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

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FORM 10-K

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ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|(Mark One)                                                     |                                                                                         
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2005                   
|or                                                            
|o                                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                              to

Commission file number 333-106529

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DIRECTV HOLDINGS LLC
DIRECTV 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 No.)
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------
|2230 East Imperial Highway, El Segundo, California(Address of Principal Executive Offices)                                       |  | 90245(zip code)                                          

Registrant's telephone number, including area code: (310) 964-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or Section 15(d) of the
Act.    Yes o No ý

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.    Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    ý

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

Large
accelerated filer    o                  Accelerated
filer    o                  Non-accelerated filer    ý

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

State the aggregate market value of the voting and non-voting common equity held by non affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. None.

The
registrant has met the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Annual Report on
Form 10-K with the reduced disclosure format.



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CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF  THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K 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," "expect," "estimate," "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, including, without limitation, risk factors
discussed in more detail in Item 1A of this Annual Report, which could cause our actual results to differ materially from historical results or from those expressed or implied by the relevant
forward-looking statement. The forward-looking statements included in this Annual Report are made only as of the date of this Annual Report and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or circumstances.

PART I

ITEM 1.    BUSINESS

Description of Our Business

We are a wholly-owned subsidiary of The DIRECTV Group, Inc., which we sometimes refer to as The DIRECTV Group or Parent. We are the largest provider of
direct-to-home, or DTH, digital television services and the second largest multi-channel video programming distribution, or MVPD, provider in the United States, in each case
based on the number of subscribers. We provide our subscribers with access to hundreds of channels of digital-quality video and CD-quality audio programming that are transmitted directly
to our subscribers' homes or businesses via high-powered geosynchronous satellites.

We
believe we provide one of the most extensive collections of programming available in the MVPD industry. We currently distribute to our subscribers more than 1,500 digital video and
audio channels, including about 130 basic entertainment channels, 31 premium movie channels, over 33 regional and specialty sports networks, an aggregate of over 1,100 local channels, approximately 70
Spanish and other foreign language special interest channels, and approximately 50 pay-per-view movie and event choices. Although we distribute over 1,100 local channels, a
subscriber generally receives only the local channels in the subscriber's home market. As of December 31, 2005, we provided local channel coverage to approximately 141 markets, or about 94% of
U.S. television households.

In
addition, we provide ten national high-definition, or HD, television channels as well as network HD programming in certain local markets. Beginning in the fourth quarter
of 2005, we launched local HD channels in 12 of the largest markets and expect to introduce local HD channels to at least 36 markets covering approximately 57% of U.S. television households in the
first half of 2006. By 2007, with the expected launch of two additional satellites, we expect to have the capacity to offer local HD channels to nearly all U.S. television households.

We
also provide premium professional and collegiate sports programming such as the NFL SUNDAY TICKET package, which allows subscribers to view the biggest selection of NFL
games available each Sunday during the regular season. Under our contract with the NFL, we have exclusive rights to provide this service through 2010, including rights to provide related HD,
interactive and mobile services.

To
subscribe to the DIRECTV® service, subscribers acquire receiving equipment from us or through one of our national retailers as well as independent satellite television
retailers, dealers and

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regional
Bell operating companies, or RBOCs. On March 1, 2006, we introduced a set-top receiver lease program for new and existing subscribers.

The
receiving equipment consists of a small receiving satellite dish antenna, a digital set-top receiver and a remote control, which is referred to as a DIRECTV®
System. After acquiring and installing a DIRECTV System, subscribers activate our service by calling us and subscribing to one of our programming packages.

Key Strengths

Our business is characterized by the following key strengths:



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Business Strategy

Our overall goal is to provide subscribers with the best television experience in the United States. Our strategy focuses on offering our subscribers
differentiated and exclusive content, attaining leadership in technology, and enhancing our sales, marketing, distribution and customer service.



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Infrastructure

Satellites.We currently use a fleet of seven satellites to broadcast our service from our 101 WL,
103 WL, 110 WL and 119 WL orbital locations. We also broadcast from 72.5 WL under our

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arrangement
with Telesat Canada, or Telesat, Industry Canada and the FCC as well as from 95 WL using transponders on a satellite we lease. Our eighth satellite, SPACEWAY 2, which was launched in
November 2005, is expected to begin broadcasting HD services in the second quarter of 2006 from its 99 WL orbital location.

The
FCC licensed us to operate 46 Ku-Band DBS frequencies at various orbital positions including 32 frequencies at the 101 WL orbital location, 11 frequencies at the 119 WL
orbital location, and three frequencies at the 110 WL orbital location. In addition, the FCC has granted us Ka-Band licenses for DBS operations at the 99 WL, 101 WL and 103 WL orbital
locations. In the third quarter of 2004, we obtained final approval from Industry Canada and the FCC to use the 72.5 WL orbital location. As a part of our arrangement with Telesat, we transferred two
satellites, both of which were previously used as in-orbit spares, to orbital locations controlled by Telesat for use by Telesat for their own services broadcast into Canada. We also
relocated a third satellite to the 72.5 WL orbital location, where we broadcast local channel services to 29 markets in the United States.

Satellites Under Construction.We currently have four satellites under construction. DIRECTV 9S,
which is expected to launch mid-2006, will provide backup capacity at the 101 WL and 119 WL orbital locations. We also plan to launch DIRECTV 10 and DIRECTV 11 in 2007. These two
satellites will provide us with increased capability for local and national HD channels, as well as capacity for new interactive and enhanced services and standard-definition programming. Once
launched, these satellites will operate from our Ka-Band orbital locations. In addition, DIRECTV 12 is being constructed and will serve as a ground spare.

Satellite Risk Management.We use launch and in-orbit insurance to mitigate the potential
financial impact of satellite fleet launch and in-orbit failures unless the premium costs are considered to be uneconomical relative to the risk of satellite failure. The insurance
generally does not compensate for business interruption or loss of future revenues or subscribers. We rely on in-orbit spare satellites and excess transponder capacity at key orbital slots
to mitigate the impact of satellite failure on our ability to provide service. However, programming continuity cannot be assured in all instances or in the event of multiple satellite losses.

