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~~Table~~UNITED ofSTATES SECURITIES ~~Contents~~AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

~~UNITED~~FORM ~~STATES~~ 10-Q

ý: QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
: For the quarterly period ended June 30, 2005

~~SECURITIES~~ ~~AND EXCHANGE COMMISSION~~ or
o: TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
: For the transition period from to

~~WASHINGTON,~~ ~~D.C.~~Commission ~~20549~~file number 333-106529

~~FORM~~DIRECTV ~~10-Q~~HOLDINGS LLC DIRECTV FINANCING CO., INC. (Exact name of registrant as specified in its charter)

xDIRECTV ~~QUARTERLY~~Holdings ~~REPORT~~LLC—Delaware ~~PURSUANT~~DIRECTV TOFinancing ~~SECTION~~Co., 13Inc.—Delaware ~~OR 15~~(d)State OFor ~~THE~~other ~~SECURITIES~~jurisdiction ~~EXCHANGE~~of ~~ACT~~incorporation OFor ~~1934~~organization) 25-1902628 59-3772785 (I.R.S. Employer Identification Number)

~~For~~2230 ~~the~~East ~~quarterly~~Imperial ~~period~~Highway, ~~ended~~El ~~June~~Segundo, 30California 90245 (Address of principal executive offices, ~~2004~~including zip code)

or (310) 964-5000 (Registrant's telephone number, including area code)

¨ Indicate ~~TRANSITION~~by ~~REPORT~~check ~~PURSUANT~~mark TOwhether ~~SECTION~~the registrant (1) has filed all reports required to be filed by Section 13 ORor 15(d) OFof ~~THE~~the ~~SECURITIES~~Securities ~~EXCHANGE~~Exchange ~~ACT~~Act of OF 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

~~For~~ Indicate by check mark whether the ~~transition~~registrant ~~period~~is ~~from~~an accelerated filer (as defined in Exchange Act to Rule 12b-2). Yes o No ý

~~Commission~~ The ~~file~~registrant ~~number~~has ~~333~~met the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-~~106529~~Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format.

~~DIRECTV~~ ~~HOLDINGS~~ ~~LLC~~ TABLE OF CONTENTS

DIRECTV FINANCING CO., INC.

			Page No.
Part I—Financial Information (Unaudited)
	Item 1.	Financial Statements
		Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004	1
		Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004	2
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004	3
		Notes to the Consolidated Financial Statements	4
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 4.	Controls and Procedures	28
Part II—Other Information
	Item 1.	Legal Proceedings	29
	Item 6.	Exhibits	30
Signature			31

~~(Exact~~ ~~name~~ of DIRECTV ~~registrant~~HOLDINGS asLLC PART ~~specified~~I—FINANCIAL inINFORMATION ~~its charter~~(UNAUDITED)

DIRECTV Holdings LLC – Delaware DIRECTV Financing Co., Inc. – Delaware		25-1902628 59-3772785
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

ITEM 1. FINANCIAL STATEMENTS

~~2230~~ ~~East~~ ~~Imperial~~ ~~Highway,~~CONSOLIDATED ElSTATEMENTS ~~Segundo,~~OF ~~California 90245~~ OPERATIONS (Unaudited)

(Address of principal executive offices, including zip code)

			Three Months Ended June 30,						Six Months Ended June 30,
			2005			2004			2005			2004
			(dollars in millions)
Revenues			$	2,960.5		$	2,216.9		$	5,761.3		$	4,297.7
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs			1,137.7			856.5			2,287.3			1,704.6
	Subscriber service expenses			219.2			166.0			439.7			312.0
	Subscriber acquisition costs:
		Third party customer acquisitions		467.9			445.4			1,055.8			881.9
		Direct customer acquisitions		154.3			162.1			312.0			313.4
	Upgrade and retention costs			223.2			226.8			475.4			401.0
	Broadcast operations expenses			35.3			35.2			70.7			65.2
	General and administrative expenses			218.3			149.9			400.2			299.4
Depreciation and amortization expense				171.4			111.7			348.6			235.5

		Total Operating Costs and Expenses		2,627.3			2,153.6			5,389.7			4,213.0

Operating Profit				333.2			63.3			371.6			84.7
Interest expense, net				(54.2	)		(46.0	)		(110.2	)		(93.4	)
Other expense				(65.2	)		—			(65.6	)		—

Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change				213.8			17.3			195.8			(8.7	)
Income tax (expense) benefit				(82.0	)		(6.6	)		(75.1	)		3.4

Income (Loss) Before Cumulative Effect of Accounting Change				131.8			10.7			120.7			(5.3	)
Cumulative effect of accounting change, net of taxes				—			—			—			(311.5	)

Net Income (Loss)			$	131.8		$	10.7		$	120.7		$	(316.8	)

~~(310)~~Reference should ~~964-5000~~be made to the Notes to the Consolidated Financial Statements.

~~(Registrant’s telephone number, including area code)~~ 1

~~Indicate~~ by ~~check mark whether the registrant (1) has~~ ~~filed~~DIRECTV ~~all~~HOLDINGS ~~reports~~LLC CONSOLIDATED ~~required~~BALANCE ~~to be filed by Section 13 or 15~~SHEETS (dUnaudited) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

			June 30, 2005			December 31, 2004
			(dollars in millions)
ASSETS
Current Assets
	Cash and cash equivalents		$	814.0		$	34.5
	Accounts receivable, net of allowances of $96.6 and $86.4			815.1			885.0
	Inventories, net			294.2			122.0
	Prepaid expenses and other			241.8			289.8

		Total Current Assets		2,165.1			1,331.3
Satellites, net of accumulated depreciation of $507.8 and $455.6				1,764.8			1,597.4
Property, net of accumulated depreciation of $1,291.1 and $1,182.4				723.5			686.1
Goodwill				3,031.7			3,031.7
Intangible Assets, net				2,048.3			2,224.9
Other Assets				125.4			122.8

		Total Assets	$	9,858.8		$	8,994.2

LIABILITIES AND OWNER'S EQUITY
Current Liabilities
	Accounts payable and accrued liabilities		$	1,851.3		$	1,771.7
	Unearned subscriber revenue and deferred credits			225.5			255.9
	Current portion of long-term debt			2.8			10.2

		Total Current Liabilities		2,079.6			2,037.8
Long-Term Debt				3,410.5			3,276.6
Other Liabilities and Deferred Credits				1,065.7			1,128.6
Deferred Income Taxes				227.9			172.3
Commitments and Contingencies
Owner's Equity
	Capital stock and additional paid-in capital			4,034.2			3,458.7
	Accumulated deficit			(959.1	)		(1,079.8	)

		Total Owner's Equity		3,075.1			2,378.9

		Total Liabilities and Owner's Equity	$	9,858.8		$	8,994.2

~~The~~Reference should ~~registrant~~be ~~has~~made ~~met~~to the ~~conditions~~Notes ~~set~~to ~~forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with~~ the ~~reduced~~Consolidated ~~disclosure~~Financial ~~format~~Statements.

~~Table of Contents~~2

~~TABLE~~ DIRECTV HOLDINGS LLC CONSOLIDATED STATEMENTS OF ~~CONTENTS~~CASH FLOWS (Unaudited)

						Six Months Ended June 30,
				Page No.
Part I – Financial Information (Unaudited)
						2005			2004
Item 1.		Financial Statements
						(dollars in millions)
		Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003		1
Cash Flows from Operating Activities
		Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		2
Income (Loss) Before Cumulative Effect of Accounting Change						$	120.7		$	(5.3	)
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003		3
Adjustments to reconcile income (loss) before cumulative effect of accounting change to net cash provided by operating activities
		Notes to the Consolidated Financial Statements		4
	Depreciation and amortization expense						348.6			235.5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Equity losses from unconsolidated affiliates						0.7			—
Item 4.		Controls and Procedures		31
	Loss on sale or disposal of property						—			8.6
Part II – Other Information (Unaudited)
	Stock-based compensation expense						13.2			15.9
Item 1.		Legal Proceedings		32
	Amortization of debt issuance costs						3.9			4.5
Item 6.		Exhibits and Reports on Form 8-K		33
	Write-off of debt issuance costs						19.0			—
Signature				35
	Deferred income taxes and other						55.3			(3.8	)
	Change in other operating assets and liabilities
			Accounts receivable, net				49.9			(39.5	)
			Inventories				(172.2	)		(97.8	)
			Prepaid expenses and other				48.3			(3.8	)
			Other assets				(1.9	)		(30.4	)
			Accounts payable and accrued liabilities				91.6			(31.6	)
			Unearned subscriber revenue and deferred credits				(30.4	)		41.7
			Other liabilities and deferred credits				(52.2	)		111.6
					Net Cash Provided by Operating Activities		494.5			205.6
Cash Flows from Investing Activities
	Expenditures for property and equipment						(148.3	)		(106.5	)
	Expenditures for satellites						(195.6	)		(172.7	)
	Proceeds from sale of property						—			3.3
					Net Cash Used in Investing Activities		(343.9	)		(275.9	)
Cash Flows from Financing Activities
	Cash proceeds from refinancing transactions						3,003.3			—
	Cash contribution from Parent						538.3			—
	Repayment of debt						(2,001.8	)		(213.2	)
	Repayment of borrowing from Parent						(875.0	)		—
	Repayment of long-term obligations						(31.2	)		—
	Debt issuance costs						(4.7	)		(1.9	)
					Net Cash Provided by (Used in) Financing Activities		628.9			(215.1	)
Net increase (decrease) in cash and cash equivalents							779.5			(285.4	)
Cash and cash equivalents at beginning of the period							34.5			415.7
Cash and cash equivalents at end of the period						$	814.0		$	130.3
Supplemental Cash Flow Information
Interest paid						$	114.9		$	93.8
Income taxes (refunded) paid							(44.1	)		0.5

~~Table~~Reference should ofbe ~~Contents~~made to the Notes to the Consolidated Financial Statements.

~~DIRECTV HOLDINGS LLC~~ 3

~~PART~~ I DIRECTV –HOLDINGS ~~FINANCIAL~~LLC NOTES ~~INFORMATION~~TO THE CONSOLIDATED FINANCIAL STATEMENTS (~~UNAUDITED~~Unaudited)

~~ITEM~~ Note 1~~. FINANCIAL~~: ~~STATEMENTS~~Basis of Presentation

~~CONSOLIDATED~~ DIRECTV ~~STATEMENTS~~Holdings OFLLC ~~OPERATIONS~~is a wholly-owned subsidiary of The DIRECTV Group, Inc. and consists of DIRECTV Enterprises, LLC and its wholly-owned subsidiaries and DIRECTV Financing Co., Inc. We sometimes refer to DIRECTV Holdings LLC as DIRECTV Holdings or DIRECTV and sometimes refer to The DIRECTV Group, Inc. as The DIRECTV Group or Parent.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. In the opinion of management, all adjustments (~~Unaudited~~consisting only of normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, or SEC, on March 1, 2005, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed with the SEC on May 5, 2005, and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2004			2003			2004			2003
	(dollars in millions)
Revenues	$	2,216.9		$	1,800.2		$	4,297.7		$	3,508.3
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		856.5			705.9			1,704.6			1,404.7
Subscriber service expenses		166.0			150.8			312.0			307.2
Subscriber acquisition costs:
Third party customer acquisitions		445.4			306.1			881.9			619.2
Direct customer acquisitions		162.1			69.5			313.4			137.2
Retention and upgrade costs		226.8			71.1			401.0			130.1
Broadcast operations expenses		35.2			38.2			65.2			72.1
General, administrative and other marketing expenses		149.9			133.8			299.4			282.6
Depreciation and amortization expense		111.7			124.1			235.5			248.5
Total Operating Costs and Expenses		2,153.6			1,599.5			4,213.0			3,201.6
Operating Profit		63.3			200.7			84.7			306.7
Interest expense, net		(46.0	)		(57.3	)		(93.4	)		(86.5	)
Other expense		—			(2.9	)		—			(4.0	)
Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change		17.3			140.5			(8.7	)		216.2
Income tax (expense) benefit		(6.6	)		(52.7	)		3.4			(81.1	)
Income (Loss) Before Cumulative Effect of Accounting Change		10.7			87.8			(5.3	)		135.1
Cumulative effect of accounting change, net of taxes		—			—			(311.5	)		—
Net Income (Loss)	$	10.7		$	87.8		$	(316.8	)	$	135.1

We introduced the DIRECTV® service in the United States in 1994. We currently broadcast our service from our fleet of satellites located at our 101 degrees west longitude, or WL, 110 WL and 119 WL orbital locations. We also broadcast from 72.5 WL under our arrangement with Telesat Canada, or Telesat, Industry Canada and the Federal Communications Commission, or FCC. Additionally, we broadcast from 95 WL using transponders on a satellite we lease. We transmit entertainment and information programs from our digital broadcast centers located in Castle Rock, Colorado and Los Angeles, California to our in-orbit satellites. Customers receive our programming using a small receiving satellite dish antenna, a digital set-top receiver and a remote control, which we refer to as a DIRECTV System. DIRECTV System equipment is manufactured by Thomson Inc. (RCA), Philips Electronics North America Corporation, Samsung Electronics America, Inc. and other name brand consumer electronics companies. We distribute DIRECTV System equipment to consumers through national retail and consumer electronics stores, satellite television dealers, regional Bell operating companies and other telephone service providers, our direct customer acquisition program and rural dealer networks. We have a single operating segment with all revenues to date generated from U.S. based subscribers and customers.

~~Reference~~ Prior period ~~should~~financial bestatements ~~made~~have tobeen ~~the~~reclassified ~~Notes~~to conform to the ~~Consolidated~~ ~~Financial~~current ~~Statements~~period presentation.

1Note 2: Accounting Change

~~Table~~ ofSubscriber ~~Contents~~Acquisition, Upgrade and Retention Costs

Effective January 1, 2004, we changed our method of accounting for subscriber acquisition, upgrade and retention costs. Previously, we deferred a portion of these costs, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and amortized the deferred amounts to expense over the contract period. We now expense all subscriber acquisition, upgrade and retention costs as incurred as subscribers activate the DIRECTV ~~HOLDINGS~~service. ~~LLC~~We determined that expensing such costs was preferable to our prior accounting method after considering the accounting practices of our competitors and companies within similar industries and the added clarity and ease of understanding our reported results for investors. As a result of the change, we expensed the total of the deferred costs, which amounted to $503.9 million ($311.5 million, net of taxes), as a cumulative effect of accounting change on January 1, 2004.

~~CONSOLIDATED BALANCE SHEETS~~ 4

~~(Unaudited)~~ New Accounting Standard

	June 30,2004			December 31,2003
	(dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	118.2		$	390.9
Accounts receivable, net of allowances of $57.8 and $51.1		719.8			679.7
Inventories, net		197.8			100.0
Prepaid expenses and other		157.8			555.6
Total Current Assets		1,193.6			1,726.2
Satellites, net of accumulated depreciation of $521.3 and $474.5		1,207.4			1,081.5
Property, net of accumulated depreciation of $1,261.6 and $1,118.6		668.9			732.3
Goodwill, net		2,891.1			2,891.1
Intangible Assets, net		1,005.8			549.7
Other Assets		135.5			109.5
Total Assets	$	7,102.3		$	7,090.3
LIABILITIES AND OWNER’S EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	1,587.0		$	1,470.4
Unearned subscriber revenue and deferred credits		209.5			164.1
Current portion of long-term debt		10.2			213.1
Total Current Liabilities		1,806.7			1,847.6
Long-Term Debt		2,401.6			2,411.9
Other Liabilities and Deferred Credits		883.3			417.1
Deferred Income Taxes		172.1			274.2
Commitments and Contingencies
Owner’s Equity
Capital stock and additional paid-in capital		2,814.8			2,798.9
Accumulated deficit		(976.2	)		(659.4	)
Total Owner’s Equity		1,838.6			2,139.5
Total Liabilities and Owner’s Equity	$	7,102.3		$	7,090.3

In May 2005, the Financial Accounting Standards Board issued Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements," or SFAS No. 154. SFAS No. 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 generally requires retrospective application to prior periods' financial statements of voluntary changes in accounting principles. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of SFAS No. 154 will have a material effect on our consolidated results of operations or financial position.

~~Reference~~Note 3: ~~should~~Intangible ~~be made to the Notes to the Consolidated Financial Statements.~~ Assets

2 The following table sets forth the amounts recorded for intangible assets as of the periods presented:

				June 30, 2005						December 31, 2004
			Estimated Useful Lives (years)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
						(dollars in millions)
Intangible Assets:
	Orbital Slots		Indefinite	$	463.0	$	30.6	$	432.4	$	463.0	$	30.6	$	432.4
	72.5 WL Orbital License		4		172.5		36.6		135.9		172.5		15.7		156.8
	Subscriber Related		5-6		1,336.8		221.2		1,115.6		1,336.8		93.9		1,242.9
	Dealer Network		15		130.0		48.5		81.5		130.0		43.8		86.2
	Distribution Rights		7		334.1		51.2		282.9		334.1		27.5		306.6

		Total Intangible Assets		$	2,436.4	$	388.1	$	2,048.3	$	2,436.4	$	211.5	$	2,224.9

The ~~DIRECTV~~following ~~HOLDINGS~~table ~~LLC~~represents the amounts recorded as amortization expense for intangible assets for the periods presented:

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended June 30,				Six Months Ended June 30,
		2005		2004		2005		2004
		(dollars in millions)
72.5 WL Orbital License		$	10.5	$	—	$	20.9	$	—
Subscriber Related			63.7		5.7		127.3		21.9
Dealer Network			2.3		2.3		4.7		4.6
Distribution Rights			11.8		3.8		23.7		3.8

	Total Amortization Expense for Intangible Assets	$	88.3	$	11.8	$	176.6	$	30.3

~~(Unaudited)~~ Estimated amortization expense for intangible assets in each of the next five years and thereafter is as follows: $176.4 million for the remainder of 2005, $353.0 million in 2006, $353.0 million in 2007, $342.6 million in 2008, $247.8 million in 2009 and $143.1 million thereafter.

	Six Months EndedJune 30,
	2004			2003
	(dollars in millions)
Cash Flows from Operating Activities
Income (Loss) Before Cumulative Effect of Accounting Change	$	(5.3	)	$	135.1
Adjustments to reconcile income (loss) before cumulative effect of accounting change to net cash provided by operating activities
Depreciation and amortization expense		235.5			248.5
Loss on sale or disposal of property		8.6			0.6
Cost of employee benefit programs		15.9			9.4
Amortization of debt issuance costs		4.5			2.8
Deferred income taxes and other		(3.8	)		6.6
Change in other operating assets and liabilities
Accounts receivable, net		(39.5	)		59.0
Inventories		(97.8	)		(36.3	)
Prepaid expenses and other		(3.8	)		57.3
Other assets		(30.4	)		(17.0	)
Accounts payable and accrued liabilities		(18.9	)		26.0
Unearned subscriber revenue and deferred credits		41.7			(11.8	)
Other liabilities and deferred credits		111.6			(65.8	)
Net Cash Provided by Operating Activities		218.3			414.4
Cash Flows from Investing Activities
Expenditures for property and equipment		(106.5	)		(74.9	)
Expenditures for satellites		(172.7	)		(35.2	)
Proceeds from sale of property		3.3			—
Net Cash Used in Investing Activities		(275.9	)		(110.1	)
Cash Flows from Financing Activities
Repayment of debt		(213.2	)		—
Net cash contribution from Parent		—			4.9
Cash proceeds from financing transactions		—			2,625.0
Cash distribution to Parent		—			(2,558.5	)
Debt issuance costs		(1.9	)		(65.3	)
Net Cash Provided by (Used in) Financing Activities		(215.1	)		6.1
Net increase (decrease) in cash and cash equivalents		(272.7	)		310.4
Cash and cash equivalents at beginning of the period		390.9			14.1
Cash and cash equivalents at end of the period	$	118.2		$	324.5
Supplemental Cash Flow Information
Interest paid	$	98.3		$	33.6
Income taxes paid		0.5			36.0

~~Reference~~Note 4: ~~should be made to the Notes to the Consolidated Financial Statements.~~ Debt

		Interest Rates at June 30, 2005		June 30, 2005		December 31, 2004
				(dollars in millions)
8.375% senior notes		8.375	%	$	910.0	$	1,400.0
6.375% senior notes		6.375	%		1,000.0		—
Credit facility		4.794	%		1,500.0		1,011.8
Other		—			3.3		—
Borrowing from Parent		—			—		875.0

	Total debt				3,413.3		3,286.8
Less: current portion of long-term debt		4.794	%		2.8		10.2

	Long-term debt			$	3,410.5	$	3,276.6

~~Table~~ During the second quarter of ~~Contents~~2005, we refinanced a significant portion of our outstanding debt, as discussed in more detail below. As of June 30, 2005, our outstanding debt included the following notes payable and credit facility:

Notes Payable. Our $910.0 million in registered senior notes outstanding at June 30, 2005 are due in 2013, bear ~~DIRECTV~~interest ~~HOLDINGS~~at ~~LLC~~8.375%, and are referred to as the 8.375% senior notes. Principal on the 8.375% senior notes is payable upon maturity, while interest is payable semi-annually. The amount of interest accrued related to the 8.375% senior notes was $22.2 million at June 30, 2005 and $34.2 million at December 31, 2004.

~~NOTES~~ Our $1,000.0 million TOin unregistered senior notes outstanding at June 30, 2005 are due in 2015, bear interest at 6.375%, and are referred to as the 6.375% senior notes. ~~THE~~Principal ~~CONSOLIDATED~~on ~~FINANCIAL~~the ~~STATEMENTS~~6.375% senior notes is payable upon maturity, while interest is payable semi-annually beginning December 15, 2005. The amount of interest accrued related to the 6.375% senior notes was $2.7 million at June 30, 2005.

The 8.375% senior notes and the 6.375% senior notes were issued by DIRECTV Holdings and DIRECTV Financing Co., Inc., or DIRECTV Financing (~~Unaudited~~together with DIRECTV Holdings, the Co-Issuers). The 8.375% senior notes and the 6.375% senior notes have been fully and unconditionally guaranteed, jointly and severally, by each of DIRECTV Holdings' material domestic subsidiaries (other than DIRECTV Financing), which we refer to as the Guarantor Subsidiaries, on a senior unsecured basis.

~~Note~~ The Co-Issuers 1:and ~~Basis~~the Guarantor Subsidiaries entered into a registration rights agreement with the initial purchasers of ~~Presentation~~the 6.375% senior notes, which requires the Co-Issuers and the Guarantor Subsidiaries to file an exchange offer registration statement relating to the 6.375% senior notes. Once the exchange offer registration statement becomes effective and the exchange offer begins, the existing holders of the 6.375% senior notes will be offered the opportunity to participate in the exchange offer on the terms and conditions specified in the exchange offer registration statement and exchange their existing 6.375% senior notes for registered notes with identical terms, except that the registered notes will have been registered under the Securities Act of 1933, as amended, and will not bear the legends restricting their transfer.

