrey and Harpo, Inc. to rebrand Discovery Health as OWN: The Oprah Winfrey Network, a new multi-platform venture designed to entertain, inform and inspire people to live their best lives through the OWN Channel and the Oprah.com website. It is expected that Discovery Health Channel will be rebranded as OWN in the second half of 2009. |
• | Digital Media Acquisitions and Website Relaunch: Expanded internal web operations while acquiring HowStuffWorks.com and TreeHugger.com, to create a portfolio of brand-aligned digital properties that expand Discovery’s cross-platform sales and promotional opportunities and realize economies through programs that can be produced once and used often in both long- and short-form across multiple platforms. In December 2007, Discovery completed the acquisition of HowStuffWorks.com, an award-winning online source of high-quality, unbiased and easy-to-understand explanations of how the world actually works, and in August 2007, Discovery acquired Treehugger.com, an eco-lifestyle website. Discovery relaunched its flagship website, Discovery.com, and is in the process of expanding and deepening the content of all of its channel websites (e.g., TLC.com, AnimalPlanet.com) to move beyond being television promotion vehicles and to focus on audience growth, engagement and improved monetization. Together with these recent acquisitions, Discovery now has approximately 33 million unique visitors per month to all of its wholly owned websites (source: Omniture, Inc.). | |
• | Dispositions- In May 2007, Discovery and Cox completed an exchange of Cox’s 25% interest in Discovery for all of the capital stock of a subsidiary of Discovery that held Discovery’s entire interest in Travel Channel, travelchannel.com and approximately $1.3 billion in cash. |
Business Operations |
Discovery Networks U.S. |
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Discovery Channel • Launched in June 1985, Discovery Channel reached approximately 97 million U.S. subscribers as of March 31, 2008. • Discovery Channel brings viewers engaging stories and extraordinary experiences that share knowledge, satisfy curiosity and inspire the very joy of discovery. • Discovery’s flagship, Discovery Channel, was the second most widely distributed cable channel in the United States, according to The Nielsen Company as of March 31, 2008. • Some of the networks most popular returning and new series includeDeadliest Catch, Mythbusters, Dirty Jobs, Man Vs Wild, Smash Lab, Some Assembly Required,andBone Detectives. Discovery Channel is also home to high-profile specials and mini-series, including the critically acclaimedPlanet EarthandWhen We Left Earth: The NASA Missions. • Target viewers are adults25-54, particularly men. • Discovery Channel is simulcast in HD. |
TLC • Acquired by Discovery in 1991, TLC reached approximately 96 million U.S. subscribers as of March 31, 2008. • TLC features educational programming that explores life’s key transitions and turning points, and presents high-quality, relatable and authentic personal stories. • Series highlights on TLC includeL.A. Ink, Little People, Big World, Jon And Kate Plus 8, What Not To Wear, Flip That House, and the recently relaunchedTrading Spaces. • Target viewers are adults18-49, particularly women. • TLC is simulcast in HD. |
Animal Planet • Launched in October 1996, Animal Planet reached approximately 94 million U.S. subscribers as of March 31, 2008. • With a new logo and on-air look, Animal Planet leads viewers to relate to animals as characters that inspire and engage, not merely creatures to observe. Animal Planet’s engaging, insightful and high-quality entertainment taps into the instincts that drive us all with compelling stories. • Programming highlights on Animal Planet includeMeerkat Manor, Orangutan Island, Animal Precinctand Jeff Corwin specials. • Target viewers are adults25-54, particularly women. • Animal Planet is simulcast in HD. |
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Discovery Health • Launched in August 1999, Discovery Health reached approximately 68 million U.S. subscribers as of March 31, 2008. • Discovery Health takes viewers inside the fascinating and informative world of health and medicine to experience first-hand compelling, real-life stories of medical breakthroughs and human triumphs. | ||
• In January 2008, Discovery announced a planned joint venture with Oprah Winfrey and Harpo, Inc. to create OWN: The Oprah Winfrey Network, a new multi-platform venture designed to entertain, inform and inspire people to live their best lives. Oprah Winfrey will serve as Chairman of OWN, LLC and the venture will be50-50 owned by Discovery and Harpo. Discovery will handle distribution, origination and other operational requirements and both organizations will contribute advertising sales services to the venture. Discovery and Harpo are currently negotiating definitive agreements to govern these arrangements. • Discovery Health is expected to be rebranded as OWN in the second half of 2009. • OWN will build on Discovery Health’s target audience of women25-54. • OWN will be simulcast in HD. |
Discovery Kids • Launched in October 1996, Discovery Kids reached approximately 58 million U.S. subscribers as of March 31, 2008. • Discovery Kids lets kids of all ages (from preschoolers to ’tweens and teens) explore the world from their point of view. This network provides entertaining, engaging and high-quality programming that kids enjoy and parents trust. Kids can learn about science, adventure, exploration and natural history through documentaries, reality shows, scripted dramas and animated stories. • Series highlights on Discovery Kids include the animated Real Toon series TutensteinandSaving A Species: The Great Penguin Rescue. • Target viewers are children and families. |
Science Channel • Launched in October 1996, Science Channel reached approximately 52 million U.S. subscribers as of March 31, 2008. • Science Channel is devoted to science by celebrating the “why” in everything and providing context and understanding of the full spectrum of the wonders of science. • With a refreshed brand, Science Channel includes series such asSurvivorman, How It’s Made, Patent BendingandWeird Connections. • Target viewers are men25-54. • Science Channel is simulcast in HD. |
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Planet Green • Planet Green was rebranded from Discovery Home in June 2008 with a reach of approximately 50 million U.S. subscribers as of March 31, 2008. • Committed to documenting, preserving and celebrating the planet, Planet Green is the only24-hour eco-lifestyle television network. • Planet Green speaks to people who want to understand green living and to those who are excited to make a difference by providing tools and information to meet the critical challenge of protecting our environment. • Target viewers are adults18-54 with a focus on late teens/college-aged viewers, new parents and young baby boomers. • Planet Green is simulcast in HD. • In August 2007, in support of the Planet Green initiative, Discovery purchased TreeHugger.com, an eco-lifestyle website with news, opinions and information spanning the green spectrum. Discovery has also launched companion website PlanetGreen.com with a focus on community and action oriented content. |
Investigation Discovery • Launched in March 2003, Investigation Discovery (formerly Discovery Times Channel) reached approximately 50 million U.S. subscribers as of March 31, 2008. • In January 2008, Discovery Times Channel was rebranded as Investigation Discovery, exploiting Discovery’s extensive library of fact-based investigation and current affairs programming that sheds new light on our culture, history and the human condition. • Programming highlights includeDateline On ID, Fugitive Task Force, andDiamond Road. • Target viewers are adults25-54. |