Launch
insurance typically covers the time frame from ignition of the launch vehicle through separation of the satellite from the launch vehicle. In the past, we have launched satellites
without insurance. We have been evaluating whether to purchase launch insurance for the three satellites we expect to launch in 2006 and 2007 and will make a final determination on the satellites
based on information relating to premiums for such insurance and other considerations. We do not currently expect to purchase in-orbit insurance for these satellites. As of
December 31, 2005, we had
in-orbit insurance coverage for an aggregate amount of approximately $447 million for two of our in-orbit satellites.

Digital Broadcast Centers.To gather programming content, ensure its digital quality, and transmit
content to our satellites, we built two digital broadcast centers, located in Castle Rock, Colorado and Los Angeles, California. These facilities provide the majority of our national and local
standard-definition and HD programming. We have also built uplink facilities in Oakdale, Minnesota and Winchester, Virginia, which are primarily used to provide new HD channels. Three additional
uplink centers are being built so that we may continue to expand our local HD programming. Programming is received by our broadcast centers from content providers via satellite, fiber optic cable
and/or special tape. Most satellite-delivered programming is then digitized, encoded and transmitted to our satellites. Each broadcast center was designed with redundant systems to minimize service
interruptions.

Installation Network.DIRECTV HOME SERVICES® installation and service network performs
installation, upgrades and other service call work for us. As of December 31, 2005, home service providers performed approximately 85% of all service calls through 11 outsourced companies with
over

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14,000
technicians around the United States. In addition, we and our retailers also utilize employer-based or contract installation providers, which perform the remainder of all new professional
subscriber installations. We set the quality of installation and service standards, perform quality control, manage inventory and monitor the overall service network performance for nearly all of the
third party installation network.

Customer Service Centers.As of December 31, 2005, we used 22 customer service centers
employing nearly 15,000 customer service representatives. Most of these customer service centers, which employ approximately 10,500 customer service representatives, are operated by Convergys Customer
Management Group, Inc., Precision Response Corporation, ClientLogic Operating Corporation and N.E.W Customer Service Companies, Inc. We currently own three customer service centers
located in Boise, Idaho, Tulsa, Oklahoma and Huntsville, Alabama that employ approximately 4,200 customer service representatives. A fourth DIRECTV owned and operated customer service center is
scheduled to open in Missoula, Montana in 2006. Potential and existing subscribers can call a single telephone number 24 hours a day, seven days a week, to request assistance for hardware,
programming, installation and technical support. We continue to increase the functionality of telephone-based and web-based self-care features in order to better manage
customer service costs and improve service levels.

NRTC and Pegasus Transactions

Pursuant to an agreement entered into in 1992 with the National Rural Telecommunications Cooperative, or NRTC, the NRTC had the exclusive right to distribute
DIRECTV services transmitted from 27 of the 32 frequencies located at 101 WL to subscribers located primarily in rural areas of the United States. The NRTC separately contracted with its members and
affiliates, including Pegasus Satellite Television, Inc., or Pegasus, to provide them with rights to market and sell these services. The NRTC paid us a fee on the revenues from these services.
We had also separately contracted with the NRTC and Pegasus, the NRTC's largest affiliate, and permitted each of them to market and sell services, including premium services, transmitted from five
other frequencies located at the 101 WL orbital slot, as well as frequencies located at the 110 WL and 119 WL orbital slots. For these separately contracted services, the NRTC and Pegasus paid us a
percentage of the subscriber revenues they generated.

Effective
June 1, 2004, we and the NRTC agreed to end the NRTC's exclusive DIRECTV service distribution agreement and all related agreements. As a result of this agreement, we
have the right to sell our services in all territories across the United States. In connection with this transaction, all NRTC members and affiliates, representing approximately 357,000 subscribers,
excluding Pegasus, elected to sell their subscribers to us. In addition, on July 30, 2004, we entered into certain arrangements with Pegasus and certain other related entities, whereby we
agreed to purchase the primary DBS assets of Pegasus, including rights to all DIRECTV subscribers activated through Pegasus. In these transactions, we acquired approximately 1.1 million
subscribers activated through Pegasus.

For
additional information on these transactions, see Note 16 and Note 17 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
Report.

Competition

Our industry is highly concentrated and we face substantial competition. Our competition includes companies that offer video, audio, interactive programming,
telephony, data and other entertainment services, including cable television, other DTH companies, RBOCs, wireless companies and companies that are developing new technologies. Many of our competitors
have access to substantially greater financial and marketing resources. We believe that the quality and variety of video, audio and

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interactive
programming, quality of picture, access to service, availability of a broadband Internet service, customer service and price are the key elements for gaining and maintaining market share.



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Government Regulation

We are subject to U.S. government regulation, primarily by the FCC and, to a certain extent, by Congress, other federal agencies, state and local authorities and
the International Telecommunications Union, or ITU, a specialized agency of the United Nations within which governments and the private sector coordinate global telecommunications networks and
services. Depending upon the circumstances, noncompliance with legislation or regulations promulgated by these entities could result in the suspension or revocation of our licenses or registrations,
the termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties.

This
section sets forth a summary of regulatory issues pertaining to our operations and is not intended to describe all present and proposed government regulation and legislation
affecting the MVPD industry or our business.

FCC Regulation Under the Communications Act.The Communications Act gives the FCC broad authority to
regulate the operations of our company.

The
ownership and operation of our DBS/DTH system is regulated by the FCC primarily for:



The
FCC grants authorizations to satellite operators that meet its legal, technical and financial qualification requirements. The FCC conditions such authorizations on satisfaction of
ongoing due diligence, construction, reporting and related obligations.

All
of our satellites and earth stations are licensed by the FCC. While the FCC generally issues DTH space station licenses for a fifteen-year term, DBS space station and
earth station licenses are generally issued for a ten-year term, which is less than the useful life of a healthy direct broadcast satellite. Upon expiration of the initial license term,
the FCC has the option to renew a satellite operator's license or authorize an operator to operate for a period of time on special temporary authority, or decline to renew the license. If the FCC
declines to renew the operator's license, the operator is required to cease operations and the frequencies it was previously authorized to use would revert to the FCC.

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Currently
we have several applications pending before the FCC, including applications to launch and operate DIRECTV 9S, a next-generation hybrid satellite with spot beams in
both Ku- and Ka-Bands, and DIRECTV 13, a Ku-Band satellite optimized for service to mobile platforms. In general, the FCC's approval of these applications is
required for us to continue to expand our range of service offerings while increasing the robustness of our satellite fleet. We may not obtain these approvals in a timely fashion or at all.