~~DIRECTV~~ The fair ~~Holdings~~value ~~LLC~~of ~~(“DIRECTV~~our ~~Holdings”~~8.375% orsenior ~~“DIRECTV”)~~notes iswas aapproximately ~~wholly-owned subsidiary of The DIRECTV Group~~$1, ~~Inc~~008.3 million ~~(“The~~at ~~DIRECTV Group”~~June 30, or2005 ~~“Parent”)~~with ~~and~~a ~~consists~~carrying value of ~~DIRECTV~~$910.0 million ~~Enterprises, LLC~~ and ~~its~~$1,569.8 million ~~subsidiaries~~at December 31, ~~which~~2004 ~~include~~with ~~DIRECTV~~a ~~Operations,~~carrying ~~LLC,~~value ~~DIRECTV~~of ~~Merchandising~~$1, ~~Inc~~400.,0 million. ~~DIRECTV~~The ~~Customer~~fair ~~Services,~~value ~~Inc.,~~of ~~USSB~~our ~~II, Inc~~6.,375% ~~RSG~~senior ~~Resource~~notes ~~Supply~~was ~~GmbH,~~approximately ~~DIRECTV, Inc~~$993.0 million ~~and~~at ~~Triumph Communications, Inc.~~

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. In the opinion of management, all adjustments (consisting only of normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in DIRECTV’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission (“SEC”) on March 17, 2004, DIRECTV’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 filed with the SEC on May 6~~, 2004, and all other DIRECTV filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.~~

~~The DIRECTV® service was introduced in the United States in 1994. At~~ June 30, 2005 ~~2004,~~with ~~DIRECTV owned~~ a ~~fleet~~carrying value of ~~eight in-orbit high-power satellites. DIRECTV transmits entertainment and information programs from its digital broadcast centers located in Castle Rock~~$1, ~~Colorado and Los Angeles, California to its in-orbit satellites~~000. ~~The programming is then received by customers using DIRECTV® receiving equipment, which includes a small satellite dish, a digital set-top receiver and a remote control~~0 million. ~~DIRECTV receiving equipment is manufactured by Thomson Inc. (RCA) and other name brand consumer electronics companies.~~ The ~~DIRECTV~~fair ~~receiving~~values ~~equipment~~were iscalculated ~~distributed~~based toon ~~consumers~~quoted ~~through~~market ~~national~~prices ~~retail~~on ~~and~~those ~~consumer electronics stores, satellite television dealers, regional telephone companies, DIRECTV’s direct customer acquisition program and rural dealer networks~~dates. ~~DIRECTV has a single operating segment with all revenues to date generated from U.S. based subscribers and customers.~~

~~Through~~ Credit ~~February~~Facility. At 28June 30, ~~2003~~2005, ~~DIRECTV~~our ~~participated~~senior insecured ~~the~~credit ~~centralized~~facility ~~cash~~consisted ~~management~~of ~~system~~a of$500.0 million six-year ~~The~~Term ~~DIRECTV~~Loan ~~Group~~A, ~~wherein~~a ~~cash~~$1,000.0 million ~~receipts~~eight-year ~~were~~Term ~~transferred~~Loan to B and ~~cash~~a ~~disbursements~~$500.0 million ~~were~~undrawn ~~funded~~six-year byrevolving credit facility. The ~~DIRECTV~~senior ~~Group~~secured credit onfacility bears interest at a ~~daily~~rate ~~basis~~equal to London InterBank Offered Rate, or LIBOR, plus 1.50% and requires us to pay a commitment fee of 0.25% per year for the unused commitment under the revolving credit facility. The ~~net~~interest ~~cash~~rate ~~activity~~and ~~associated~~commitment ~~with~~fee may be increased or decreased under certain conditions. The ~~DIRECTV~~senior ~~Group~~secured ~~was~~credit ~~recorded~~facility asis asecured ~~net~~by ~~capital~~substantially ~~contribution~~all ~~from~~of ~~Parent~~our inassets and is fully and unconditionally guaranteed, jointly and severally, by the Guarantor Subsidiaries. The amount of ~~$4.9~~interest ~~million~~accrued ~~for~~related to the ~~quarter~~senior ~~ended~~secured ~~March~~credit ~~31,~~facility was $7.6 million ~~2003~~at June 30, 2005.

~~During~~ Our notes ~~the~~payable ~~first~~and ~~quarter~~credit offacility ~~2003,~~mature ~~DIRECTV~~as ~~raised approximately~~follows: $~~2,625~~7.0 5 million ofin ~~cash~~2006; ~~through~~$10.1 million ain ~~series~~2007; of$47.6 million ~~financing~~in ~~transactions~~2008; ~~that included the issuance of~~ $~~1,400~~97.0 6 million ofin ~~senior~~2009 ~~notes~~ and $13,~~225~~247.0 2 million ofthereafter. ~~borrowings~~The ~~under~~unamortized ~~the~~bond ~~Term~~premium ~~Loan~~included ~~portion~~in oftotal ~~the~~debt ~~senior~~as ~~secured~~of ~~credit facilities. The cash proceeds from the financing transactions~~June 30, ~~which~~2005 ~~amounted~~was to $~~2,558~~3.5 3 million,. ~~net~~These ofamounts ~~debt~~do ~~issuance~~not ~~costs,~~reflect ~~were~~potential ~~distributed~~prepayments tothat ~~The~~may be ~~DIRECTV~~required ~~Group~~under inour ~~the~~senior ~~first~~secured ~~quarter~~credit offacility, ~~2003~~which ~~and~~could ~~recorded~~result asfrom a ~~capital~~computation ~~distribution~~of toexcess ~~Parent. Debt is described more fully in Note 5. DIRECTV’s future~~ cash ~~requirements~~flows ~~will~~that bewe ~~funded~~are ~~from~~required ~~cash~~to ~~on-hand,~~make ~~cash~~at ~~generated~~each ~~from~~year ~~operations,~~end ~~amounts~~under ~~contributed~~the orcredit ~~borrowed from Parent and/or additional third party borrowings, as needed~~agreement.

~~Beginning~~ Covenants inand ~~the~~Restrictions. The ~~second~~senior ~~quarter~~secured ofcredit ~~2004,~~facility ~~DIRECTV~~requires ~~reclassified~~us to comply with certain ~~other~~financial covenants. The ~~marketing~~senior ~~expenses~~notes ~~from~~and ~~“Retention,~~the ~~upgrade~~senior secured credit facility also include covenants that restrict the Co-Issuers and ~~other~~the ~~marketing~~Guarantor ~~costs”~~Subsidiaries' ability to, ~~“General~~among other things, ~~administrative~~(i) incur additional ~~and~~indebtedness, ~~other~~(ii) incur ~~marketing~~liens, ~~expenses”~~(iii) pay ~~and~~dividends ~~“Programming~~or ~~and~~make certain other ~~costs”~~restricted inpayments, ~~the~~investments ~~consolidated~~or ~~statements~~acquisitions, of(iv) enter ~~operations~~into tocertain ~~more~~transactions with ~~accurately~~affiliates, ~~reflect~~(v) merge ~~the~~or ~~cost~~consolidate ofwith ~~retaining~~another ~~and~~person, ~~upgrading~~(vi) sell, ~~existing~~assign, ~~subscribers.~~lease ~~Other~~or ~~marketing~~otherwise ~~expenses~~dispose ~~are~~of ~~primarily~~all ~~associated~~or ~~with~~substantially ~~payroll~~all of our assets, and ~~benefit~~(vii) make ~~costs~~voluntary prepayments ~~for~~of ~~DIRECTV’s~~certain debt, in~~-house~~ ~~marketing~~each ~~department~~case subject to exceptions as provided in the credit agreement and senior notes indentures. ~~Prior~~Should ~~period~~we ~~balances~~fail ~~have~~to ~~been~~comply with our covenants, all or a portion of our ~~reclassified~~borrowings tounder ~~conform~~the tosenior notes and senior secured credit facility could become immediately payable and the ~~current~~revolving ~~period~~credit ~~presentation~~facility could be terminated. At June 30, 2005, we were in compliance with all such covenants.

4 Refinancing Transactions. In April 2005, we replaced our prior credit facility with the senior secured credit facility described above. The senior secured credit facility was initially comprised of a $500.0 million six-year Term Loan A, a $1,500.0 million eight-year Term Loan B, both of which were fully funded, and a $500.0 million undrawn six-year revolving credit facility. We used a portion of the $2,000.0 million proceeds from the transaction to repay our prior credit facility which had a then-outstanding balance of $1,001.6 million, to repay our $875.0 million borrowing from Parent, and to pay related financing costs and accrued interest. Borrowings under the prior credit facility bore interest at a rate equal to LIBOR plus 1.75%. The amount of interest accrued related to the prior credit facility was $2.3 million at December 31, 2004.

~~Table~~ On May 19, 2005, we redeemed $490.0 million of ~~Contents~~our then outstanding $1,400.0 million 8.375% senior notes at a redemption price of 108.375% plus accrued and unpaid interest, for a total of $538.3 million, which was funded by a capital contribution from our Parent.

~~DIRECTV~~ On June 15, ~~HOLDINGS~~2005, ~~LLC~~the Co-Issuers issued $1,000.0 million of 6.375% senior notes in a private placement transaction. We used a portion of the proceeds from the transaction to repay $500.0 million of the Term Loan B portion of our senior secured credit facility and to pay related financing costs.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~ 7

~~Note~~ The repayment 2:of ~~Accounting~~our ~~Changes~~prior senior secured credit facility, the partial repayment of our senior secured credit facility and the partial redemption of our 8.375% senior notes resulted in a second quarter of 2005 pre-tax charge of $64.9 million ($40.1 million after tax) of which $41.0 million was associated with the premium paid for the redemption of our 8.375% senior notes and $23.9 million with the write-off of a portion of our deferred debt issuance costs and other transaction costs. The charge was recorded in "Other expense" in the consolidated statement of operations.

~~Subscriber~~Note 5: ~~Acquisition,~~Related-Party ~~Retention and Upgrade Costs~~ Transactions

~~Effective~~ The ~~January 1, 2004,~~ DIRECTV ~~changed~~Group ~~its method of accounting for subscriber acquisition, retention~~ and ~~upgrade costs~~affiliates. ~~Previously,~~ We aenter ~~portion~~into ofrelated-party ~~these~~transactions ~~costs~~with ~~were~~The ~~deferred, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and amortized to expense over the contract period.~~ DIRECTV ~~now~~Group ~~expenses all subscriber acquisition, retention~~ and ~~upgrade~~certain ~~costs as incurred as subscribers activate the DIRECTV service. DIRECTV determined that expensing such costs was preferable to the prior accounting method after considering the accounting practices~~ of ~~competitors~~ and companies within similar industries and the added clarity and ease of understanding of DIRECTV’s reported results for investors. As a result of the change, the total of the deferred costs, which amounted to $503.9 millionits ~~($311.5~~affiliates ~~million, net of taxes)~~ as ofpart ~~December 31, 2003, was expensed as a cumulative effect~~ of ~~accounting~~normal ~~change on January 1, 2004~~operations. Had the new method of accounting been applied during 2003, operating costs would have decreased $7.8 million and net income would have increased $4.9 million for the three months ended June 30, 2003 and operating costs would have increased $4.7 million and net income would have decreased $2.9 million for the six months ended June 30, 2003.

~~The~~ We receive ~~following~~an ~~table~~allocation ~~presents~~of employee benefit expenses from The DIRECTV’s ~~results~~Group. We believe that our consolidated financial statements reflect our cost of ~~operations~~doing ~~for~~business ~~the~~in accordance with ~~three~~SEC ~~months~~Staff Accounting ~~and~~Bulletin ~~six~~No. 55, ~~months~~"Allocation ~~ended~~of ~~June~~Expenses 30and onRelated aDisclosures ~~pro~~in ~~forma~~Financial ~~basis~~Statements asof ifSubsidiaries, ~~DIRECTV~~Divisions ~~had~~or ~~historically~~Lesser ~~expensed~~Business ~~subscriber~~Components ~~acquisition,~~of ~~retention~~Another ~~and~~Entity; ~~upgrade~~Cheap ~~costs:~~Stock."

	Three Months EndedJune 30,				Six Months Ended June 30,
	2004		2003		2004			2003
	(dollars in millions)
Total Operating Costs and Expenses	$	2,153.6	$	1,591.7	$	4,213.0		$	3,206.3
Operating Profit		63.3		208.5		84.7			302.0
Net Income (Loss)		10.7		92.7		(5.3	)		132.2

During the third quarter of 2004, as part of the National Rural Telecommunications Cooperative, or NRTC, and Pegasus Satellite Television, Inc., or Pegasus, transactions discussed in Note 6, we borrowed $875.0 million from The DIRECTV Group, which resulted in interest expense of $0.9 million for the three months ended June 30, 2005 and $6.5 million for the six months ended June 30, 2005. See Note 4 for further discussion of the repayment of the $875.0 million borrowing.

~~Stock-Based~~ During ~~Compensation~~the first quarter of 2005, The DIRECTV Group contributed to us SPACEWAY satellite assets at its cost in the amount of $24.0 million, which we recorded as a capital contribution. In addition, see Note 4 for further discussion of the $538.3 million capital contribution received from The DIRECTV Group during the second quarter of 2005.

At News ~~times,~~Corporation ~~The DIRECTV Group issues stock options~~ and ~~restricted stock units to employees, including DIRECTV employees~~affiliates. News OnCorporation ~~January~~owns 1,approximately ~~2003,~~34% ~~DIRECTV~~of ~~adopted~~ the ~~fair~~outstanding ~~value~~common ~~based method of accounting for~~ stock~~-based~~ ~~employee compensation~~ of ~~Statement~~The ~~of Financial Accounting Standards~~DIRECTV ~~(“SFAS”) No~~Group. ~~123,~~As ~~“Accounting~~of ~~for Stock-Based Compensation” as amended by SFAS No. 148~~June 30, ~~“Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of SFAS No. 123.” Under this method~~2005, ~~compensation expense~~we ~~equal~~had to the ~~fair~~following ~~value~~types of ~~the~~contractual ~~stock-based~~arrangements ~~award~~with atNews ~~grant~~Corporation isentities: ~~recognized~~purchase ~~over the course~~ of ~~the vesting period. DIRECTV elected to follow the prospective method of adoption~~programming, ~~which~~products ~~resulted in the recognition of fair value based compensation cost in the consolidated statements of operations for stock options~~ and ~~other~~advertising; ~~stock-based~~license ~~awards granted to employees or modified on or after January 1, 2003. Compensation expense is also recorded for former employees~~ of ~~The News Corporation Limited~~certain ~~(“News~~intellectual ~~Corporation”)~~property, ~~the~~including ~~parent~~patents; ~~company~~purchase of ~~The~~system ~~DIRECTV~~access ~~Group’s largest shareholder~~products, ~~who~~set-top ~~retained~~receiver ~~their~~software ~~News~~and ~~Corporation~~support ~~stock~~services; ~~options~~ and ~~are~~sale ~~now~~of ~~employed~~advertising ~~by DIRECTV~~space.

5 NDS Limited, or NDS, a subsidiary of News Corporation, is the exclusive provider of our conditional access products and services, including system access cards, a key component of the access security system in our set-top receivers.

~~Table~~ Other. We purchase telemetry, tracking and control services, or TT&C, for certain of ~~Contents~~our satellites and lease additional satellite capacity from PanAmSat Corporation, or PanAmSat, which was a subsidiary of The DIRECTV Group until its sale on August 20, 2004. Prior to the PanAmSat sale, our transactions were considered related-party with the costs included in "Broadcast operations expenses" in the consolidated statements of operations.

Prior to The DIRECTV ~~HOLDINGS~~Group's ~~LLC~~sale of Hughes Network System, Inc.'s, or HNS', set-top receiver manufacturing operations to Thomson Inc. on June 22, 2004, we purchased DIRECTV System equipment from and provided system access cards to HNS. We recorded the cost of purchases of DIRECTV System equipment from HNS in inventory and recognized the cost of the equipment in "Subscriber acquisition costs" or "Upgrade and retention costs" in accordance with our accounting policies. We recorded DIRECTV System access cards provided to HNS as "Revenues" in the consolidated statements of operations. We recorded the amounts due to HNS in "Accounts payable and accrued liabilities" in the consolidated balance sheets.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~ 8

The following table ~~presents~~summarizes ~~the effect on earnings of recognizing compensation cost as if the fair value based method had been applied to all outstanding and unvested stock options and other stock~~related-~~based~~party ~~awards for the periods presented~~transactions:

			Three Months Ended June 30,					Six Months Ended June 30,
		Three Months EndedJune 30,							Six Months EndedJune 30,
		2004			2003				2004				2003
			2005		2004			2005			2004
		~~(dollars in millions)~~	(dollars in millions)
Net income (loss), as reported		$	10.7		$	87.8			$	(316.8	)		$	135.1
Sales:
Add: Stock compensation cost, net of taxes, included above			8.8			1.2				10.4				1.6
The DIRECTV Group and affiliates			$	2.2	$	8.5		$	5.2		$	20.4
Deduct: Total stock compensation cost, net of taxes, under the fair value based method			(8.8	)		(6.6	)			(10.4	)			(15.0	)
News Corporation and affiliates				4.7		2.6			10.8			4.2
Pro forma net income (loss)		$	10.7		$	82.4			$	(316.8	)		$	121.7
	Total		$	6.9	$	11.1		$	16.0		$	24.6
Purchases:
The DIRECTV Group and affiliates			$	—	$	92.8		$	—		$	146.7
News Corporation and affiliates				183.7		89.2			323.9			161.2
	Total		$	183.7	$	182.0		$	323.9		$	307.9

~~Note~~ The following 3:table ~~Inventories~~sets forth the amount of accounts receivable from and accounts payable to related-parties as well as the amount borrowed from Parent:

Major Classes of Inventories

		June 30, 2005		December 31, 2004
		(dollars in millions)
Accounts receivable from related-parties		$	5.9	$	4.8

Accounts payable to related-parties:
The DIRECTV Group and affiliates		$	18.0	$	23.9
News Corporation and affiliates			99.4		92.3

	Total	$	117.4	$	116.2

Borrowing from Parent		$	—	$	875.0

	June 30,2004			December 31,2003
	(dollars in millions)
Raw materials	$	1.0		$	29.6
Work in process		0.6			6.7
Finished goods		196.6			63.9
Total		198.2			100.2
Reserve for excess and obsolete inventory		(0.4	)		(0.2	)
Inventories, net	$	197.8		$	100.0

Note 6: Acquisitions and Other Transactions

~~Note~~ 4:NRTC ~~Goodwill~~Contract Rights and ~~Intangible Assets~~Member Subscribers

~~The~~ Effective ~~following~~June 1, ~~table~~2004, ~~sets~~we ~~forth~~and the ~~amounts~~NRTC agreed to end the NRTC's exclusive DIRECTV service distribution agreement and all related agreements. As consideration, we agreed to pay the NRTC approximately $4.4 million per month through June 2011. As a result of this agreement, we now have the right to sell our services in all territories across the United States. In conjunction with the agreement, we recorded ~~for~~$334.1 million ~~goodwill~~as ~~and~~distribution rights in "Intangible Assets, net" in the consolidated balance sheets. We are amortizing the distribution rights intangible ~~assets~~asset asto expense over seven years, which represents the remaining life of the ~~periods~~DIRECTV ~~presented:~~service distribution agreement.

	EstimatedUseful Lives(years)	June 30, 2004						December 31, 2003
		GrossAmount		AccumulatedAmortization		NetAmount		GrossAmount		AccumulatedAmortization		NetAmount
		(dollars in millions)
Goodwill	—	$	3,095.4	$	204.3	$	2,891.1	$	3,095.4	$	204.3	$	2,891.1
Intangible Assets:
Orbital Slots	Indefinite	$	463.0	$	30.6	$	432.4	$	463.0	$	30.6	$	432.4
Subscriber Related	2-6		384.3		220.0		164.3		220.0		198.1		21.9
Dealer Network	12		130.0		39.2		90.8		130.0		34.6		95.4
Distribution Rights	7		322.1		3.8		318.3		—		—		—
Total Intangible Assets		$	1,299.4	$	293.6	$	1,005.8	$	813.0	$	263.3	$	549.7

In connection with the NRTC transaction described above, during the second and third quarters of 2004, all NRTC members, representing approximately 357,000 subscribers, excluding Pegasus, elected to sell their subscribers to us. As a result, we recorded a subscriber related intangible asset in "Intangible Assets, net" in the consolidated balance sheets amounting to $385.5 million, which we are amortizing over the estimated subscriber lives of approximately six years. We are paying certain NRTC members who elected a long-term payment option over seven years.

6 9

~~Table~~ As a result of ~~Contents~~the above transactions, at June 30, 2005, we owe the NRTC and its members who elected the long-term payment option $456.7 million, excluding interest, which is payable approximately as follows: $32.2 million for the remainder of 2005, $67.1 million in 2006, $71.2 million in 2007, $75.5 million in 2008, $80.2 million in 2009 and $130.5 million thereafter. These amounts are recorded in "Accounts payable and accrued liabilities" and "Other Liabilities and Deferred Credits" in the consolidated balance sheets.

~~DIRECTV~~ ~~HOLDINGS~~Pegasus ~~LLC~~ Subscribers

~~NOTES~~ On TOAugust 27, ~~THE~~2004, ~~CONSOLIDATED~~we ~~FINANCIAL~~acquired ~~STATEMENTS~~the –subscribers ~~(Continued)~~and certain assets, consisting primarily of accounts receivable, of Pegasus for a total purchase price of $987.9 million. The total net cash consideration we paid to Pegasus amounted to $773.0 million, which is the total purchase price net of amounts owed by Pegasus for programming and other services and a May 2004 $63 million judgment in our favor. As a result of the transaction, we recorded a subscriber related intangible asset in "Intangible Assets, net" in the consolidated balance sheets amounting to $951.3 million, which we are amortizing over the estimated subscriber lives of approximately five years.

~~The~~ During the ~~following~~third ~~table~~quarter ~~represents~~of ~~the~~2004, ~~amounts~~we ~~recorded~~funded asthe ~~amortization~~cash ~~expense~~proceeds required for ~~intangible~~the ~~assets~~Pegasus ~~for~~and NRTC transactions described above by $875.0 million of borrowings from Parent and a ~~the~~$200.0 million ~~periods~~capital ~~presented:~~contribution from Parent.

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2004		2003		2004		2003
	(dollars in millions)
Subscriber Related	$	5.7	$	16.2	$	21.9	$	32.4
Dealer Network		2.3		2.3		4.6		4.6
Distribution Rights		3.8		—		3.8		—
Total Amortization Expense for Intangible Assets	$	11.8	$	18.5	$	30.3	$	37.0

72.5 WL Orbital License

In As ~~accordance~~part ~~with SFAS~~of ~~No.~~an ~~142~~arrangement with Telesat, ~~“Goodwill~~a Canadian telecommunications and ~~Other~~broadcast ~~Intangible~~services ~~Assets~~company,” nowe ~~amortization~~agreed ~~expense~~to isprovide ~~recorded~~Telesat ~~for~~the ~~goodwill~~use of the DIRECTV 3 satellite, which was previously used as an in-orbit spare, through the end of its useful life and ~~intangible~~in ~~assets~~return ~~with~~Telesat ~~indefinite~~agreed ~~lives~~to allow us to use its 72.5 ~~Estimated~~WL ~~amortization~~orbital ~~expense~~location through 2008. As additional consideration for ~~intangible~~our ~~assets~~use of 72.5 WL, ~~disclosed~~we ~~above~~also agreed to allow Telesat to use DIRECTV 5 or a similar satellite for a five year period, insubject ~~each~~to certain conditions, beginning at the end of 2008. Upon receipt of final approval from the ~~next~~FCC in the third quarter of 2004, we transferred DIRECTV 3 to Telesat and relocated DIRECTV ~~five~~5, ~~years~~which was also an in-orbit spare, to 72.5 WL to provide additional local channels and ~~thereafter~~other isprogramming in the United States. We recorded these transactions as ~~follows:~~an ~~$40~~exchange of similar productive assets based on the net book values of the assets exchanged.2 ~~million~~As ~~for~~a result during the ~~remainder~~third quarter of 2004, we recorded a $80172.3 5 million in72.5 ~~2005~~WL orbital license intangible asset, which is equal to the $8081.4 million net book value of the DIRECTV 3 ~~million~~satellite intransferred ~~2006~~from satellites, net, and an accrual for deferred lease revenues of $8091.3 1 million, inrepresenting the ~~2007,~~value ~~$80~~of the transferred satellite over the five year lease period.3 ~~million~~We inare ~~2008~~amortizing ~~and~~the ~~$212~~72.05 ~~million~~WL ~~thereafter~~orbital license intangible asset over the four year contract period and will recognize the deferred lease revenues as an offset to depreciation expense during the five year lease period beginning at the end of 2008.

