UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission file number 333-106529

DIRECTV HOLDINGS LLCDIRECTV FINANCING CO., INC.(Exact name of registrant as specified in its charter)

DIRECTV Holdings LLCDelaware
DIRECTV Financing Co., Inc.Delaware(State or other jurisdiction of
incorporation or organization)

25-1902628
59-3772785(I.R.S. Employer
Identification Number)2230 East Imperial Highway,
El Segundo, California(Address of principal executive offices)

90245(Zip Code)


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

N/A(Former name, former address and former fiscal year, if changed since last report)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (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.
days. Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The registrant has met the conditions set 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 disclosure format.



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DIRECTV HOLDINGS LLC

TABLE OF CONTENTS

Page NoPart IFinancial Information (Unaudited)Item 1. Financial StatementsConsolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007


1Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007


2Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007


3Notes to the Consolidated Financial Statements


4Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


20Item 4T. Controls and Procedures


32Part IIOther InformationItem 1. Legal Proceedings


33Item 1A. Risk Factors


34Item 6. Exhibits


34Signature


35


---





DIRECTV HOLDINGS LLC    PART IFINANCIAL INFORMATION (UNAUDITED)

ITEM 1.    FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS    (Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(Dollars in Millions)Revenues

$
4,196

$
3,726

$
8,245

$
7,265Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


1,692


1,513


3,375


2,996Subscriber service expenses


269


281


543


561Broadcast operations expenses


65


53


126


105Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


507


447


1,037


879Upgrade and retention costs


209


197


464


423General and administrative expenses


236


173


425


370Depreciation and amortization expense


501


340


965


643Total operating costs and expenses


3,479


3,004


6,935


5,977Operating profit


717


722


1,310


1,288Interest income


13


23


22


44Interest expense


(73
)

(54
)

(128
)

(106
)Other, net


1


1


1


(1
)Income before income taxes


658


692


1,205


1,225Income tax expense


(256
)

(276
)

(471
)

(484
)Net income

$
402

$
416

$
734

$
741


The
accompanying notes are an integral part of these Consolidated Financial Statements.

1

---





DIRECTV HOLDINGS LLC        CONSOLIDATED BALANCE SHEETS        (Unaudited)

June 30,
2008

December 31,
2007(Dollars in Millions)ASSETSCurrent assetsCash and cash equivalents

$
1,337

$
802Accounts receivable, net of allowances of $47 and $39


1,191


1,387Inventories


197


187Deferred income taxes


37


29Prepaid expenses and other


186


142Total current assets


2,948


2,547Satellites, net


2,046


2,030Property and equipment, net


3,268


3,230Goodwill


3,032


3,032Intangible assets, net


1,047


1,223Other assets


205


235Total assets

$
12,546

$
12,297LIABILITIES AND OWNER'S EQUITYCurrent liabilitiesAccounts payable and accrued liabilities

$
2,152

$
2,548Unearned subscriber revenue and deferred credits


342


320Current portion of long-term debt


83


48Total current liabilities


2,577


2,916Long-term debt


5,784


3,347Deferred income taxes


414


336Other liabilities and deferred credits


865


958Commitments and contingenciesOwner's equityCapital stock and additional paid-in capital


2,814


2,782Retained earnings


92


1,958Total owner's equity


2,906


4,740Total liabilities and owner's equity

$
12,546

$
12,297


The
accompanying notes are an integral part of these Consolidated Financial Statements.

2

---





DIRECTV HOLDINGS LLC        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)

Six Months Ended June 30,2008

2007(Dollars in Millions)Cash Flows from Operating ActivitiesNet income

$
734

$
741Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense


965


643Amortization of deferred revenues and deferred credits


(50
)

(31
)Deferred income taxes


74


51Other


28


22Change in other operating assets and liabilitiesAccounts receivable


196


199Inventories


(10
)

(54
)Prepaid expenses and other


(45
)

(37
)Accounts payable and accrued liabilities


(419
)

(247
)Unearned subscriber revenue and deferred credits


22


69Other, net


56


34Net cash provided by operating activities


1,551


1,390Cash Flows from Investing ActivitiesCash paid for property and equipment


(219
)

(322
)Cash paid for subscriber leased equipmentsubscriber acquisitions


(281
)

(359
)Cash paid for subscriber leased equipmentupgrade and retention


(245
)

(382
)Cash paid for satellites


(77
)

(112
)Other


4


(1
)Net cash used in investing activities


(818
)

(1,176
)Cash Flows from Financing ActivitiesCash proceeds from debt issuance


2,490


Debt issuance costs


(19
)

Repayment of long-term debt


(18
)

(5
)Repayment of other long-term obligations


(58
)

(35
)Cash dividends to Parent


(2,600
)

Excess tax benefit from share-based compensation


7


4Net cash used in financing activities


(198
)

(36
)Net increase in cash and cash equivalents


535


178Cash and cash equivalents at beginning of the period


802


1,356Cash and cash equivalents at the end of the period

$
1,337

$
1,534Supplemental cash flow informationCash paid for interest

$
107

$
104Cash paid for income taxes


407


376


The
accompanying notes are an integral part of these Consolidated Financial Statements.

3

---





DIRECTV HOLDINGS LLC        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

Note 1: Basis of Presentation

DIRECTV Holdings LLC 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, DIRECTV, we or us and
sometimes refer to The DIRECTV Group, Inc. as The DIRECTV Group or Parent.

On
February 27, 2008, Liberty Media Corporation, or Liberty Media, and News Corporation completed a transaction in which Liberty Media acquired News Corporation's approximately
41% interest in our Parent, which we refer to as the Liberty Transaction. Currently, Liberty Media owns approximately 49% of our Parent's outstanding common stock, however Liberty Media has agreed to
limit its voting rights to approximately 47.9%. See The DIRECTV Group's Current Report on Form 8-K filed with the Securities Exchange Commission, or SEC, on May 7, 2008 for
further discussion of this agreement.

We
have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for
interim financial reporting. In the opinion of management, all adjustments (consisting only of normal recurring items) that 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, 2007 filed with the SEC on February 27, 2008, our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008 filed with the SEC on May 7, 2008 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.

Note 2: Accounting Changes and New Accounting Standards



On January 1, 2008 we adopted Statement of Financial Accounting Standards, or SFAS, No. 159, "The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115." SFAS No. 159 permits, but does not require, companies to report at fair value
the majority of recognized financial assets, financial liabilities and firm commitments. Under this standard, unrealized gains and losses on items for which the fair value option is elected are
reported in earnings at each subsequent reporting date. Our adoption of SFAS No. 159 did not have any effect on our consolidated results of operations or financial position, as we have not
elected to report subject instruments at fair value.

On
January 1, 2008 we adopted SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, sets out a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements of assets and liabilities to include disclosure about inputs used in the determination of fair value using the following three categories:



4

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

SFAS
No. 157 applies under other accounting pronouncements previously issued by the FASB that require or permit fair value measurements. Our adoption of SFAS No. 157 did
not have any effect on our consolidated results of operations or financial position.