As
a DBS/DTH licensee and operator we are subject to a variety of Communications Act requirements, FCC regulations and copyright laws that could materially affect our business. They
include the following:



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Intellectual Property

All The DIRECTV Group companies maintain active programs for identifying and protecting our important intellectual property. With the exception of certain U.S.
trademark registrations held by us, all our intellectual property is owned by The DIRECTV Group for the benefit of all its subsidiaries.

We
believe that the growing portfolio of pending and issued patents are important assets. The DIRECTV Group presently holds over 1,500 issued patents worldwide relating to past and
present businesses, including over 100 patents developed by or otherwise relating to our business. We hold over 73 U.S. and Canadian trademark registrations relating to our business, including
registrations of the primary"DIRECTV" and Cyclone Design trademarks. These trademarks are licensed royalty-free to third parties for use in support of our business. In addition, The
DIRECTV Group holds a worldwide portfolio of over 720 registered trademarks, including over 450 foreign registrations related to the DIRECTV name and the Cyclone Design. We along with The DIRECTV
Group actively protect our important patents and trademarks against unauthorized or improper use by third parties.

Employees

As of December 31, 2005, we had 5,840 full-time and 138 part-time employees. We believe that our employee relations are good. None
of our employees are represented by labor unions.

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ITEM 1A.    RISK FACTORS

You should carefully consider the following risk factors, as well as the more detailed descriptions of our business elsewhere in this Annual Report. The risks
described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition or
results of operations.

Our
business, financial condition or results of operations could be materially and adversely affected by the following:

We may not sustain profitability.

We have sustained significant losses in the past and have significant amounts of debt. If we do not have sufficient income or other sources of cash, it could
affect our ability to service debt and pay other obligations.

We compete with other MVPDs, some of whom have greater resources than we do and levels of competition are increasing.

We compete in the MVPD industry against cable television, RBOCs and other land-based and satellite-based system operators with service offerings
including video and audio programming, data and entertainment services and telephony service. Some of these competitors have greater financial, marketing and other resources than we do.

Some
cable television operators have large, established customer bases and many cable operators have significant investments in, and access to, programming. According to the National
Cable & Telecommunications Association Mid-Year 2005 Industry Overview, 108 million of the 110 million U.S. television households, or 99%, are passed by cable. Of the
110 million U.S. television households, approximately 73 million, or 67%, were subscribers to cable at year end. Cable television operators have advantages relative to us, including or
as a result of:



In
addition, cable television operators have grown their subscriber base through mergers and acquisitions. Moreover, mergers, joint ventures and alliances among franchise, wireless or
private cable television operators, RBOCs, and others may result in providers capable of offering bundled cable television and telecommunications services in competition with our services.

Various
RBOCs have also begun deployment of fiber optic lines directly to customers' homes or neighborhoods and to deliver video services, which compete with the DIRECTV service. It is
uncertain whether we will be able to increase our satellite capacity, offer a significant level of new services in existing markets in which we compete or expand to additional markets as may be
necessary to compete effectively. Some of these RBOCs also sell the DIRECTV service as a bundle with their voice and data services. The existence of a new broadly-deployed network with the capability
of providing video, voice and data services could present a significant competitive challenge. Should their deployment of fiber optic lines for video grow substantially, we may be unable to develop
other distribution methods to make up for lost sales through the RBOCs.

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AT&T recently announced an agreement to acquire BellSouth, one of the RBOCs that sells the DIRECTV service. AT&T has a similar arrangement with EchoStar. If the AT&T acquisition of
BellSouth is completed, our arrangements with BellSouth might be adversely affected.

As
a result of these and other factors, we may not be able to continue to expand our subscriber base or compete effectively against cable television or other MVPD operators in the
future.

We depend on the Communications Act for access to cable-affiliated programming and changes impacting that access could materially adversely affect us.

We purchase a substantial percentage of our programming from programmers that are affiliated with cable system operators. Currently, under certain provisions of
the Communications Act governing access to programming, cable-affiliated programmers generally must sell and deliver their programming services to all multi-channel video programming distributors on
non-discriminatory terms and conditions. The Communications Act and the FCC rules also prohibit certain types of exclusive programming contracts involving programming from cable-affiliated
programmers.

Any
change in the Communications Act or the FCC's rules that would permit programmers that are affiliated with cable system operators to refuse to provide such programming or to impose
discriminatory terms or conditions could materially adversely affect our ability to acquire programming on a cost-effective basis, or at all. The Communications Act prohibitions on certain
cable industry exclusive contracting practices with cable-affiliated programmers are scheduled to expire in October 2007 and may not be renewed or extended.

In
addition, certain cable providers have denied us and other MVPDs access to a limited number of channels created by programmers with which the cable providers are affiliated. The cable
providers have asserted that they are not required to provide such programming due to the manner in which that programming is distributed, which they argue is not covered by the program access
provisions of the Communications Act. Challenges to this interpretation of the Communications Act have not been successful, and we may continue to be precluded from obtaining such programming, which
in turn could materially adversely affect our ability to compete in regions serviced by those cable providers.

Carriage requirements may negatively affect our ability to deliver local broadcast stations, as well as other aspects of our business.

In implementing SHVIA, the FCC has required satellite carriers to delete certain programming, including sports programming, from the signals of certain distant
stations. The FCC's interpretation, implementation and enforcement of other provisions of SHVIA and SHVERA, as well as judicial decisions interpreting and enforcing these laws, could hamper our
ability to retransmit distant network and superstation signals, reduce the number of our existing or future subscribers that can qualify for receipt of these signals, impose costs on us in connection
with the process of complying with the rules, or subject us to fines, monetary damages or injunctions. Also, the FCC's sport blackout requirements, which apply to all distant network signals, may
require costly upgrades to our system. Further, a recent FCC order interpreting the requirement that satellite carriers retransmit local digital signals with "equivalent bandwidth" of significantly
viewed digital signals may constrain our ability to deliver such significantly viewed digital signals.

We
have limited capacity, and the projected number of markets in which we can deliver local broadcast programming will continue to be constrained because of the must carry requirement
and may be reduced depending on the FCC's interpretation of its rules in pending and future rulemaking and complaint proceedings, as well as judicial decisions interpreting must carry requirements. We
may not be able to comply with these must carry rules, or compliance may mean that we are not be able to use capacity that could otherwise be used for new or additional local or national programming
services.

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We depend on others to produce programming and programming costs are increasing.