~~Note~~ 5:Long-Term ~~Debt~~Purchase Agreement

	Interest Rates atJune 30, 2004		June 30, 2004		December 31, 2003
			(dollars in millions)
Notes payable	8.375	%	$	1,400.0	$	1,400.0
Credit facilities	3.490	%		1,011.8		1,225.0
Total debt				2,411.8		2,625.0
Less: current portion of long-term debt	3.490	%		10.2		213.1
Total long-term debt			$	2,401.6	$	2,411.9

As part of The DIRECTV Group's sale of HNS' set-top receiver manufacturing operations to Thomson in June 2004, we entered into a long-term purchase agreement, or the Agreement, with Thomson for the supply of set-top receivers. As part of this transaction, we received approximately $200 million in cash from Thomson and can earn an additional $50 million rebate from Thomson if Thomson's aggregate sales of our set-top receivers equal at least $4 billion over the initial five year contract term plus an additional one year optional extension period, or the Contract Term. We can also earn, on a pro rata basis, an additional $50 million rebate, which was reduced from $100 million in June 2005 in connection with an amendment of the Agreement to, among other things, reduce our

Notes Payable. DIRECTV Holdings and DIRECTV Financing Co., Inc.’s (“DIRECTV Financing” and together with DIRECTV Holdings, the “Co-Issuers”) $1,400.0 million in registered senior notes are due in 2013 and bear interest at 8.375%. Principal on the senior notes is payable upon maturity, while interest is payable semi-annually. The senior notes have been fully and unconditionally guaranteed, jointly and severally, by each of DIRECTV Holdings’ domestic subsidiaries (other than DIRECTV Financing) (the “Guarantor Subsidiaries”) on a senior unsecured basis. The amount of interest accrued related to the senior notes was $34.2 million at June 30, 2004 and December 31, 2003. 10

~~The~~current prices ~~fair~~of ~~value~~set-top ofreceivers, ~~DIRECTV’~~from Thomson if Thomson's ~~senior~~aggregate ~~notes~~sales ~~was~~of our set-top receivers are in excess of $4 billion and up to $6 billion during the Contract Term. The approximately $1200 million in cash received from Thomson was recorded in "Unearned subscriber revenue and deferred credits" and "Other Liabilities and Deferred Credits" in the consolidated balance sheets and is recorded as an offset to "Subscriber acquisition costs" and/or "Upgrade and retention costs" in the consolidated statements of operations,~~553~~ as appropriate, on a pro rata basis as the set-top receivers purchased from Thomson are activated.7 We have determined that, based upon projected set-top receiver requirements, it is probable and reasonably estimable that the minimum purchase requirement will be met for the $50 million atrebate during the initial contract period. We record a proportionate amount of the $50 million rebate as a credit to "Subscriber acquisition costs" and/or "Upgrade and retention costs" in the consolidated statements of operations upon set-top receiver activation over the initial contract period with a corresponding entry to "Accounts receivable, net" in the consolidated balance sheets. As a result, we recognized $10.1 million during the three months ended June 30, 2005 and $22.4 million during the six months ended June 30, ~~2004~~2005 ~~based~~of onthe ~~quoted~~$200 million ~~market~~deferral ~~prices~~and the $50 million rebate during the initial contract period in the consolidated statements of operations.

~~Credit~~Note 7: ~~Facilities.~~Commitments ~~DIRECTV’s senior secured credit facilities consist of a Term Loan~~ and a $250.0 million revolving credit facility, which was undrawn at June 30, 2004. DIRECTV is required to pay a commitment fee of 0.50% per year on the unused commitment under the revolving credit facility. Borrowings under the Term Loan bore interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.75%, until it was replaced in March 2004 with a new Term Loan with substantially identical terms except that the interest rate was reduced to LIBOR plus 2.25%, which may be increased or decreased under certain conditions. The Term Loan matures in 2010 and the revolving credit facility matures in 2008. The amount of interest accrued related to the senior secured credit facilities was $3.5 million at June 30, 2004 and $7.0 million at December 31, 2003. Contingencies

7 Litigation

~~Table~~ Litigation is subject to uncertainties and the outcome of ~~Contents~~individual litigated matters is not predictable with assurance. Various legal actions, claims and proceedings are pending against us arising in the ordinary course of business. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that, if granted, could require us to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2005. After discussion with counsel representing us in those actions, it is the opinion of management that such litigation is not expected to have a material adverse effect on our consolidated results of operations or financial position.

~~DIRECTV~~ ~~HOLDINGS LLC~~ Satellites

~~NOTES~~ We TOuse ~~THE~~in-orbit ~~CONSOLIDATED~~and ~~FINANCIAL~~launch ~~STATEMENTS~~insurance –to ~~(Continued)~~mitigate the potential financial impact of satellite fleet launch and in-orbit failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites. We do not insure against lost revenues in the event of a total or partial loss of the capacity of a satellite. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact that a satellite failure could have on our ability to provide service. At June 30, 2005, the net book value of uninsured satellites amounted to $649.0 million.

~~Principal~~ payments under the Term Loan are due primarily in 2008 to 2010. However, at each year end DIRECTV may be required to make a computation of excess cash flows for the year, as defined by the senior secured credit facilities agreement, which could result in DIRECTV making a prepayment under the Term Loan. As a result, based upon the calculated excess cash flows for the year ended December 31, 2003, DIRECTV made a prepayment of $201.0 million under the Term Loan on April 15, 2004. Commitments

~~The~~ At ~~revolving~~June 30, ~~portion~~2005, ofour ~~the~~minimum ~~senior~~future ~~secured~~commitments ~~credit~~under ~~facilities~~noncancelable isoperating ~~available~~leases tohaving ~~fund~~lease ~~DIRECTV’s~~terms ~~working~~in ~~capital~~excess of one year were primarily for real property and ~~other~~aggregated ~~requirements~~$122.1 million, ~~The~~payable ~~senior~~as follows: $14.8 million for the remainder of 2005, $25.9 million in 2006, $24.4 million in 2007, $23.0 million in ~~secured~~2008, ~~credit~~$10.3 million ~~facilities~~in ~~are~~2009 ~~secured~~and by$23.7 million ~~substantially~~thereafter. ~~all~~Certain of ~~DIRECTV’s~~these ~~assets~~leases ~~and~~contain ~~are~~escalation ~~fully~~clauses and ~~unconditionally~~renewal ~~guaranteed~~or purchase options, ~~jointly~~which ~~and~~we ~~severally~~have not considered in the amounts disclosed. Our rental expense under operating leases was $23.5 million for the six months ended June 30, by2005 ~~all~~and of$19.9 million ~~DIRECTV’s~~for ~~domestic~~the ~~subsidiaries~~six months ended June 30, 2004.

~~Covenants and Restrictions. The senior secured credit facilities~~ At require DIRECTV to maintain certain financial covenants. The senior notes and the senior secured credit facilities also include covenants that restrict the Co-Issuers and the Guarantor Subsidiaries’ ability toJune 30, ~~among other things~~2005, ~~(i)~~we ~~incur additional~~anticipate ~~indebtedness,~~minimum ~~(ii) place liens upon assets, (iii) make distributions, (iv) pay dividends or make certain other restricted~~ payments ~~and~~under ~~investments,~~our ~~(v) consummate asset sales, (vi) enter into certain transactions with affiliates, (vii) conduct businesses other than DIRECTV’s~~ current orcontractual ~~related businesses~~commitments, ~~(viii)~~which ~~merge~~include oragreements ~~consolidate~~for ~~with~~broadcast ~~any other person~~programming, ~~(ix) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of DIRECTV’s assets, (x) make voluntary prepayments of certain debt (including any repayment of~~ the ~~senior~~purchase ~~notes) and (xi) make capital expenditures. Should DIRECTV fail to comply with its covenants, all or a portion~~ of ~~the~~services ~~borrowings~~that ~~under the senior notes and senior~~we ~~secured~~have ~~credit~~outsourced ~~facilities could become immediately payable. At June 30, 2004, DIRECTV was in compliance with all such covenants.~~

~~Note 6: Related-Party Transactions~~ 11

~~The~~to third ~~DIRECTV~~parties, ~~Group~~such ~~and~~as ~~affiliates.~~call ~~DIRECTV~~center ~~enters~~operations, ~~into~~billing ~~related-party~~services ~~transactions with The DIRECTV Group~~ and ~~certain of its affiliates as part of normal operations~~TT&C, ~~which~~and ~~include~~ the ~~purchase~~cost of ~~telemetry,~~planned ~~tracking~~satellite ~~and~~construction ~~control~~ and ~~other~~launch ~~satellite~~contracts ~~services. Prior~~ to ~~June~~be ~~22,~~approximately ~~2004,~~$474.3 million ~~DIRECTV~~for ~~purchased~~the remainder ~~DIRECTV receiving equipment and provided system access cards to a subsidiary~~ of ~~The~~2005, ~~DIRECTV Group~~$851.7 million Inin ~~addition~~2006, ~~DIRECTV~~$927.6 million ~~provides~~in ~~accounting~~2007, ~~and~~$919.7 million ~~administrative~~in ~~services~~2008, to$874.7 million ~~The~~in ~~DIRECTV~~2009 ~~Group~~ and ~~certain~~$1,336.7 million ~~of its affiliates and receives an allocation of employee benefit expenses from The DIRECTV Group~~thereafter.

~~News~~Note 8: ~~Corporation~~Condensed ~~and~~Consolidating ~~affiliates.~~Financial Beginning December 23, 2003, with the completion of the News Corporation transactions, News Corporation and its affiliated companies are considered related parties. DIRECTV purchases products and services from various affiliates of News Corporation. The products and services purchased include system access cards, rights to distribute live television programming, subscription services, broadcast engineering services and television advertising. Statements

~~Effective~~ The ~~March~~following 1,presents ~~2004~~the condensed consolidating statements of operations for the three and six months ended June 30, ~~NDS~~2005 ~~Limited~~and ~~(“NDS”)~~2004, athe ~~subsidiary~~condensed consolidating statements of ~~News~~cash ~~Corporation,~~flows ~~became~~for the ~~exclusive~~six ~~provider~~months ~~of DIRECTV~~ended ~~conditional~~June 30, ~~access~~2005 ~~products~~and 2004 and ~~services,~~the ~~including~~condensed ~~system~~consolidating ~~access~~balance ~~cards~~sheets as of June 30, a2005 ~~key~~and ~~component~~December 31, 2004 of the Co-Issuers, Guarantor Subsidiaries, and the ~~access~~eliminations ~~security~~necessary ~~system~~to inpresent ~~set-top~~DIRECTV ~~receivers.~~Holdings' ~~NDS~~financial ~~will~~statements beon ~~responsible~~a ~~for~~consolidated ~~developing~~basis. ~~and~~These ~~periodically~~condensed ~~replacing~~consolidating ~~system~~financial statements ~~access~~should ~~cards~~be ~~during~~read in conjunction with the ~~term~~ accompanying consolidated financial statements of ~~the~~DIRECTV ~~agreement~~Holdings.

8 Condensed Consolidating Statement of Operations For the Three Months Ended June 30, 2005

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
Revenues			$	255.0		$	2,960.5		$	(255.0	)	$	2,960.5
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs			200.6			1,191.9			(254.8	)		1,137.7
	Subscriber service expenses			—			219.2			—			219.2
	Subscriber acquisition costs:
		Third party customer acquisitions		—			467.9			—			467.9
		Direct customer acquisitions		—			154.3			—			154.3
	Upgrade and retention costs			—			223.2			—			223.2
	Broadcast operations expenses			—			35.3			—			35.3
	General and administrative expenses			0.5			218.0			(0.2	)		218.3
Depreciation and amortization expense				—			171.4			—			171.4

		Total Operating Costs and Expenses		201.1			2,681.2			(255.0	)		2,627.3

Operating Profit				53.9			279.3			—			333.2
Equity in pre-tax income of consolidated subsidiaries				271.2			—			(271.2	)		—
Interest expense, net				(46.4	)		(7.8	)		—			(54.2	)
Other expense				(64.9	)		(0.3	)		—			(65.2	)

Income Before Income Taxes				213.8			271.2			(271.2	)		213.8
Income tax expense				(82.0	)		(103.9	)		103.9			(82.0	)

Net Income			$	131.8		$	167.3		$	(167.3	)	$	131.8

~~DIRECTV HOLDINGS LLC~~ 12

~~NOTES~~ TO Condensed ~~THE~~Consolidating ~~CONSOLIDATED~~Statement ~~FINANCIAL~~of ~~STATEMENTS~~Operations For –the ~~(Continued)~~Three Months Ended June 30, 2004

The following table summarizes related-party transactions:

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
Revenues			$	236.1		$	2,217.0		$	(236.2	)	$	2,216.9
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs			158.1			934.5			(236.1	)		856.5
	Subscriber service expenses			—			166.0			—			166.0
	Subscriber acquisition costs:
		Third party customer acquisitions		—			445.4			—			445.4
		Direct customer acquisitions		—			162.1			—			162.1
	Upgrade and retention costs			—			226.8			—			226.8
	Broadcast operations expenses			—			35.2			—			35.2
	General and administrative expenses			0.2			149.8			(0.1	)		149.9
Depreciation and amortization expense				—			111.7			—			111.7

		Total Operating Costs and Expenses		158.3			2,231.5			(236.2	)		2,153.6

Operating Profit (Loss)				77.8			(14.5	)		—			63.3
Equity in pre-tax loss of consolidated subsidiaries				(15.6	)		—			15.6			—
Interest expense, net				(44.9	)		(1.1	)		—			(46.0	)

Income (Loss) Before Income Taxes				17.3			(15.6	)		15.6			17.3
Income tax (expense) benefit				(6.6	)		6.0			(6.0	)		(6.6	)

Net Income (Loss)			$	10.7		$	(9.6	)	$	9.6		$	10.7

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2004		2003		2004		2003
	(dollars in millions)
Sales:
The DIRECTV Group and affiliates	$	8.5	$	8.6	$	20.4	$	16.2
News Corporation and affiliates		2.6		—		4.2		—
Total	$	11.1	$	8.6	$	24.6	$	16.2
Purchases:
The DIRECTV Group and affiliates	$	92.8	$	44.6	$	146.7	$	103.2
News Corporation and affiliates		89.2		—		161.2		—
Total	$	182.0	$	44.6	$	307.9	$	103.2

Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2005

The following table sets forth the amount of accounts receivable from and accounts payable to related parties:

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
Revenues			$	492.2		$	5,761.3		$	(492.2	)	$	5,761.3
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs			397.4			2,381.8			(491.9	)		2,287.3
	Subscriber service expenses			—			439.7			—			439.7
	Subscriber acquisition costs:
		Third party customer acquisitions		—			1,055.8			—			1,055.8
		Direct customer acquisitions		—			312.0			—			312.0
	Upgrade and retention costs			—			475.4			—			475.4
	Broadcast operations expenses			—			70.7			—			70.7
	General and administrative expenses			0.7			399.8			(0.3	)		400.2
Depreciation and amortization expense				—			348.6			—			348.6

		Total Operating Costs and Expenses		398.1			5,483.8			(492.2	)		5,389.7

Operating Profit				94.1			277.5			—			371.6
Equity in pre-tax income of consolidated subsidiaries				256.3			—			(256.3	)		—
Interest expense, net				(89.7	)		(20.5	)		—			(110.2	)
Other expense				(64.9	)		(0.7	)		—			(65.6	)

Income Before Income Taxes				195.8			256.3			(256.3	)		195.8
Income tax expense				(75.1	)		(98.1	)		98.1			(75.1	)

Net Income			$	120.7		$	158.2		$	(158.2	)	$	120.7

	June 30,2004		December 31,2003
	(dollars in millions)
Accounts receivable from related parties	$	7.6	$	3.4
Accounts payable to related parties	$	124.3		89.4

~~Note~~ 7: ~~Acquisitions~~ Condensed ~~and~~Consolidating ~~Other Transactions~~Statement of Operations For the Six Months Ended June 30, 2004

NRTC Contract Rights

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
Revenues			$	449.0		$	4,298.0		$	(449.3	)	$	4,297.7
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs			307.8			1,845.8			(449.0	)		1,704.6
	Subscriber service expenses			—			312.0			—			312.0
	Subscriber acquisition costs:
		Third party customer acquisitions		—			881.9			—			881.9
		Direct customer acquisitions		—			313.4			—			313.4
	Upgrade and retention costs			—			401.0			—			401.0
	Broadcast operations expenses			—			65.2			—			65.2
	General and administrative expenses			0.5			299.2			(0.3	)		299.4
Depreciation and amortization expense				—			235.5			—			235.5

		Total Operating Costs and Expenses		308.3			4,354.0			(449.3	)		4,213.0

Operating Profit (Loss)				140.7			(56.0	)		—			84.7
Equity in pre-tax loss of consolidated subsidiaries				(561.0	)		—			561.0			—
Interest expense, net				(92.3	)		(1.1	)		—			(93.4	)

Loss Before Income Taxes and Cumulative Effect of Accounting Change				(512.6	)		(57.1	)		561.0			(8.7	)
Income tax benefit				195.8			22.0			(214.4	)		3.4

Loss Before Cumulative Effect of Accounting Change				(316.8	)		(35.1	)		346.6			(5.3	)
Cumulative effect of accounting change, net of taxes				—			(311.5	)		—			(311.5	)

Net Loss			$	(316.8	)	$	(346.6	)	$	346.6		$	(316.8	)

On ~~June 2, 2004, DIRECTV and the National Rural Telecommunications~~ ~~Cooperative~~ (“NRTC”) announced an agreement, effective June 1, 2004, to end the NRTC’s exclusive DIRECTV service distribution agreement to certain rural territories in the United States and all related agreements. As consideration, ~~DIRECTV~~Condensed ~~agreed~~Consolidating toBalance ~~pay the NRTC $4.4 million per month through June 2011, or $322.1 million on a present value basis, calculated using an estimated incremental annual borrowing rate of 4.3%.~~ Sheet As ~~a result~~ of ~~this agreement, DIRECTV now has the right to sell its services in all territories across the United States. At~~ June 30, 2004, the present value of the cash payments to be made to the NRTC was recorded in “Accounts payable and accrued liabilities” and “Other Liabilities and Deferred Credits,” with a corresponding amount recorded as distribution rights in “Intangible Assets, net” in the consolidated balance sheets. The distribution rights intangible asset is being amortized to expense over seven years, which represents the remaining life of the original DIRECTV service distribution agreement. 2005

NRTC Member Subscribers

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
ASSETS
Total Current Assets			$	831.1		$	1,341.7		$	(7.7	)	$	2,165.1
Satellites, net				—			1,764.8			—			1,764.8
Property, net				—			723.5			—			723.5
Goodwill				1,827.6			1,204.1			—			3,031.7
Intangible Assets, net				—			2,048.3			—			2,048.3
Other Assets				4,060.9			88.2			(4,023.7	)		125.4

Total Assets			$	6,719.6		$	7,170.6		$	(4,031.4	)	$	9,858.8

LIABILITIES AND OWNER'S EQUITY
Total Current Liabilities			$	189.4		$	1,897.9		$	(7.7	)	$	2,079.6
Long-Term Debt				3,410.5			—			—			3,410.5
Other Liabilities and Deferred Credits				44.6			1,361.9			(112.9	)		1,293.6
Owner's Equity
	Capital stock and additional paid-in capital			4,034.2			5,434.7			(5,434.7	)		4,034.2
	Accumulated deficit			(959.1	)		(1,523.9	)		1,523.9			(959.1	)

		Total Owner's Equity		3,075.1			3,910.8			(3,910.8	)		3,075.1

Total Liabilities and Owner's Equity			$	6,719.6		$	7,170.6		$	(4,031.4	)	$	9,858.8

In connection with the NRTC transaction described above, DIRECTV provided the NRTC’s 95 members, excluding Pegasus Satellite Television, Inc. (“Pegasus”), the option to retain their subscribers with substantially the same terms and conditions as they had prior to the NRTC transaction, or sell their subscribers to DIRECTV for $875 or $1,050, per subscriber, depending on the member’s contract period, payable in a lump-sum or over five or seven years plus interest. Members may make their elections through August 31, 2004. At June 30, 2004, 47 members, representing approximately 157,000 subscribers out of the NRTC’s total subscribers of approximately 357,000, excluding Pegasus, elected to sell their subscribers to DIRECTV. As a result, at June 30, 14

9 Condensed Consolidating Balance Sheet As of December 31, 2004

			Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
			(dollars in millions)
ASSETS
Total Current Assets			$	46.6		$	1,292.4		$	(7.7	)	$	1,331.3
Satellites, net				—			1,597.4			—			1,597.4
Property, net				—			686.1			—			686.1
Goodwill				1,827.6			1,204.1			—			3,031.7
Intangible Assets, net				—			2,224.9			—			2,224.9
Other Assets				4,062.9			67.4			(4,007.5	)		122.8

Total Assets			$	5,937.1		$	7,072.3		$	(4,015.2	)	$	8,994.2

LIABILITIES AND OWNER'S EQUITY
Total Current Liabilities			$	195.5		$	1,850.0		$	(7.7	)	$	2,037.8
Long-Term Debt				3,276.6			—			—			3,276.6
Other Liabilities and Deferred Credits				86.1			2,179.7			(964.9	)		1,300.9
Owner's Equity
	Capital stock and additional paid-in capital			3,458.7			4,724.8			(4,724.8	)		3,458.7
	Accumulated deficit			(1,079.8	)		(1,682.2	)		1,682.2			(1,079.8	)

		Total Owner's Equity		2,378.9			3,042.6			(3,042.6	)		2,378.9

Total Liabilities and Owner's Equity			$	5,937.1		$	7,072.3		$	(4,015.2	)	$	8,994.2

~~DIRECTV~~ ~~HOLDINGS~~ ~~LLC~~ Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2005

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

			Co-Issuers			Guarantor Subsidiaries			DIRECTV Holdings Consolidated
			(dollars in millions)
Cash Flows from Operating Activities
	Net Cash Provided by (Used in) Operating Activities		$	(750.6	)	$	1,245.1		$	494.5

Cash Flows from Investing Activities
	Expenditures for property and equipment			—			(148.3	)		(148.3	)
	Expenditures for satellites			—			(195.6	)		(195.6	)

		Net Cash Used in Investing Activities		—			(343.9	)		(343.9	)

Cash Flows from Financing Activities
	Cash proceeds from refinancing transactions			3,003.3			—			3,003.3
	Cash contribution from Parent			538.3			—			538.3
	Repayment of debt			(2,001.8	)		—			(2,001.8	)
	Repayment of borrowing from Parent			(875.0	)		—			(875.0	)
	Loans (to) from related parties			875.0			(875.0	)		—
	Repayment of long-term obligations			—			(31.2	)		(31.2	)
	Debt issuance costs			(4.7	)		—			(4.7	)

		Net Cash Provided by (Used in) Financing Activities		1,535.1			(906.2	)		628.9

Net increase (decrease) in cash and cash equivalents				784.5			(5.0	)		779.5
Cash and cash equivalents at beginning of the period				14.0			20.5			34.5

Cash and cash equivalents at the end of the period			$	798.5		$	15.5		$	814.0

2004 DIRECTV recorded liabilities in the consolidated balance sheets in “Accounts payable and accrued liabilities” amounting to $83.2 million for members electing a lump-sum payout, which was paid in July 2004, and in “Accounts payable and accrued liabilities” and “Other Liabilities and Deferred Credits” amounting to $81.1 million for those members electing the long-term payment option. DIRECTV also recorded a subscriber related intangible asset in “Intangible assets, net” in the consolidated balance sheets amounting to $164.3 million, which will be amortized over the estimated subscriber lives of approximately six years. 15

In ~~July 2004, DIRECTV received~~ ~~elections~~ from an additional 47 NRTC members, representing approximately 200,000 additional subscribers, who elected to sell their subscribers to DIRECTV. As a result, DIRECTV paid an additional $90.1 million in July 2004 to those members ~~electing~~Condensed aConsolidating ~~lump-sum~~Statement ~~payout and accrued an additional $119.1 million for those members electing the long-term payment option. As a result, in July 2004, DIRECTV increased the amount~~ of ~~the~~Cash ~~subscriber~~Flows For ~~related intangible asset equal to~~ the ~~amounts~~Six ~~paid and~~Months ~~accrued.~~Ended ~~In the third quarter of 2004~~June 30, ~~The DIRECTV Group contributed $200.0 million to DIRECTV to partially fund the NRTC transactions. This transaction will be recorded as a capital contribution from Parent in the third quarter of~~ 2004.