On
January 1, 2008 we adopted Emerging Issues Task Force, or EITF, Issue No. 06-1, "Accounting for Consideration Given by a Service Provider to a Manufacturer
or Reseller of Equipment Necessary for an End-Customer to Receive Service from the Service Provider." EITF No. 06-1 provides guidance to service providers regarding the
proper reporting of consideration given to manufacturers or resellers of equipment necessary for an end-customer to receive its services. Depending on the circumstances, such consideration
is reported as either an expense or a reduction of revenues. Our adoption of EITF No. 06-1 did not have any effect on our consolidated results of operations or financial position.

New Accounting Standards

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No.160, "Noncontrolling Interests in Consolidated
Financial Statementsan amendment to ARB No. 51." SFAS No. 160 establishes standards of accounting and reporting of noncontrolling interests in subsidiaries, currently known
as minority interests, in consolidated financial statements, provides guidance on accounting for changes in the parent's ownership interest in a subsidiary and establishes standards of accounting of
the deconsolidation of a subsidiary due to the loss of control. SFAS No.160 requires an entity to present minority interests as a component of equity. Additionally, SFAS No. 160 requires an
entity to present net income and consolidated comprehensive income attributable to the parent and the minority interest separately on the face of the consolidated financial statements. We are
currently assessing the effect SFAS No. 160 will have on our consolidated results of operations and financial position when adopted, as required, on January 1, 2009.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations." SFAS No. 141R requires the acquiring entity to recognize and measure at an
acquisition date fair value all identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree. The Statement recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase. SFAS No. 141R requires disclosures about the nature and financial effect of the business combination and also changes the accounting for
certain income tax assets recorded in purchase accounting. We are currently assessing the effect SFAS No. 141R will have on our consolidated results of operations and financial position when
adopted, as required, on January 1, 2009.

5

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3: Intangible Assets

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

Estimated
Useful
Lives
(years)

June 30, 2008

December 31, 2007Gross
Amount

Accumulated
Amortization

Net
Amount

Gross
Amount

Accumulated
Amortization

Net
Amount(Dollars in Millions)Orbital slots

Indefinite

$
432




$
432

$
432




$
43272.5° WL Orbital license

5


219

$
160


59


219

$
140


79Subscriber related

5-10


1,348


988


360


1,348


860


488Dealer network

15


130


75


55


130


71


59Distribution rights

7


334


193


141


334


169


165Total intangible assets



$
2,463

$
1,416

$
1,047

$
2,463

$
1,240

$
1,223


The
following table sets forth amortization expense for intangible assets for each of the periods presented:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(Dollars in Millions)Amortization expense

$
88

$
88

$
176

$
177


Estimated
amortization expense for intangible assets in each of the next five years and thereafter is as follows: $176 million for the remainder of 2008, $289 million in
2009, $90 million in 2010, $34 million in 2011, $10 million in 2012 and $16 million thereafter.

Note 4: Borrowings

The following table sets forth our outstanding borrowings:

Interest Rates at June 30, 2008

June 30, 2008

December 31, 2007(Dollars in Millions)8.375% senior notes due in 2013


8.375
%
$
910

$
9106.375% senior notes due in 2015


6.375
%

1,000


1,0007.625% senior notes due in 2016


7.625
%

1,500


Senior secured credit facility, net of unamortized discount of $10 million as of June 30, 2008


4.348
%

2,455


1,483Other debt





2


2Total debt





5,867


3,395Less: current portion of long-term debt





83


48Long-term debt




$
5,784

$
3,347


6

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2008 Financing Transactions

In May 2008, we completed financing transactions that included the issuance of senior notes and an amendment to our existing senior
secured credit facility as discussed below. We incurred $20 million of debt issuance costs in connection with these transactions.

We
issued $1,500 million in senior notes due in 2016 in a private placement transaction. The eight-year notes bear interest at 7.625%. Principal on the senior notes is
payable upon maturity, while interest is payable semi-annually commencing November 15, 2008. The senior notes have been fully and unconditionally guaranteed, jointly and severally,
by substantially all of our current and certain of our future domestic subsidiaries on a senior unsecured basis. Pursuant to a registration rights agreement with the initial purchasers of the senior
notes, we have agreed to use our reasonable best efforts to cause to become effective a registration statement, whereby all holders of the original notes can elect to exchange their existing notes for
registered notes with identical terms, except that the registered notes will be registered under the Securities Act of 1933, as amended and will not bear the legends restricting their transfer. We
expect to complete the registration process of the 7.625% senior notes during the second half of 2008.

We
also amended our senior secured credit facility to include a new $1,000 million Term Loan C, which was issued at a 1% discount, resulting in $990 million of proceeds.
Initially, borrowings under Term Loan C bear interest at 5.25%, however the rate is variable based on changes in the London InterBank Offered Rate, or LIBOR. The interest rate may be increased or
decreased under certain conditions. The Term Loan C has a final maturity of April 13, 2013, and prior to that date we will make quarterly principal payments totaling 1% annually beginning on
September 30, 2008. The senior secured credit facility is secured by substantially all of our assets and the assets of its current and certain of its future domestic subsidiaries and is fully
and unconditionally guaranteed, jointly and severally by substantially all of our current and certain of our future domestic subsidiaries.

In
June 2008, we paid a $2.5 billion cash dividend to our Parent using the proceeds from the May 2008 financing transactions.

Notes Payable

The 8.375% senior notes and the 6.375% senior notes are registered under the Securities Act of 1933, as amended.

The
fair value of our 8.375% senior notes was approximately $936 million at June 30, 2008 and approximately $948 million at December 31, 2007. The fair value
of our 6.375% senior notes was approximately $940 million at June 30, 2008 and approximately $962 million at December 31, 2007. The fair value of our 7.625% senior notes
was approximately $1,478 million at June 30, 2008. We calculated the fair values based on quoted market prices of our senior notes, which is a Level 1 input under SFAS
No. 157, on those dates.

Our
notes payable and senior secured credit facility mature as follows: $35 million in the remainder of 2008, $108 million in 2009, $308 million in 2010,
$108 million in 2011, $20 million in 2012 and $5,296 million thereafter. These amounts do not reflect potential prepayments that may be required under our senior secured credit
facility, which could result from a computation that we may be required to make at each year end under the credit agreement. We were not required to make a prepayment for the year ended
December 31, 2007. The amount of interest accrued related to our outstanding debt was $45 million at June 30, 2008 and $26 million at December 31, 2007.

7

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Covenants and Restrictions.The senior secured credit facility requires us to comply with certain financial covenants. The senior notes and the senior secured
credit facility also include covenants that restrict our ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain
other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another entity, (vi) sell, assign,
lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions as provided in the credit
agreement and senior notes indentures. Should we fail to comply with these covenants, all or a portion of our borrowings under the senior notes and senior secured credit facility could become
immediately payable and our revolving credit facility could be terminated. At June 30, 2008, we were in compliance with all such covenants. The senior notes and
senior secured credit facility also provide that the borrowings may be required to be prepaid if certain change-in-control events occur.