We depend on third parties to provide us with programming services, including third parties who are our affiliates and third parties controlled by competitors.
Our ability to compete successfully will depend on our ability to continue to obtain desirable programming and deliver it to our subscribers at competitive prices. Our programming agreements generally
have remaining terms ranging from less than one to up to ten years and contain various renewal and cancellation provisions. We may not be able to renew these agreements on favorable terms, or at all,
or these agreements may be cancelled prior to expiration of their original terms. If we are unable to renew any of these agreements or the other parties cancel the agreements, we may not be able to
obtain substitute programming, or if we are able to obtain such substitute programming, it may not be comparable in quality or cost to our existing programming.

In
addition, many of our programming agreements contain annual price increases. When offering new programming, or upon expiration of existing contracts, programming suppliers have
historically
increased the rates they charge us for programming, increasing our costs. We expect this practice to continue. Increases in programming costs could cause us to increase the rates that we charge our
subscribers, which could in turn cause subscribers to terminate their subscriptions or potential new subscribers to refrain from subscribing to our service. Furthermore, we may be unable to pass
programming cost increases on to our subscribers, which could have a material adverse effect on our earnings or cash flow.

The
FCC recently adopted rules requiring us to negotiate in good faith with broadcast stations seeking carriage outside of the mandatory carriage regime described above. The rules for
"retransmission consent" negotiations, which are similar to those that have applied to broadcast stations for years, require us to comply with certain indicia of good faith negotiation, as well as to
demonstrate good faith under a "totality of the circumstances" test. Failure to comply with these rules could subject us to administrative sanctions and other penalties.

Our subscriber acquisition costs could materially increase.

We incur costs relating to subscribers acquired by us and subscribers acquired through third parties. These costs are known as subscriber acquisition costs. For
instance, we provide installation incentives to our retailers to enable them to offer standard professional installation as part of the subscriber's purchase or lease of a DIRECTV System. In addition,
we pay commissions to retailers for their efforts in offering a DIRECTV System to consumers. Our subscriber acquisition costs may materially increase to the extent we continue or expand current sales
promotion activities or introduce other more aggressive promotions, or due to increased competition. Any material increase in subscriber acquisition costs from current levels would negatively impact
our earnings and could materially adversely affect our financial performance.

Increased subscriber churn or subscriber upgrade and retention costs could materially adversely affect our financial performance.

Turnover of subscribers in the form of subscriber service cancellations, or churn, has a significant financial impact on the results of operations of any
subscription television provider, including us, as does the cost of upgrading and retaining subscribers. Any increase in our upgrade and retention costs for our existing subscribers may adversely
affect our financial performance or cause us to increase our subscription rates, which could increase churn. Churn may also increase due to factors beyond our control, including involuntary churn by
subscribers who are unable to pay their monthly subscription fees, a slowing economy, significant signal theft, a maturing subscriber base and competitive offers. Any of the risks described in this
Annual Report that could potentially have a material adverse impact on

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our
cost or service quality or that could result in higher prices for our subscribers could also, in turn, cause an increase in churn and consequently have a material adverse effect on our earnings.

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 that
do not result in subscriber acquisition.

The delivery of subscription programming requires the use of conditional access technology to limit access to programming to only those who subscribe and are
authorized to view it. The conditional access system uses, among other things, encryption technology to protect the transmitted signal from unauthorized access. It is illegal to create, sell or
otherwise distribute software or devices to circumvent that conditional access technology. However, theft of cable and satellite programming has been widely reported, and the access or "smart" cards
used in our conditional access system have been compromised in the past and could be further compromised in the future.

We
have undertaken various initiatives with respect to our conditional access system to further enhance the security of the DIRECTV signal. To help combat signal theft, we are currently
providing our subscribers with more advanced access cards that we believe significantly enhance the security of our signal. However, we cannot guarantee that the new card will prevent the theft of our
satellite programming signals. Furthermore, there can be no assurance that we will succeed in developing the technology we need to effectively restrict or eliminate signal theft. If we cannot promptly
correct a compromise of our conditional access technology, our revenue and our ability to contract for video and audio services provided by programmers could be materially adversely affected. In
addition, our operating costs could increase if we attempt to implement additional measures to combat signal theft.

Construction or launch delays on satellites could materially adversely affect our revenues and earnings.

A key component of our business strategy is our ability to expand our offering of new programming and services, including increased local and HD programming. In
order to accomplish this goal, we need to construct and launch new satellites. The construction and launch of satellites are often subject to delays, including satellite and launch vehicle
construction delays, periodic unavailability of reliable launch opportunities, and delays in obtaining regulatory approvals. A significant delay in the future delivery of any satellite would
materially adversely affect the use of the satellite and thus could materially adversely affect our anticipated revenues and earnings. If satellite construction schedules are not met, there can be no
assurance that a launch opportunity will be available at the time a satellite is ready to be launched. Certain delays in satellite construction could also jeopardize a satellite authorization that is
conditioned on timely construction and launch of the satellite.

Our satellites are subject to significant launch and operational risks.

Satellites are subject to significant operational risks relating to launch and while in orbit. Launch risks include launch failure, incorrect orbital placement or
improper commercial operation. Launch failures result in significant delays in the deployment of satellites because of the need both to construct replacement satellites, which can take up to
36 months, and obtain other launch opportunities. The overall historical loss rate in our industry for all launches of commercial satellites in fixed orbits in the last five years is estimated
to be 5% but may be higher. Any significant delays or failures in successfully launching and deploying our satellites could materially adversely affect our ability to generate revenues. While we have
traditionally purchased insurance covering the launch and, in limited cases, operation of our satellites, such policies typically cover the loss of the satellite itself and not the business
interruption or other associated direct and indirect costs. We do not currently expect to purchase in-orbit insurance for any of our satellites scheduled for launch in 2006 and 2007.

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In-orbit
risks include malfunctions, commonly referred to as anomalies, and collisions with meteoroids, other spacecraft or other space debris. Anomalies occur as a result of
various factors, such as satellite manufacturing errors, problems with the power systems or control systems of the satellites and general failures resulting from operating satellites in the harsh
space environment. We work closely with our satellite manufacturers to determine and eliminate the potential causes of anomalies in new satellites and provide for redundancies of critical components
in the satellites as well as having backup satellite capacity. However, we cannot assure you that we will not experience anomalies in the future, nor can we assure you that our backup satellite
capacity will be sufficient for our business purposes. Any single anomaly or series of anomalies could materially adversely affect our operations and revenues and our relationships with our
subscribers, as well as our ability to attract new subscribers for our services. Anomalies may also reduce the expected useful life of a satellite, thereby
creating additional expenses due to the need to provide replacement or backup satellites and potentially reducing revenues if service is interrupted. Finally, the occurrence of anomalies may
materially adversely affect our ability to insure our satellites at commercially reasonable premiums, if at all. While some anomalies are currently covered by existing insurance policies, others are
not now covered or may not be covered in the future.