Pegasus Subscribers

			Co-Issuers			Guarantor Subsidiaries			DIRECTV Holdings Consolidated
			(dollars in millions)
Cash Flows from Operating Activities
	Net Cash Provided by (Used in) Operating Activities		$	(70.3	)	$	275.9		$	205.6

Cash Flows from Investing Activities
	Expenditures for property and equipment			—			(106.5	)		(106.5	)
	Expenditures for satellites			—			(172.7	)		(172.7	)
	Proceeds from sale of property			—			3.3			3.3

		Net Cash Used in Investing Activities		—			(275.9	)		(275.9	)

Cash Flows from Financing Activities
	Repayment of debt			(213.2	)		—			(213.2	)
	Debt issuance costs			(1.9	)		—			(1.9	)

		Net Cash Used in Financing Activities		(215.1	)		—			(215.1	)

Net decrease in cash and cash equivalents				(285.4	)		—			(285.4	)
Cash and cash equivalents at beginning of the period				415.7			—			415.7

Cash and cash equivalents at the end of the period			$	130.3		$	—		$	130.3

In July 2004, DIRECTV entered into an agreement with Pegasus and related entities for DIRECTV to purchase certain direct broadcast satellite assets of Pegasus, including rights to all DIRECTV subscribers activated through Pegasus. DIRECTV will pay $875 million in cash, which is net of the approximately $63 million judgment returned in May 2004 by the U.S. District Court for the Central District of California in favor of DIRECTV. The aggregate purchase price is $938 million prior to taking into account the reduction for the judgment. The purchase price will also be reduced for amounts owed by Pegasus to DIRECTV for programming and other services and is subject to certain other adjustments at the close of the transaction. The agreement, which has been approved by the creditors’ committee in Pegasus’ Chapter 11 proceedings, will also result in a release of all claims among the parties. The transaction is expected to close late in the third quarter of 2004, subject to the approval of the U.S. Bankruptcy Court, District of Maine. 16

~~The~~ ~~cash~~ ~~proceeds required for the Pegasus transaction will be~~ ~~provided~~ITEM to2. MANAGEMENT'S ~~DIRECTV~~DISCUSSION ~~from~~AND ~~The~~ANALYSIS ~~DIRECTV~~OF ~~Group~~FINANCIAL inCONDITION ~~the~~AND ~~form~~RESULTS ofOF ~~an intercompany note.~~ OPERATIONS

~~Long~~ The following is a discussion of our financial condition and results of operations for the periods described below. This discussion should be read in conjunction with our management's discussion and analysis included in our Annual Report on Form 10-~~Term~~K ~~Purchase~~for ~~Agreement~~the year ended December 31, 2004 filed with the SEC on March 1, 2005, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed with the SEC on May 5, 2005, and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.

As This Quarterly ~~part~~Report ofon ~~The~~Form 10-Q ~~DIRECTV~~may ~~Group’s~~contain ~~sale~~certain ofstatements ~~Hughes~~that ~~Network~~we ~~Systems~~believe are, ~~Inc.’s~~or ~~set-top~~may ~~receiver~~be ~~manufacturing~~considered ~~business~~ to ~~Thomson Inc. (“Thomson”) in June 2004~~be, ~~DIRECTV entered into a long~~"forward-~~term~~looking ~~purchase~~statements" ~~agreement~~within (the ~~“Agreement”)~~ ~~with~~meaning ~~Thomson~~of various ~~for~~provisions ~~the supply~~ of ~~set-top~~the ~~receivers.~~Securities AsAct ~~part~~ of ~~this~~1933 ~~transaction, DIRECTV received approximately $200 million in cash from Thomson~~ and ~~can~~of ~~earn~~the anSecurities ~~additional~~Exchange ~~$50~~Act ~~million~~of ~~rebate~~1934. ~~from~~These ~~Thomson if Thomson’s sales of set~~forward-~~top~~looking ~~receivers~~statements togenerally ~~DIRECTV~~can ~~and/or~~be ~~its~~identified ~~retailers~~by ~~and~~use ~~distributors~~of ~~equal~~statements atthat ~~least~~include $4phrases ~~billion~~such as ~~over~~we ~~the~~"believe," ~~initial~~"estimate," ~~five~~"expect," ~~year~~"anticipate," ~~contract~~"intend," ~~term~~"plan," ~~plus~~"foresee," an"project" ~~additional~~or ~~one~~other ~~year~~similar ~~optional~~words ~~extension~~or ~~period (the “Contract Term”)~~phrases. ~~DIRECTV can also earn~~Similarly, ~~on a~~statements ~~pro~~that ~~rata~~describe ~~basis~~our objectives, anplans ~~additional~~or ~~$100~~goals ~~million~~also are ~~rebate from Thomson if Thomson’s sales of set~~forward-~~top~~looking ~~receivers are in excess of $4 billion and up to $6 billion during the Contract Term~~statements. AsAll ~~part~~ of ~~the~~these ~~Agreement,~~forward-looking ~~DIRECTV~~statements ~~has~~are ~~agreed~~subject to ~~minimum set-top~~certain ~~receiver~~risks ~~volume~~and ~~requirements,~~uncertainties ~~which~~that could because inour ~~excess~~actual ofresults ~~$1.0~~to ~~billion~~differ ofmaterially ~~purchases~~from byhistorical ~~DIRECTV and/~~results or ~~its~~from ~~retailers~~those ~~and~~expressed ~~distributors~~or ~~over~~implied ~~the~~by ~~first three years of~~ the ~~Contract~~relevant ~~Term based on current set~~forward-~~top~~looking ~~receiver prices~~statement. ~~The~~Risk ~~approximately $200~~factors ~~million~~which incould ~~cash~~cause ~~received~~actual ~~from~~performance ~~Thomson was recorded as “Unearned subscriber revenue~~ and ~~deferred~~future ~~credits”~~actions ~~and “Other Liabilities and Deferred Credits” in the consolidated balance sheets and will be recorded as an offset~~ to ~~“Subscriber~~ ~~acquisition~~differ ~~costs”~~materially ~~and/or~~from ~~“Retention~~forward-looking ~~and upgrade costs” in the consolidated~~ statements made ofherein ~~operations~~include, asamong ~~appropriate~~others, ~~on a pro rata basis as~~ the ~~set-top~~following: ~~receivers purchased are activated. DIRECTV has determined~~

•: we may not sustain profitability;
•: we compete with other multi-channel video programming distributors some of whom have greater resources and increasing levels of competition could materially adversely affect our ability to increase earnings;
•: we depend on the Communications Act for access to cable-affiliated programming and changes impacting that access could materially adversely affect us;
•: regulatory carriage requirements may negatively affect our ability to deliver local broadcast stations, as well as other aspects of our business;
•: loss of FCC licenses and other regulatory approvals critical to our business could materially adversely affect us;
•: we depend on others to produce programming and if the costs of such programming increase more than anticipated, it could materially adversely affect our financial performance;
•: higher than anticipated subscriber acquisition costs could materially adversely affect our financial performance;
•: higher than anticipated subscriber churn or subscriber upgrade or retention costs could materially adversely affect our financial performance;
•: satellite programming signals have been stolen and may be stolen in the future, which could result in lost revenues and would cause us to incur incremental operating costs;
•: construction or launch delays on satellites could materially adversely affect our revenues and earnings;
•: our satellites are subject to significant launch and operational risks which could materially adversely impact our ability to provide our service;
•: if the cost of commercial insurance coverage on our satellites is too high, we may forego insurance coverage and the loss of a satellite that is not insured could materially adversely affect our earnings;

10 17

•: to remain competitive, we must keep pace with technological developments and our ability to do so is uncertain;
•: failure to protect necessary intellectual property we own, dependence on third party intellectual property or inadvertent infringement of patents and proprietary rights of others could materially adversely affect our ability to provide service or result in significant liability;
•: we are subject to numerous contractual constraints on our ability to raise additional debt;
•: weaknesses in the U.S. economy may harm our business;
•: future acquisitions, strategic partnerships and divestitures may involve additional uncertainties;
•: we are party to various lawsuits, which are subject to uncertainties and for which the outcome cannot be predicted with assurance; and
•: we may face other risks described from time to time in periodic reports filed by us with the SEC.

~~Table~~ We urge you to consider these factors carefully in evaluating forward-looking statements. The forward looking statements included in this Quarterly Report are made only as of ~~Contents~~the date of this Quarterly Report and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

~~DIRECTV~~Key ~~HOLDINGS~~Terminology ~~LLC~~Used in Management's Discussion and Analysis of Financial Condition and Results of Operations

~~NOTES~~ Revenues. We TOearn ~~THE~~revenues ~~CONSOLIDATED~~mostly ~~FINANCIAL~~from ~~STATEMENTS~~subscriber –subscriptions to basic and premium channel programming, pay-per-view programming and seasonal and live sporting events. We also earn revenues from fees that we charge subscribers with multiple set-top receivers (~~Continued~~which we refer to as mirroring fees), hardware revenues from subscribers who purchase receivers under our direct sales and upgrade and retention programs, our published programming guide, warranty service fees and advertising services. Prior to the completion of the transactions with the NRTC and Pegasus in the third quarter of 2004, revenues also included fees earned from the NRTC and Pegasus, which were equal to a percentage of the subscriber revenues earned from the subscribers located in certain areas (mainly rural). See "Discussion of Significant Events" below for further discussion.

~~that,~~ Programming ~~based~~and ~~upon~~Other ~~projected~~Costs. These ~~set-top~~costs ~~receiver~~primarily ~~requirements,~~include itlicense isfees ~~probable the minimum purchase requirements will be met~~ for ~~the~~subscription ~~initial $50 million rebate~~service ~~during~~programming, ~~the~~pay-per-view ~~initial~~programming, ~~contract~~live ~~period,~~sports and ~~therefore~~other ~~DIRECTV~~events. ~~will~~Other ~~record~~costs ainclude ~~credit~~expenses toassociated ~~“Subscriber~~with ~~acquisition~~the ~~costs”~~publication and~~/or~~ ~~“Retention~~distribution ~~and~~of ~~upgrade~~our ~~costs”~~programming inguide, continuing ~~the~~service ~~consolidated~~fees ~~statements~~paid ofto ~~operations~~third asparties ~~earned~~for ~~upon~~active ~~set-top~~DIRECTV ~~receiver activation~~subscribers, ~~over~~warranty ~~the~~service ~~initial~~premiums ~~contract~~we ~~period~~pay ~~with~~to a ~~corresponding~~third ~~entry~~party toand ~~“Accounts~~production ~~receivable”~~costs infor ~~the~~on-air ~~consolidated~~advertisements ~~balance~~we ~~sheets~~sell to third parties.

~~The~~ Subscriber ~~approximately~~Service ~~$200~~Expenses. Subscriber ~~million~~service inexpenses ~~cash~~include ~~received~~the ~~from~~costs ~~Thomson~~of iscustomer ~~included~~call incenters, billing, ~~cash~~remittance ~~flows~~processing ~~from~~and ~~operating~~certain ~~activities~~home inservices ~~the~~expenses, ~~consolidated~~such ~~statements~~as ofin-home ~~cash flows~~repair ~~for the six months ended June 30, 2004~~costs.

~~Note~~ Subscriber 8:Acquisition ~~Commitments~~Costs—Third ~~and~~Party Customer Acquisitions. The majority of these ~~Contingencies~~costs represent commissions we pay to third parties to acquire new DIRECTV subscribers, which include our national retailers as well as independent satellite television retailers, dealers, regional Bell operating companies and others. We also include the costs we incur for subsidies of DIRECTV System equipment, installation and advertising.

~~Litigation~~ Subscriber Acquisition Costs—Direct Customer Acquisitions. These costs consist primarily of hardware, installation, advertising and customer call center expenses associated with new DIRECTV subscribers added through our direct customer acquisition program.

Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, claims and proceedings are pending against DIRECTV arising in the ordinary course of business. DIRECTV has established loss provisions for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that, if granted, could require DIRECTV to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2004. After discussion with counsel representing DIRECTV in those actions, it is the opinion of management that such litigation is not expected to have a material adverse effect on DIRECTV’s consolidated results of operations or financial position. 18

~~DIRECTV filed suit in California State Court, Los Angeles County, on June 22, 2001 against Pegasus Satellite Television, Inc~~ SAC. We ~~and~~calculate ~~Golden Sky Systems~~SAC, ~~Inc.,~~ which ~~are~~represents ~~referred~~total tosubscriber ~~collectively~~acquisition incosts ~~this~~stated ~~paragraph~~on asa ~~the~~per ~~Defendants. The action was subsequently removed to the~~subscriber ~~U.S. District Court for the Central District of California. The lawsuit sought to recover approximately $52 million~~basis, ~~excluding~~by ~~interest,~~dividing ~~that~~total ~~Defendants~~subscriber ~~owe~~acquisition ~~DIRECTV~~costs ~~under the parties’ Seamless Marketing Agreement, which provided~~ for ~~reimbursement~~ ~~to DIRECTV of certain costs that resulted from new subscriber activations in Defendants’ territory. On April 14, 2004, the jury returned~~ a ~~verdict~~period ~~awarding DIRECTV $51.5 million in damages against~~ (the ~~Defendants~~sum ~~as a result~~ of ~~the Defendants’~~subscriber ~~breach~~acquisition ofcosts ~~the~~reported ~~agreement. The court granted DIRECTV’s request~~ for ~~prejudgment~~third ~~interest~~party ~~and~~customer onacquisitions ~~May 24, 2004, entered judgment against Defendants~~ and indirect ~~favor~~customer ofacquisitions) ~~DIRECTV~~by in the number ~~amount~~ of ~~approximately~~gross ~~$63~~new ~~million.~~subscribers ~~Defendants~~that ~~filed a~~we ~~voluntary~~acquired ~~petition~~through ~~for~~third ~~Chapter~~parties 11and ~~bankruptcy~~our indirect ~~the~~customer ~~U.S.~~acquisition ~~Bankruptcy~~program ~~Court,~~during ~~District~~the ~~of Maine~~period, onexcluding ~~June~~the 2,subscribers ~~2004,~~we ~~staying~~acquired ~~DIRECTV’s~~as ~~ability~~part toof ~~collect on~~ the ~~judgment.~~NRTC Onand Pegasus ~~June 21, 2004, Defendants filed a Notice of Appeal~~transactions.

~~Pegasus~~ Upgrade ~~Satellite~~and ~~Television,~~Retention ~~Inc~~Costs. The ~~and~~majority ~~Golden~~of ~~Sky~~upgrade ~~Systems,~~and ~~Inc.,~~retention ~~which~~costs are ~~referred~~ toassociated inwith ~~this~~upgrade efforts ~~paragraph~~for asexisting ~~Plaintiffs,~~subscribers ~~filed~~that anwe ~~action~~believe onwill ~~January~~result ~~11, 2000 against DIRECTV~~ in ~~the~~higher ~~U.S.~~average ~~District~~monthly ~~Court~~revenue ~~for~~per ~~the Central District of California. The Plaintiffs alleged~~subscriber, ~~among~~or ~~other things~~ARPU, ~~that~~and ~~DIRECTV~~lower ~~interfered with their contractual relationship with the NRTC~~churn. ~~The~~Our ~~Plaintiffs~~upgrade ~~alleged~~efforts ~~that~~include ~~their~~subscriber ~~rights~~equipment ~~and~~upgrade programs ~~damages~~for ~~are~~digital ~~derivative~~video ~~of the rights and damages asserted by the NRTC in its lawsuits against DIRECTV~~recorders, ~~which~~or ~~have been settled. On May 13~~DVRs, ~~2004~~high-definition, ~~the~~or ~~court~~HD, ~~entered an~~receivers ~~order~~and ~~eliminating~~local ~~all~~channels, ofour ~~Plaintiffs’~~multiple ~~remaining~~set-top ~~claims~~receiver offer and ~~dismissed~~similar ~~DIRECTV’s~~initiatives. ~~claim~~Retention costs onalso ~~the~~include ~~term of~~ the ~~member~~costs ~~agreements based on lack~~ of ~~standing.~~installing ~~The~~and/or ~~Court~~providing ~~entered~~hardware ~~final~~under ~~judgment~~our onmovers ~~June~~program 2,for ~~2004.~~subscribers Onrelocating ~~June~~to ~~10, 2004, Plaintiffs filed~~ a ~~Notice~~ ofnew ~~Appeal~~residence.

As Broadcast ~~discussed~~Operations ~~above, Pegasus Satellite Television, Inc~~Expenses. These ~~and~~expenses ~~Golden~~include ~~Sky~~broadcast ~~Systems,~~center ~~Inc.,~~operating ~~among others~~costs, ~~which~~signal transmission ~~are~~expenses ~~referred~~(including tocosts ~~collectively~~of incollecting ~~this~~signals ~~paragraph as Debtors, filed a voluntary petition~~ for ~~Chapter~~our 11local ~~bankruptcy~~channel ~~in the U.S. Bankruptcy Court~~offerings), ~~District of Maine, on June 2, 2004. Debtors also filed an Adversary Complaint in the bankruptcy court against DIRECTV, Inc., the NRTC,~~ and ~~various~~costs ~~officers and directors~~ of ~~the NRTC. The complaint seeks declaratory and injunctive relief~~monitoring, ~~rescission~~maintaining ~~of certain agreements between DIRECTV~~ and ~~NRTC,~~insuring ~~specific~~our ~~performance against NRTC, restitution, compensatory and punitive damages~~satellites. OnAlso ~~July~~included ~~30,~~are ~~2004,~~engineering ~~DIRECTV~~expenses associated ~~entered into certain arrangements~~ with ~~Pegasus~~deterring ~~Satellite~~theft ~~Television,~~of ~~Inc.~~the ~~and certain other related entities, which we collectively refer to as Pegasus, whereby~~ DIRECTV ~~will~~signal. ~~purchase certain direct broadcast~~

11 General and Administrative Expenses. General and administrative expenses include departmental costs for legal, administrative services, finance, marketing and information technology. These costs also include expenses for bad debt and other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed assets.

~~Table~~ Operating Profit Before Depreciation and Amortization. We calculate Operating Profit Before Depreciation and Amortization, which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of ~~Contents~~America, or GAAP, by adding amounts under the caption "Depreciation and amortization expense" to "Operating Profit," as presented in the consolidated statements of operations. This measure should be used in conjunction with GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. Our management and The DIRECTV Group use Operating Profit Before Depreciation and Amortization to evaluate our operating performance and to allocate resources and capital. We also use this metric as a measure of performance for incentive compensation purposes and to measure income generated from operations that could be used to fund capital expenditures, service debt or pay taxes. Depreciation and amortization expense primarily represents an allocation to current expense of the cost of historical capital expenditures and for intangible assets. To compensate for the exclusion of depreciation and amortization expense from operating profit, our management and The DIRECTV Group separately measure and budget for capital expenditures and business acquisitions.

~~DIRECTV~~ We believe ~~HOLDINGS~~this ~~LLC~~measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare our operating performance to other communications, entertainment and media service providers. We believe that investors use current and projected Operating Profit Before Depreciation and Amortization and similar measures to estimate our current or prospective enterprise value and make investment decisions. This metric provides investors with a means to compare operating results exclusive of depreciation and amortization expense. We believe this is useful given the significant variation in depreciation and amortization expense that can result from the timing of capital expenditures, the capitalization of intangible assets, potential variations in expected useful lives when compared to other companies and periodic changes to estimated useful lives.

~~NOTES~~ Average TOMonthly ~~THE~~Revenue ~~CONSOLIDATED~~Per ~~FINANCIAL~~Subscriber. We ~~STATEMENTS~~calculate –ARPU by dividing average monthly revenues for the period (~~Continued~~total revenues during the period divided by the number of months in the period) by average DIRECTV subscribers for the period, excluding the subscribers of the former NRTC members

satellite assets of Pegasus, including rights to all DIRECTV subscribers activated through Pegasus. As part of these arrangements, Pegasus Satellite Communications, Inc., Pegasus Communications Corporation, DIRECTV, The DIRECTV Group, the NRTC, the creditors’ committee in Pegasus’ Chapter 11 proceedings and certain other parties also entered into a Global Settlement Agreement pursuant to which such parties have agreed, effective upon the closing of the asset sale, to release each other from substantially all claims outlined above between the parties, including the judgment entered in May 2004 in favor of DIRECTV against Pegasus. These transactions are described in more detail in Note 7. Should the contemplated transactions be approved and successfully close, then the Global Settlement Agreement would result in the termination of all of the litigation with Pegasus and related entities outlined above. Until such time, the parties have agreed to a stay of the litigation outlined above. 19

~~Other~~and affiliates prior to the NRTC and Pegasus transactions in the second and third quarters of 2004, which we discuss in more detail below in "Discussion of Significant Events." We calculate average DIRECTV owned and operated subscribers for the year and the period by adding the number of DIRECTV owned and operated subscribers as of the beginning of the year or the period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one.