Military Channel • Originally launched in 1996 as Discovery Wings and rebranded as Military Channel in January 2005, the network reached approximately 50 million U.S. subscribers as of March 31, 2008. • Military Channel salutes the sacrifices made by our men and women in uniform with real stories and access to a world of human drama, strategic innovation and long-held traditions. • Original programming includesWeaponologyandShowdown: Air Combat. • Target viewers are men35-64. |
FitTV • Acquired by Discovery in June 2001, FitTV reached approximately 43 million U.S. subscribers as of March 31, 2008. • FitTV is designed to inspire viewers to improve their fitness and well-being on their terms. • Programming features experts and entertaining shows that help people learn how to incorporate fitness into their daily lives. • Target viewers are adults25-54. |
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HD Theater • Launched in June 2002, HD Theater reached approximately 14 million U.S. subscribers as of March 31, 2008. • HD Theater was one of the first nationwide24-hour-a-day,7-day-a-week high definition networks in the U.S. offering compelling, real-world content including adventure, nature, world culture, technology and engineering programming. • Programming highlights on HD Theater includeRisk Takers, Equatorand the critically acclaimedSunrise Earth. In addition, HD Theater offers “motorized” HD content including upcoming live muscle car auctions withMecum Auto Auctions. • Target viewers are adults25-54, particularly men. |
Discovery.com • This flagship website is the official website for Discovery Channel and was relaunched in 2007 to feature more robust content, including a new media player, increased video clips and new search tools. • Discovery.com attracted more than four million unique visitors in March 2008. • Discovery is enhancing its other vertical sites (e.g. TLC.com, AnimalPlanet.com) to feature more robust content, a new media player, increased video clips and new search tools in order to move beyond being promotional vehicles for Discovery’s television networks and focus on visitor growth, engagement and improved monetization. • Discovery’s vertical sites attracted approximately 11 million unique visitors in March 2008. |
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HowStuffWorks.com • Acquired in December 2007, HowStuffWorks.com is an award-winning online source of high-quality, unbiased and easy-to-understand explanations of how the world actually works. • HowStuffWorks.com provides a high-profile platform for promoting and distributing Discovery’s extensive library of programming content and for developing advertising opportunities from the additional Discovery video content on this platform. Discovery believes that the mission alignment between Discovery and HowStuffWorks.com will allow for cross promotion and cross selling opportunities across multiple platforms. • HowStuffWorks.com attracted more than 15 million unique visitors in March 2008. |
TreeHugger.com • Acquired by Discovery in August 2007, TreeHugger.com is an eco-lifestyle web site that complements the pending debut of the Planet Green television network. Together, TreeHugger.com and PlanetGreen.com will provide consumers with a multi-platform offering across topics and issues around the environment and sustainable development. • TreeHugger.com attracted more than two million unique visitors in March 2008. • Discovery has also launched companion website PlanetGreen.com with a focus on community action oriented content. | ||
Petfinder.com • Acquired in November 2006, Petfinder.com provides an additional promotional platform for the Animal Planet brand. • Over 260,000 homeless pets in over 11,000 animal placement organizations across North America have their own homepages on Petfinder.com, the oldest and largest searchable directory of adoptable pets on the web. • Petfinder.com attracted more than 4.5 million unique visitors in March 2008. |
Discovery Networks International |
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Discovery Channel • Launched internationally in 1989, Discovery Channel reached approximately 248 million international subscribers in more than 170 countries as of March 31, 2008. • Discovery Channel’s international programming includes documentaries, docudramas and reality formats covering a wide range of topics and themes, including human adventure and exploration, engineering, science, history and world culture. |
Animal Planet • Launched internationally in 1997, Animal Planet reached approximately 218 million international subscribers in over 160 countries as of March 31, 2008. • Animal Planet is dedicated to mankind’s fascination with the creatures that share our world, featuring programs such asMeerkat Manor, UnearthedandLemur Street. • The international Animal Planet channels are generally a50-50 joint venture with the BBC. |
Discovery Lifestyle Networks • Launched beginning in 1998, Discovery Lifestyle Networks reached approximately 227 million international subscribers in over 90 countries as of March 31, 2008. | ||
• Discovery Lifestyle Networks is a global portfolio of three lifestyle brands offering inspirational content that encourages viewers to pursue unique interests and experiences: Discovery Travel & Living, Discovery Home & Health and Discovery Real Time. | ||
• Discovery Travel & Living provides a mix of lifestyle programming on travel, food, design and décor. Discovery Home & Health provides relevant and practical programming on relationships, babies, beauty and wellbeing. Discovery Real Time features practical and motivating programming on how to make the most of free time. |
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Discovery Science • Launched internationally in 1998, Discovery Science reached approximately 31 million international subscribers in over 60 countries as of March 31, 2008. • Discovery Science uncovers fascinating clues to the questions that have eluded us for centuries and reveals life’s greatest mysteries and smallest wonders. | ||
Discovery Kids • Launched internationally in 1997, Discovery Kids reached approximately 22 million international subscribers in over 25 countries across Latin America, the Carribean and Canada as of March 31, 2008. • Discovery Kids provides a unique environment that nurtures children’s curiosity using characters and stories, enabling them to relate to real-life experiences. | ||
Discovery HD • Launched internationally in 2005, Discovery HD reached subscribers in 16 countries as of March 31, 2008. • Discovery HD showcases dynamic content from Discovery’s library of thousands of hours of visually compelling HD footage includingDiscovery Atlas. | ||
People+Arts • Launched in 1997, People+Arts reached approximately 20 million international subscribers in Latin America, Spain and Portugal as of March 31, 2008. • People+Arts is the entertainment network from the BBC and Discovery that explores the complete range of human emotions, with engaging storytelling that is moving, unexpected and authentic. • People + Arts is a50-50 joint venture with the BBC. |
DMAX Germany • Launched in Germany in 2006, DMAX reached approximately 31 million homes in Germany as of March 31, 2008. • DMAX is a free-to-air service which has broad distribution. DMAX generates only advertising revenue, offering a broad range of original content from Germany and around the world including documentaries, talk shows and reality-based series. |