Our
ability to earn revenue also depends on the usefulness of our satellites. Each satellite has a limited useful life. A number of factors affect the useful life of a satellite,
including, among other things:



Generally,
the minimum design life of the satellites in our fleet is between 12 and 15 years. The actual useful lives of the satellites may be shorter, in some cases
significantly. Our operating results could be adversely affected if the useful life of any of our satellites were significantly shorter than 12 years from the date of launch.

In
the event of a failure or loss of any of our satellites, we may relocate another satellite and use it as a replacement for the failed or lost satellite. In the event of a complete
satellite failure, our services provided via that satellite could be unavailable for several days or longer while backup in-orbit satellites are repositioned and services are moved. We are
not insured for any resultant lost revenues. The use of backup satellite capacity for our programming may require us to discontinue some programming services due to potentially reduced capacity on the
backup satellite. Any relocation of our satellites would require prior FCC approval and, among other things, a demonstration to the FCC that the replacement satellite would not cause additional
interference compared to the failed or lost satellite. Such FCC approval may not be obtained. We believe we have in-orbit satellite capacity to expeditiously recover transmission of most
programming in the event one of our in-orbit satellites fail. However, programming continuity cannot be assured in the event of multiple satellite losses.

18

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The cost of commercial insurance coverage on our satellites or the loss of a satellite that is not insured could materially adversely affect our earnings.

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. When insurance is obtained, it generally covers the unamortized book value of covered satellites. Although the
insurance generally does not compensate for business interruption or loss of future revenues or subscribers, we rely on in-orbit spare satellites and excess transponder capacity at key
orbital slots to mitigate the impact of satellite failure on our ability to provide service.

The
price, terms and availability of insurance fluctuate significantly. Launch and in-orbit policies on satellites may not continue to be available on commercially reasonable
terms or at all. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and satellite health-related policy exclusions.

Any
launch vehicle failure, or loss or destruction of any of our satellites for which we do not have commercial insurance coverage could have a material adverse effect on our financial
condition and results of operations, our ability to comply with FCC regulatory obligations and our ability to fund the construction or acquisition of replacement satellites in a timely fashion, or at
all.

Our ability to keep pace with technological developments is uncertain.

In the MVPD industry, changes occur rapidly as new technologies are developed, which could cause our services and products that deliver our services to become
obsolete. We may not be able to keep pace with technological developments. If the new technologies on which we intend to focus our investments fail to achieve acceptance in the marketplace or our
technology does not work and requires significant cost to replace or fix, we could suffer a material adverse effect on our future competitive position, which could cause a reduction in our revenues
and earnings. For example, our competitors could be the first to obtain proprietary technologies that are perceived by the market as being superior. Further, after incurring substantial costs, one or
more of the technologies under development by us or any of our strategic partners could become obsolete prior to its introduction.

In
addition, technological innovation depends, to a significant extent, on the work of technically skilled employees. Competition for the services of these employees is vigorous. We
cannot assure you that we will be able to continue to attract and retain these employees.

To
access technologies and provide products that are necessary for us to remain competitive, particularly in the area of broadband services, we may make future acquisitions and
investments and may enter into strategic partnerships with other companies. Such investments may require a commitment of significant capital and human and other resources. The value of such
acquisitions, investments and partnerships and the technology accessed may be highly speculative. Arrangements with third parties can lead to contractual and other disputes and dependence on the
development and delivery of necessary technology on third parties that we may not be able to control or influence. These relationships may commit us to technologies that are rendered obsolete by other
developments or preclude the pursuit of other technologies which may prove to be superior.

New
technologies could also create new competitors for DIRECTV. Entities such as RBOCs are implementing and supporting digital video compression over existing telephone lines and
building out fiber optic lines to enhance their capabilities to deliver programming services. While these entities are not currently providing MVPD services on a significant basis, many have the
capabilities for such services and some have announced that they will begin rolling out video services more broadly this year. We may not be able to compete successfully with new entrants in the
market for video services.

19

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Our business relies on intellectual property, some of which is owned by third parties, and we may inadvertently infringe patents and proprietary rights of others.

Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual property rights that cover or affect products or
services related to those that we currently offer or may offer in the future. In general, if a court determines that one or more of our services or the products used to transmit or receive our
services infringes on intellectual property owned by others, we and the applicable manufacturers or vendors may be required to cease developing or marketing those services and products, to obtain
licenses from the owners of the intellectual property or to redesign those services and products in such a way as to avoid infringing the intellectual property rights. If a third party holds
intellectual property rights, it may not allow us or the applicable manufacturers to use its intellectual property at any price, which could materially adversely affect our competitive position.

We
may not be aware of all intellectual property rights that our services or the products used to transmit or receive our services may potentially infringe. In addition, patent
applications in the United States are confidential until the Patent and Trademark Office issues a patent. Therefore, we cannot evaluate the extent to which our services or the products used to
transmit or receive our services may infringe claims contained in pending patent applications. Further, without lengthy litigation, it is often not possible to determine definitively whether a claim
of infringement is valid.

We
cannot estimate the extent to which we may be required in the future to obtain intellectual property licenses or the availability and cost of any such licenses. Those costs, and their
impact on our earnings, could be material. Damages in patent infringement cases may also include treble damages in certain circumstances. To the extent that we are required to pay royalties to third
parties to whom we are not currently making payments, these increased costs of doing business could materially adversely affect our operating results. We are currently being sued in patent
infringement actions related to use of technologies in our DTH business. There can be no assurance that the courts will conclude that our services or the products used to transmit or receive our
services do not infringe on the rights of third parties, that we or the manufacturers would be able to obtain licenses from these persons on commercially reasonable terms or, if we were unable to
obtain such licenses, that we or the manufacturers would be able to redesign our services or the products used to transmit or receive our services to avoid infringement.

The ability to maintain FCC licenses and other regulatory approvals is critical to our business.