~~DIRECTV~~ Average ~~uses~~Monthly ~~in-orbit~~Subscriber ~~and~~Churn. Average ~~launch~~monthly ~~insurance~~subscriber tochurn ~~mitigate~~represents the ~~potential~~number ~~financial impact~~ of ~~satellite fleet in-orbit and launch failures unless the premium~~DIRECTV ~~costs~~subscribers ~~are~~whose ~~considered~~service ~~uneconomic~~is ~~relative~~disconnected, toexpressed ~~the~~as ~~risk~~a percentage of ~~satellite failure. The insurance generally covers~~ the ~~unamortized~~average ~~book~~total ~~value~~number of ~~covered~~DIRECTV ~~satellites~~subscribers. ~~The~~We ~~insurance~~calculate ~~generally~~average ~~does~~monthly ~~not~~subscriber ~~compensate~~churn ~~for~~by ~~business~~dividing ~~interruption~~the oraverage ~~loss~~monthly number of ~~future revenues~~disconnected ~~or customers.~~ DIRECTV ~~generally~~subscribers ~~relies~~for onthe ~~in-orbit~~period ~~spare~~(the ~~satellites~~subscribers ~~and~~disconnected ~~excess~~during ~~transponder~~the ~~capacity~~period atdivided ~~key~~by ~~orbital slots to mitigate~~ the ~~impact~~number aof ~~satellite~~months ~~failure~~in ~~could~~the ~~have~~period) onby average DIRECTV’s ~~ability~~subscribers tofor ~~provide~~the ~~service~~period. Average Atmonthly ~~June~~churn ~~30,~~includes ~~2004,~~ the ~~net~~results ~~book~~from ~~value~~the offormer ~~satellites~~NRTC ~~that~~and ~~were~~Pegasus ~~not insured amounted to $436~~subscribers.0 ~~million.~~

As Subscriber ~~part~~Count. The oftotal annumber ~~arrangement with Telesat Canada (“Telesat”), a Canadian telecommunications and broadcast services company, DIRECTV agreed to provide Telesat the use~~ of ~~the~~ DIRECTV 3subscribers ~~satellite,~~represents ~~which is currently used as an in-orbit spare, through~~ the ~~end~~total ofnumber ~~its useful life and in return Telesat agreed to allow DIRECTV the use~~ of ~~its 72.5 degrees west longitude (“WL”) Canadian orbital location. DIRECTV plans to relocate DIRECTV 5, or~~subscribers aactively ~~similar~~subscribing ~~satellite,~~ to ~~72.5 WL to provide additional local channels and other programming in~~ the ~~United States through 2008. Both~~ DIRECTV 3service, ~~and~~including ~~DIRECTV 5 are currently not in use for primary DIRECTV services. In~~ the ~~second~~subscribers ~~quarter~~ of ~~2004,~~ the ~~Federal~~ ~~Communications~~NRTC's ~~Commission~~members ~~(“FCC”) granted approval for DIRECTV 3 to be moved to a Canadian orbital location~~ and ~~used by Telesat. DIRECTV is currently awaiting approval for the use of 72.5 WL. If DIRECTV is successful in obtaining FCC approval to use 72.5 WL~~affiliates, ~~the~~seasonal ~~net~~subscribers ~~book value of DIRECTV 3, which was $82.5 million at June 30, 2004, will be reclassified as an intangible asset~~ and ~~amortized~~subscribers ~~over~~who ~~the~~are ~~life of DIRECTV’s right to use 72.5 WL. However, if DIRECTV is unsuccessful~~ in ~~obtaining FCC approval to use 72.5 WL, DIRECTV will be required to immediately expense~~ the ~~net~~process ~~book value~~ of ~~DIRECTV 3~~relocating.

~~Commitments~~Business Overview

At DIRECTV ~~June~~Holdings ~~30,~~is ~~2004,~~a ~~minimum~~wholly-owned ~~future~~subsidiary ~~commitments under noncancelable operating leases having lease terms in excess~~ of ~~one~~The ~~year~~DIRECTV ~~were~~Group ~~primarily for real property~~ and ~~aggregated~~consists ~~$94.1 million, payable as follows: $13.2 million for the remainder~~ of ~~2004,~~DIRECTV ~~$23.9 million in 2005~~Enterprises, ~~$20.3~~LLC ~~million~~and inits ~~2006,~~wholly-owned ~~$17.8~~subsidiaries ~~million in 2007, $16.0 million in 2008~~ and ~~$2.9 million thereafter. Certain of these leases~~DIRECTV ~~contain~~Financing ~~escalation clauses and renewal or purchase options, which are not considered in the amounts disclosed~~Co. ~~Rental expense under operating leases was $19.9 million for the six months ended June 30~~, ~~2004 and $15~~ Inc.4 ~~million for the six months ended June 30, 2003.~~

As We earn the majority of ~~June~~our ~~30,~~revenues ~~2004,~~and ~~minimum~~generate ~~payments~~most ~~under DIRECTV’s~~of ~~current~~our ~~contractual~~cash ~~commitments,~~flows ~~which~~from ~~include~~subscribers ~~agreements~~who ~~for~~subscribe ~~broadcast~~to ~~programming~~basic, ~~the~~premium ~~purchase~~and ofseasonal ~~services~~sporting ~~that~~event ~~DIRECTV~~programming, ~~has~~subscriber ~~outsourced~~purchases toof pay-per-view ~~third~~and ~~parties,~~live ~~such~~sporting asevent ~~call center operations~~programming, ~~billing~~and ~~services~~other ~~and~~subscriber ~~telemetry~~revenues, ~~tracking~~which ~~and control~~are ~~services,~~derived ~~and~~mostly ~~the~~from ~~cost~~mirroring fees.

12 The majority of our expenses and cash outflows relate to the cost of programming from third parties, the cost of acquiring and retaining subscribers, and general and administrative expenses. We also use a significant amount of cash for capital expenditures for satellites, broadcast equipment and software to support customer billing, collections and subscriber relationship management.

~~Table~~ Satellite Developments. On May 22, 2005, DIRECTV 8 was successfully launched. DIRECTV 8 is a Ku/Ka-band hybrid satellite that will supplement our existing fleet of ~~Contents~~satellites and will take the place of an older DIRECTV satellite, which will be used as a backup, at the 101 WL orbital slot.

~~DIRECTV~~ On April 26, ~~HOLDINGS~~2005, ~~LLC~~SPACEWAY 1 was successfully launched. SPACEWAY 1 is the first of four Ka-band satellites that will enable us to broadcast local HD channels into several of the nation's largest markets. We expect to launch SPACEWAY 2, also a Ka-band satellite, during the second half of 2005.

~~NOTES~~Update TOto ~~THE~~Executive ~~CONSOLIDATED~~Overview ~~FINANCIAL~~and ~~STATEMENTS – (Continued)~~ Outlook

of In ~~planned~~our ~~satellite~~Annual ~~construction~~Report ~~and~~on ~~launch~~Form 10-K ~~contracts~~for ~~are~~the ~~anticipated~~year toended beDecember 31, ~~approximately~~2004, ~~$358.7~~we ~~million~~disclosed ~~for~~our ~~the~~expectation ~~remainder~~that ofaverage ~~2004,~~monthly ~~$536.4~~subscriber ~~million~~churn infor 2005, ~~$643.4~~would ~~million~~improve inslightly ~~2006,~~over ~~$798~~the 1.459% ~~million~~reported infor ~~2007, $531~~2004.1 ~~million~~As ina ~~2008~~result ~~and~~of ~~$23.5~~higher ~~million~~involuntary ~~thereafter.~~churn ~~Excluded~~ from ~~the~~subscribers ~~minimum~~with ~~payments~~lower ~~above~~credit isscores, adue ~~commitment~~in part to ~~purchase~~the insignificant ~~excess~~increase ofin ~~$1.0~~gross ~~billion~~subscriber additions ofover ~~set-top~~the ~~receivers~~past ~~from~~several ~~Thomson~~quarters, ~~during~~as ~~the~~well ~~first three~~as ~~years~~a ofmore ~~the~~competitive ~~Contract~~marketplace, ~~Term~~we ~~based~~now onexpect ~~current~~average ~~set-top~~monthly ~~receiver~~subscriber ~~prices,~~churn asto ~~discussed~~increase ~~above~~slightly in ~~Note~~2005 7compared to 2004.

Including the senior notes and senior secured credit facilities described in Note 5, DIRECTV’s notes payable and credit facilities mature as follows: $10.2 million in 2005, $10.2 million in 2006, $10.2 million in 2007, $252.9 million in 2008 and $2,128.3 million thereafter; however, these amounts do not reflect potential prepayments that may be required under the senior secured credit facilities. 20

~~Note~~Results 9:of ~~Condensed Consolidating Financial Statements~~ Operations

The following ~~presents~~table ~~the~~sets ~~condensed consolidating statements of operations for the three and six months ended June 30~~forth, ~~2004 and 2003, the condensed consolidating statements of cash flows~~ for the ~~six~~periods ~~months ended June 30~~indicated, ~~2004~~our ~~and~~unaudited ~~2003~~consolidated and the condensed consolidating balance sheets as of June 30, 2004 and December 31, 2003 of the Co-Issuers, Guarantor Subsidiaries, and the eliminations necessary to present DIRECTV Holdings’ financial statements ~~on a consolidated basis. RSG Resource Supply GmbH, a foreign subsidiary, which is not a guarantor~~ of ~~the~~operations ~~senior notes or the senior secured credit facilities~~ and ~~has~~certain noother ~~material~~operating ~~operations,~~data: assets or liabilities, has been included in the “Guarantor Subsidiaries” column in the presentation below. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of DIRECTV Holdings.

Condensed Consolidating Statement of Operations

				Three Months Ended June 30,											Six Months Ended June 30,
				2005			2004			Change					2005			2004			Change
				(dollars in millions, except per subscriber data)
Revenues				$	2,960.5		$	2,216.9		$	743.6		33.5	%	$	5,761.3		$	4,297.7		$	1,463.6		34.1	%
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
	Programming and other costs				1,137.7			856.5			281.2		32.8	%		2,287.3			1,704.6			582.7		34.2	%
	Subscriber service expenses				219.2			166.0			53.2		32.0	%		439.7			312.0			127.7		40.9	%
	Subscriber acquisition costs:
		Third party customer acquisitions			467.9			445.4			22.5		5.1	%		1,055.8			881.9			173.9		19.7	%
		Direct customer acquisitions			154.3			162.1			(7.8	)	(4.8	)%		312.0			313.4			(1.4	)	(0.4	)%
	Upgrade and retention costs				223.2			226.8			(3.6	)	(1.6	)%		475.4			401.0			74.4		18.6	%
	Broadcast operations expenses				35.3			35.2			0.1		0.3	%		70.7			65.2			5.5		8.4	%
	General and administrative expenses				218.3			149.9			68.4		45.6	%		400.2			299.4			100.8		33.7	%
Depreciation and amortization expense					171.4			111.7			59.7		53.4	%		348.6			235.5			113.1		48.0	%

			Total Operating Costs and Expenses		2,627.3			2,153.6			473.7		22.0	%		5,389.7			4,213.0			1,176.7		27.9	%

Operating Profit					333.2			63.3			269.9		426.4	%		371.6			84.7			286.9		338.7	%
Interest expense, net					(54.2	)		(46.0	)		(8.2	)	17.8	%		(110.2	)		(93.4	)		(16.8	)	18.0	%
Other expense					(65.2	)		—			(65.2	)	100.0	%		(65.6	)		—			(65.6	)	100.0	%

Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change					213.8			17.3			196.5		1,135.8	%		195.8			(8.7	)		204.5		—
Income tax (expense) benefit					(82.0	)		(6.6	)		(75.4	)	1,142.4	%		(75.1	)		3.4			(78.5	)	—

Income (Loss) Before Cumulative Effect of Accounting Change					131.8			10.7			121.1		1,131.8	%		120.7			(5.3	)		126.0		—
Cumulative effect of accounting change, net of taxes					—			—			—		—			—			(311.5	)		311.5		100.0	%

Net Income (Loss)				$	131.8		$	10.7		$	121.1		1,131.8	%	$	120.7		$	(316.8	)	$	437.5		—

Other Data:
Operating profit				$	333.2		$	63.3		$	269.9		426.4	%	$	371.6		$	84.7		$	286.9		338.7	%
Depreciation and amortization expense					171.4			111.7			59.7		53.4	%		348.6			235.5			113.1		48.0	%

Operating Profit Before Depreciation and Amortization				$	504.6		$	175.0		$	329.6		188.3	%	$	720.2		$	320.2		$	400.0		124.9	%

Average monthly revenue per subscriber (ARPU)				$	67.79		$	65.01		$	2.78		4.3	%	$	66.91		$	64.31		$	2.60		4.0	%
Average monthly subscriber churn %					1.69	%		1.49	%		—		13.4	%		1.59	%		1.46	%		—		8.9	%
Average subscriber acquisition costs—per subscriber (SAC)				$	646		$	643		$	3		0.5	%	$	651		$	644		$	7		1.1	%
Total number of subscribers (000's)					14,670			13,040			1,630		12.5	%		14,670			13,040			1,630		12.5	%

~~For~~Discussion ~~the~~of ~~Three~~Significant ~~Months Ended June 30, 2004~~ Events

	Co-Issuers			Guarantor Subsidiaries			Eliminations			DIRECTV Holdings Consolidated
	(dollars in millions)
Revenues	$	236.1		$	2,217.0		$	(236.2	)	$	2,216.9
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		158.1			934.5			(236.1	)		856.5
Subscriber service expenses		—			166.0			—			166.0
Subscriber acquisition costs:
Third party customer acquisitions		—			445.4			—			445.4
Direct customer acquisitions		—			162.1			—			162.1
Retention and upgrade costs		—			226.8			—			226.8
Broadcast operations expenses		—			35.2			—			35.2
General, administrative and other marketing expenses		0.2			149.8			(0.1	)		149.9
Depreciation and amortization expense		—			111.7			—			111.7
Total Operating Costs and Expenses		158.3			2,231.5			(236.2	)		2,153.6
Operating Profit (Loss)		77.8			(14.5	)		—			63.3
Equity in pre-tax loss of consolidated subsidiaries		(15.6	)		—			15.6			—
Interest expense, net		(44.9	)		(1.1	)		—			(46.0	)
Income (Loss) Before Income Taxes		17.3			(15.6	)		15.6			17.3
Income tax (expense) benefit		(6.6	)		6.0			(6.0	)		(6.6	)
Net Income (Loss)	$	10.7		$	(9.6	)	$	9.6		$	10.7

Refinancing Transactions. During the second quarter of 2005, we completed a series of refinancing transactions that resulted in a pre-tax charge to "Other expense" in the consolidated statements of operations of $64.9 million ($40.1 million after tax), of which $41.0 million was associated with the

13 21

~~Table~~premium paid for the redemption of ~~Contents~~our 8.375% senior notes and $23.9 million with the write-off of a portion of our deferred debt issuance costs and other transaction costs. As a result of our second quarter 2005 refinancing transactions, our debt increased $136.7 million and cash increased $629.3 million, net of the premium paid and transaction costs. See Part I, Item 1, Note 4 to the consolidated financial statements for further discussion of our refinancing transactions.

~~DIRECTV~~ Pegasus ~~HOLDINGS~~and ~~LLC~~NRTC Member Subscribers. During the third quarter of 2004, we completed the Pegasus and NRTC transactions, as described in Part I, Item 1, Note 6 to the consolidated financial statements. The Pegasus transaction resulted in us recording a subscriber related intangible asset of $951.3 million that we are amortizing over the estimated average subscriber lives of five years and the NRTC transaction resulted in us recording a subscriber related intangible asset of $385.5 million that we are amortizing over the estimated average subscriber lives of six years. Had the estimated average subscriber lives for these intangible assets been decreased by one year, our future annual amortization expense would increase by approximately $60 million.

~~NOTES~~ NRTC TOContract ~~THE~~Rights. Effective ~~CONSOLIDATED~~June 1, ~~FINANCIAL~~2004, ~~STATEMENTS~~we –and ~~(Continued)~~the NRTC agreed to end the NRTC's exclusive DIRECTV service distribution agreement and all related agreements. As consideration, we agreed to pay the NRTC approximately $4.4 million per month through June 2011. As a result of this agreement, we now have the right to sell our services in all territories across the United States. We are amortizing the distribution rights intangible asset of $334.1 million that was recorded as part of the transaction, which includes the present value of the cash payments and fees associated with the transaction, to expense over the remaining life of the original DIRECTV service distribution agreement of seven years.

~~Condensed~~ Subscriber ~~Consolidating~~Acquisition, ~~Statement~~Upgrade and Retention Costs. Effective January 1, 2004, we changed our method of ~~Operations~~accounting for subscriber acquisition, upgrade and retention costs. Previously, we deferred a portion of these costs, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and amortized the deferred amounts to expense over the contract period. We now expense all subscriber acquisition, upgrade and retention costs as incurred as subscribers activate the DIRECTV service. We determined that expensing such costs was preferable to our prior accounting method after considering the accounting practices of our competitors and companies within similar industries and the added clarity and ease of understanding our reported results for investors. As a result of this change, we expensed the total of the deferred costs, which amounted to $503.9 million ($311.5 million, net of taxes), as a cumulative effect of accounting change on January 1, 2004.

~~For~~Three Months Ended June 30, 2005 Compared with the Three Months Ended June 30, ~~2003~~ 2004

	Co-Issuers			GuarantorSubsidiaries			Eliminations			DIRECTVHoldingsConsolidated
	(dollars in millions)
Revenues	$	211.1		$	1,800.3		$	(211.2	)	$	1,800.2
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		134.7			782.3			(211.1	)		705.9
Subscriber service expenses		—			150.8			—			150.8
Subscriber acquisition costs:
Third party customer acquisitions		—			306.1			—			306.1
Direct customer acquisitions		—			69.5			—			69.5
Retention and upgrade costs		—			71.1			—			71.1
Broadcast operations expenses		—			38.2			—			38.2
General, administrative and other marketing expenses		0.1			133.8			(0.1	)		133.8
Depreciation and amortization expense		—			124.1			—			124.1
Total Operating Costs and Expenses		134.8			1,675.9			(211.2	)		1,599.5
Operating Profit		76.3			124.4			—			200.7
Equity in pre-tax income of consolidated subsidiaries		123.6			—			(123.6	)		—
Interest income (expense), net		(59.4	)		2.1			—			(57.3	)
Other expense		—			(2.9	)		—			(2.9	)
Income Before Income Taxes		140.5			123.6			(123.6	)		140.5
Income tax expense		(52.7	)		(46.3	)		46.3			(52.7	)
Net Income	$	87.8		$	77.3		$	(77.3	)	$	87.8

Subscribers. We had approximately 14.7 million subscribers at June 30, 2005. At June 30, 2004, we had approximately 13.0 million subscribers or approximately 11.6 million subscribers excluding the NRTC and Pegasus subscribers, which were acquired in the third quarter of 2004. We added approximately 964,000 gross new subscribers during the three months ended June 30, 2005 and approximately 984,000 gross new subscribers during the same period of 2004. The decrease in gross subscriber additions was primarily due to more stringent credit policies implemented at the beginning of the second quarter of 2005. After accounting for churn, we added approximately 225,000 net new subscribers during the three months ended June 30, 2005 compared to 409,000 net new subscribers during the same period of 2004. The decrease in net new subscriber additions resulted from our increase in average monthly subscriber churn to 1.69% for the three months ended June 30, 2005 compared to 1.49% for same period of 2004 primarily due to higher involuntary churn from subscribers with lower credit scores, due in part to the significant increase in gross subscriber additions over the past several quarters, and a more competitive marketplace.

14 22

~~Table~~ Revenues. The $743.6 million increase in revenues to $2,960.5 million resulted from our new subscribers added since June 30, 2004, including those subscribers added as part of ~~Contents~~the NRTC and Pegasus transactions, and higher ARPU on the larger subscriber base. The 4.3% increase in ARPU to $67.79 resulted primarily from price increases on certain programming packages, higher mirroring fees from an increase in the average number of set-top receivers per subscriber and a higher percentage of subscribers purchasing local channels. These increases were partially offset by lower ARPU related to the acquired Pegasus and NRTC subscribers primarily due to the lower ARPU received from these subscribers.

~~DIRECTV~~ Total ~~HOLDINGS~~Operating ~~LLC~~Costs and Expenses. The $473.7 million increase in total operating costs and expenses to $2,627.3 million resulted primarily from higher costs for programming, subscriber service expenses, general and administrative expenses and depreciation and amortization expense.

~~NOTES~~ The increase TOin ~~THE~~programming ~~CONSOLIDATED~~and ~~FINANCIAL~~other ~~STATEMENTS~~costs –of ~~(Continued)~~$281.2 million resulted mostly from higher license fees for subscription service programming due to the increased number of subscribers and annual program supplier rate increases. Our higher subscriber service expenses resulted primarily from increased costs due to our larger subscriber base, which includes costs related to two new customer call centers opened in the second half of 2004.

~~Condensed~~ The $68.4 million ~~Consolidating~~increase ~~Statement~~in ofgeneral ~~Operations~~and administrative expenses resulted primarily from higher bad debt expense resulting from the increase in the subscriber base and involuntary churn discussed above.

~~For~~ The increase ~~the~~in ~~Six~~depreciation ~~Months~~and ~~Ended~~amortization ~~June~~expense ~~30,~~resulted ~~2004~~primarily from amortization expense related to intangible assets recorded as part of the NRTC and Pegasus transactions.

	Co-Issuers			GuarantorSubsidiaries			Eliminations			DIRECTVHoldingsConsolidated
	(dollars in millions)
Revenues	$	449.0		$	4,298.0		$	(449.3	)	$	4,297.7
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		307.8			1,845.8			(449.0	)		1,704.6
Subscriber service expenses		—			312.0			—			312.0
Subscriber acquisition costs:
Third party customer acquisitions		—			881.9			—			881.9
Direct customer acquisitions		—			313.4			—			313.4
Retention and upgrade costs		—			401.0			—			401.0
Broadcast operations expenses		—			65.2			—			65.2
General, administrative and other marketing expenses		0.5			299.2			(0.3	)		299.4
Depreciation and amortization expense		—			235.5			—			235.5
Total Operating Costs and Expenses		308.3			4,354.0			(449.3	)		4,213.0
Operating Profit (Loss)		140.7			(56.0	)		—			84.7
Equity in pre-tax loss of consolidated subsidiaries		(561.0	)		—			561.0			—
Interest expense, net		(92.3	)		(1.1	)		—			(93.4	)
Loss Before Income Taxes and Cumulative Effect of Accounting Change		(512.6	)		(57.1	)		561.0			(8.7	)
Income tax benefit		195.8			22.0			(214.4	)		3.4
Loss Before Cumulative Effect of Accounting Change		(316.8	)		(35.1	)		346.6			(5.3	)
Cumulative effect of accounting change, net of taxes		—			(311.5	)		—			(311.5	)
Net Loss	$	(316.8	)	$	(346.6	)	$	346.6		$	(316.8	)

Operating Profit. The improvement in operating profit of $269.9 million was primarily due to higher margins from the increase in revenues, and reduced subscriber acquisition costs and upgrade and retention costs as a percentage of revenues, partially offset by the increase in bad debt expense and the higher depreciation and amortization expense resulting from the amortization of intangible assets recorded as part of the NRTC and Pegasus transactions.

15 Other Expense. The $65.2 million increase in other expense was primarily due to our second quarter of 2005 pre-tax charge of $64.9 million associated with our 2005 refinancing transactions.

~~Table~~ Income ofTax ~~Contents~~Expense. The $75.4 million increase in the income tax expense was due to our higher pre-tax income generated in 2005.