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Discovery en Español • Launched in the U.S. in June 1998, Discovery en Español reached approximately eight million U.S. subscribers as of March 31, 2008. • Discovery en Español is a non-fiction network delivering content that stimulates, informs and empowers, giving viewers a fascinating look at the incredible and often surprising world from an Hispanic perspective. • Discovery en Español is designed to give viewers more of the programming they enjoy including original programming developed specifically for Spanish-speaking audiences. • Target viewers are adults18-49, particularly men. | ||
Discovery Familia • Launched in the U.S. in August 2007, Discovery Familia reached approximately one million U.S. subscribers as of March 31, 2008. • Discovery Familia is Discovery’sSpanish-language network dedicated to bringing the best educational and entertaining, family-oriented programming to kids and families. • Target viewers are Hispanic children, women and families. |
Discovery Commerce |
• | Discoverystore.comis ane-commerce site where customers can shop for a large assortment of proprietary Discovery merchandise and other products. Discoverystore.com logged more than 12 million unique visitors in 2007. Discoverystore.com also reaches consumers through relationships with leadinge-commerce sites such as Amazon.com. | |
• | The Discovery Channel Store Catalogis distributed to over nine million consumers annually and highlights a selection of proprietary and other products for the whole family. The catalog is a highly |
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targeted marketing and branding tool driving online and phone sales. It also adds value as a cross promotional vehicle for network and corporate initiatives. |
• | Domestic Licensinghas agreements with key manufacturers and retailers, including JAKKS, Activision, and others to develop long-term, strategic programs that translate Discovery’s network brands and signature properties into an array of merchandising opportunities. From Animal Planet toy and pet products,Mythbustersbooks, DVDs and calendars toMiami Inkapparel and accessories, domestic licensing develops products that capture the look and feel of Discovery’s core brands and programs. |
Discovery Education |
Content Development |
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Sources of Revenue |
Distribution Revenue |
Advertising Revenue |
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Commerce and Education Revenue |
Operating Expenditures |
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MVPD Programming |
À la Carte Programming and Unbundling Proposals |
Must Carry, Leased Access and Program Carriage |
Children’s Programming |
Regulation of the Internet |
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U.S. Networks |
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International Networks |
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Commerce and Education |
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Consolidated Results |
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue: | ||||||||
Advertising | $ | 304,129 | 289,769 | |||||
Distribution | 402,683 | 369,879 | ||||||
Other | 87,766 | 50,550 | ||||||
Total revenue | 794,578 | 710,198 | ||||||
Expenses: | ||||||||
Cost of revenue | (230,435 | ) | (243,523 | ) | ||||
Selling, general and administrative (“SG&A”) expense | (278,211 | ) | (276,247 | ) | ||||
Adjusted OIBDA | 285,932 | 190,428 | ||||||
Restructuring charges | — | (10,999 | ) | |||||
Benefit (expense) arising from long-term incentive plans | 35,857 | (11,721 | ) | |||||
Depreciation and amortization | (37,720 | ) | (32,433 | ) | ||||
Operating income | 284,069 | 135,275 | ||||||
Other income (expense): | ||||||||
Interest expense, net | (68,720 | ) | (44,558 | ) | ||||
Unrealized gains (losses) from derivative instruments, net | (16,095 | ) | 1,065 | |||||
Minority interests in consolidated subsidiaries | (6,806 | ) | (707 | ) | ||||
Other | 311 | 2,049 | ||||||
Income from continuing operations before income taxes | 192,759 | 93,124 | ||||||
Income tax expense | (87,541 | ) | (41,710 | ) | ||||
Income from continuing operations | 105,218 | 51,414 | ||||||
Loss from discontinued operations, net of income taxes | — | (8,300 | ) | |||||
Net income | $ | 105,218 | 43,114 | |||||
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Other Income and Expense |
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Three Months Ended | ||||
March 31, | ||||
2007 | ||||
Revenue | $ | 17,628 | ||
Loss from discontinued operations before income taxes | $ | (13,384 | ) | |
Loss from discontinued operations, net of tax | $ | (8,300 | ) |
Operating Division Results |
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Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue | ||||||||
U.S. networks | $ | 490,837 | 476,762 | |||||
International networks | 266,885 | 216,647 | ||||||
Commerce and education | 24,510 | 23,131 | ||||||
Corporate and eliminations | 12,346 | (6,342 | ) | |||||
Total revenue | $ | 794,578 | 710,198 | |||||
Adjusted OIBDA | ||||||||
U.S. networks | $ | 247,492 | 209,914 | |||||
International networks | 69,307 | 27,415 | ||||||
Commerce and education | 44 | (3,485 | ) | |||||
Total segment Adjusted OIBDA | $ | 316,843 | 233,844 | |||||
Corporate expenses and eliminations | (30,911 | ) | (43,416 | ) | ||||
Restructuring charges | — | (10,999 | ) | |||||
Benefit (expense) arising from long-term incentive plans | 35,857 | (11,721 | ) | |||||
Depreciation and amortization | (37,720 | ) | (32,433 | ) | ||||
Operating income | $ | 284,069 | 135,275 | |||||
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue | ||||||||
Advertising | $ | 238,792 | 234,611 | |||||
Distribution | 223,996 | 225,905 | ||||||
Other | 28,049 | 16,246 | ||||||
Total revenue | 490,837 | 476,762 | ||||||
Cost of revenue | (124,965 | ) | (152,843 | ) | ||||
SG&A expenses | (118,380 | ) | (114,005 | ) | ||||
Adjusted OIBDA | $ | 247,492 | 209,914 | |||||
Adjusted OIBDA margin | 50 | % | 44 | % | ||||
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Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue | ||||||||
Advertising | $ | 238,792 | 208,972 | |||||
Distribution | 223,996 | 211,338 | ||||||
Other | 28,049 | 15,544 | ||||||
Total revenue | 490,837 | 435,854 | ||||||
Cost of revenue | (124,965 | ) | (134,524 | ) | ||||
SG&A expenses | (118,380 | ) | (101,079 | ) | ||||
Adjusted OIBDA | $ | 247,492 | 200,251 | |||||
Adjusted OIBDA margin | 50 | % | 46 | % | ||||
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Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue | ||||||||
Advertising | $ | 65,295 | 55,067 | |||||
Distribution | 178,687 | 143,974 | ||||||
Other | 22,903 | 17,606 | ||||||
Total revenue | 266,885 | 216,647 | ||||||
Cost of revenue | (102,049 | ) | (95,345 | ) | ||||
SG&A expenses | (95,529 | ) | (93,887 | ) | ||||
Adjusted OIBDA | $ | 69,307 | 27,415 | |||||
Adjusted OIBDA margin | 26 | % | 13 | % | ||||
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Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
amounts in thousands | ||||||||
Revenue | $ | 24,510 | 23,131 | |||||
Cost of revenue | (12,336 | ) | (12,560 | ) | ||||
SG&A expenses | (12,130 | ) | (14,056 | ) | ||||
Adjusted OIBDA | $ | 44 | (3,485 | ) | ||||
Adjusted OIBDA margin | 0 | % | (15 | )% | ||||
Corporate |
Consolidated Results |
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Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
Advertising | $ | 1,345,033 | 1,243,500 | 1,187,823 | ||||||||
Distribution | 1,477,479 | 1,434,901 | 1,198,686 | |||||||||
Other | 304,821 | 205,270 | 157,849 | |||||||||
Total revenue | 3,127,333 | 2,883,671 | 2,544,358 | |||||||||
Expenses | ||||||||||||