If we do not obtain all requisite U.S. regulatory approvals for the construction, launch and operation of any of our existing or future satellites for the use of
frequencies at the orbital locations planned for these satellites or for the provision of service, or the licenses obtained impose operational restrictions on us, our ability to generate revenue and
profits could be materially adversely affected. In addition, under certain circumstances, existing licenses are subject to revocation or modification and upon
expiration renewal may not be granted. If existing licenses are not renewed, or are revoked or materially modified, our ability to generate revenue could be materially adversely affected.

In
certain cases, satellite system operators are obligated by governmental regulation and procedures of the International Telecommunications Union to coordinate the operation of their
systems with other users of the radio spectrum in order to avoid causing interference to those other users. Coordination may require a satellite system operator to reduce power, avoid operating on
certain frequencies, relocate its satellite to another orbital location and/or otherwise modify planned or existing operations. For example, SES has petitioned the FCC for a declaratory ruling to
allow it to provide DBS service using frequencies assigned to it by the Government of Gibraltar and the United Kingdom from an orbital slot located halfway between slots at which we currently operate
and the next nearest existing U.S.-licensed DBS slots. Other operators have filed similar requests. We believe this closer

20

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proximity,
if permitted, significantly increases the risk of interference which could adversely affect the quality of service provided to our subscribers. We may not be able to successfully coordinate
our satellites to the extent we are required to do so, and any modifications we make in the course of coordination, or any inability to successfully coordinate, may materially adversely affect our
ability to generate revenue.

Other
regulatory risks include, among others:



All
of our FCC satellite authorizations are subject to conditions imposed by the FCC in addition to the FCC's general authority to modify, cancel or revoke those authorizations. Use of
FCC licenses and conditional authorizations are often subject to conditions, including technical requirements and implementation deadlines. Failure to comply with such requirements, or comply in a
timely manner, could lead to the loss of authorizations and could have a material adverse effect on our ability to generate revenue. For example, loss of an authorization could potentially reduce the
amount of programming and other services available to DIRECTV subscribers. The materiality of such a loss of authorization would vary based upon, among other things, the orbital location at which the
frequencies may be used.

In
addition, many of our authorizations and pending applications will be subject to petitions and oppositions filed by several companies, and there can be no assurance that our
authorizations will not be cancelled, revoked or modified or that our applications will not be denied. Moreover, the FCC recently adopted new rules for licensing satellites that may limit our ability
to file applications and secure licenses in the future.

Congress
has continued to shape the scope of the FCC's regulatory authority and enact legislation that impacts our business. In addition, FCC proceedings to implement legislation and
enact additional regulations are ongoing. The outcomes of these legislative or regulatory proceedings or their effect on our business cannot be predicted.

We may face other risks described from time to time in periodic reports filed by us with the SEC.

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

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

21

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ITEM 2.    PROPERTIES

As of December 31, 2005, we had approximately 25 locations operating in 14 states and 20 cities in the United States. At such date, we owned approximately
600,000 square feet of space and leased approximately one million square feet of space. The major locations include five administrative offices, two broadcast centers and three call centers. We
consider our properties adequate for our present needs.

ITEM 3.    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 year ended
December 31, 2005 or subsequent thereto, but before the filing of this report, are summarized below:

Intellectual Property Litigation.On December 5, 2000, Personalized Media Communications, LLC
and Pegasus Development Corporation filed suit in the U.S. District Court for the District of Delaware against DIRECTV, Inc., The DIRECTV Group, Thomson Consumer Electronics and Philips
Electronics North American Corp., alleging patent infringement and seeking unspecified damages and injunctive relief. On May 14, 2003, the court stayed the case pending outcome of
reexaminations of the patents by the U.S. Patent Office.

On
June 27, 2000, SuperGuide Corporation filed suit in the U.S. District Court for the Western District of North Carolina against DIRECTV Enterprises, LLC, DIRECTV, Inc.
and DIRECTV Operations, LLC, which we refer to together in this paragraph as the "DIRECTV defendants," The DIRECTV Group, Thomson Inc., EchoStar Communications Corporation, EchoStar Satellite
Corporation and EchoStar Technologies Corporation, alleging patent infringement and seeking unspecified damages and injunctive relief. Gemstar Development Corp. was added as a third party defendant
because it asserts to have exclusive control of the patents by reason of a license agreement with SuperGuide Corporation. On July 3, 2002, the court granted summary judgment of
non-infringement to the DIRECTV defendants, The DIRECTV Group and DIRECTV System manufacturers under all asserted claims of the patents in the case. Judgment for all defendants dismissing
all claims of infringement and awarding costs to defendants was entered on July 25, 2002. On February 12, 2004, the Court of Appeals for the Federal Circuit affirmed the decision in part
and reversed in part, and remanded the action for further proceedings.

Independent Retailer Litigation.On May 18, 2001, plaintiffs Cable Connection, Inc., TV
Options, Inc., Swartzel Electronics, Inc. and Orbital Satellite, Inc. filed a class action complaint against us in Oklahoma State Court, alleging claims similar to those in the
Garcia matter described in (b) below on behalf of all DIRECTV dealers. The plaintiffs seek unspecified damages and injunctive relief. After several procedural hearings and orders, the matter is
now pending before the American Arbitration Association.

(b)   Previous
reported legal proceedings which have been terminated during the fourth quarter ended December 31, 2005 are summarized below:

In
April 2001, Robert Garcia, doing business as Direct Satellite TV, an independent retailer of DIRECTV System equipment, instituted arbitration proceedings against us in Los
Angeles, California regarding commissions and certain chargeback disputes. On October 4, 2001, Mr. Garcia filed a class action complaint against us in Los Angeles County Superior Court
asserting the same claims and a Consumer Legal Remedies Act claim. Mr. Garcia alleged $300 million in class-wide damages and sought certification of a class of plaintiffs to
proceed in arbitration with court oversight. In February 2004, the trial court compelled the matter to arbitration and relinquished all jurisdiction in connection with the case. On
November 5, 2005, the parties agreed to settle and dismiss with prejudice all claims each had asserted against the other in the arbitration, effective as of August 5, 2005. Neither party
paid any money to the other in connection with the settlement, and each party agreed to bear its own costs and attorneys' fees.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted.

22

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

All of DIRECTV Holdings LLC's equity is owned by The DIRECTV Group. All of DIRECTV Financing Co., Inc.'s common equity is owned by DIRECTV Holdings LLC.
There is no established public trading market for our equity. Dividends on equity will be paid when and if declared by our Boards of Directors. None of our equity is subject to outstanding options or
warrants.