~~DIRECTV~~Six ~~HOLDINGS~~Months ~~LLC~~Ended June 30, 2005 Compared with the Six Months Ended June 30, 2004

~~NOTES~~ Subscribers. We TOhad ~~THE~~approximately ~~CONSOLIDATED~~14.7 million ~~FINANCIAL~~subscribers ~~STATEMENTS~~at –June 30, ~~(Continued)~~2005. At June 30, 2004, we had approximately 13.0 million subscribers or approximately 11.6 million subscribers excluding the NRTC and Pegasus subscribers, which were acquired in the third quarter of 2004. We added approximately 2.1 million gross new subscribers during the six months ended June 30, 2005 compared to approximately 1.9 million gross new subscribers during the same period of 2004. The increase was due to a higher number of subscribers acquired in local channel markets, improved international programming and an improved and more diverse distribution network. After accounting for churn, we added approximately 730,000 net new subscribers during the six months ended June 30, 2005 compared to approximately 828,000 net new subscribers during the same period of 2004. The decrease in net new subscriber additions resulted from our increase in average monthly subscriber churn to 1.59% for the six months ended June 30, 2005 compared to 1.46% for the same period of 2004 primarily due to higher involuntary churn from subscribers with lower credit scores due in part to the significant increase in gross subscriber additions over the past several quarters, and a more competitive marketplace.

~~Condensed Consolidating Statement of Operations~~ 23

~~For~~ Revenues. The ~~the~~$1,463.6 million ~~Six~~increase ~~Months~~in ~~Ended~~revenues ~~June~~to $5,761.3 million resulted from our new subscribers added since June 30, ~~2003~~2004, including those subscribers added as part of the NRTC and Pegasus transactions, and higher ARPU on the larger subscriber base. The 4.0% increase in ARPU to $66.91 resulted primarily from price increases on certain programming packages, higher mirroring fees from an increase in the average number of set-top receivers per subscriber and a higher percentage of subscribers purchasing local channels. These increases were partially offset by lower ARPU related to the acquired Pegasus and NRTC subscribers primarily due to the lower ARPU received from these subscribers.

	Co-Issuers			GuarantorSubsidiaries			Eliminations			DIRECTVHoldingsConsolidated
	(dollars in millions)
Revenues	$	422.4		$	3,508.6		$	(422.7	)	$	3,508.3
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		267.3			1,559.8			(422.4	)		1,404.7
Subscriber service expenses		—			307.2			—			307.2
Subscriber acquisition costs:
Third party customer acquisitions		—			619.2			—			619.2
Direct customer acquisitions		—			137.2			—			137.2
Retention and upgrade costs		—			130.1			—			130.1
Broadcast operations expenses		—			72.1			—			72.1
General, administrative and other marketing expenses		0.3			282.6			(0.3	)		282.6
Depreciation and amortization expense		—			248.5			—			248.5
Total Operating Costs and Expenses		267.6			3,356.7			(422.7	)		3,201.6
Operating Profit		154.8			151.9			—			306.7
Equity in pre-tax income of consolidated subsidiaries		149.4			—			(149.4	)		—
Interest income (expense), net		(88.0	)		1.5			—			(86.5	)
Other expense		—			(4.0	)		—			(4.0	)
Income Before Income Taxes		216.2			149.4			(149.4	)		216.2
Income tax expense		(81.1	)		(56.0	)		56.0			(81.1	)
Net Income	$	135.1		$	93.4		$	(93.4	)	$	135.1

Total Operating Costs and Expenses. The $1,176.7 million increase in total operating costs and expenses to $5,389.7 million resulted primarily from higher costs for programming, subscriber services, subscriber acquisitions, upgrade and retention costs, general and administrative expenses and depreciation and amortization expense.

16 The increase in programming and other costs of $582.7 million resulted mostly from higher license fees for subscription service programming due to the increased number of subscribers and annual program supplier rate increases. Our higher subscriber service expenses resulted primarily from increased costs due to our larger subscriber base, which includes costs related to two new customer call centers opened in the second half of 2004.

~~Table~~ Higher gross subscriber additions during the six months ended June 30, 2005 primarily drove the increase in subscriber acquisition costs. Increased volume under our DVR, movers and HD upgrade programs drove most of ~~Contents~~the increase in upgrade and retention costs. Under these programs, we provide DVRs or additional equipment, plus installation, to subscribers at significantly reduced prices.

~~DIRECTV~~ The $100.8 million ~~HOLDINGS~~increase ~~LLC~~in general and administrative expenses resulted primarily from higher bad debt expense resulting from the increase in the subscriber base and involuntary churn discussed above and higher severance charges during the six months ended June 30, 2005.

~~NOTES~~ The increase TOin ~~THE~~depreciation ~~CONSOLIDATED~~and ~~FINANCIAL~~amortization ~~STATEMENTS~~expense –resulted ~~(Continued)~~primarily from amortization expense related to intangible assets recorded as part of the NRTC and Pegasus transactions.

~~Condensed~~ Operating ~~Consolidating~~Profit. The ~~Balance~~improvement ~~Sheet~~in operating profit of $286.9 million was primarily due to higher margins from the increase in revenues, and reduced subscriber acquisition costs and upgrade and retention costs as a percentage of revenues, partially offset by the increase in bad debt expense and the higher depreciation and amortization expense resulting from the amortization of intangible assets recorded as part of the NRTC and Pegasus transactions.

As Other Expense. The $65.6 million increase in other expense was primarily due to our second quarter of ~~June~~2005 ~~30,~~pre-tax ~~2004~~charge of $64.9 million associated with our 2005 refinancing transactions.

	Co-Issuers			GuarantorSubsidiaries			Eliminations			DIRECTVHoldingsConsolidated
	(dollars in millions)
ASSETS
Total Current Assets	$	158.9		$	1,036.6		$	(1.9	)	$	1,193.6
Satellites, net		—			1,207.4			—			1,207.4
Property, net		—			668.9			—			668.9
Goodwill, net		1,827.6			1,063.5			—			2,891.1
Intangible Assets, net		—			1,005.8			—			1,005.8
Other Assets		2,610.4			76.2			(2,551.1	)		135.5
Total Assets	$	4,596.9		$	5,058.4		$	(2,553.0	)	$	7,102.3
LIABILITIES AND OWNER’S EQUITY
Total Current Liabilities	$	230.8		$	1,577.8		$	(1.9	)	$	1,806.7
Long-Term Debt		2,401.6			—			—			2,401.6
Other Liabilities and Deferred Credits		125.9			1,042.3			(112.8	)		1,055.4
Owner’s Equity
Capital stock and additional paid-in capital		2,814.8			3,972.8			(3,972.8	)		2,814.8
Accumulated deficit		(976.2	)		(1,534.5	)		1,534.5			(976.2	)
Total Owner’s Equity		1,838.6			2,438.3			(2,438.3	)		1,838.6
Total Liabilities and Owner’s Equity	$	4,596.9		$	5,058.4		$	(2,553.0	)	$	7,102.3

Cumulative Effect of Accounting Change, net of taxes. The $311.5 million cumulative effect of accounting change, net of taxes, was due to the January 1, 2004 change in our accounting for subscriber acquisition, upgrade and retention costs discussed above.

~~Condensed~~ Income Tax (Expense) Benefit. We recognized an income tax expense of $75.1 million for the six ~~Consolidating~~months ~~Balance~~ended ~~Sheet~~June 30, 2005 compared to an income tax benefit of $3.4 million for the six month ended June 30, 2004. The change in income tax (expense) benefit is primarily attributable to the change in income (loss) before income taxes and cumulative effect of accounting change.

AsLiquidity ofand ~~December~~Capital ~~31, 2003~~ Resources

	Co-Issuers			GuarantorSubsidiaries			Eliminations			DIRECTVHoldingsConsolidated
	(dollars in millions)
ASSETS
Total Current Assets	$	456.7		$	1,269.5		$	—		$	1,726.2
Satellites, net		—			1,081.5			—			1,081.5
Property, net		—			732.3			—			732.3
Goodwill, net		1,827.6			1,063.5			—			2,891.1
Intangible Assets, net		—			549.7			—			549.7
Other Assets		2,880.9			47.5			(2,818.9	)		109.5
Total Assets	$	5,165.2		$	4,744.0		$	(2,818.9	)	$	7,090.3
LIABILITIES AND OWNER’S EQUITY
Total Current Liabilities	$	451.0		$	1,396.6		$	—		$	1,847.6
Long-Term Debt		2,411.9			—			—			2,411.9
Other Liabilities and Deferred Credits		162.8			642.0			(113.5	)		691.3
Owner’s Equity
Capital stock and additional paid-in capital		2,798.9			3,893.3			(3,893.3	)		2,798.9
Accumulated deficit		(659.4	)		(1,187.9	)		1,187.9			(659.4	)
Total Owner’s Equity		2,139.5			2,705.4			(2,705.4	)		2,139.5
Total Liabilities and Owner’s Equity	$	5,165.2		$	4,744.0		$	(2,818.9	)	$	7,090.3

We generally fund our cash requirements from cash on-hand and cash generated by our operations. However, we have received capital contributions and have borrowed amounts from our Parent in the past to fund certain transactions. In the second quarter of 2005, we received a

17 24

~~Table~~$538.3 million capital contribution to redeem a portion of ~~Contents~~our senior notes as part of our refinancing transactions discussed above in "Discussion of Significant Events." We also have up to $500.0 million of borrowing capacity under our revolving credit facility.

~~DIRECTV~~ At June 30, ~~HOLDINGS~~2005, ~~LLC~~we had cash and cash equivalents of $814.0 million compared to $34.5 million at December 31, 2004. The $779.5 million increase in cash and cash equivalents during 2005 resulted primarily from net cash provided by the refinancing transactions discussed above and $494.5 million in cash provided by operations, partially offset by $343.9 million of expenditures for satellites, property and equipment and $31.2 million of payments made associated with our obligations to the NRTC and its members.

~~NOTES~~ As a TOmeasure ~~THE~~of ~~CONSOLIDATED~~liquidity, ~~FINANCIAL~~our ~~STATEMENTS~~current –ratio (~~Concluded~~ratio of current assets to current liabilities) was 1.04 at June 30, 2005 compared to 0.65 at December 31, 2004. Working capital increased by $792.0 million to $85.5 million at June 30, 2005 from a working capital deficit of $706.5 million at December 31, 2004. The change was primarily due to our increase in cash described above.

~~Condensed~~ We believe ~~Consolidating~~that ~~Statement~~our cash on-hand, future cash flows and amounts available to us under the revolving portion of ~~Cash~~our ~~Flows~~senior secured credit facility will be sufficient to fund our operations and commitments for the foreseeable future. However, several factors may affect our ability to fund our operations and commitments, which we discuss in Note 7 to the consolidated financial statements. Additionally, our ability to borrow under the senior secured credit facility is contingent upon our meeting financial and other covenants associated with our debt.

~~For~~ In addition, ~~the~~our ~~Six~~future ~~Months~~cash ~~Ended~~flows ~~June~~may 30be reduced if we experience, ~~2004~~among other things, significantly higher subscriber additions than planned, increased subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft or if we are required to make a prepayment on our Term Loans.

	Co-Issuers			GuarantorSubsidiaries			DIRECTVHoldingsConsolidated
	(dollars in millions)
Cash Flows from Operating Activities
Net Cash Provided by (Used in) Operating Activities	$	(57.6	)	$	275.9		$	218.3
Cash Flows from Investing Activities
Expenditures for property and equipment		—			(106.5	)		(106.5	)
Expenditures for satellites		—			(172.7	)		(172.7	)
Proceeds from sale of property		—			3.3			3.3
Net Cash Used in Investing Activities		—			(275.9	)		(275.9	)
Cash Flows from Financing Activities
Repayment of debt		(213.2	)		—			(213.2	)
Debt issuance costs		(1.9	)		—			(1.9	)
Net Cash Used in Financing Activities		(215.1	)		—			(215.1	)
Net decrease in cash and cash equivalents		(272.7	)		—			(272.7	)
Cash and cash equivalents at beginning of the period		390.9			—			390.9
Cash and cash equivalents at end of the period	$	118.2		$	—		$	118.2

Debt. At June 30, 2005, our debt primarily consisted of $910.0 million 8.375% senior notes, $1,000.0 million 6.375% senior notes and $1,500.0 million of borrowings under our senior secured credit facility. Debt is more fully described in Part I, Item 1, Note 4 to the consolidated financial statements of this Quarterly Report, which we incorporate herein by reference.

~~Condensed Consolidating Statement of Cash Flows~~ 25

~~For~~Contractual ~~the Six Months Ended June 30, 2003~~ Obligations

	Co-Issuers			GuarantorSubsidiaries			DIRECTVHoldingsConsolidated
Cash Flows from Operating Activities
Net Cash Provided by Operating Activities	$	304.3		$	110.1		$	414.4
Cash Flows from Investing Activities
Expenditures for property and equipment		—			(74.9	)		(74.9	)
Expenditures for satellites		—			(35.2	)		(35.2	)
Net Cash Used in Investing Activities		—			(110.1	)		(110.1	)
Cash Flows from Financing Activities
Net cash contribution from Parent		4.9						4.9
Cash proceeds from financing transactions		2,625.0			—			2,625.0
Cash distribution to Parent		(2,558.5	)		—			(2,558.5	)
Debt issuance costs		(65.3	)		—			(65.3	)
Net Cash Provided by Financing Activities		6.1			—			6.1
Net increase in cash and cash equivalents		310.4			—			310.4
Cash and cash equivalents at beginning of the period		14.1			—			14.1
Cash and cash equivalents at the end of the period	$	324.5		$	—		$	324.5

The following table sets forth our contractual obligations as of June 30, 2005, including the future periods in which payments are expected. Additional details regarding these obligations are provided in the notes to the consolidated financial statements in Part 1, Item 1 referenced in the table.

	Payments due by period
Contractual Obligations	Total		Remainder of 2005		2006-2007		2008-2009		2010 and thereafter
	(dollars in millions)
Long-Term Debt Obligations (Note 4)(a)	$	5,113.0	$	106.6	$	443.0	$	563.6	$	3,999.8
Operating Leases Obligations (Note 7)(b)		122.1		14.8		50.3		33.3		23.7
Purchase Obligations (Note 7)(c)		5,384.7		474.3		1,779.3		1,794.4		1,336.7
Other Long-Term Liabilities Reflected on the Consolidated Balance Sheets under GAAP (Note 6)(d)		456.7		32.2		138.3		155.7		130.5

Total	$	11,076.5	$	627.9	$	2,410.9	$	2,547.0	$	5,490.7

(a): Our long-term debt obligations include interest calculated based on the rates in effect at June 30, 2005, however the obligations do not reflect potential prepayments that may be required under our senior secured credit facility, if any.
(b): Certain of our operating leases contain escalation clauses and renewal or purchase options, which we have not included in the amounts disclosed.
(c): Our purchase obligations consist of broadcast programming commitments, satellite construction contracts and service contract commitments. We base our broadcast programming commitments identified above on guaranteed minimum contractual commitments that are typically based on a minimum number of required subscribers subscribing to the related programming. Our actual payments may exceed the minimum payment requirements if the actual number of subscribers subscribing to the related programming exceeds the minimum amount. Our satellite construction contracts typically exclude the cost to insure and launch satellites in orbit. Our service contract commitments include the minimum commitments for the purchase of services that we have outsourced to third parties, such as call center operations, billing services and telemetry, tracking and control services. Our actual payments, which are typically based on volume, typically exceed the minimum amounts.
(d): Our other long-term liabilities consist of the amounts we owe to the NRTC for the purchase of distribution rights and to the NRTC members that elected the long-term payment option resulting from the NRTC acquisition transactions discussed above.

~~Table of Contents~~Contingencies

~~ITEM~~ For 2.a ~~MANAGEMENT’S~~discussion ~~DISCUSSION~~of ~~AND~~"Contingencies," ~~ANALYSIS~~see OFPart I, ~~FINANCIAL~~Item ~~CONDITION~~1, ~~AND~~Note 7 ~~RESULTS~~to OFthe ~~OPERATIONS~~consolidated financial statements of this Quarterly Report, which we incorporate herein by reference.

~~The~~Certain ~~following~~Relationships ~~is a discussion of our financial condition~~ and ~~results of operations for the periods described below. This discussion should be read in conjunction with our management’s discussion and analysis included in our Annual Report on Form 10~~Related-KParty for the year ended December 31, 2003 filed with the Securities and Exchange Commission, or SEC, on March 17, 2004, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 filed with the SEC on May 6, 2004, and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report. Transactions

~~This~~ For ~~Quarterly~~a ~~Report~~discussion ~~on Form 10-Q may contain certain statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning~~ of ~~various~~"Certain ~~provisions~~Relationships ~~of the Securities Act of 1933~~ and ~~of the Securities Exchange Act of 1934. These forward~~Related-~~looking~~Party ~~statements generally can be identified by use of statements that include phrases such as we “believe~~Transactions,”" ~~“estimate,”~~see ~~“expect~~Part I,” ~~“anticipate,”~~Item ~~“intend~~1,” ~~“plan,”~~Note 5 ~~“foresee,”~~to ~~“project”~~the ~~or other~~consolidated ~~similar~~financial ~~words or phrases. Similarly,~~ statements ~~that describe our objectives, plans or goals also are forward-looking statements. All~~ of ~~these forward-looking statements are subject to certain risks and uncertainties that could cause our~~ ~~actual~~this ~~results~~Quarterly toReport, ~~differ~~which ~~materially~~we ~~from~~incorporate ~~historical~~herein ~~results or from those expressed or implied~~ by ~~the relevant forward-looking statement~~reference. ~~Risk factors which could cause actual performance and future actions to differ materially from forward-looking statements made herein include, among others, the following:~~

~~• we may be unable to obtain needed retransmission consents, Federal Communications Commission, or FCC, authorizations or other governmental licenses;~~26

•Accounting ~~our satellite launches may be delayed or fail and our in-orbit satellites may malfunction or fail prematurely;~~Changes

• weSubscriber ~~are~~Acquisition, ~~subject~~Upgrade toand ~~numerous~~Retention ~~contractual constraints on our ability to raise additional debt;~~Costs

• Effective ~~the possibility of terrorist attacks~~January 1, ~~war or other military action against foreign countries~~2004, ~~and~~we ~~changes~~changed inour ~~international~~method ~~political~~of ~~conditions~~accounting asfor asubscriber ~~result of these events~~acquisition, ~~may~~upgrade ~~continue~~and toretention ~~adversely~~costs. ~~affect~~See ~~the~~"Discussion ~~United~~of ~~States~~Significant Events" ~~and~~above ~~the~~for ~~global~~further ~~economy;~~discussion.

• For additional ~~weaknesses~~information inregarding "Accounting Changes," see Part I, Item 1, Note 2 to the ~~U.S.~~consolidated ~~economy~~financial ~~may~~statements ~~harm~~of ~~our~~this ~~business;~~Quarterly Report, which we incorporate herein by reference.

•Security ~~service interruptions arising from technical anomalies on some satellites, or caused by war, terrorist activities or natural disasters, may cause customer cancellations or otherwise harm our business;~~Ratings

• On weApril 4, ~~face~~2005, ~~intense~~in ~~and~~connection ~~increasing~~with ~~competition~~the ~~from~~April 2005 ~~providers~~refinancing transactions, described in Part I, Item 1, Note 4 to the ~~multi-channel~~consolidated financial ~~video~~statements, ~~programming~~Moody's ~~distribution~~Investors Service, or ~~MVPD~~Moody's, ~~industry;~~assigned ~~new~~a ~~competitors~~Ba1 ~~may~~rating ~~enter~~to ~~the~~our ~~MVPD~~senior ~~business~~secured credit facility. In addition, Moody's affirmed our Ba2 senior implied and ~~new~~Ba2 ~~technologies~~senior ~~may~~unsecured ratings. ~~increase~~On ~~competition~~June 8, in2005, ~~the~~Moody's ~~industry;~~assigned a Ba2 rating to our 6.375% senior notes. The ratings remain on stable outlook.

• On April 5, ~~our~~2005, ~~satellite~~in ~~programming~~connection ~~signals~~with ~~have~~the ~~been~~April 2005 ~~subject~~refinancing totransactions, ~~theft~~Standard and ~~could~~Poor's beRatings ~~subject~~Services, or S&P, assigned a BB rating to ~~theft~~our insenior ~~the~~secured credit ~~future~~facility and affirmed our BB corporate and BB- senior unsecured ratings. On June 8, ~~which~~2005, ~~could~~S&P ~~cause~~assigned usa BB- rating to ~~lose~~our ~~subscribers~~6.375% senior notes and ~~revenue~~affirmed orour corporate, ~~result~~senior insecured ~~higher~~and ~~costs~~unsecured toratings. ~~us;~~All ratings remain on stable outlook.

~~• programming costs may increase beyond our current expectations;~~27

• ~~future~~ ~~acquisitions,~~ ITEM ~~strategic~~4. CONTROLS ~~partnerships~~AND ~~and divestitures may involve additional uncertainties;~~PROCEDURES

• DIRECTV wecarried ~~are~~out ~~party~~an toevaluation ~~various~~as ~~lawsuits~~of ~~that~~the end of the period covered by this Quarterly Report on Form 10-Q under the supervision and with the participation of management, ifincluding ~~adversely~~DIRECTV's ~~decided~~principal executive officer and DIRECTV's principal financial officer, ~~could~~of ~~have~~the aeffectiveness ~~significant~~of ~~adverse~~DIRECTV's ~~impact~~disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on ~~our~~the ~~business;~~evaluation, DIRECTV's principal executive officer and DIRECTV's principal financial officer concluded that DIRECTV's disclosure controls and procedures were effective as of June 30, 2005.

• There has webeen ~~may~~no ~~face~~change ~~other~~in ~~risks~~the ~~described~~DIRECTV's ~~from~~internal ~~time~~control toover ~~time~~financial inreporting ~~periodic~~(as ~~reports~~defined ~~filed~~in byRules 13a-15(f) usand ~~with~~15d-15(f) under the ~~SEC~~Exchange Act) that occurred during DIRECTV's fiscal quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, DIRECTV's internal control over financial reporting.

We urge you to consider these factors carefully in evaluating forward-looking statements. The forward looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. 28

19 PART II—OTHER INFORMATION (UNAUDITED)

~~Table~~ of ITEM ~~Contents~~1. LEGAL PROCEEDINGS

~~Key~~ (a) Material pending ~~Terminology~~legal ~~Used~~proceedings, inother ~~Management’s~~than ~~Discussion~~ordinary ~~and~~routine ~~Analysis~~litigation ofincidental ~~Financial~~to ~~Condition~~the ~~and~~business, ~~Results~~or ofchanges ~~Operations~~thereto, to which we became or were a party during the quarter ended June 30, 2005 or subsequent thereto, but before the filing of this report, are summarized below:

~~Revenues. We derive revenues mostly from~~ None subscriber subscriptions to basic and premium channel programming, pay-per-view programming and seasonal and live sporting events. We also derive revenues from fees from subscribers with multiple set-top receivers, which we refer to as mirroring fees, DIRECTV-The Guide, access card sales, warranty service fees and advertising services. Revenues also include fees earned from the National Rural Telecommunications Cooperative, or NRTC, which are equal to a percentage of the subscriber revenues earned from the subscribers located in certain areas (mainly rural).

~~Programming~~ (b) Previously reported ~~and~~legal ~~Other~~proceedings ~~Costs.~~which ~~These~~have ~~costs~~been ~~primarily~~terminated ~~include~~during ~~license fees for subscription service programming, pay-per-view movies, live sports and other events. Other costs include expenses associated with~~ the ~~publication~~quarter ~~and distribution~~ended ~~of DIRECTV-The Guide~~June 30, ~~access~~2005 ~~cards~~are ~~provided~~summarized tobelow: set-top receiver manufacturers, continuing service fees paid to third parties for active DIRECTV subscribers, warranty service premiums paid to a third party and production costs for on-air advertisements sold to third parties.