Note 5: Contingencies



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, 2008. 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.

Finisar Corporation.As previously reported, we filed a notice of appeal to the Court of Appeals for the Federal Circuit on October 5, 2006 from a jury
determination that The DIRECTV Group, Inc. and certain of its subsidiaries, including DIRECTV Holdings, willfully infringed a patent owned by Finisar Corporation and an award by the jury of
approximately $79 million in damages. The trial court increased the damages award by $25 million because of the jury finding of willful infringement and awarded pre-judgment
interest of $13 million to Finisar. We were also ordered to pay into escrow $1.60 per new set-top receiver manufactured for use with the DIRECTV system beginning June 17,
2006 and continuing until the patent expires in 2012 or was otherwise found to be invalid.

On
April 18, 2008, the Court of Appeals vacated (set aside) the verdict of infringement, and sent the case back to the district court for further proceedings and possible retrial
on a limited number of claims. The Court of Appeals, ruled that the lower court had used erroneous interpretations of certain important terms in the patent claims. Thus, the district court must now
determine whether there is any infringement using the correct interpretations, which are the ones we originally suggested. Regarding our defenses of invalidity, the Court of Appeals found that one of
the principal independent claims of the patent is clearly anticipated by the prior art we presented. The Court of Appeals then remanded the question of validity for the remaining claims back to the
district court for further consideration in view of this invalidity ruling. The Court of Appeals also reversed the verdict of willful infringement, and affirmed earlier rulings of the district court
that held several additional claims to be invalid. Through the date of the vacated verdict, the ongoing royalties amounted to $37 million, which had been paid into escrow. On May 2,
2008, Finisar filed a petition for rehearing by the Court of Appeals, which was denied on May 29, 2008. By agreement of the parties and subject to an Order of the district

8

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

court,
the appeal bond has been terminated, and the escrowed royalties were returned to us (with interest) on June 10, 2008.



We may purchase in-orbit and launch insurance to mitigate the potential financial impact of satellite launch and
in-orbit failures if the premium costs are considered economic 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 a satellite failure could have on our ability to provide service. At June 30, 2008, the net book value of in-orbit satellites
was $1,743 million of which $1,534 million was uninsured.



In July 2008, we amended our agreement with Thomson such that the amount of the rebate we can earn from the purchase of
set-top receivers was reduced from $57 million to $42 million and in return, we are no longer required to purchase $4 billion in set-top receivers over the
contract term. We continue to be obligated to grant Thomson a portion of all set-top receiver purchases. As of June 30, 2008, included in "Investments and other assets" in the
Consolidated Balance Sheets is a receivable for $34 million related to this agreement.

Note 6: Related Party Transactions

In the ordinary course of our operations, we enter into transactions with related parties as discussed below.

The DIRECTV Group and affiliates

We determine our income taxes based upon our tax sharing agreement with The DIRECTV Group, which generally provides that the current
income tax liability or receivable be computed as if we were a separate taxpayer. Payments made to our Parent under this tax sharing arrangement were $395 million for the six months ended
June 30, 2008 and $360 million for the six months ended June 30, 2007. We also receive an allocation of employee benefit expenses from The DIRECTV Group. We believe that our
consolidated financial statements reflect our cost of doing business in accordance with SEC Staff Accounting Bulleting No. 55, "Allocation of Expenses and Related Disclosures in Financial
Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity."

During
the six months ended June 30, 2008, we paid $2,600 million in dividends to our Parent from available cash and cash equivalents.

Liberty Media, Liberty Global and Discovery Holding Company

As a result of the completion of the Liberty Transaction, beginning February 27, 2008, transactions with Liberty Media and its
affiliates, including its equity method investees may be considered to be related party transactions as Liberty Media currently owns approximately 49% of our Parent's outstanding common stock. Our
transactions with Liberty Media and its affiliates consist primarily of the purchase of programming.

9

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In
addition, John Malone, Chairman of the Board of Directors of our Parent and of Liberty Media, has an approximate 31% voting interest in Discovery Holding Company, or Discovery
Holding, and an approximate 34% voting interest in Liberty Global Inc., or Liberty Global, and serves as Chairman of both companies, and certain of Liberty Media's management and directors also serve
in management or director roles at Discovery Holding or Liberty Global. As a result of this common ownership and management, transactions with Discovery Holding and Liberty Global, and their equity
method investees may be considered to be related party transactions. Our transactions with Discovery Holding and Liberty Global consist primarily of purchases of programming created, owned or
distributed by Discovery Holding and its subsidiaries and investees.

News Corporation and affiliates

News Corporation and its affiliates were considered related parties until February 27, 2008, when it transferred its 41%
interest in our Parent's common stock to Liberty Media. Accordingly, the following contractual arrangements with News Corporation and its affiliates are considered related party transactions and
reported through February 27, 2008: purchase of programming, products and advertising; license of certain intellectual property, including patents; purchase of system access products,
set-top receiver software and support services; sale of advertising space; purchase of employee services; and use of facilities.

The
majority of payments under contractual arrangements with Liberty Media, Discovery Holding, Liberty Global and News Corporation entities relate to multi-year programming
contracts. Payments under these contracts are typically subject to annual rate increases and are based on the number of subscribers receiving the related programming.

Other

Companies in which we hold equity method investments are also considered related parties.

10

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The
following table summarizes sales to, and purchases from, related parties:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(Dollars in Millions)Sales:Liberty Media and affiliates

$
10

$


$
12

$
Discovery Holding, Liberty Global and affiliates


3





4


News Corporation and affiliates





5


2


9Total

$
13

$
5

$
18

$
9Purchases:Liberty Media and affiliates

$
75

$


$
102

$
Discovery Holding, Liberty Global and affiliates


49





65


News Corporation and affiliates





207


157


411Other


10


7


18


11Total

$
134

$
214

$
342

$
422


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

June 30, 2008

December 31, 2007(Dollars in Millions)Accounts receivable

$
17

$
20Accounts payable


140


270


The
accounts receivable and accounts payable balances as of June 30, 2008 are primarily related to affiliates of Liberty Media and the accounts receivable and accounts payable
balances as of December 31, 2007 are primarily related to affiliates of News Corporation.

11

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7: Condensed Consolidating Financial Statements

The following presents the condensed consolidating statements of operations for the three and six months ended June 30, 2008 and
2007, the condensed consolidating balance sheets as of June 30, 2008 and December 31, 2007, and the condensed consolidating statements of cash flows for the six months ended
June 30, 2008 and 2007 of DIRECTV Holdings together with DIRECTV Financing Co., Inc., or the Co-Issuers, and each of DIRECTV Holdings' material subsidiaries (other
than DIRECTV Financing), or the Guarantor Subsidiaries, and the eliminations necessary to present DIRECTV Holdings' financial statements on a consolidated basis. These condensed consolidating
financial statements should be read in conjunction with the accompanying consolidated financial statements of DIRECTV Holdings.

Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2008

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$
56

$
4,196

$
(56
)
$
4,196Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





1,692





1,692Subscriber service expenses





269





269Broadcast operations expenses





65





65Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





507





507Upgrade and retention costs





209





209General and administrative expenses





292


(56
)

236Depreciation and amortization expense





501





501Total operating costs and expenses





3,535


(56
)

3,479Operating profit


56


661





717Equity in income of consolidated subsidiaries


401





(401
)

Interest income


13








13Interest expense


(69
)

(4
)




(73
)Other, net


1








1Income before income taxes


402


657


(401
)

658Income tax expense





(256
)




(256
)Net income

$
402

$
401

$
(401
)
$
402


12

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2007

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$


$
3,726

$


$
3,726Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





1,513





1,513Subscriber service expenses





281





281Broadcast operations expenses





53





53Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





447





447Upgrade and retention costs





197





197General and administrative expenses





173





173Depreciation and amortization expense





340





340Total operating costs and expenses





3,004





3,004Operating profit





722





722Equity in income of consolidated subsidiaries


431





(431
)

Interest income


23








23Interest expense


(47
)

(7
)




(54
)Other, net





1





1Income before income taxes


407


716


(431
)

692Income tax benefit (expense)


9


(285
)




(276
)Net income

$
416

$
431

$
(431
)
$
416


13

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2008

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$
106

$
8,245

$
(106
)
$
8,245Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





3,375





3,375Subscriber service expenses





543





543Broadcast operations expenses





126





126Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





1,037





1,037Upgrade and retention costs





464





464General and administrative expenses





531


(106
)

425Depreciation and amortization expense





965





965Total operating costs and expenses





7,041


(106
)

6,935Operating profit


106


1,204





1,310Equity in income of consolidated subsidiaries


728





(728
)

Interest income


22








22Interest expense


(119
)

(9
)




(128
)Other, net





1





1Income before income taxes


737


1,196


(728
)

1,205Income tax expense


(3
)

(468
)




(471
)Net income

$
734

$
728

$
(728
)
$
734


14

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2007

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$


$
7,265

$


$
7,265Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





2,996





2,996Subscriber service expenses





561





561Broadcast operations expenses





105





105Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





879





879Upgrade and retention costs





423





423General and administrative expenses





370





370Depreciation and amortization expense





643





643Total operating costs and expenses





5,977





5,977Operating profit





1,288





1,288Equity in income of consolidated subsidiaries


771





(771
)

Interest income


44








44Interest expense


(93
)

(13
)




(106
)Other, net





(1
)




(1
)Income before income taxes


722


1,274


(771
)

1,225Income tax benefit (expense)


19


(503
)




(484
)Net income

$
741

$
771

$
(771
)
$
741


15

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet
As of June 30, 2008

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)ASSETSTotal current assets

$
1,375

$
1,643

$
(70
)
$
2,948Satellites, net





2,046





2,046Property and equipment, net





3,268





3,268Goodwill


1,828


1,204





3,032Intangible assets, net





1,047





1,047Other assets


7,219


1,083


(8,097
)

205Total assets

$
10,422

$
10,291

$
(8,167
)
$
12,546LIABILITIES AND OWNER'S EQUITYTotal current liabilities

$
171

$
2,475

$
(69
)
$
2,577Long-term debt


5,784








5,784Deferred income taxes





634


(220
)

414Other liabilities and deferred credits


1,561


865


(1,561
)

865Owner's equityCapital stock and additional paid-in capital


2,814


4,451


(4,451
)

2,814Retained earnings


92


1,866


(1,866
)

92Total owner's equity


2,906


6,317


(6,317
)

2,906Total liabilities and owner's equity

$
10,422

$
10,291

$
(8,167
)
$
12,546


16

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Balance Sheet
As of December 31, 2007

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)ASSETSTotal current assets

$
865

$
1,763

$
(81
)
$
2,547Satellites, net





2,030





2,030Property and equipment, net





3,230





3,230Goodwill


1,828


1,204





3,032Intangible assets, net





1,223





1,223Other assets


6,126


490


(6,381
)

235Total assets

$
8,819

$
9,940

$
(6,462
)
$
12,297LIABILITIES AND OWNER'S EQUITYTotal current liabilities

$
132

$
2,865

$
(81
)
$
2,916Long-term debt


3,347








3,347Deferred income taxes





559


(223
)

336Other liabilities and deferred credits


600


958


(600
)

958Owner's equityCapital stock and additional paid-in capital


2,782


4,420


(4,420
)

2,782Retained earnings


1,958


1,138


(1,138
)

1,958Total owner's equity


4,740


5,558


(5,558
)

4,740Total liabilities and owner's equity

$
8,819

$
9,940

$
(6,462
)
$
12,297


17

---



DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2008

Co-Issuers

Guarantor
Subsidiaries

DIRECTV
Holdings
Consolidated(Dollars in Millions)Cash flows from operating activitiesNet cash provided by operating activities

$
682

$
869

$
1,551Cash flows from investing activitiesCash paid for property and equipment





(219
)

(219
)Cash paid for subscriber leased equipmentsubscriber acquisition





(281
)

(281
)Cash paid for subscriber leased equipmentupgrade and retention





(245
)

(245
)Cash paid for satellites





(77
)

(77
)Other





4


4Net cash used in investing activities





(818
)

(818
)Cash flows from financing activitiesCash proceeds from financing transactions


2,490





2,490Repayment of long-term debt


(18
)




(18
)Repayment of other long-term obligations





(58
)

(58
)Cash dividends to Parent


(2,600
)




(2,600
)Excess tax benefit from share-based compensation





7


7Debt issuance costs


(19
)




(19
)Net cash used in financing activities


(147
)

(51
)

(198
)Net increase in cash and cash equivalents


535





535Cash and cash equivalents at beginning of the period


790


12


802Cash and cash equivalents at the end of the period

$
1,325

$
12

$
1,337


18

---





DIRECTV HOLDINGS LLC        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Concluded)        (Unaudited)

Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2007

Co-Issuers

Guarantor
Subsidiaries

DIRECTV
Holdings
Consolidated(Dollars in Millions)Cash flows from operating activitiesNet cash provided by operating activities

$
180

$
1,210

$
1,390Cash flows from investing activitiesCash paid for property and equipment





(322
)

(322
)Cash paid for subscriber leased equipmentsubscriber acquisition





(359
)

(359
)Cash paid for subscriber leased equipmentupgrade and retention





(382
)

(382
)Cash paid for satellites





(112
)

(112
)Other





(1
)

(1
)Net cash used in investing activities





(1,176
)

(1,176
)Cash flows from financing activitiesRepayment of long-term debt


(5
)




(5
)Repayment of other long-term obligations





(35
)

(35
)Excess tax benefit from share-based compensation





4


4Net cash used in financing activities


(5
)

(31
)

(36
)Net increase in cash and cash equivalents


175


3


178Cash and cash equivalents at beginning of the period


1,354


2


1,356Cash and cash equivalents at the end of the period

$
1,529

$
5

$
1,534


Note 8:    Subsequent Event

180 Connect

On July 8, 2008, we acquired 100% of 180 Connect, Inc.'s outstanding common stock and exchangeable shares.
Simultaneously, in a separate transaction, UniTek USA, LLC acquired 100% of 180 Connect's cable service operating unit and operations in certain of our installation services markets in exchange
for satellite installation operations in certain markets and $7 million in cash. These transactions will provide us with control over a significant portion of our installation and home service
network. We paid $98 million in cash for the acquisition, including the equity purchase price, repayment of assumed debt and related transaction costs. We will account for these transactions
using the purchase method of accounting.