ITEM 6.    SELECTED FINANCIAL DATA

Omitted.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 the consolidated financial statements and related notes included elsewhere in this Annual Report.

Key Terminology Used in Management's Discussion and Analysis of Financial Condition and Results of Operations

Revenues.We earn revenues mostly from 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 (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 "Significant Events Affecting the Comparability of the Results of Operations"
below for further discussion.

Programming and Other Costs.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 DIRECTV subscribers, warranty service premiums we pay to a third party 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.

Subscriber Acquisition CostsThird Party Customer Acquisitions.The majority of these
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, RBOCs and
others. We also include the costs we incur for DIRECTV System equipment, installation and advertising.

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.

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

23

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acquisition
costs reported for third party customer acquisitions and direct customer acquisitions) by the number of gross new subscribers that we acquired through third parties and our direct customer
acquisition program during the period. We exclude the 1.4 million subscribers purchased as part of the NRTC and Pegasus transactions during 2004, as well as gross new subscribers added in the
former NRTC and Pegasus territories prior to the completion of the transactions, from gross new subscribers used in the calculation of SAC for 2004 and 2003.

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 receivers and local channels, our multiple set-top receiver offer and similar initiatives. Retention costs also include the costs of installing and/or providing
hardware under our movers program for subscribers relocating to a new residence.

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.

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.

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 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 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.

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 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.

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 DIRECTV subscribers for the period. We exclude from our calculation of ARPU the subscribers of
the former NRTC members and affiliates prior to the purchase of those subscribers in

24

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the
second and third quarters of 2004, which we discuss in more detail below in "Significant Events Affecting the Comparability of the Results of Operations." We calculate average DIRECTV subscribers
for the year by adding the number of DIRECTV 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. For 2004, average DIRECTV subscribers include the subscribers in the former NRTC and Pegasus territories using a daily weighted average from the dates we acquired the subscribers
through December 31, 2004.

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 subscribers for the period (total subscribers disconnected during the period divided by the number of months in the period) by average DIRECTV subscribers for the
period. Average monthly churn includes the results from the former NRTC and Pegasus subscribers subsequent to the purchase of those subscribers in 2004.

Subscriber Count.The total number of DIRECTV subscribers represents the total number of subscribers
actively subscribing to the DIRECTV service, including seasonal subscribers and subscribers who are in the process of relocating. We also include for all periods presented the subscribers of the
NRTC's members and affiliates, including Pegasus, prior to the purchase of those subscribers in 2004.

25

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Results of Operations

The following table sets forth, for the periods indicated, our audited Consolidated Statements of Operations and certain other operating data:

|                                                                                                        |                                     | Years Ended December 31,           |         
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | --------
|
|
|Revenues                                                                                                |                                     | $                                  | 12,216.1
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below |                                     |                                    |         
|                                                                                                        | Programming and other costs         |                                    |         
|                                                                                                        | Subscriber service expenses         |                                    |         
|                                                                                                        | Subscriber acquisition costs:       |                                    |         
|                                                                                                        |                                     | Third party customer acquisitions  |         
|                                                                                                        |                                     | Direct customer acquisitions       |         
|                                                                                                        | Upgrade and retention costs         |                                    |         
|                                                                                                        | Broadcast operations expenses       |                                    |         
|                                                                                                        | General and administrative expenses |                                    |         
|Depreciation and amortization expense                                                                   |                                     |                                    | 698.2   
|                                                                                                        |                                     |                                    |         
|                                                                                                        |                                     | Total Operating Costs and Expenses |         
|                                                                                                        |                                     |                                    |         
|Operating Profit                                                                                        |                                     |                                    | 802.0   
|Interest expense, net                                                                                   |                                     |                                    | (201.9  
|Other expense                                                                                           |                                     |                                    | (66.7   
|                                                                                                        |                                     |                                    |         
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change                            |                                     |                                    | 533.4   
|Income tax (expense) benefit                                                                            |                                     |                                    | (208.1  
|                                                                                                        |                                     |                                    |         
|Income (Loss) Before Cumulative Effect of Accounting Change                                             |                                     |                                    | 325.3   
|Cumulative effect of accounting change, net of taxes                                                    |                                     |                                    |        
|                                                                                                        |                                     |                                    |         
|Net Income (Loss)                                                                                       |                                     | $                                  | 325.3   
|                                                                                                        |                                     |                                    |         
|Other Data:                                                                                             |                                     |                                    |         
|Operating Profit                                                                                        |                                     | $                                  | 802.0   
|Depreciation and amortization expense                                                                   |                                     |                                    | 698.2   
|                                                                                                        |                                     |                                    |         
|Operating Profit Before Depreciation and Amortization                                                   |                                     | $                                  | 1,500.2 
|                                                                                                        |                                     |                                    |         
|Average monthly revenue per subscriber (ARPU)                                                           |                                     | $                                  | 69.61   
|Average monthly subscriber churn %                                                                      |                                     |                                    | 1.70    
|Average subscriber acquisition costsper subscriber (SAC)                                               |                                     | $                                  | 642     
|Total number of subscribers (000's)                                                                     |                                     |                                    | 15,133  

Significant Events Affecting the Comparability of the Results of Operations

Hurricanes Katrina, Wilma and Rita.During the second half of 2005, a series of hurricanes devastated
certain portions of the Gulf Coast region of the United States. As a result, we recorded approximately $24 million in charges mostly related to a higher level of service calls resulting from
the hurricanes, a reduction in revenues for subscriber service credits and an increase in bad debt expense. Approximately 10,000 subscribers were disconnected in 2005 resulting from the hurricanes.

Financing 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

26

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Operations
of $64.9 million ($40.1 million after tax), of which $41.0 million was associated with the premium that we paid for the redemption of a portion of our 8.375% senior
notes and $23.9 million with our write-off of a portion of our deferred debt issuance costs and other transaction costs. As a result of the refinancing transactions, which included
a capital contribution from The DIRECTV Group, our debt increased $136.7 million and cash increased $629.3 million, net of the premium paid and transaction costs. See Note 9 of
the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further discussion of our refinancing transactions.