~~Subscriber~~ None ~~Service Expenses. Subscriber service expenses include the costs of customer call centers, billing, remittance processing and certain home services expenses, such as in-home repair costs.~~

Subscriber Acquisition Costs—Third Party Customer Acquisitions. These costs represent direct costs we incur to acquire new DIRECTV subscribers through third parties, which include authorized DIRECTV retailers and dealers. These costs consist of third party commissions, print and television advertising and manufacturer subsidies we incur for DIRECTV receiving equipment, if any. 29

~~Subscriber~~ ~~Acquisition~~ ~~Costs—Direct~~ Customer Acquisitions. These costs consist primarily of hardware, installation, advertising, marketing and customer call center expenses associated with new DIRECTV subscribers added through our direct customer acquisition ~~program.~~ITEM 6. EXHIBITS

SAC. We calculate SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, by dividing total subscriber acquisition costs for a period (the sum of subscriber acquisition costs reported for third party customer acquisitions and direct customer acquisitions) by the number of gross new owned and operated subscribers acquired during the period. We round the result to the nearest $5.00.

Exhibit Number		Exhibit Name
10.1*		Indenture, dated as of June 15, 2005, by and among DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as trustee (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., filed on June 20, 2005 (the "Holdings June 20, 2005 8-K")).
10.2*		Registration Rights Agreement, dated as of June 15, 2005, by and among DIRECTV Holdings LLC, DIRECTV Financing Co., Inc., the Guarantors signatory thereto and the Initial Purchasers named therein (incorporated herein by reference to Exhibit 10.2 to the Holdings June 20, 2005 8-K).
10.3*		Credit Agreement dated as of April 13, 2005 by and among Borrower, Bank of America, N.A., as Administrative Agent and Collateral Agent, the lenders party to the Credit Agreement, certain subsidiaries of the Borrower, as guarantors, JP Morgan Chase Bank, N.A., as Syndication Agent, Credit Suisse First Boston, Goldman Sachs Credit Partners, L.P. and Citicorp North America, Inc. as Co-Documentation Agents, and Banc of America Securities LLC and J.P. Morgan Securities Inc., as Co-Lead Arrangers and Co-Book Managers (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. filed on April 19, 2005 (the "Holdings April 19, 2005 8-K")).
10.4*		Security Agreement dated as of April 13, 2005 by and among Borrower, its subsidiaries named therein as grantors and Bank of America, N.A., as Collateral Agent (incorporated herein by reference to Exhibit 10.2 to the Holdings April 19, 2005 8-K).
10.5*		Pledge Agreement dated as of April 13, 2005 by and among Borrower, its subsidiaries named therein as pledgors and Bank of America, N.A., as Collateral Agent (incorporated herein by reference to Exhibit 10.3 to the Holdings April 19, 2005 8-K).
31.1**		Certification of the Chief Executive Officer of DIRECTV Holdings LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ("Section 302").
31.2**		Certification of the Chief Financial Officer of DIRECTV Holdings LLC pursuant to Section 302.
31.3**		Certification of the Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to Section 302.
31.4**		Certification of the Chief Financial Officer of DIRECTV Financing Co., Inc. pursuant to Section 302.
32.1**		Certification of the Chief Executive Officer of DIRECTV Holdings LLC pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ("Section 906").
32.2**		Certification of the Chief Financial Officer of DIRECTV Holdings LLC pursuant to Section 906.
32.3**		Certification of the Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to Section 906.
32.4**		Certification of the Chief Financial Officer of DIRECTV Financing Co., Inc. pursuant to Section 906.

*: Incorporated by reference
**: Filed herewith.

Retention and Upgrade Costs. Retention and upgrade costs primarily include the costs of loyalty programs offered to existing subscribers in an effort to reduce subscriber churn. Our costs for loyalty programs include the costs of installing or providing hardware under our movers program (for subscribers relocating to a new residence), our multiple set-top receiver offer, our DVR (digital video recorder) and local channel upgrade programs and other similar initiatives, and third party commissions incurred for the sale of additional set-top receivers to existing subscribers. 30

~~Broadcast~~ ~~Operations Expenses. These expenses include broadcast~~ ~~center~~ operating costs, signal transmission expenses (including costs of collecting signals for our local channel offerings), and costs of monitoring, maintaining and insuring our satellites. Also included are engineering expenses associated with ~~deterring theft of the DIRECTV signal.~~ SIGNATURE

~~General, Administrative~~ Pursuant ~~and~~to ~~Other~~the ~~Marketing~~requirements ~~Expenses.~~of ~~General~~the ~~and~~Securities ~~administrative~~Exchange ~~costs~~Act ~~include~~of ~~departmental costs for legal~~1934, ~~administrative~~each ~~services,~~registrant ~~finance~~has ~~and~~duly ~~information~~caused ~~technology.~~this ~~These~~report ~~costs~~to ~~also~~be ~~include~~signed ~~expenses~~on ~~for~~its ~~bad~~behalf ~~debt~~by ~~and~~the ~~other~~undersigned ~~operating~~thereunto ~~expenses,~~duly ~~such as legal settlements, and gains or losses from the sale or disposal of fixed assets~~authorized. ~~Other marketing expenses are primarily associated with payroll and benefit costs for our in-house marketing department.~~

Operating Profit Before Depreciation and Amortization. We calculate Operating Profit Before Depreciation and Amortization, which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, by adding amounts under the caption “Depreciation and amortization expense” to “Operating Profit,” as presented in the consolidated

	DIRECTV HOLDINGS LLC (Registrant)
Date: August 5, 2005	By:	/s/ MICHAEL W. PALKOVIC Michael W. Palkovic Executive Vice President and Chief Financial Officer
	DIRECTV FINANCING CO., INC. (Registrant)
Date: August 5, 2005	By:	/s/ MICHAEL W. PALKOVIC Michael W. Palkovic Executive Vice President and Chief Financial Officer

20 31

~~Table of Contents~~QuickLinks

TABLE OF CONTENTS
DIRECTV HOLDINGS LLC PART I—FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION (UNAUDITED)

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS

SIGNATURE

statements of operations. This measure should be used in conjunction with GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. Our management and The DIRECTV Group, Inc., or The DIRECTV Group use Operating Profit Before Depreciation and Amortization to evaluate our operating performance and to allocate resources and capital. We also use this metric as a measure of performance for incentive compensation purposes and to measure income generated from operations that could be used to fund capital expenditures, service debt or pay taxes. Depreciation and amortization expense primarily represents an allocation to current expense of the cost of historical capital expenditures and for intangible assets resulting from prior business acquisitions. To compensate for the exclusion of depreciation and amortization from operating profit, our management and The DIRECTV Group separately measure and budget for capital expenditures and business acquisitions.

We believe this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare our operating performance to other communications, entertainment and media service providers. We believe that investors use current and projected Operating Profit Before Depreciation and Amortization and similar measures to estimate our current or prospective enterprise value and make investment decisions. This metric provides investors with a means to compare operating results exclusive of depreciation and amortization. We believe this is useful given the significant variation in depreciation and amortization expense that can result from the timing of capital expenditures, the capitalization of intangible assets, potential variations in expected useful lives when compared to other companies and periodic changes to estimated useful lives.

Average Monthly Revenue Per Subscriber. We calculate average monthly revenue per subscriber, or ARPU, by dividing average monthly revenues for the period (total revenues during the period divided by the number of months in the period) by average DIRECTV owned and operated subscribers for the period, which excludes subscribers who receive DIRECTV service from the members and affiliates of the NRTC. We round the result to the nearest $0.10. We calculate average subscribers for the year and the period by adding the number of DIRECTV owned and operated subscribers as of the beginning of the year and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one. We calculate average subscribers for the quarter by adding the beginning and ending DIRECTV owned and operated subscribers for the quarter and dividing by two.

Average Monthly Subscriber Churn. Average monthly subscriber churn represents the number of DIRECTV subscribers whose service is disconnected, expressed as a percentage of the average total number of DIRECTV subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of disconnected DIRECTV owned and operated subscribers for the period (total subscribers disconnected during the period divided by the number of months in the period) by average DIRECTV owned and operated subscribers for the period. We round the result to the nearest tenth of a percent. We calculate average subscribers for the year and the period by adding the number of DIRECTV owned and operated subscribers as of the beginning of the year and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one. We calculate average subscribers for the quarter by adding the beginning and ending DIRECTV owned and operated subscribers for the quarter and dividing by two.

Subscriber Count. The total number of DIRECTV subscribers includes DIRECTV owned and operated subscribers and customers of the NRTC’s members and affiliates who subscribe to our service. DIRECTV subscribers include only those subscribers who are actively subscribing to the DIRECTV service, including seasonal subscribers and subscribers who are in the process of relocating.

Business Overview

DIRECTV Holdings LLC, or DIRECTV Holdings or DIRECTV, is a wholly-owned subsidiary of The DIRECTV Group and consists of DIRECTV Enterprises, LLC and its subsidiaries, which include DIRECTV Operations, LLC, DIRECTV Merchandising, Inc., DIRECTV Customer Services, Inc., USSB II, Inc., RSG Resource Supply GmbH, DIRECTV, Inc. and Triumph Communications, Inc.

We earn the majority of our revenues and generate most of our cash flows from subscribers who subscribe to basic, premium and seasonal sporting event programming, subscriber purchases of pay-per-view and live sporting event programming, and other subscriber revenues, which are derived mostly from mirroring fees.

The majority of our expenses and cash outflows relate to the cost of programming from third parties, the cost of acquiring and retaining subscribers, and general and administrative expenses. We also use a significant amount of cash for capital expenditures for satellites, broadcast equipment and software to support customer billing, collections and relationship management.

Satellite Developments. On May 4, 2004, we launched DIRECTV 7S, which allowed us to expand our local channel programming to an additional 42 markets and transmit local channels to 19 existing local markets freeing up capacity on our other satellites for delivery of more local channels and other new services in the future. As a result, we currently deliver local channels in 106 major metropolitan markets or about 85% of U.S. television households. Also during the quarter, the FCC granted us approval to move DIRECTV 3 to a Canadian orbital location to be used by Telesat Canada, or Telesat. See “Commitments and Contingencies” below for further discussion of the Telesat transaction.

Update to Executive Overview and Outlook

We have attained greater than expected gross subscriber additions in the first half of 2004, which has led to increased total subscriber acquisition costs and lower cash flows (we define cash flows as net cash provided by (used in) operating activities plus cash provided by (used in) in investing activities). Our greater than expected subscriber growth has resulted from our decision to take advantage of the continued strong demand for the DIRECTV service, in order to increase shareholder value. Total subscriber acquisition costs are now expected to be higher as a percentage of revenues in 2004 than in 2003.

As a result of our strong subscriber growth and subscriber losses by our main competitor, the cable industry, it is possible that we may experience increased competition in the second half of 2004, which could negatively affect our financial metrics, including higher churn and retention costs.

Due to our continued strong gross subscriber additions and higher retention costs, our operating costs as a percentage of revenues for 2004 are also now expected to be higher than 2003.

Because of higher subscriber growth and the NRTC transactions, we anticipate cash flows in 2004 to be negative. Cash required in 2004 for the NRTC transactions will be funded by our Parent and our other cash requirements are expected to be funded through cash on-hand and operations. If the Pegasus Satellite Television, Inc., or Pegasus, transaction is completed, we will obtain the necessary funding from the DIRECTV Group. The NRTC and Pegasus transactions are discussed below in “Acquisitions and Other Transactions.”

Results of Operations

The following table sets forth, for the periods indicated, our unaudited consolidated statements of operations and certain other operating data:

	Three Months EndedJune 30,											Six Months EndedJune 30,
	2004			2003			Change					2004			2003			Change
	(dollars in millions, except per subscriber data)
Revenues	$	2,216.9		$	1,800.2		$	416.7		23.1	%	$	4,297.7		$	3,508.3		$	789.4		22.5	%
Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below
Programming and other costs		856.5			705.9			150.6		21.3	%		1,704.6			1,404.7			299.9		21.3	%
Subscriber service expenses		166.0			150.8			15.2		10.1	%		312.0			307.2			4.8		1.6	%
Subscriber acquisition costs:
Third party customer acquisitions		445.4			306.1			139.3		45.5	%		881.9			619.2			262.7		42.4	%
Direct customer acquisitions		162.1			69.5			92.6		133.2	%		313.4			137.2			176.2		128.4	%
Retention and upgrade costs		226.8			71.1			155.7		219.0	%		401.0			130.1			270.9		208.2	%
Broadcast operations expenses		35.2			38.2			(3.0	)	(7.9	)%		65.2			72.1			(6.9	)	(9.6	)%
General, administrative and other marketing expenses		149.9			133.8			16.1		12.0	%		299.4			282.6			16.8		5.9	%
Depreciation and amortization expense		111.7			124.1			(12.4	)	(10.0	)%		235.5			248.5			(13.0	)	(5.2	)%
Total Operating Costs and Expenses		2,153.6			1,599.5			554.1		34.6	%		4,213.0			3,201.6			1,011.4		31.6	%
Operating Profit		63.3			200.7			(137.4	)	(68.5	)%		84.7			306.7			(222.0	)	(72.4	)%
Interest expense, net		(46.0	)		(57.3	)		11.3		(19.7	)%		(93.4	)		(86.5	)		(6.9	)	8.0	%
Other expense		—			(2.9	)		2.9		(100.0	)%		—			(4.0	)		4.0		(100.0	)%
Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change		17.3			140.5			(123.2	)	(87.7	)%		(8.7	)		216.2			(224.9	)	(104.0	)%
Income tax (expense) benefit		(6.6	)		(52.7	)		46.1		(87.5	)%		3.4			(81.1	)		84.5		(104.2	)%
Income (Loss) Before Cumulative Effect of Accounting Change		10.7			87.8			(77.1	)	(87.8	)%		(5.3	)		135.1			(140.4	)	(103.9	)%
Cumulative effect of accounting change, net of taxes		—			—			—					(311.5	)		—			(311.5	)	(100.0	)%
Net Income (Loss)	$	10.7		$	87.8		$	(77.1	)	(87.8	)%	$	(316.8	)	$	135.1		$	(451.9	)	(334.5	)%
Other Data:
Operating profit	$	63.3		$	200.7		$	(137.4	)	(68.5	)%	$	84.7		$	306.7		$	(222.0	)	(72.4	)%
Depreciation and amortization expense		111.7			124.1			(12.4	)	(10.0	)%		235.5			248.5			(13.0	)	(5.2	)%
Operating Profit Before Depreciation and Amortization	$	175.0		$	324.8		$	(149.8	)	(46.1	)%	$	320.2		$	555.2		$	(235.0	)	(42.3	)%
Average monthly revenue per subscriber (ARPU)	$	65.00		$	60.90		$	4.10		6.7	%	$	64.30		$	60.10		$	4.20		7.0	%
Average monthly subscriber churn %		1.4	%		1.5	%		—		(6.7	)%		1.4	%		1.5	%		—		(6.7	)%
Average subscriber acquisition costs—per subscriber (SAC)	$	645		$	595		$	50		8.4	%	$	645		$	565		$	80		14.2	%
Total number of subscribers—platform (000’s)		13,040			11,557			1,483		12.8	%		13,040			11,557			1,483		12.8	%
Total owned and operated subscribers (000’s)		11,595			9,949			1,646		16.5	%		11,595			9,949			1,646		16.5	%

Discussion of Significant Events Affecting Period to Period Comparability

Subscriber Acquisition, Retention and Upgrade Costs. In the first quarter of 2004, we changed our method of accounting for subscriber acquisition, retention and upgrade costs. Prior to January 1, 2004, we deferred a portion of these costs, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and we amortized the deferred amounts to expense over the contract period. On January 1, 2004, we began expensing all subscriber acquisition, retention and upgrade costs as incurred as subscribers activate the DIRECTV service. We determined that expensing such costs was preferable to our prior accounting method after considering the accounting practices of our competitors and companies within similar industries and

the added clarity and ease of understanding of our reported results for investors. As a result of this change, we expensed the total of the deferred costs, which amounted to $503.9 million ($311.5 million, net of taxes) as of December 31, 2003, as a cumulative effect of accounting change on January 1, 2004. Had the new method of accounting been applied during 2003, operating costs would have decreased $7.8 million and net income would have increased $4.9 million for the three months ended June 30, 2003 and operating costs would have increased $4.7 million and net income would have decreased $2.9 million for the six months ended June 30, 2003.

The following table presents our results of operations for the three months and six months ended June 30, 2003 on a pro forma basis, as if we had historically expensed, as incurred, subscriber acquisition, retention and upgrade costs:

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004			2003
	(dollars in millions, except per subscriber data)
Total Operating Costs and Expenses	$	2,153.6	$	1,591.7	$	4,213.0		$	3,206.3
Operating Profit		63.3		208.5		84.7			302.0
Net Income (Loss)		10.7		92.7		(5.3	)		132.2
Other Data:
Operating Profit	$	63.3	$	208.5	$	84.7		$	302.0
Depreciation and amortization expense		111.7		124.1		235.5			248.5
Operating Profit Before Depreciation and Amortization	$	175.0	$	332.6	$	320.2		$	550.5
Average subscriber acquisition costs—per subscriber (SAC)	$	645	$	565	$	645		$	560

Reclassification. Beginning in the second quarter of 2004, we reclassified certain other marketing expenses from “Retention, upgrade and other marketing costs” to “General, administrative and other marketing expenses” and “Programming and other costs” in the consolidated statements of operations to more accurately reflect the cost of retaining and upgrading existing subscribers. Other marketing expenses are primarily associated with payroll and benefit costs for our in-house marketing department. Prior period balances have been reclassified to conform to the current period presentation.

Three Months Ended June 30, 2004 Compared with the Three Months Ended June 30, 2003

Subscribers. We had approximately 11.6 million owned and operated subscribers at June 30, 2004 that resulted from our adding 1.6 million net new subscribers since June 30, 2003. Including the subscribers of the NRTC’s members and affiliates, we had a total of about 13.0 million subscribers at June 30, 2004 and 11.6 million subscribers at June 30, 2003. Our gross owned and operated subscriber additions increased by 49% over the same period in the prior year to an all-time record of 944,000 in the second quarter of 2004 due to more attractive consumer promotions and an improved and more diverse distribution network. After accounting for churn, we added 455,000 net new owned and operated subscribers in the second quarter of 2004, an increase of 151% over the same period last year.

Our improvement in average monthly subscriber churn from 1.5% in the second quarter of 2003 to 1.4% in second quarter of 2004 was primarily due to a higher percentage of subscribers purchasing local channel programming, as well as an increase in the number of our subscribers with multiple set-top receivers and DVRs.

Revenues. The $416.7 million increase in revenues to $2,216.9 million resulted from the new subscribers added since June 30, 2003 and higher ARPU on the larger subscriber base. The 6.7% increase in ARPU to $65.00 resulted primarily from a March 2004 price increase on certain programming packages, higher mirroring fees from an increase in the average number of set-top receivers per subscriber and a higher percentage of subscribers purchasing local channels.

Total Operating Costs and Expenses. The $554.1 million increase in total operating costs and expenses to $2,153.6 million resulted primarily from higher costs for programming, subscriber acquisitions, customer retention and upgrade initiatives and general, administrative and other marketing expenses, partially offset by lower depreciation and amortization expense.

The increase in programming costs resulted mostly from our increased number of subscribers and annual program supplier rate increases.

Higher gross subscriber additions and the increase in SAC per subscriber primarily drove the increase in subscriber acquisition costs. The higher SAC per subscriber was mostly due to an increase in the number of set-top receivers provided to new subscribers, which rose from an average of about 1.9 set-top receivers per new subscriber during the three months ended June 30, 2003 to about 2.5 during the three months ended June 30, 2004 and an increase in the number of subscribers purchasing DVRs.

Increased volume under our DVR, local channel upgrade and movers programs as well as an increased number of subscribers provided with multiple set-top receivers under other retention and upgrade programs drove most of the increase in retention and upgrade costs. Under these programs, we provide DVRs or additional equipment, plus installation, to existing subscribers at significantly reduced prices or for free.

Our higher general, administrative and other marketing expenses resulted primarily from higher employee compensation costs related to stock options and restricted stock units and higher bad debt expense resulting from increased activity associated with the larger subscriber base.

Our decrease in depreciation and amortization expense resulted from certain fixed assets and subscriber related intangible assets associated with a prior acquisition being fully depreciated or amortized since the second quarter of 2003.

Operating Profit Before Depreciation and Amortization and Operating Profit. The $149.8 million decrease in operating profit before depreciation and amortization to $175.0 million was mostly due to our higher programming costs, subscriber acquisition costs and retention and upgrade costs, partially offset by the increase in revenues discussed above.

The $137.4 million decrease in operating profit to $63.3 million resulted from the decrease in operating profit before depreciation and amortization, partially offset by the decrease in depreciation and amortization expense discussed above.

Interest Expense, Net. The $11.3 million decrease in net interest expense was due to a decrease in interest rates resulting from our refinancing our debt in the first quarter of 2004 and lower average outstanding borrowings in 2004.

Net Income. The $77.1 million decrease in net income was mostly due to our higher subscriber acquisition and retention and upgrade costs, partially offset by lower income tax expense due to our lower pre-tax income in the second quarter of 2004.

Six Months Ended June 30, 2004 Compared with the Six Months Ended June 30, 2003

Subscribers. We had approximately 11.6 million owned and operated subscribers at June 30, 2004 that resulted from our adding 1.6 million net new subscribers since June 30, 2003. Including the subscribers of the NRTC’s members and affiliates, we had a total of about 13.0 million subscribers at June 30, 2004 and 11.6 million subscribers at June 30, 2003. We added 1.9 million gross owned and operated subscriber during the six months ended June 30, 2004 compared to 1.3 million gross owned and operated subscribers added during the six months ended June 30, 2003. During the six months ended June 30, 2004, we added 915,000 net new owned and operated subscribers compared to 456,000 net new owned and operated subscribers added during the six months ended June 30, 2003.

Our improvement in average monthly subscriber churn from 1.5% for the six months ended June 30, 2003 to 1.4% for the six months ended June 30, 2004 was primarily due to a higher percentage of subscribers purchasing local channel programming, as well as an increase in the number of our subscribers with multiple set-top receivers and DVRs.

Revenues. The $789.4 million increase in revenues to $4,297.7 million resulted from the new subscribers added since June 30, 2003 and higher ARPU on the larger subscriber base. The 7.0% increase in ARPU to $64.30 resulted primarily from March 2003 and 2004 price increases on certain programming packages, higher mirroring fees from an increase in the average number of set-top receivers per subscriber and a higher percentage of subscribers purchasing local channels.

Total Operating Costs and Expenses. The $1,011.4 million increase in total operating costs and expenses to $4,213.0 million resulted primarily from higher costs for programming, subscriber acquisitions, customer retention and upgrade initiatives, and higher general, administrative and other marketing expenses, partially offset by lower depreciation and amortization expense.

Our higher programming costs resulted mostly from our increased number of subscribers and annual program supplier rate increases.

Higher gross subscriber additions and the increase in SAC per subscriber primarily drove the increase in subscriber acquisition costs. The higher SAC per subscriber was mostly due to an increase in the number of set-top receivers provided to new subscribers, which rose from an average of about 1.9 set-top receivers per new subscriber during the six months ended June 30, 2003 to about 2.5 during the six months ended June 30, 2004 and an increase in the number of subscribers purchasing DVRs.