19

---





DIRECTV HOLDINGS LLC

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

The following management's discussion and analysis should be read in conjunction with our management's discussion and analysis of
financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on February 27, 2008,
our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008 filed with the SEC on May 7, 2008 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.

This
Quarterly Report 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 provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such
as we "believe," "estimate," "expect," "anticipate," "intend," "plan," "foresee," "project" or other similar 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 results to differ materially from historical results
or from those expressed or implied by the relevant forward-looking statement. We discuss these risks and uncertainties in detail in Part I, Item 1A of our 2007
Form 10-K.

BUSINESS OVERVIEW

We are a wholly-owned subsidiary of The DIRECTV Group and our subsidiaries include DIRECTV Enterprises, LLC and its wholly-owned
subsidiaries and DIRECTV Financing Co., Inc. We acquire, promote, sell and distribute digital entertainment programming via satellite to residential and commercial subscribers. We are
the largest provider of direct-to-home digital television services and the second largest provider in the multi-channel video programming distribution industry in the United
States. As of June 30, 2008, we had approximately 17.2 million subscribers.

We
currently broadcast from a fleet of eleven geosynchronous satellites, including ten owned satellites and one leased satellite. In July 2008, after completing in-orbit
testing, DIRECTV 11 went into service and provides us with increased capability for local and national high definition, or HD, programming as well as capacity for new interactive and enhanced
services. DIRECTV 12 is under construction and will be ready for launch in the second half of 2009.

SIGNIFICANT TRANSACTIONS



In May 2008, we issued $1.5 billion in senior notes and amended our senior secured credit facility to include a new
$1.0 billion Term Loan C. The senior notes bear interest at 7.625% and the principal balance is due in May 2016. The Term Loan C currently bears interest at a rate of 5.25% and was issued at a
1% discount. Principal on the Term Loan C is payable in installments beginning September 30, 2008 with the final installment due in April 2013.

20

---



DIRECTV HOLDINGS LLC



The following table sets forth the amount of set-top receivers we capitalized, and depreciation expense we recorded under
the lease program implemented in 2006 for each of the periods presented:

Three Months Ended
June 30,

Six Months Ended
June 30,Capitalized subscriber leased equipment:2008

2007

2008

2007(Dollars in Millions)Cash paid for subscriber leased equipmentsubscriber acquisitions

$
125

$
171

$
281

$
359Cash paid for subscriber leased equipmentupgrade and retention


84


164


245


382Total subscriber leased equipment capitalized

$
209

$
335

$
526

$
741Depreciation expensesubscriber leased equipment

$
261

$
143

$
502

$
257


KEY TERMINOLOGY

The following key terminology is used in management's discussion and analysis of financial condition and results of operations:

Revenues.We earn revenues mostly from monthly fees we charge subscribers for subscriptions to basic and premium channel programming, HD programming and access
fees, pay-per-view programming, and seasonal and live sporting events. We also earn revenues from monthly fees that we charge subscribers with multiple non-leased
set-top receivers (which we refer to as mirroring fees), monthly fees we charge subscribers for leased set-top receivers, monthly fees we charge subscribers for digital video
recorder, or DVR, service, hardware revenues from subscribers who lease or purchase set-top receivers from us, our published programming guide, warranty service fees and advertising
services.

Broadcast Programming and Other.These costs primarily include license fees for subscription service programming, pay-per-view programming,
live sports and other events. Other costs include expenses associated with the publication and distribution of our programming guide, continuing service fees paid to third parties for active
subscribers, warranty service costs and production costs for on-air advertisements we sell to third parties.

Subscriber 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.

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 our signal.

Subscriber Acquisition Costs.These costs include the cost of set-top receivers and other equipment, commissions we pay to national retailers,
independent satellite television retailers, dealers, regional Bell operating companies, and the cost of installation, advertising, marketing and customer call center expenses associated with the
acquisition of new subscribers. Set-top receivers leased to new subscribers are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets and

21

---



DIRECTV HOLDINGS LLC

depreciated
over their useful lives. The amount of set-top receivers capitalized each period for subscriber acquisitions is included in "Cash paid for subscriber leased
equipment-subscriber acquisitions" in the Consolidated Statements of Cash Flows.

Upgrade and Retention Costs.The majority of upgrade and retention costs are associated with upgrade efforts for existing subscribers that we believe will result
in higher average monthly revenue per subscriber, or ARPU, and lower churn. Our upgrade efforts include subscriber equipment upgrade programs for DVR, HD and HD DVR receivers and local channels, our
multiple set-top receiver offer and similar initiatives. Retention costs also include the costs of installing and providing hardware under our movers program for subscribers relocating to
a new residence. Set-top receivers leased to existing subscribers under upgrade and retention programs are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets
and depreciated over their useful lives. The amount of set-top receivers capitalized each period for upgrade and retention programs is included in "Cash paid for subscriber leased
equipment-upgrade and retention" in the Consolidated Statements of Cash Flows.

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.

Average Monthly Revenue Per Subscriber.We calculate 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 subscribers for the period. We calculate average subscribers for the period by adding the number of subscribers as of the beginning of 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.

Average Monthly Subscriber Churn.Average monthly subscriber churn represents the number of subscribers whose service is disconnected, expressed as a percentage of
the average total number of subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of disconnected subscribers for the period (total subscribers
disconnected, net of reconnects, during the period divided by the number of months in the period) by average subscribers for the period.

Subscriber Count.The total number of subscribers represents the total number of subscribers actively subscribing to our service, including seasonal subscribers,
subscribers who are in the process of relocating and commercial equivalent viewing units. In March 2008, we implemented a change in our commercial pricing and packaging to increase our
competitiveness. As a result, during the first quarter of 2008, we made a one-time downward adjustment to the subscriber count of approximately 71,000 subscribers related to commercial
equivalent viewing units.

SAC.We calculate SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, by dividing total subscriber acquisition costs for the
period by the number of gross new subscribers acquired during the period. We calculate total subscriber acquisition costs for the period by adding together "Subscriber acquisition costs" expensed
during the period and the amount of cash paid for equipment leased to new subscribers during the period.