Cost of revenue | (1,172,907 | ) | (1,032,789 | ) | (907,664 | ) | ||||||
SG&A expenses | (1,148,246 | ) | (1,104,116 | ) | (928,950 | ) | ||||||
Adjusted OIBDA | 806,180 | 746,766 | 707,744 | |||||||||
Expenses arising from long-term incentive plans | (141,377 | ) | (39,233 | ) | (49,465 | ) | ||||||
Restructuring charges and asset impairments | (46,598 | ) | — | — | ||||||||
Depreciation and amortization | (130,576 | ) | (122,037 | ) | (112,653 | ) | ||||||
Gain from disposition of business | 134,671 | — | — | |||||||||
Operating income | 622,300 | 585,496 | 545,626 | |||||||||
Other Income (Expense) | ||||||||||||
Interest expense, net | (248,757 | ) | (194,255 | ) | (184,585 | ) | ||||||
Unrealized gains (losses) from derivative instruments, net | (8,636 | ) | 22,558 | 22,499 | ||||||||
Minority interests in consolidated subsidiaries | (8,266 | ) | (2,451 | ) | (43,696 | ) | ||||||
Other | 7,839 | 8,527 | 13,771 | |||||||||
Income from continuing operations before income taxes | 364,480 | 419,875 | 353,615 | |||||||||
Income tax expense | (77,466 | ) | (190,381 | ) | (173,427 | ) | ||||||
Income from continuing operations | 287,014 | 229,494 | 180,188 | |||||||||
Loss from discontinued operations, net of taxes | (65,023 | ) | (22,318 | ) | (20,568 | ) | ||||||
Net income | $ | 221,991 | 207,176 | 159,620 | ||||||||
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Other Income and Expense |
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Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | $ | 57,853 | 129,317 | 127,396 | ||||||||
Loss from discontinued operations before income taxes | $ | (99,427 | ) | (35,911 | ) | (31,652 | ) | |||||
Loss from discontinued operations, net of tax | $ | (65,023 | ) | (22,318 | ) | (20,568 | ) |
Operating Division Results |
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
U.S. networks | $ | 1,972,321 | 1,893,808 | 1,743,358 | ||||||||
International networks | 1,033,449 | 911,445 | 738,094 | |||||||||
Commerce and education | 149,805 | 107,285 | 88,576 | |||||||||
Corporate and eliminations | (28,242 | ) | (28,867 | ) | (25,670 | ) | ||||||
Total revenue | $ | 3,127,333 | 2,883,671 | 2,544,358 | ||||||||
Adjusted OIBDA | ||||||||||||
U.S. networks | $ | 774,268 | 828,443 | 745,980 | ||||||||
International networks | 210,090 | 153,127 | 128,837 | |||||||||
Commerce and education | 1,676 | (72,599 | ) | (25,285 | ) | |||||||
Total segment Adjusted OIBDA | $ | 986,034 | 908,971 | 849,532 | ||||||||
Corporate expenses and eliminations | (179,854 | ) | (162,205 | ) | (141,788 | ) | ||||||
Restructuring charges and asset impairments | (46,598 | ) | — | — | ||||||||
Expenses arising from long-term incentive plans | (141,377 | ) | (39,233 | ) | (49,465 | ) | ||||||
Depreciation and amortization | (130,576 | ) | (122,037 | ) | (112,653 | ) | ||||||
Gain from disposition of business | 134,671 | — | — | |||||||||
Operating income | $ | 622,300 | 585,496 | 545,626 | ||||||||
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U.S. Networks |
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
Advertising | $ | 1,014,541 | 965,648 | 944,770 | ||||||||
Distribution | 862,542 | 865,613 | 736,713 | |||||||||
Other | 95,238 | 62,547 | 61,875 | |||||||||
Total revenue | 1,972,321 | 1,893,808 | 1,743,358 | |||||||||
Cost of revenue | (737,892 | ) | (635,874 | ) | (587,370 | ) | ||||||
SG&A expenses | (460,161 | ) | (429,491 | ) | (410,008 | ) | ||||||
Adjusted OIBDA | $ | 774,268 | 828,443 | 745,980 | ||||||||
Adjusted OIBDA margin | 39.3 | % | 43.7 | % | 42.8 | % | ||||||
U.S. Networks without Travel Channel |
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
Advertising | $ | 974,552 | 863,690 | 852,075 | ||||||||
Distribution | 840,262 | 813,342 | 693,339 | |||||||||
Other | 94,010 | 58,876 | 58,197 | |||||||||
Total revenue | 1,908,824 | 1,735,908 | 1,603,611 | |||||||||
Cost of revenue | (710,052 | ) | (560,241 | ) | (523,426 | ) | ||||||
SG&A expenses | (439,501 | ) | (383,064 | ) | (372,322 | ) | ||||||
Adjusted OIBDA | $ | 759,271 | 792,603 | 707,863 | ||||||||
Adjusted OIBDA margin | 39.8 | % | 45.7 | % | 44.1 | % | ||||||
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International Networks |
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
Advertising | $ | 330,300 | 277,559 | 242,849 | ||||||||
Distribution | 614,937 | 569,288 | 462,049 | |||||||||
Other | 88,212 | 64,598 | 33,196 | |||||||||
Total revenue | 1,033,449 | 911,445 | 738,094 | |||||||||
Cost of revenue | (408,957 | ) | (390,783 | ) | (315,539 | ) | ||||||
SG&A expenses | (414,402 | ) | (367,535 | ) | (293,718 | ) | ||||||
Adjusted OIBDA | $ | 210,090 | 153,127 | 128,837 | ||||||||
Adjusted OIBDA margin | 20.3 | % | 16.8 | % | 17.5 | % | ||||||
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Commerce and Education |
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
amounts in thousands | ||||||||||||
Revenue | $ | 149,805 | 107,285 | 88,576 | ||||||||
Cost of revenue | (90,976 | ) | (79,460 | ) | (59,567 | ) | ||||||
SG&A expenses | (57,153 | ) | (100,424 | ) | (54,294 | ) | ||||||
Adjusted OIBDA | $ | 1,676 | (72,599 | ) | (25,285 | ) | ||||||
Adjusted OIBDA margin | 1.1 | % | (67.7 | )% | (28.5 | )% | ||||||
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Term Loan B, due quarterly through May 2014 | $ | 1,488,750 | ||
Term Loan A, due quarterly December 2008 to October 2010 | 1,000,000 | |||
£10,000 Uncommitted Facility, due August 2008 | 2,473 | |||
€260,000.0 Revolving Loan, due April 2009 | 94,278 | |||
7.45% Senior Notes, semi annual interest, due September 2009 | 55,000 | |||
Revolving Loan, due October 2010 | 503,000 | |||
8.37% Senior Notes, semi annual interest, due March 2011 | 220,000 | |||
8.13% Senior Notes, semi annual interest, due September 2012 | 235,000 | |||
Senior Notes, semi annual interest, due December 2012 | 90,000 | |||
6.01% Senior Notes, semi annual interest, due December 2015 | 390,000 | |||
Other | 34,549 | |||
Total debt | $ | 4,113,050 | ||
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Payments Due by Period(3) | ||||||||||||||||||||
Less than 1 | After | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Long-term debt | $ | 4,102,959 | 266,285 | 1,454,174 | 575,000 | 1,807,500 | ||||||||||||||
Interest payments(1) | 1,245,596 | 261,424 | 449,275 | 335,673 | 199,224 | |||||||||||||||
Capital leases | 44,107 | 9,042 | 15,828 | 9,202 | 10,035 | |||||||||||||||
Operating leases | 415,384 | 82,357 | 122,509 | 76,777 | 133,741 | |||||||||||||||
Program license fees | 558,183 | 325,509 | 110,362 | 80,843 | 41,469 | |||||||||||||||
Launch incentives | 12,572 | 4,492 | 8,080 | — | — | |||||||||||||||
Other(2) | 292,339 | 106,320 | 157,619 | 28,000 | 400 | |||||||||||||||
Total | $ | 6,671,140 | 1,055,429 | 2,317,847 | 1,105,495 | 2,192,369 | ||||||||||||||
(1) | Amounts (i) are based on our outstanding debt at December 31, 2007, (ii) assume the interest rates on our floating rate debt remain constant at the December 31, 2007 rates and (iii) assume that our existing debt is repaid at maturity. | |
(2) | Represents Discovery’s obligations to purchase goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. The more significant purchase obligations include: agreements related to audience ratings, market research, contracts for entertainment talent and other education and service project agreements. | |
(3) | Table does not include certain long-term obligations reflected in the Discovery consolidated balance sheet as the timing of the payments cannot be predicted or the amounts will not be settled in cash. The most significant of these obligations is the $141.7 million accrued under Discovery’s LTIP plans. In addition, amounts accrued in the Discovery consolidated balance sheet related to derivative financial instruments are not included in the table as such amounts may not be settled in cash or the timing of the payments cannot be predicted. |