General, administrative and other marketing expenses increased $16.8 million compared to the first six months of 2003 due mostly to a one-time charge in the first quarter of 2004. The charge resulted from our changing from developing our signal security system internally to an external provider and consisted mainly of previously capitalized costs associated with the development of our system. Also contributing to the increase was higher employee compensation costs related to stock options and restricted stock units, partially offset by a decrease in other marketing expenses.

Our decrease in depreciation and amortization expense resulted primarily from certain fixed assets and subscriber related intangible assets associated with a prior acquisition being fully depreciated or amortized since the second quarter of 2003.

Operating Profit Before Depreciation and Amortization and Operating Profit. The $235.0 million decrease in operating profit before depreciation and amortization to $320.2 million was mostly due to our higher programming costs, subscriber acquisition costs and retention and upgrade costs, partially offset by the increase in revenues discussed above.

The $222.0 million decrease in operating profit to $84.7 million resulted from the decrease in operating profit before depreciation and amortization, partially offset by the decrease in depreciation and amortization expense discussed above.

Cumulative Effect of Accounting Change, net of taxes. The $311.5 million increase in cumulative effect of accounting change, net of taxes, was due to the change in our accounting for subscriber acquisition, retention and upgrade costs discussed above.

Net Income (Loss). The $316.8 million net loss for the six months ended June 30, 2004 was mostly due to the change in our method of accounting for subscriber acquisition, retention and upgrade costs and a decrease in operating profit, partially offset by a decrease in income tax expense due to our lower pre-tax income generated in 2004.

Liquidity and Capital Resources

We fund our cash requirements from cash on-hand and cash generated by operations and we have up to $250.0 million of borrowing capacity under our revolving credit facility to fund our operations. However, in the third quarter of 2004, The DIRECTV Group contributed $200.0 million to us to fund our current cash requirements associated with the NRTC transactions described below in “Acquisitions and Other Transactions.” At June 30, 2004, we had cash and cash equivalents of $118.2 million compared to $390.9 million at December 31, 2003.

The $272.7 million decrease in cash and cash equivalents during the first six months of 2004 resulted primarily from $279.2 million of expenditures for satellites, property and equipment and a $201.0 million pre-payment under the Term Loan portion of our senior secured credit facilities. These decreases in cash were partially offset by $218.3 million in cash provided by operations, which includes approximately $200 million received as part of the transaction with Thomson Inc., or Thomson, discussed below in “Acquisitions and Other Transactions.”

As a measure of liquidity, our current ratio (ratio of current assets to current liabilities) was 0.66 at June 30, 2004 compared to 0.93 at December 31, 2003. Working capital decreased to a deficit of $613.1 million at June 30, 2004 from a deficit of $121.4 million at December 31, 2003 due primarily to the change in accounting for subscriber acquisition, retention and upgrade costs that resulted in a reduction to “Prepaid expenses and other” in the consolidated balance sheets and the additional liabilities and deferred credits recorded as part of the transactions described below in “Acquisitions and Other Transactions.”

In March 2003, we raised $2,558.5 million, net of debt issuance costs, from our offering of senior notes and borrowings under the term loan portion of our senior secured credit facilities and distributed the net proceeds to The DIRECTV Group. We may make additional distributions to The DIRECTV Group from time to time to the extent permitted by the terms of the documents governing our indebtedness.

We believe that our cash on-hand, future cash flows, amounts contributed and borrowed from The DIRECTV Group and amounts available to us under the revolving portion of our senior secured credit facilities will be sufficient to fund our operations and commitments for the foreseeable future. However, several factors may affect our ability to fund our operations and commitments, which we discuss below in “Commitments and Contingencies.” Additionally, our ability to borrow under the senior secured credit facilities is contingent upon our meeting financial and other covenants associated with our debt.

In addition, our future cash flows may be reduced if we experience, among other things, significantly higher subscriber additions than planned, increased subscriber churn or retention costs, satellite anomaly or signal theft or if we are required to make a prepayment on our Term Loan. If our cash on-hand, future cash flows or our senior secured credit facilities are insufficient to meet our cash requirements, we would need to raise additional capital. We cannot assure you that additional financing will be available to us from The DIRECTV Group, third parties or the capital markets on acceptable terms, or at all, if needed in the future.

Debt. During the first quarter of 2003, we raised approximately $2,625.0 million of cash through a series of financing transactions that included the issuance of $1,400.0 million of senior notes and $1,225.0 million of borrowings under the Term Loan portion of our senior secured credit facilities. On April 15, 2004, we made a prepayment of $201.0 million under the Term Loan portion of our senior secured credit facilities. Debt is more fully described in Note 5 to the consolidated financial statements, which is incorporated herein by reference.

Acquisitions and Other Transactions

NRTC Contract Rights. On June 2, 2004, we announced an agreement with the NRTC, effective June 1, 2004, to end the NRTC’s exclusive DIRECTV service distribution agreement to certain rural territories in the United States and all related agreements. As consideration, we agreed to pay the NRTC $4.4 million per month through June 2011, or $322.1 million on a present value basis, calculated using an estimated incremental annual borrowing rate of 4.3%. As a result of this agreement, we now have the right to sell our services in all territories across the United States. At June 30, 2004, the present value of the cash payments to be made to the NRTC was recorded in “Accounts payable and accrued liabilities” and “Other Liabilities and Deferred Credits,” with a corresponding amount recorded as distribution rights in “Intangible Assets, net” in the consolidated balance sheets. The distribution rights intangible asset is being amortized to expense over seven years, which represents the remaining life of the original DIRECTV service distribution agreement.

NRTC Member Subscribers. In connection with the NRTC transaction described above, we provided the NRTC’s 95 members, excluding Pegasus, the option to retain their subscribers with substantially the same terms and conditions as they had prior to the NRTC transaction, or sell their subscribers to us for $875 or $1,050, per subscriber, depending on the member’s contract period, payable in a lump-sum or over five or seven years plus interest. Members may make their elections through August 31, 2004. At June 30, 2004, 47 members, representing approximately 157,000 subscribers out of the NRTC’s total subscribers of approximately 357,000, excluding Pegasus, elected to sell their subscribers to us. As a result, at June 30, 2004 we recorded liabilities in the consolidated balance sheets in “Accounts payable and accrued liabilities” amounting to $83.2 million for members electing a lump-sum payout, which was paid in July 2004, and in “Accounts payable and accrued liabilities” and “Other Liabilities and Deferred Credits” amounting to $81.1 million for those members electing the long-term payment option. We also recorded a subscriber related intangible asset in “Intangible assets, net” in the consolidated balance sheets amounting to $164.3 million, which will be amortized over the estimated subscriber lives of approximately six years.

In July 2004, we received elections from an additional 47 NRTC members, representing approximately 200,000 additional subscribers, who elected to sell their subscribers to us. As a result, we paid an additional $90.1 million in July 2004 to those members electing a lump-sum payout and accrued an additional $119.1 million for those members electing the long-term payment option. As a result, in July 2004, we increased the amount of the subscriber related intangible asset equal to the amounts paid and accrued. In the third quarter of 2004, The DIRECTV Group contributed $200.0 million to us to partially fund the NRTC transactions. This transaction will be recorded as a capital contribution from The DIRECTV Group in the third quarter of 2004.

Pegasus Subscribers. In July 2004, we entered into an agreement with Pegasus and related entities to purchase certain direct broadcast satellite assets of Pegasus, including rights to all DIRECTV subscribers activated through Pegasus. We will pay $875 million in cash, which is net of the approximately $63 million judgment returned in May 2004 by the U.S. District Court for the Central District of California in our favor. The aggregate purchase price is $938 million prior to taking into account the reduction for the judgment. The purchase price will also be reduced for amounts owed by Pegasus to us for programming and other services and is subject to certain other adjustments at the close of the transaction. The agreement, which has been approved by the creditors’ committee in Pegasus’ Chapter 11 proceedings, will also result in a release of all claims among the parties. The transaction is expected to close late in the third quarter of 2004, subject to the approval of the U.S. Bankruptcy Court, District of Maine.

The cash proceeds required for the Pegasus transaction will be provided to us from The DIRECTV Group in the form of an intercompany note.

Long-Term Purchase Agreement. As part of The DIRECTV Group’s sale of Hughes Network Systems, Inc.’s set-top receiver manufacturing business to Thomson in June 2004, we entered into a long-term purchase agreement, or the Agreement, with Thomson for the supply of set-top receivers. As part of this transaction, we received approximately $200 million in cash from Thomson and can earn an additional $50 million rebate from Thomson if Thomson’s sales of set-top receivers to us and/or our retailers and distributors equal at least

$4 billion over the initial five year contract term plus an additional one year optional extension period, or the Contract Term. We can also earn, on a pro rata basis, an additional $100 million rebate from Thomson if Thomson’s sales of set-top receivers are in excess of $4 billion and up to $6 billion during the Contract Term. As part of the Agreement, we have agreed to minimum set-top receiver volume requirements, which could be in excess of $1.0 billion of purchases by us and/or our retailers and distributors over the first three years of the Contract Term based on current set top receiver prices. The approximately $200 million in cash received from Thomson was recorded as “Unearned subscriber revenue and deferred credits” and “Other Liabilities and Deferred Credits” in the consolidated balance sheets and will be recorded as an offset to “Subscriber acquisition costs” and/or “Retention and upgrade costs” in the consolidated statements of operations, as appropriate, on a pro rata basis as the set-top receivers purchased are activated. We have determined that, based upon projected set-top receiver requirements, it is probable the minimum purchase requirements will be met for the initial $50 million rebate during the initial contract period, and therefore we will record a credit to “Subscriber acquisition costs” and/or “Retention and upgrade costs” in the consolidated statements of operations as earned upon set-top receiver activation, over the initial contract period with a corresponding entry to “Accounts receivable” in the consolidated balance sheets.

The approximately $200 million in cash received from Thomson is included in cash flows from operating activities in the consolidated statements of cash flows for the six months ended June 30, 2004.

Commitments and Contingencies

Litigation. Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, claims and proceedings are pending against us arising in the ordinary course of business. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that, if granted, could require us to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2004. After discussion with counsel representing us in those actions, it is the opinion of management that such litigation is not expected to have a material adverse effect on our consolidated results of operations and financial position. For a discussion of changes to material pending legal proceedings, refer to Item 1 - Legal Proceedings of Part II of this Quarterly Report, which is incorporated herein by reference.

Other. We use in-orbit and launch insurance to mitigate the potential financial impact of satellite fleet in-orbit and launch failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites. The insurance generally does not compensate for business interruption or loss of future revenues or customers. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact a satellite failure could have on our ability to provide service. At June 30, 2004, the net book value of satellites that were not insured amounted to $436.0 million.

As part of an arrangement with Telesat, a Canadian telecommunications and broadcast services company, we agreed to provide Telesat the use of the DIRECTV 3 satellite, which is currently used as an in-orbit spare, through the end of its useful life and in return Telesat agreed to allow us the use of its 72.5 degrees west longitude, or WL, Canadian orbital location. We plan to relocate DIRECTV 5, or a similar satellite, to 72.5 WL to provide additional local channels and other programming in the United States through 2008. Both DIRECTV 3 and DIRECTV 5 are currently not in use for primary DIRECTV services. In the second quarter of 2004, the FCC granted approval for DIRECTV 3 to be moved to a Canadian orbital location and used by Telesat. We are currently awaiting approval for the use at 72.5 WL. If we are successful in obtaining FCC approval to use 72.5 WL, the net book value of DIRECTV 3, which was $82.5 million at June 30, 2004, will be reclassified as an intangible asset and amortized over the life of our right to use 72.5 WL. However, if we are unsuccessful in obtaining FCC approval to use 72.5 WL, we will be required to immediately expense the net book value of DIRECTV 3.

Commitments. At June 30, 2004, minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for real property and aggregated $94.1 million, payable as follows: $13.2 million for the remainder of 2004, $23.9 million in 2005, $20.3 million in 2006, $17.8 million

in 2007, $16.0 million in 2008 and $2.9 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options, which are not considered in the amounts disclosed. Rental expense under operating leases was $19.9 million for the six months ended June 30, 2004 and $15.4 million for the six months ended June 30, 2003.

As of June 30, 2004, minimum payments under our current contractual commitments, which include agreements for broadcast programming, the purchase of services that we have outsourced to third parties, such as call center operations, billing services and telemetry, tracking and control services, and the cost of planned satellite construction and launch contracts are anticipated to be approximately $358.7 million for the remainder of 2004, $536.4 million in 2005, $643.4 million in 2006, $798.4 million in 2007, $531.1 million in 2008 and $23.5 million thereafter. Excluded from the minimum payments above is a commitment to purchase in excess of $1.0 billion of set-top receivers from Thomson during the first three years of the Contract Term based on current set-top receiver prices, as discussed above in “Acquisitions and Other Transactions.”

As a result of the NRTC and Pegasus transactions discussed in “Acquisitions and Other Transactions” above, we have total contractual obligations, including interest, to pay $1,689.8 million, payable approximately as follows: $1,094.1 million in the remainder of 2004, $91.2 million in 2005, $91.2 million in 2006, $91.2 million in 2007, $91.2 million in 2008, and $230.9 million thereafter.

Including the senior notes and senior secured credit facilities described above, our notes payable and credit facilities mature as follows: $10.2 million in 2005, $10.2 million in 2006, $10.2 million in 2007, $252.9 million in 2008 and $2,128.3 million thereafter; however, these amounts do not reflect potential prepayments that may be required under the senior secured credit facilities.

Certain Relationships and Related-Party Transactions

The DIRECTV Group and affiliates. We enter into related-party transactions with The DIRECTV Group and certain of its affiliates as part of our normal operations, which include the purchase of telemetry, tracking and control and other satellite services. Prior to June 22, 2004, we purchased DIRECTV receiving equipment and provided system access cards to a subsidiary of The DIRECTV Group. In addition, we provide accounting and administrative services to The DIRECTV Group and certain of its affiliates and receive an allocation of employee benefit expenses from The DIRECTV Group.

News Corporation and affiliates. Beginning December 23, 2003, with the completion of The News Corporation Limited, or News Corporation, transactions, News Corporation and its affiliated companies are considered related parties. We purchase products and services from various affiliates of News Corporation. The products and services purchased include system access cards, rights to distribute live television programming, subscription services, broadcast engineering services and television advertising.

Effective March 1, 2004, NDS Limited, or NDS, a subsidiary of News Corporation, became the exclusive provider of DIRECTV conditional access products and services, including system access cards, a key component of the access security system in set-top receivers. NDS will be responsible for developing and periodically replacing system access cards during the term of the agreement.

We discuss our related-party transactions in more detail in Note 6 to the consolidated financial statements, which is incorporated herein by reference.

Accounting Changes

Subscriber Acquisition, Retention and Upgrade Costs

Effective January 1, 2004, we changed our method of accounting for subscriber acquisition, retention and upgrade costs. See “Discussion of Significant Events Affecting Period to Period Comparability” above for further discussion.

Stock-Based Compensation

At times, The DIRECTV Group issues stock options and restricted stock units to employees, including DIRECTV employees. On January 1, 2003, we adopted the fair value based method of accounting for stock-based employee compensation of Statement of Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of SFAS No. 123.” Under this method, compensation expense equal to the fair value of the stock-based award at grant is recognized over the course of the vesting period. We elected to follow the prospective method of adoption, which resulted in the recognition of fair value based compensation cost in the consolidated statements of operations for stock options and other stock-based awards granted to employees or modified on or after January 1, 2003. Compensation expense is also recorded for former employees of News Corporation, the parent company of The DIRECTV Group’s largest shareholder, who retained their News Corporation stock options and are now employed by us. See Note 2 to the consolidated financial statements for additional information, which is incorporated herein by reference.

Security Ratings

On August 9, 2004, Standard and Poor’s Rating Services affirmed its ratings on our senior secured credit facilities of BB and our $1.4 billion senior unsecured notes of BB-, removed the ratings from CreditWatch and assigned a positive outlook. In addition, there have been no updates from Moody’s Investor Services to our security ratings since our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 filed with the SEC on May 6, 2004.

ITEM 4. CONTROLS AND PROCEDURES

DIRECTV carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q under the supervision and with the participation of management, including DIRECTV’s principal executive officer and DIRECTV’s principal financial officer, of the effectiveness of DIRECTV’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on the evaluation, DIRECTV’s principal executive officer and DIRECTV’s principal financial officer concluded that DIRECTV’s disclosure controls and procedures were effective as of June 30, 2004.

There has been no change in the DIRECTV’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during DIRECTV’s fiscal quarter ended June 30, 2004, that has materially affected, or is reasonably likely to materially affect, DIRECTV’s internal control over financial reporting.

PART II – OTHER INFORMATION (UNAUDITED)

ITEM 1. LEGAL PROCEEDINGS

Material pending legal proceedings, other than ordinary routine litigation incidental to the business, or changes thereto, to which we became or were a party during the quarter ended June 30, 2004 or subsequent thereto, but before the filing of this report are summarized below:

As previously reported, DIRECTV filed suit in California State Court, Los Angeles County, on June 22, 2001 against Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., which we refer to collectively in this paragraph as the Defendants. The action was subsequently removed to the U.S. District Court for the Central District of California. The lawsuit sought to recover approximately $52 million, excluding interest, that Defendants owe DIRECTV under the parties’ Seamless Marketing Agreement, which provided for reimbursement to DIRECTV of certain costs that resulted from new subscriber activations in Defendants’ territory. On April 14, 2004, the jury returned a verdict awarding DIRECTV $51.5 million in damages against the Defendants as a result of the Defendants’ breach of the agreement. The court granted DIRECTV’s request for prejudgment interest and on May 24, 2004, entered judgment against Defendants and in favor of DIRECTV in the amount of approximately $63 million. Defendants filed a voluntary petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court, District of Maine, on June 2, 2004, staying DIRECTV’s ability to collect on the judgment. On June 21, 2004, Defendants filed a Notice of Appeal.

As previously reported, Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., which we refer to in this paragraph as Plaintiffs, filed an action on January 11, 2000 against DIRECTV in the U.S. District Court for the Central District of California. The Plaintiffs alleged, among other things, that DIRECTV interfered with their contractual relationship with the National Rural Telecommunications Cooperative, or NRTC. The Plaintiffs alleged that their rights and damages are derivative of the rights and damages asserted by the NRTC in its lawsuits against DIRECTV, which have been settled. On May 13, 2004, the court entered an order eliminating all of Plaintiffs’ remaining claims and dismissed DIRECTV’s claim on the term of the member agreements based on lack of standing. The Court entered final judgment on June 2, 2004. On June 10, 2004, Plaintiffs filed a Notice of Appeal.

As discussed above, Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., among others, which we refer to collectively in this paragraph as Debtors, filed a voluntary petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court, District of Maine, on June 2, 2004. Debtors also filed an Adversary Complaint in the bankruptcy court against DIRECTV, Inc., the NRTC, and various officers and directors of the NRTC. The complaint seeks declaratory and injunctive relief, rescission of certain agreements between DIRECTV and NRTC, specific performance against NRTC, restitution, compensatory and punitive damages. On July 30, 2004, DIRECTV entered into certain arrangements with Pegasus Satellite Television, Inc. and certain other related entities, which we collectively refer to as Pegasus, whereby DIRECTV will purchase certain direct broadcast satellite assets of Pegasus, including rights to all DIRECTV subscribers activated through Pegasus. As part of these arrangements, Pegasus Satellite Communications, Inc., Pegasus Communications Corporation, DIRECTV, The DIRECTV Group Inc., National Rural Telecommunications Cooperative, the creditors’ committee in Pegasus’ Chapter 11 proceedings and certain other parties also entered into a Global Settlement Agreement pursuant to which such parties have agreed, effective upon the closing of the asset sale, to release each other from substantially all claims outlined above between the parties, including the judgment entered in May 2004 in favor of DIRECTV against Pegasus. These transactions are described in more detail in Note 7 to the consolidated financial statements entitled “Acquisitions and Other Transactions,” which is incorporated by reference herein. Should the contemplated transactions be approved and successfully close, then the Global Settlement Agreement would result in the termination of all of the litigation with Pegasus and related entities outlined above. Until such time, the parties have agreed to a stay of the litigation outlined above.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

10.1		Agreement of Termination, dated as of June 1, 2004, by and between DIRECTV, Inc., as assignee of Hughes Communications Galaxy, Inc., Hughes Communications Galaxy, Inc., as predecessor-in-interest and National Rural Telecommunications Cooperative (incorporated by reference to Exhibit 10.1 to the Form 8-K of DIRECTV Holdings LLC filed on June 2, 2004).
10.2		Pegasus Offer Agreement (incorporated by reference to Exhibit 10.2 to the Form 8-K of DIRECTV Holdings LLC filed on June 2, 2004).
10.3		Member Offer Agreement (incorporated by reference to Exhibit 10.1 to the Form 8-K of DIRECTV Holdings LLC filed on June 3, 2004).
10.4		Asset Purchase Agreement, dated as of July 30, 2004, by and among Pegasus Satellite Television, Inc., Golden Sky Systems, Inc., and each other entity listed as a “Seller” on the signature pages thereto, DIRECTV, Inc., and, solely for purposes of Section 12.12 thereof, The DIRECTV Group, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K of DIRECTV Holdings LLC filed on August 3, 2004).
10.5		Cooperation Agreement, dated as of July 30, 2004, by and among Pegasus Satellite Television, Inc. (on its own behalf and on behalf of its direct and indirect subsidiaries that are listed as a “Seller” on the signature pages to the Asset Purchase Agreement), and DIRECTV, Inc. (incorporated by reference to Exhibit 10.2 to the Form 8-K of DIRECTV Holdings LLC filed on August 3, 2004).
10.6		Global Settlement Agreement, dated as of July 30, 2004, by and among Pegasus Satellite Communications, Inc., Pegasus Communications Corporation, DIRECTV, Inc., National Rural Telecommunications Cooperative, the creditors’ committee in Pegasus’ Chapter 11 proceedings and certain other parties (incorporated by reference to Exhibit 10.3 to the Form 8-K of DIRECTV Holdings LLC filed on August 3, 2004).
31.1		Certification of the Chief Executive Officer of DIRECTV Holdings LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer of DIRECTV Holdings LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3		Certification of the Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4		Certification of the Chief Financial Officer of DIRECTV Financing Co., Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer of DIRECTV Holdings LLC pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer of DIRECTV Holdings LLC pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3		Certification of the Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.4		Certification of the Chief Financial Officer of DIRECTV Financing Co., Inc. pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) REPORTS ON FORM 8-K

Three reports on Form 8-K filed on May 14, 2004, June 2, 2004 and June 3, 2004, reporting matters under Item 5, Other Events, were filed during the quarter ended June 30, 2004. One report on Form 8-K dated May 4, 2004 was furnished to the Securities and Exchange Commission during the quarter ended June 30, 2004, reporting matters under Item 12, Results of Operations and Financial Condition. Pursuant to General Instruction B of Form 8-K, reports furnished under Item 12 are not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and we are not subject to the liabilities of that section. We are not incorporating, and will not incorporate by reference, that report into any filing under the Securities Act or the Exchange Act.

SIGNATURE

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

	DIRECTV HOLDINGS LLC (Registrant)
Date: August 10, 2004	By:	/s/ MICHAEL W. PALKOVIC
		Michael W. Palkovic Executive Vice President and Chief Financial Officer

SIGNATURE

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

	DIRECTV FINANCING CO., INC. (Registrant)
Date: August 10, 2004	By:	/s/ MICHAEL W. PALKOVIC
		Michael W. Palkovic Executive Vice President and Chief Financial Officer

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