22

---



DIRECTV HOLDINGS LLC

Results of Operations

The following table sets forth our unaudited consolidated statements of operations and certain other operating data:

Three Months Ended June 30, 2008 Compared with the Three Months Ended June 30, 2007

Three Months Ended
June 30,

Change2008

2007

$

%Revenues

$
4,196

$
3,726

$
470


12.6
%Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


1,692


1,513


179


11.8
%Subscriber service expenses


269


281


(12
)

(4.3
)%Broadcast operations expenses


65


53


12


22.6
%Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


507


447


60


13.4
%Upgrade and retention costs


209


197


12


6.1
%General and administrative expenses


236


173


63


36.4
%Depreciation and amortization expense


501


340


161


47.4
%Total operating costs and expenses


3,479


3,004


475


15.8
%Operating profit


717


722


(5
)

(0.7
)%Interest income


13


23


(10
)

(43.5
)%Interest expense


(73
)

(54
)

(19
)

35.2
%Other, net


1


1





0.0
%Income before income taxes


658


692


(34
)

(4.9
)%Income tax expense


(256
)

(276
)

20


(7.2
)%Net income

$
402

$
416

$
(14
)

(3.4
)%Other Data:Operating profit before depreciation and amortization(1)Operating profit

$
717

$
722

$
(5
)

(0.7
)%Add: Depreciation and amortization expense


501


340


161


47.3
%Operating profit before depreciation and amortization

$
1,218

$
1,062

$
156


14.7
%Operating profit before depreciation and amortizationmargin(1)


29.0
%

28.5
%

N/A


1.8
%Cash Flow InformationNet cash provided by operating activities

$
577

$
499

$
78


15.6
%Net cash used in investing activities


(353
)

(546
)

193


(35.3
)%Net cash used in financing activities


(62
)

(20
)

(42
)

210.0
%


23

---



DIRECTV HOLDINGS LLC

Three Months Ended
June 30,

Change2008

2007

$

%Free cash flow(2)Net cash provided by operating activities

$
577

$
499

$
78


15.6
%Less: Cash paid for property and equipment


(113
)

(153
)

40


(26.1
)%Cash paid for subscriber leased equipmentsubscriber acquisitions


(125
)

(171
)

46


(26.9
)%Cash paid for subscriber leased equipmentupgrade and retention


(84
)

(164
)

80


(48.8
)%Cash paid for satellites


(31
)

(58
)

27


(46.6
)%Free cash flow

$
224

$
(47
)
$
271


(576.6
)%Subscriber dataAverage monthly revenue per subscriber (ARPU)

$
81.80

$
76.43

$
5.37


7.0
%Average monthly subscriber churn %


1.49
%

1.58
%




(5.7
)%Average subscriber acquisition costsper subscriber (SAC)

$
707

$
688

$
19


2.8
%Gross subscriber additions (000's)


894


900


(6
)

(0.7
)%Net subscriber additions (000's)


129


128


1


0.8
%Total number of subscribers (000's)


17,164


16,316


848


5.2
%


---



24

---



DIRECTV HOLDINGS LLC



Subscribers.In the second quarter of 2008, gross subscriber additions decreased compared to the second quarter of 2007 primarily due to the termination of the
AT&T distribution agreement on April 1, 2008, partially offset by increased sales in our direct sales channel. The reduction in churn was principally due to an increase in the number of
subscribers with advanced services as well as the effect of more stringent credit policies. Net subscriber additions increased due to the lower average monthly subscriber churn, mostly offset by the
decrease in gross subscriber additions.

Revenues.Our revenues increased as of result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily from price increases on
programming packages, higher HD and DVR equipment and service fees, and an increase in lease fees due to the higher average number of receivers per subscriber.

Operating profit before depreciation and amortization.The improvement of operating profit before depreciation and amortization was primarily due to the gross
profit generated from the higher revenues, partially offset by higher subscriber acquisition and higher general and administration costs.

Broadcast
programming and other costs increased due to annual program supplier rate increases, the larger number of subscribers in the second quarter of 2008 as compared to the second
quarter of 2007 and increased channel launches. Subscriber service expenses decreased in the second quarter of 2008 compared to the second quarter of 2007 primarily due to improved performance at
customer call centers. Broadcast operations expense increased in the second quarter of 2008 as compared to the
second quarter 2007 due primarily to costs to support new HD local channel markets and an increase in labor expenses to support advanced services, HD enhancements and
video-on-demand.

Subscriber
acquisition costs increased due to higher direct sales marketing costs, an increase in installation costs due to an increase in subscribers taking advanced services and higher
dealer incentives for higher quality subscribers. SAC per subscriber, which includes the cost of capitalized set-top receivers, increased due to higher direct sales marketing costs, an
increase in installation costs due to an increase in subscribers taking advanced services and higher dealer incentives for higher quality subscribers, partially offset by lower set-top
receiver manufacturing costs.

25

---



DIRECTV HOLDINGS LLC

Upgrade
and retention costs increased in the second quarter of 2008 due to an increase in upgrades to advanced services and higher upgrade and retention marketing costs.

General
and administrative expenses increased in the second quarter of 2008 primarily due to a $25 million one time gain recognized in the second quarter of 2007 related to
hurricane insurance claims, a $14 million charge in the second quarter of 2008 for the write-off of accounts receivable for equipment and other costs incurred to effect the orderly
transition of services from one of our Home Service Providers that ceased operations, and an increase in labor and benefit costs.

Operating profit.The decrease in operating profit was primarily due to higher operating profit before depreciation and amortization, more than offset by higher
depreciation and amortization expense in the second quarter of 2008 resulting from the capitalization of set-top receivers under the lease program.

Interest income and expense.The decrease in interest income was due to lower average interest rates and lower average cash balances. The increase in interest
expense was from an increase in the average debt balance compared to the second quarter of 2007 and lower capitalization of interest cost in 2008. We capitalized $4 million of interest costs in
the second quarter of 2008 and $14 million in the second quarter of 2007.

Income tax expense.The $20 million decrease in income tax expense was primarily due to the lower income before income taxes.

26

---





DIRECTV HOLDINGS LLC

Six Months Ended June 30, 2008 Compared with the Six Months Ended June 30, 2007

Six Months Ended
June 30,

Change2008

2007

$

%Revenues

$
8,245

$
7,265

$
980


13.5
%Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


3,375


2,996


379


12.7
%Subscriber service expenses


543


561


(18
)

(3.2
)%Broadcast operations expenses


126


105


21


20.0
%Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


1,037


879


158


18.0
%Upgrade and retention costs


464


423


41


9.7
%General and administrative expenses


425


370


55


14.9
%Depreciation and amortization expense


965


643


322


50.1
%Total operating costs and expenses


6,935


5,977


958


16.0
%Operating profit


1,310


1,288


22


1.7
%Interest income


22


44


(22
)

(50.0
)%Interest expense


(128
)

(106
)

(22
)

20.8
%Other, net


1


(1
)

2


(200.0
)%Income before income taxes


1,205


1,225


(20
)

(1.6
)%Income tax expense


(471
)

(484
)

13


(2.7
)%Net income

$
734

$
741

$
(7
)

(0.9
)%Other Data:Operating profit before depreciation and amortization(1)Operating profit

$
1,310

$
1,288

$
22


1.7
%Add: Depreciation and amortization expense


965


643


322


50.1
%Operating profit before depreciation and amortization

$
2,275

$
1,931

$
344


17.8
%Operating profit before depreciation and amortizationmargin(1)