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March 31, | December 31, | |||||||
2008 | 2007 | |||||||
in thousands, except unit data | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 68,654 | $ | 44,951 | ||||
Accounts receivable, less allowances of $23,833 and $22,419 | 743,495 | 741,745 | ||||||
Inventories | 6,516 | 10,293 | ||||||
Deferred income taxes | 92,297 | 103,723 | ||||||
Content rights, net | 83,266 | 79,162 | ||||||
Other current assets | 96,084 | 97,359 | ||||||
Total current assets | 1,090,312 | 1,077,233 | ||||||
Property and equipment, net | 379,125 | 397,430 | ||||||
Content rights, net, less current portion | 1,045,593 | 1,048,193 | ||||||
Deferred launch incentives | 223,285 | 242,655 | ||||||
Goodwill | 4,873,518 | 4,870,187 | ||||||
Intangibles, net | 168,036 | 181,656 | ||||||
Investments in and advances to unconsolidated affiliates | 100,989 | 100,724 | ||||||
Other assets | 40,479 | 42,352 | ||||||
TOTAL ASSETS | $ | 7,921,337 | $ | 7,960,430 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 190,476 | $ | 267,818 | ||||
Accrued payroll and employee benefits | 113,919 | 183,823 | ||||||
Launch incentives payable | 0 | 1,544 | ||||||
Content rights payable | 54,201 | 56,334 | ||||||
Current portion of long-term incentive plan liabilities | 91,539 | 141,562 | ||||||
Current portion of long-term debt | 24,443 | 32,006 | ||||||
Income taxes payable | 67,591 | 23,629 | ||||||
Unearned revenue | 79,642 | 78,155 | ||||||
Other current liabilities | 59,994 | 65,624 | ||||||
Total current liabilities | 681,805 | 850,495 | ||||||
Long-term debt, less current portion | 4,088,607 | 4,109,085 | ||||||
Derivative financial instruments, less current portion | 100,996 | 49,110 | ||||||
Launch incentives payable, less current portion | 4,735 | 6,114 | ||||||
Long-term incentive plan liabilities, less current portion | 1,975 | — | ||||||
Content rights payable, less current portion | 5,489 | 2,459 | ||||||
Deferred income taxes | 16,454 | 10,619 | ||||||
Other liabilities | 170,961 | 175,565 | ||||||
Total liabilities | 5,071,022 | 5,203,447 | ||||||
Mandatorily redeemable interests in subsidiaries | 48,721 | 48,721 | ||||||
Commitments and contingencies | ||||||||
Members’ Equity | ||||||||
Members’ equity (51,119 member units issued, less 13,319 repurchased and retired) | 2,533,694 | 2,533,694 | ||||||
Retained earnings | 289,930 | 184,712 | ||||||
Accumulated other comprehensive loss | (22,030 | ) | (10,144 | ) | ||||
Total members’ equity | 2,801,594 | 2,708,262 | ||||||
TOTAL LIABILITIES AND MEMBERS’ EQUITY | $ | 7,921,337 | $ | 7,960,430 | ||||
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Successor | Predecessor | ||||||||
Three Months Ended | |||||||||
March 31, | |||||||||
2008 | 2007 | ||||||||
in thousands | |||||||||
OPERATING REVENUE | |||||||||
Advertising | $ | 304,129 | $ | 289,769 | |||||
Distribution | 402,683 | 369,879 | |||||||
Other | 87,766 | 50,550 | |||||||
Total operating revenue | 794,578 | 710,198 | |||||||
Cost of revenue, exclusive of depreciation and amortization shown below | 230,435 | 243,523 | |||||||
Selling, general & administrative | 242,354 | 298,967 | |||||||
Depreciation & amortization | 37,720 | 32,433 | |||||||
Total operating expenses | 510,509 | 574,923 | |||||||
INCOME FROM OPERATIONS | 284,069 | 135,275 | |||||||
OTHER INCOME (EXPENSE) | |||||||||
Interest, net | (68,720 | ) | (44,558 | ) | |||||
Realized and unrealized (losses) gains from non-hedged derivative instruments, net | (16,095 | ) | 1,065 | ||||||
Minority interests in consolidated subsidiaries | (6,806 | ) | (707 | ) | |||||
Equity in earnings of unconsolidated affiliates | 311 | 2,049 | |||||||
Total other expense, net | (91,310 | ) | (42,151 | ) | |||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 192,759 | 93,124 | |||||||
Income tax expense | 87,541 | 41,710 | |||||||
INCOME FROM CONTINUING OPERATIONS | 105,218 | 51,414 | |||||||
Loss from discontinued operations, net of income tax benefit | — | (8,300 | ) | ||||||
NET INCOME | $ | 105,218 | $ | 43,114 | |||||
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Successor | Predecessor | ||||||||
Three Months Ended | |||||||||
March 31, | |||||||||
2008 | 2007 | ||||||||
in thousands | |||||||||
OPERATING ACTIVITIES | |||||||||
Net income | $ | 105,218 | $ | 43,114 | |||||
Adjustments to reconcile net income to cash provided by operations | |||||||||
Depreciation and amortization | 37,720 | 35,188 | |||||||
Amortization of deferred launch incentives and representation rights | 19,889 | 24,712 | |||||||
Provision for losses on accounts receivable | 2,212 | 1,778 | |||||||
Expenses (income) arising from long-term incentive plans | (35,857 | ) | 11,721 | ||||||
Equity in earnings of unconsolidated affiliates | (311 | ) | (2,049 | ) | |||||
Deferred income taxes | 24,338 | (27,419 | ) | ||||||
Realized and unrealized gains (losses) on derivative financial instruments, net | 16,095 | (1,065 | ) | ||||||
Non-cash minority interest charges | 6,806 | 707 | |||||||
Other non-cash charges | (209 | ) | (4,410 | ) | |||||
Changes in assets and liabilities, net of business combinations | |||||||||
Accounts receivable | 2,373 | 35,023 | |||||||
Inventories | 3,777 | 5,541 | |||||||
Other assets | (1,257 | ) | (18,806 | ) | |||||
Content rights, net of payables | 1,466 | 4,405 | |||||||
Accounts payable and accrued liabilities | (96,912 | ) | (72,290 | ) | |||||
Deferred launch incentives | (3,986 | ) | (196,081 | ) | |||||
Long-term incentive plan liabilities | (12,411 | ) | (7,000 | ) | |||||
Cash provided by (used in) operations | 68,951 | (166,931 | ) | ||||||
INVESTING ACTIVITIES | |||||||||
Acquisition of property and equipment | (13,955 | ) | (13,407 | ) | |||||
Business combinations, net of cash acquired | (2,773 | ) | — | ||||||
Redemption of interests in subsidiaries | — | (44,000 | ) | ||||||
Cash used in investing activities | (16,728 | ) | (57,407 | ) | |||||
FINANCING ACTIVITIES | |||||||||
Net borrowings on revolver loan | 165,432 | 262,912 | |||||||
Principal payments of long-term debt | (190,431 | ) | — | ||||||
Payments of capital leases and affiliated debt | (2,068 | ) | (1,518 | ) | |||||
Other financing | (9,967 | ) | (21,163 | ) | |||||
Cash (used in) provided by financing activities | (37,034 | ) | 240,231 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 8,514 | 3,129 | |||||||
CHANGE IN CASH AND CASH EQUIVALENTS | 23,703 | 19,022 | |||||||
Cash and cash equivalents, beginning of year | 44,951 | 52,263 | |||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 68,654 | $ | 71,285 | |||||
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Period Ended March 31, | ||||||||
2008 | 2007 | |||||||
in thousands | ||||||||
Net income | $ | 105,218 | $ | 43,114 | ||||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | 13,155 | 4,825 | ||||||
Change in unrealized gain on available-for-sale securities | 855 | 2,501 | ||||||
Changes from hedging activities | (33,509 | ) | (83 | ) | ||||
(19,499 | ) | 7,243 | ||||||
Income tax benefit related to other comprehensive income | 7,613 | (2,746 | ) | |||||
(11,886 | ) | 4,497 | ||||||
Total comprehensive income | $ | 93,332 | $ | 47,611 | ||||
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1. | Basis of Presentation and Description of Business |
2. | Summary of Significant Accounting Policies |
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3. | Fair Value Measurements |
Fair Value Measurements as of | ||||||||||||||||
March 31, 2008 Using | ||||||||||||||||
Quoted Market | Significant | |||||||||||||||