27.6
%

26.6
%

N/A


3.8
%Cash flow informationNet cash provided by operating activities

$
1,551

$
1,390

$
161


11.6
%Net cash used in investing activities


(818
)

(1,176
)

358


(30.4
)%Net cash used in financing activities


(198
)

(36
)

(162
)

450.0
%


27

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DIRECTV HOLDINGS LLC

Six Months Ended
June 30,

Change2008

2007

$

%Free cash flow(2)Net cash provided by operating activities

$
1,551

$
1,390

$
161


11.6
%Less: Cash paid for property and equipment


(219
)

(322
)

103


(32.0
)%Cash paid for subscriber leased equipmentsubscriber acquisitions


(281
)

(359
)

78


(21.7
)%Cash paid for subscriber leased equipmentupgrade and retention


(245
)

(382
)

137


(35.9
)%Cash paid for satellites


(77
)

(112
)

35


(31.3
)%Free cash flow

$
729

$
215

$
514


239.1
%Subscriber dataAverage monthly revenue per subscriber (ARPU)

$
80.79

$
74.96

$
5.83


7.8
%Average monthly subscriber churn %


1.42
%

1.51
%




(6.0
)%Average subscriber acquisition costsper subscriber (SAC)

$
709

$
677

$
32


4.7
%Gross subscriber additions (000's)


1,858


1,829


29


1.6
%Net subscriber additions (000's)


404


363


41


11.3
%Total number of subscribers (000's)(3)


17,164


16,316


848


5.2
%


---

Subscribers.Gross subscriber additions increased in 2008 due to higher demand for HD and DVR services and increased sales in our direct sales channel, partially
offset by the termination of the AT&T distribution agreement on April 1, 2008. Average monthly subscriber churn decreased primarily due an increase in the number of subscribers with advanced
services, as well as the effect of more stringent credit policies. Net subscriber additions increased due to the higher gross subscriber additions and lower average monthly subscriber churn.

Revenues.Our revenues increased as of result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily from price increases on
programming packages, higher HD and DVR equipment and service fees, and an increase in lease fees due to higher average number of receivers per subscriber.

Operating profit before depreciation and amortization.The improvement of operating profit before depreciation and amortization was primarily due to the gross
profit generated from the higher revenues, partially offset by higher subscriber acquisition, upgrade and retention costs for the increased number of new and existing customers adding HD and DVR
services, and increased general and administration costs.

Broadcast
programming and other costs increased due to annual program supplier rate increases, the larger number of subscribers in 2008 and increased channel launches. Subscriber service
expenses decreased in 2008 primarily due to improved performance at customer call centers. Broadcast operations expenses increased primarily due to costs to support new HD local channel markets, and
an increase in labor expenses to support advanced services, HD enhancements and video-on-demand.

28

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DIRECTV HOLDINGS LLC

Subscriber
acquisition costs increased due to increased installation costs driven by increasing subscriber demand for advanced services, higher dealer incentives due to the acquisition
of higher quality subscribers, higher direct sales marketing costs and higher gross subscriber additions. SAC per subscriber, which includes the cost of capitalized set-top receivers,
increased due to increased installation costs driven by increasing subscriber demand for advanced services, higher dealer incentives due to the acquisition of higher quality subscribers and higher
direct sales marketing costs, partially offset by lower set-top receiver manufacturing costs.

Upgrade
and retention costs increased in 2008 due to an increase in upgrades to advanced services and higher upgrade and retention marketing costs.

General
and administrative expenses increased in 2008 primarily due to a $25 million one-time gain recognized in the second quarter of 2007 related to hurricane
insurance claims, a $14 million charge for the write-off of accounts receivable for equipment and other costs incurred to effect the orderly transition of services from one of our
Home Service Providers that ceased operations, and an increase in labor and benefit costs.

Operating profit.The increase in operating profit was primarily due to higher operating profit before depreciation and amortization, partially offset by higher
depreciation and amortization expense in 2008 resulting from the capitalization of set-top receivers under the lease program.

Interest income and expense.The decrease in interest income was due to lower average cash balances and lower average interest rates. The increase in interest
expense was from an increase in the average debt balance compared to 2007 and lower capitalization of interest cost in 2008. We capitalized $9 million of interest costs in 2008 and
$29 million in 2007.

Income tax expense.The $13 million decrease in income tax expense was primarily due to the lower income before income taxes.

Liquidity and Capital Resources

At June 30, 2008, we had cash and cash equivalents of $1,337 million compared to $802 million at
December 31, 2007. The $535 million increase resulted primarily from $2,471 million of net cash proceeds from the issuance of senior notes and borrowings under our senior secured
credit facility which were completed in May 2008 as described in Note 4 of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and
$1,551 million of cash provided by operating activities, partially offset by $822 million of cash paid for the acquisition of satellites, property and equipment and subscriber leased
equipment and $2,600 million of cash dividends paid to our Parent.

As
a measure of liquidity, our current ratio (ratio of current assets to current liabilities) was 1.14 at June 30, 2008 compared to 0.87 at December 31, 2007. The increase
in our current ratio during the six months ended June 30, 2008 was primarily due to the change in our cash and cash equivalents discussed above and a decrease in accounts payable and accrued
liabilities, partially offset by lower accounts receivable.

As
of June 30, 2008, we had the ability to borrow up to $500 million under our existing credit facility, which is available until 2011. We are subject to restrictive
covenants under the credit facility. These covenants limit our ability and our respective subsidiaries to, among other things; make restricted payments, including dividends, loans or advances to our
Parent.

We
expect to fund our cash requirements and our existing business plan using our available cash balances, and cash provided by operations. Also, we have received capital contributions
and have

29

---



DIRECTV HOLDINGS LLC

borrowed
amounts from our Parent in the past to fund certain transactions. We may also provide dividends to our Parent or fund other cash requirements, including additional share repurchase programs
or other distributions to its stockholders, or to fund strategic investment opportunities should they arise. We may use available cash and cash equivalents, cash from operations, or incur additional
borrowings, which may include borrowings under our $500 million revolving credit facility, to fund such dividends.

Several
factors may affect our ability to fund our operations and commitments that we discuss in "Contingencies" below. 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 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 under our senior secured credit facility. Additionally, our ability to borrow under the senior secured credit facility is contingent upon our meeting financial and other covenants associated
with our credit facility as more fully described in Note 4 of the Notes to the Consolidated Financial Statements in Item 1, Part I of this Quarterly Report and in Note 7 to
the Notes to the Consolidated Financial Statements in Item 8, Part II of our 2007 Form 10-K.

Borrowings

At June 30, 2008, we had $5,867 million in total outstanding borrowings, bearing a weighted average interest rate of
6.15%. Our outstanding borrowings primarily consist of notes payable and amounts borrowed under a senior secured credit facility as more fully described in Note 4 of the Notes to the
Consolidated Financial Statements in Item 1, Part I of this Quarterly Report and in Note 7 to the Notes to the Consolidated Financial Statements in Item 8, Part II
of our 2007 Form 10-K.