Prices in Active | Other | Significant | ||||||||||||||
Fair Value | Markets for | Observable | Unobservable | |||||||||||||
as of | Identical Assets | Inputs | Inputs | |||||||||||||
Description | 3/31/08 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
in thousands | ||||||||||||||||
Assets | ||||||||||||||||
Available for sale securities | $ | 19,798 | $ | 19,798 | ||||||||||||
Deferred compensation plan assets | 39,272 | 39,272 | ||||||||||||||
Liabilities | ||||||||||||||||
Derivatives | (100,996 | ) | $ | (100,996 | ) | |||||||||||
Deferred compensation plan liability | (39,272 | ) | (39,272 | ) | ||||||||||||
HSW International, Inc. (HSWI) liability | (53,722 | ) | $ | (53,722 | ) | |||||||||||
Long-term Incentive Plan liability | (93,514 | ) | (93,514 | ) | ||||||||||||
Mandatorily redeemable interests in subsidiaries | (48,721 | ) | (48,721 | ) | ||||||||||||
Total | $ | (277,155 | ) | $ | 59,070 | $ | (233,782 | ) | $ | (102,443 | ) | |||||
�� |
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4. | Discontinued Operations |
Successor | Predecessor | ||||||||
Period Ended | Period Ended | ||||||||
March 31, | March 31, | ||||||||
2008 | 2007 | ||||||||
in thousands | |||||||||
Revenue | $ | — | $ | 17,628 | |||||
Loss from discontinued operations before income taxes | — | (13,384 | ) | ||||||
Loss from discontinued operations, net of tax | — | (8,300 | ) | ||||||
5. | Content Rights |
March 31, | December 31, | |||||||
Content Rights | 2008 | 2007 | ||||||
in thousands | ||||||||
Produced content rights | ||||||||
Completed | $ | 1,392,620 | $ | 1,346,985 | ||||
In process | 240,087 | 195,025 | ||||||
Co-produced content rights | ||||||||
Completed | 461,364 | 499,127 | ||||||
In process | 58,567 | 53,984 | ||||||
Licensed content rights | ||||||||
Acquired | 208,211 | 209,082 | ||||||
Prepaid | 25,834 | 21,690 | ||||||
Content rights, at cost | 2,386,683 | 2,325,893 | ||||||
Accumulated amortization | (1,257,824 | ) | (1,198,538 | ) | ||||
Content rights, net | 1,128,859 | 1,127,355 | ||||||
Current portion, licensed content rights | (83,266 | ) | (79,162 | ) | ||||
Non-current portion | $ | 1,045,593 | $ | 1,048,193 | ||||
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6. | Debt |
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
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 | 503,000 | 337,500 | ||||||
€260,000.0 Revolving Loan, due April 2009 | 94,297 | 94,174 | ||||||
$1,500,000.0 Term Loan B due quarterly September 2007 to May 2014 | 1,488,750 | 1,492,500 | ||||||
8.06% Senior Notes, semi-annual interest, due March 2008 | — | 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 | 2,473 | 8,785 | ||||||
Obligations under capital leases | 33,605 | 37,172 | ||||||
Other notes payable | 944 | 960 | ||||||
Subtotal | 4,113,050 | 4,141,091 | ||||||
Current portion | (24,443 | ) | (32,006 | ) | ||||
Total long-term debt | $ | 4,088,607 | $ | 4,109,085 | ||||
7. | Mandatorily Redeemable Interests in Subsidiaries |
8. | Commitments and Contingencies |
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9. | Income Taxes |
10. | Related Party Transactions |
11. | Members’ Equity Transaction |
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Successor | Predecessor | ||||||||
Company | Company | ||||||||
December 31, 2007 | December 31, 2006 | ||||||||
in thousands, except share data | |||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 44,951 | $ | 52,263 | |||||
Accounts receivable, less allowances of $22,419 and $25,175 | 741,745 | 657,552 | |||||||
Inventories | 10,293 | 35,716 | |||||||
Deferred income taxes | 103,723 | 76,156 | |||||||
Content rights, net | 79,162 | 64,395 | |||||||
Other current assets | 97,359 | 84,554 | |||||||
Total current assets | 1,077,233 | 970,636 | |||||||
Property and equipment, net | 397,430 | 424,041 | |||||||
Content rights, net, less current portion | 1,048,193 | 1,253,553 | |||||||
Deferred launch incentives | 242,655 | 207,032 | |||||||
Goodwill | 4,870,187 | 365,266 | |||||||
Intangibles, net | 181,656 | 107,673 | |||||||
Investments in and advances to unconsolidated affiliates | 100,724 | 15,564 | |||||||
Other assets | 42,352 | 32,788 | |||||||
TOTAL ASSETS | $ | 7,960,430 | $ | 3,376,553 | |||||
LIABILITIES AND MEMBERS’ EQUITY/STOCKHOLDERS’ DEFICIT | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 267,818 | $ | 316,804 | |||||
Accrued payroll and employee benefits | 183,823 | 122,431 | |||||||
Launch incentives payable | 1,544 | 17,978 | |||||||
Content rights payable | 56,334 | 57,694 | |||||||
Current portion of long-term incentive plan liabilities | 141,562 | 43,274 | |||||||
Current portion of long-term debt | 32,006 | 7,546 | |||||||
Income taxes payable | 23,629 | 55,264 | |||||||
Unearned revenue | 78,155 | 68,339 | |||||||
Other current liabilities | 65,624 | 45,194 | |||||||
Total current liabilities | 850,495 | 734,524 | |||||||
Long-term debt, less current portion | 4,109,085 | 2,633,237 | |||||||
Derivative financial instruments, less current portion | 49,110 | 8,282 | |||||||
Launch incentives payable, less current portion | 6,114 | 10,791 | |||||||
Long-term incentive plan liabilities, less current portion | — | 41,186 | |||||||
Content rights payable, less current portion | 2,459 | 3,846 | |||||||
Deferred income taxes | 10,619 | 46,289 | |||||||
Other liabilities | 175,565 | 64,861 | |||||||
Total liabilities | 5,203,447 | 3,543,016 | |||||||
Mandatorily redeemable interests in subsidiaries | 48,721 | 94,825 | |||||||
Commitments and contingencies | |||||||||
Members’ Equity/Stockholders’ deficit | |||||||||
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 | — | 1 | |||||||
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 | — | — | |||||||
Additional paid-in capital | — | 21,093 | |||||||
Members’ equity (51,119 member units issued, less 13,319 repurchased and retired) | 2,533,694 | — | |||||||
Retained earnings (deficit) | 184,712 | (306,135 | ) | ||||||
Accumulated other comprehensive (loss) income | (10,144 | ) | 23,753 | ||||||
Total members’ equity/stockholders’ deficit | 2,708,262 | (261,288 | ) | ||||||
TOTAL LIABILITIES AND MEMBERS’ EQUITY/STOCKHOLDERS’ DEFICIT | $ | 7,960,430 | $ | 3,376,553 | |||||
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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 REVENUE | |||||||||||||||||
Advertising | $ | 874,894 | $ | 470,139 | $ | 1,243,500 | $ | 1,187,823 | |||||||||
Distribution | 930,386 | 547,093 | 1,434,901 | 1,198,686 | |||||||||||||
Other | 222,626 | 82,195 | 205,270 | 157,849 | |||||||||||||
Total operating revenue | 2,027,906 | 1,099,427 | 2,883,671 | 2,544,358 | |||||||||||||
OPERATING EXPENSES | |||||||||||||||||
Cost of revenue, exclusive of depreciation and amortization shown below | 799,716 | 373,191 | 1,032,789 | 907,664 | |||||||||||||
Selling, general and administrative | 823,918 | 486,129 | 1,143,349 | 978,415 | |||||||||||||
Depreciation and amortization | 82,807 | 73,943 | 122,037 | 112,653 | |||||||||||||
Gain from disposition of business | (134,671 | ) | — | — | — | ||||||||||||
Total operating expenses | 1,571,770 | 933,263 | 2,298,175 | 1,998,732 | |||||||||||||
INCOME FROM OPERATIONS | 456,136 | 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 | |||||||||
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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 member’s 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 | |||||||||
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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 | |||||||||||||||||||
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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 |
4. | Business Combinations |
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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 | ||
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• | Petfinder.com, a facilitator of pet adoptions and PetsIncredible, a producer and distributor of pet-training videos. During 2007, the former owners earned payment of certain contingent consideration in connection with this acquisition, resulting in the addition of $11.0 million in goodwill. | |
• | Clearvue and SVE, Inc., a provider of curriculum-oriented media educational products. | |
• | Academy123, Inc., a provider of on-line supplemental, educational content focusing largely on mathematics and sciences. In May 2007, Discovery recorded an asset impairment of $20.6 million, including $11.5 million of goodwill, for goodwill and intangible assets established during 2006 related to Academy 123, Inc. The business had not been integrated into the education reporting unit, and management decided to scale back its education business to consumers. | |
• | Thinklink, Inc., a provider of formative assessment testing services to schools servicing students in grades K through 12. |
DMAX, Antenna 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 |
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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 | ) |
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 | ) |
6. | Content Rights |
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 | |||||
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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 | |||||
8. | Sale of Equity Investments |
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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 | |||||
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 | ||
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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 |
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11. | Debt |
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 | |||||
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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 | |||||
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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 | ||||||||
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14. | Employee Savings Plans |
15. | Long-term Incentive Plans |
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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 | % |
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 | |||||||||||||||||||||
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16. | Income Taxes |
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 | |||||||||
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 | |||||||||
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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 | ) | |||||||
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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 | % |
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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 | ||
17. | Financial Instruments |
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18. | Related Party Transactions |
A-3-40
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A-3-41
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by and among
DISCOVERY HOLDING COMPANY,
DISCOVERY COMMUNICATIONS, INC.,
DHC MERGER SUB, INC.,
ADVANCE/NEWHOUSE PROGRAMMING PARTNERSHIP,
and with respect to Section 5.14 hereof only
ADVANCE PUBLICATIONS, INC., and
NEWHOUSE BROADCASTING CORPORATION
Dated as of June 4, 2008
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Page | ||||||
ARTICLE I Definitions and Usage | B-1 | |||||
Section 1.01. | Definitions | B-1 | ||||
Section 1.02. | Additional Terms | B-7 | ||||
ARTICLE II Transactions and Closing | B-9 | |||||
Section 2.01. | Pre-Closing Restructuring Transactions and AMG Spin-Off | B-9 | ||||
Section 2.02. | Contributions and Merger | B-9 | ||||
Section 2.03. | The Merger | B-10 | ||||
Section 2.04. | Closing Date | B-13 | ||||
Section 2.05. | ANPP Escrow Shares | B-14 | ||||
ARTICLE III Representations and Warranties of DHC | B-14 | |||||
Section 3.01. | Organization and Standing | B-14 | ||||
Section 3.02. | Power and Authority; Execution and Delivery; Enforceability | B-14 | ||||
Section 3.03. | Board and Stockholder Approval | B-15 | ||||
Section 3.04. | No Conflicts; Consents | B-15 | ||||
Section 3.05. | Capitalization of DHC; New DHC and Merger Sub | B-15 | ||||
Section 3.06. | Subsidiaries | B-17 | ||||
Section 3.07. | DHC Reports and Financial Statements; Debt and No Undisclosed Material Liabilities | B-17 | ||||
Section 3.08. | Registration Statement; Proxy Statement/Prospectus | B-18 | ||||
Section 3.09. | Contracts | B-18 | ||||
Section 3.10. | Absence of Changes or Events | B-19 | ||||
Section 3.11. | Compliance with Laws | B-19 | ||||
Section 3.12. | Litigation | B-19 | ||||
Section 3.13. | Affiliate and Other Transactions | B-19 | ||||
Section 3.14. | Brokers or Finders | B-19 | ||||
Section 3.15. | Tax Matters | B-19 | ||||
Section 3.16. | Employee Matters | B-20 | ||||
Section 3.17. | Takeover Laws | B-20 | ||||
Section 3.18. | Limitation on Warranties | B-20 | ||||
ARTICLE IV Representations and Warranties of ANPP | B-21 | |||||
Section 4.01. | Organization and Standing | B-21 | ||||
Section 4.02. | Power and Authority; Execution and Delivery; Enforceability | B-21 | ||||
Section 4.03. | No Conflicts; Consents | B-21 | ||||
Section 4.04. | Ownership of ANPP Contributed Assets; DHC Shares | B-22 | ||||
Section 4.05. | Registration Statement; Proxy Statement/Prospectus | B-22 | ||||
Section 4.06. | Litigation | B-22 | ||||
Section 4.07. | Brokers or Finders | B-22 | ||||
Section 4.08. | Private Placement and Certain Tax Representations | B-23 | ||||
Section 4.09. | Limitation on Warranties | B-23 | ||||
ARTICLE V Agreements and Covenants | B-23 | |||||
Section 5.01. | Covenants Relating to Conduct of Business | B-23 | ||||
Section 5.02. | Access to Information | B-24 | ||||
Section 5.03. | No Additional Options | B-24 |
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Page | ||||||
Section 5.04. | Confidentiality | B-24 | ||||
Section 5.05. | Reasonable Best Efforts | B-24 | ||||
Section 5.06. | Expenses; Transfer Taxes | B-25 | ||||
Section 5.07. | Publicity | B-25 | ||||
Section 5.08. | Stockholder Meeting; Registration Statement and Other SEC Filings | B-25 | ||||
Section 5.09. | Notification of Certain Matters | B-26 | ||||
Section 5.10. | Defense of Litigation | B-26 | ||||
Section 5.11. | Section 16 Matters | B-27 | ||||
Section 5.12. | Transaction Documents | B-27 | ||||
Section 5.13. | Discovery Matters | B-27 | ||||
Section 5.14. | ANPP Parents Undertaking | B-27 | ||||
Section 5.15. | Tax Covenants | B-27 | ||||
ARTICLE VI [Intentionally Omitted] | B-28 | |||||
ARTICLE VII | Conditions Precedent | B-28 | ||||
Section 7.01. | Conditions to Obligations of Each Party | B-28 | ||||
Section 7.02. | Additional Conditions to ANPP’s Obligations | B-29 | ||||
Section 7.03. | Additional Conditions to the DHC Parties’ Obligations | B-29 | ||||
Section 7.04. | Frustration of Closing Conditions | B-30 | ||||
ARTICLE VIII Termination | B-30 | |||||
Section 8.01. | Termination | B-30 | ||||
Section 8.02. | Effect of Termination | B-30 | ||||
ARTICLE IX Indemnification | B-31 | |||||
Section 9.01. | Indemnification | B-31 | ||||
Section 9.02. | Calculation of Losses | B-32 | ||||
Section 9.03. | Defense of Claims | B-32 | ||||
Section 9.04. | Survival | B-33 | ||||
Section 9.05. | Tax Treatment | B-34 | ||||
Section 9.06. | Exclusive Remedy | B-34 | ||||
ARTICLE X Miscellaneous | B-34 | |||||
Section 10.01. | Notices | B-34 | ||||