Our
notes payable and senior secured credit facility mature as follows: $35 million in the remainder of 2008, $108 million in 2009, $308 million in 2010,
$108 million in 2011, $20 million in 2012, and $5,296 million thereafter. These amounts do not reflect potential prepayments that may be required under our senior secured credit
facility, which could result from a computation that we are required to make at each year end under the credit agreement. We were not required to make a prepayment for the year ended
December 31, 2007.

Debt
ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations as they come due and the expected estimated loss given a
default. In general, lower ratings result in higher borrowing costs. Please refer to our 2007 Form 10-K for discussion of Moody's Investors Service and Standard & Poor's
Rating Service ratings range.

Currently,
we have the following security ratings:

Senior
Secured

Senior
Unsecured

Corporate

OutlookStandard & Poor's

BBB-

BB

BB

StableMoody's

Baa3

Ba3

Ba2

Stable


30

---



DIRECTV HOLDINGS LLC

CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENCIES

The following table sets forth our contractual obligations as of June 30, 2008, 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 I, Item 1
referenced in the table below and the Notes to the Consolidated Financial Statements in Part II, Item 8 in our Form 10-K for the year ended December 31, 2007.

Payments due by periodContractual Obligations

Total

2008

2009-2010

2011-2012

2013
and thereafter(Dollars in Millions)Long-term debt obligations (Note 4)(a)

$
8,212

$
216

$
1,130

$
811

$
6,055Purchase obligations(b)


4,160


655


2,393


936


176Operating leases obligations(c)


201


18


51


51


81Other long-term liabilities reflected on the Consolidated Balance Sheets under GAAP(d),(e)


265


39


165


49


12Total

$
12,838

$
928

$
3,739

$
1,847

$
6,324


---

31

---



DIRECTV HOLDINGS LLC

CONTINGENCIES

For a discussion of "Contingencies," see Part I, Item 1, Note 5 of the Notes to the Consolidated Financial
Statements of this Quarterly Report, which we incorporate herein by reference.

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

For a discussion of "Certain Relationships and Related-Party Transactions," see Part I, Item 1, Note 6 of the
Notes to the Consolidated Financial Statements of this Quarterly Report, which we incorporate herein by reference.

ACCOUNTING CHANGES

For a discussion of "Accounting Changes," see Part I, Item 1, Note 2 of the Notes to the Consolidated Financial
Statements of this Quarterly Report, which we incorporate herein by reference.

ITEM 4T.    CONTROLS AND PROCEDURES

We 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 our principal executive officer and our principal financial officer, of the effectiveness of our 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, our principal executive
officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2008.

There
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during our fiscal quarter ended June 30, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32

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DIRECTV HOLDINGS LLC

PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

(a)    Material
pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we became or were a party during the quarter ended June 30, 2008
or subsequent thereto, but before the filing of this report, are summarized below:

Intellectual Property Litigation.We are a defendant in several unrelated lawsuits claiming infringement of various patents relating to various aspects of our
businesses. In certain of these cases other industry participants are also defendants, and also in certain of these cases we expect that any potential liability would be the responsibility of our
equipment vendors pursuant to applicable contractual indemnification provisions. To the extent that the allegations in these lawsuits can be analyzed by us at this stage of their proceedings, we
believe the claims are without merit and intend to defend the actions vigorously. The final disposition of these claims is not expected to have a material adverse effect on our consolidated financial
position, but could possibly be material to our consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to our
consolidated financial position.

Finisar Corporation.As previously reported, we filed a notice of appeal to the Court of Appeals for the Federal Circuit on October 5, 2006 from a jury
determination that The DIRECTV Group, Inc. and certain of its subsidiaries, including DIRECTV Holdings, willfully infringed a patent owned by Finisar Corporation and an award by the jury of
approximately $79 million in damages. The trial court increased the damages award by $25 million because of the jury finding of willful infringement and awarded pre-judgment
interest of $13 million to Finisar. We were also ordered to pay into escrow $1.60 per new set-top receiver manufactured for use with the DIRECTV system beginning June 17,
2006 and continuing until the patent expires in 2012 or was otherwise found to be invalid.

On
April 18, 2008, the Court of Appeals vacated (set aside) the verdict of infringement, and sent the case back to the district court for further proceedings and possible retrial
on a limited number of claims. The Court of Appeals, ruled that the lower court had used erroneous interpretations of certain important terms in the patent claims. Thus, the district court must now
determine whether there is any infringement using the correct interpretations, which are the ones we originally suggested. Regarding our defenses of invalidity, the Court of Appeals found that one of
the principal independent claims of the patent is clearly anticipated by the prior art we presented. The Court of Appeals then remanded the question of validity for the remaining claims back to the
district court for further consideration in view of this invalidity ruling. The Court of Appeals also reversed the verdict of willful infringement,
and affirmed earlier rulings of the district court that held several additional claims to be invalid. Through the date of the vacated verdict, the ongoing royalties amounted to $37 million,
which had been paid into escrow. On May 2, 2008, Finisar filed a petition for rehearing by the Court of Appeals, which was denied on May 29, 2008. By agreement of the parties and subject
to an Order of the district court, the appeal bond has been terminated, and the escrowed royalties were returned to us (with interest) on June 10, 2008.

Other.We are subject to other legal proceedings and claims that arise in the ordinary course of our business. The amount of ultimate liability with respect to
such actions is not expected to materially affect our financial position, results of operations or liquidity.

(b)    No
previous reported legal proceedings were terminated during the second quarter ended June 30, 2008.

33

---



DIRECTV HOLDINGS LLC

ITEM 1A.    RISK FACTORS

The risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2007 have not
materially changed.

ITEM 6.    EXHIBITS

Exhibit Number

Exhibit Name*10.1

Indenture, dated as of May 14, 2008, by and among DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.1 to the Form 8-K of DIRECTV Holdings LLC and DIRECTV Finance Co., Inc. filed May 16, 2008 (the "Holdings May 16, 2008 8-K")).*10.2

Registration Rights Agreement, dated as of May 14, 2008, by and among DIRECTV Holdings LLC, DIRECTV Financing Co., Inc., the Guarantors signatory thereto and the Initial Purchasers named therein (incorporated by reference to
Exhibit 10.2 of the Holdings May 16, 2008 8-K).*10.3

Amendment No.1, dated as of May 14, 2008, by and among DIRECTV Holdings LLC, the Guarantors and Lenders signatory thereto and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.3 of the Holdings
May 16, 2008 8-K).*10.4

Tranche C Term Loan Joinder Agreement, dated as of May 14, 2008, by and among DIRECTV Holdings LLC and Bank of America, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.4 of the Holdings
May 16, 2008 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.


---

34

---





DIRECTV HOLDINGS LLC

SIGNATURE

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

DIRECTV HOLDINGS LLC
(Registrant)Date: August 7, 2008

By:

/s/PATRICK T. DOYLEPatrick T. Doyle Senior Vice President and
Chief Financial OfficerDIRECTV FINANCING CO., INC.
(Registrant)Date: August 7, 2008

By:

/s/PATRICK T. DOYLEPatrick T. Doyle Senior Vice President and
Chief Financial Officer


35

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