Section 10.02. | No Third Party Beneficiaries | B-35 | ||||
Section 10.03. | Waiver | B-35 | ||||
Section 10.04. | Assignment | B-35 | ||||
Section 10.05. | Integration | B-35 | ||||
Section 10.06. | Captions | B-35 | ||||
Section 10.07. | Counterparts | B-35 | ||||
Section 10.08. | Severability | B-35 | ||||
Section 10.09. | Governing Law | B-35 | ||||
Section 10.10. | Jurisdiction | B-35 | ||||
Section 10.11. | WAIVER OF JURY TRIAL | B-36 | ||||
Section 10.12. | Specific Performance | B-36 | ||||
Section 10.13. | Amendments | B-36 | ||||
Section 10.14. | Interpretation | B-36 | ||||
Section 10.15. | Rules of Construction | B-36 |
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Form of Escrow Agreement | Exhibit A | |
Form of Registration Rights Agreement | Exhibit B | |
Form of Reorganization Agreement | Exhibit C | |
Form of Tax Sharing Agreement | Exhibit D | |
Restated Certificate of Incorporation | Exhibit 2.01(c)(i) | |
Restated Bylaws | Exhibit 2.01(c)(ii) | |
Form of Rights Agreement | Exhibit 2.01(c)(iii) | |
Merger Agreement | Exhibit 2.03(a) | |
ANPP Tax Opinion Representations | Exhibit E | |
DHC Tax Opinion Representations | Exhibit F |
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B-1
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B-2
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B-3
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B-4
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B-5
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B-6
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Term | Section | |
Agreement | Preamble | |
AMG | Preliminary Statement | |
Animal Planet | Preliminary Statement | |
ANPP | Preamble | |
ANPP AP Interests | Preliminary Statement | |
ANPP Indemnified Parties | Section 9.01(a)(i) | |
ANPP Contribution | Section 2.02(a) | |
ANPP Contributed Assets | Preliminary Statement | |
ANPP Contribution Shares | Section 2.02(a) | |
ANPP Discovery Shares | Preliminary Statement | |
ANPP Escrow Shares | Section 2.02(a) | |
ANPP Parents | Preamble | |
ANPP Tax Counsel | Section 7.02(d) | |
Antitrust Laws | Section 5.05(b)(ii) | |
API | Preamble | |
Balance Sheet | Section 3.07(b) | |
Carryover Director | Section 2.03(d)(ii) | |
Certificate of Merger | Section 2.03(a) | |
Closing | Section 2.04 | |
Closing Date | Section 2.04 | |
Closing Documents | Section 5.12(b) | |
Contribution Effective Time | Section 2.02(a) | |
Converted Options | Section 2.03(d)(iv) | |
Converted Series A Option | Section 2.03(d)(i) | |
Converted Series B Option | Section 2.03(d)(iv) | |
DHC | Preamble | |
DHC AP Interests | Preliminary Statement | |
DHC Board | Preliminary Statement | |
DHC Bylaws | Section 2.03(e) | |
DHC Charter | Section 2.03(e) | |
DHC Discovery Shares | Preliminary Statement | |
DHC Group | Section 3.15(b) |
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Term | Section | |
DHC Indemnified Parties | Section 9.01(b) | |
DHC Preferred Stock | Section 3.05(a)(i) | |
DHC SEC Filings | Section 3.07(a) | |
DHC Stockholder Approval | Section 3.03 | |
DHC Tax Counsel | Section 7.03(d) | |
Director Series A Option | Section 2.03(d)(ii) | |
Discovery | Preliminary Statement | |
Effective Time | Section 2.03(a) | |
Existing New DHC Common Stock | Section 3.05(c)(i) | |
Indemnified Party | Section 9.03(a) | |
Indemnifying Party | Section 9.03(a) | |
LMC | Section 3.15(b) | |
LMC Group | Section 3.15(b) | |
Loss Percentage | Section 9.02 | |
Material Contracts | Section 3.09 | |
Merger | Section 2.03(a) | |
Merger Agreement | Section 2.03(a) | |
Merger Sub | Preamble | |
NBCo | Preamble | |
New DHC | Preamble | |
New DHC Bylaws | Section 2.01(c)(ii) | |
New DHC Charter | Section 2.01(c)(i) | |
New DHC Rights Agreement | Section 2.01(c)(iii) | |
Nondisclosure Agreement | Section 5.04 | |
Proxy Statement/Prospectus | Section 5.08(b) | |
Registration Statement | Section 5.08(b) | |
Rights Dividend | Section 2.03(c) | |
Rollover SARs | Section 2.03(d)(iii) | |
Scheduled Series A Option | Section 2.03(d)(i) | |
Series A Option | Section 2.03(d)(iii) | |
Series B Option | Section 2.03(d)(iv) | |
Series C Option | Section 2.03(d)(i) | |
Series A SAR | Section 2.03(d)(iii) | |
Series C SAR | Section 2.03(d)(iii) | |
Special Meeting | Section 5.08(a) | |
Spin-Off Company | Section 2.01(a)(i) | |
Spin-Off Company Series A Option | Section 2.03(d)(i) | |
Spin-Off Company Series B Option | Section 2.03(d)(iv) | |
Submission | Section 5.05(b) | |
Surviving Entity | Section 2.03(a) | |
Transfer Taxes | Section 5.06(b) | |
Voting Subsidiary Debt | Section 3.06(a) |
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(a) | if to New DHC, DHC, or Merger Sub, to: |
12300 Liberty Boulevard
Englewood, Colorado 80112
Attn: Charles Y. Tanabe, Esq.
Facsimile:(720) 875-5858
30 Rockefeller Plaza
New York, New York 10112
Attn: Frederick McGrath, Esq.
Facsimile:(212) 259-2530
(b) | if to ANPP or ANPP Parent, to: |
5000 Campuswood Drive
E. Syracuse, NY 13057
Attn: Robert J. Miron
Facsimile:(315) 463-4127
Four Times Square
New York, NY 10036
Attn: Craig D. Holleman, Esq.
Facsimile:(212) 381-7226
B-34
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B-35
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B-36
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By: | /s/ Charles Y. Tanabe |
Title: | Senior Vice President |
By: | /s/ Charles Y. Tanabe |
Title: | Senior Vice President |
By: | /s/ Charles Y. Tanabe |
Title: | Senior Vice President |
By: | Newhouse Programming Holdings Corp., its Managing Partner |
By: | /s/ Donald E. Newhouse |
Title: | President |
B-37
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By: | /s/ Donald E. Newhouse |
Title: President
By: | /s/ Donald E. Newhouse |
Title: | President |
B-38
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C-1
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C-3
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Additional Defined Terms | Section | |
Agreement | Preamble | |
Awards | 3.04(a) | |
Carryover Director | 3.04(b)(ii) | |
Certificate of Merger | 3.01(a) | |
Consideration | 3.02(a)(ii) | |
Converted Options | 3.04(b)(iv) | |
Converted Series A Option | 3.04(b)(i) | |
Converted Series B Option | 3.04(b)(iv) | |
DGCL | 3.01(a) | |
DHC | Preamble | |
DHC Awards | 3.04(a) | |
DHC Charter | 3.01(c) | |
Director Series A Option | 3.04(b)(ii) | |
Former Book-Entry Holders | 3.03(b) | |
Former Book-Entry Shares | 3.03(b) | |
Former Certificate Holders | 3.03(a)(i) | |
Former Certificated Shares | 3.03(a)(i) | |
Former DHC Holders | 3.03(b) | |
Former DHC Shares | 3.03(b) | |
Merger Sub | Preamble | |
New DHC | Preamble | |
New DHC Bylaws | 2.01 | |
New DHC Charter | 2.01 | |
New DHC Original Stock | 2.01 | |
Rollover SARs | 3.04(b)(iii) | |
Scheduled Series A Option | 3.04(b)(i) | |
Series A Consideration | 3.02(a)(i) | |
Series B Consideration | 3.02(a)(ii) | |
Series A Option | 3.04(b)(iii) | |
Series B Option | 3.04(b)(iv) | |
Series C Option | 3.04(b)(i) | |
Series A SAR | 3.04(b)(iii) | |
Series C SAR | 3.04(b)(iii) | |
Spin-Off Company Series A Option | 3.04(b)(i) | |
Spin-Off Company Series B Option | 3.04(b)(iv) | |
Surviving Entity | 3.01(a) |
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12300 Liberty Boulevard
Englewood, Colorado 80112
Attn: Charles Y. Tanabe, Esq.
Facsimile:(720) 875-5858
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By: | /s/ Charles Y. Tanabe |
By: | /s/ Charles Y. Tanabe |
Title: | Senior Vice President |
By: | /s/ Charles Y. Tanabe |
Title: | Senior Vice President |
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By: |
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(the “Corporation”)
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