During
2003, we raised approximately $2,625.0 million of cash through the issuance of $1,400.0 million of 8.375% senior notes and $1,225.0 million of borrowings
under a credit facility. We distributed the cash proceeds from the financing transactions, which amounted to $2,558.5 million, net of debt issuance costs, to The DIRECTV Group in the first
quarter of 2003.

Pegasus and NRTC Member Subscribers.During the third quarter of 2004, we completed the Pegasus and
NRTC transactions for a total purchase price of $1,373.4 million. The total net cash consideration we paid to Pegasus and the NRTC amounted to $960.2 million, which is the total purchase
price net of amounts owed by Pegasus for programming and other services and a May 2004 $63.0 million judgment in our favor. In addition, we are paying $198.3 million, plus
interest, over seven years to those NRTC members that elected the long-term payment option. We funded the amount paid in cash by $875.0 million that we borrowed from our Parent and
a $200.0 million capital contribution from our Parent during the third quarter of 2004. Revenues and operating profit before depreciation and amortization during the second half of 2004 were
positively affected from the date we acquired these subscribers. Also resulting from the Pegasus transaction and the May 2004 judgment in our favor, we reversed $31.0 million of reserves
and recorded $11.2 million in interest income in the Consolidated Statements of Operations during the third quarter of 2004. We are amortizing the subscriber related intangible asset of
$951.3 million that resulted from the Pegasus transaction over the estimated average subscriber lives of five years and the subscriber related intangible asset of $385.5 million that
resulted from the NRTC transaction 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 have increased by approximately $60 million.

NRTC Contract Rights.Effective June 1, 2004, we and 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, or
$322.1 million on a present value basis. As a result of this agreement, we 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 terminated DIRECTV service distribution agreement of seven years.

Long-Term Purchase Agreement.As part of The DIRECTV Group's sale of Hughes Network
Systems, Inc.'s, or HNS', set-top receiver manufacturing operations to Thomson in June 2004, we entered into a long-term purchase agreement with Thomson for the
supply of set-top receivers. As part of this agreement, we received approximately $200 million in cash from Thomson, which was deferred and is being recognized as
set-top receivers purchased from Thomson under the contract are activated. In addition, we can earn additional rebates from Thomson based on aggregate sales of set-top
receivers.

See
Note 9 and Note 16 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further discussion of the above described
transactions.

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Accounting Change

Subscriber 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 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 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 increased $89.3 million and net income would have decreased $55.8 million for the year ended
December 31, 2003.

The
following table presents our results of operations for the years ended December 31, 2005, 2004 and 2003 on a pro forma basis, as if we had historically expensed, as incurred,
subscriber acquisition, upgrade and retention costs:

Years Ended December 31,2005

2004

2003(Dollars in Millions, Except Per Subscriber Amounts)Total Operating Costs and Expenses

$
11,414.1

$
9,742.0

$
7,326.1Operating Profit


802.0


21.9


369.5Net Income (Loss)


325.3


(108.9
)

108.5Other Data:Operating Profit

$
802.0

$
21.9

$
369.5Depreciation and amortization expense


698.2


561.2


497.0Operating Profit Before Depreciation and Amortization

$
1,500.2

$
583.1

$
866.5Average subscriber acquisition costsper subscriber (SAC)

$
642

$
643

$
604


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Executive Overview and Outlook

Lease Program.On March 1, 2006, we introduced a set-top receiver lease program
that will result in a significant change in reported operating costs and expenses in future periods. Currently, under our sales model, all subscriber acquisition, upgrade and retention costs
(including the cost of set-top receivers) are expensed immediately upon subscriber activation. Under the lease program, we will retain ownership of most new set-top receivers
provided to new and existing subscribers, and accordingly, will capitalize the cost of new leased set-top receivers as a fixed asset. Other subscriber acquisition costs will continue to be
expensed immediately upon subscriber activation. Beginning in March 2006, we expect most of the set-top receivers provided to subscribers to be leased, which will result in a
significant reduction to subscriber acquisition, upgrade and retention costs, partially offset by increasing depreciation expense as set-top receivers are depreciated over their average
estimated useful lives. By retaining ownership of the set-top receivers, we will be able to recover and reuse the recovered set-top receivers for acquisition, upgrade and
retention activities, which we expect will reduce our overall costs over time. Our revenues are not expected to change significantly due to the lease model, as the monthly mirroring fees currently
charged to subscribers will generally be replaced with monthly lease fees; however, a portion of the upfront fees charged to subscribers will be deferred and recognized over the estimated subscriber
life. The following discussion of expected results in 2006 is presented on a comparable basis to historical results, and accordingly does not reflect the anticipated changes in reported operating
costs and expenses resulting from the lease program.

Revenues.Our revenue increases over the last three years have been driven by the growing subscriber
base, including the 1.4 million NRTC and Pegasus subscribers acquired in the second and third quarters of 2004, and increasing ARPU. After accounting for churn, our net new subscriber additions
were 1.2 million during 2005 and 1.8 million in 2004 (excluding the NRTC and Pegasus subscribers). Net new subscriber additions are expected to exceed 1.0 million in 2006. We
expect churn to improve in 2006 as compared to average monthly subscriber churn of 1.70% for 2005. The improvement in churn is expected to result from our continuing efforts to limit the number of
high risk subscribers added to our platform, an increase in the number subscribers with advanced products, such as HD and DVR set-top receivers, the development of unique and
differentiated content, and initiatives to further improve customer service. ARPU increased 4.0% in 2005 and 4.7% in 2004. We expect the percentage increase in ARPU for 2006 to be slightly higher than
the 2005 increase due mostly to our planned programming package price increases in March 2006, an increase in mirroring/lease fees from subscribers with multiple set-top receivers
and higher sports programming revenues.

Operating Costs and Expenses.Operating costs and expenses as a percentage of revenues decreased from
approximately 100% in 2004 to 93% in 2005 due to the stabilization of costs in key areas such as subscriber acquisition, upgrade and retention costs. We expect operating costs and expenses as a
percentage of revenue to continue to improve in 2006 due to the expected higher revenues discussed above and stable subscriber acquisition costs, partially offset by higher programming costs, upgrade
and retention costs and depreciation and amortization expense. Upgrade and retention costs are expected to increase due to increased demand for HD set-top receivers driven by our
roll-out of additional local-into-local HD markets as well as upgrading our current HD subscribers to MPEG-4 capable set-top receivers and
increased demand for DVRs. The anticipated increase in depreciation expense will result primarily from our three new satellites launched during 2005.

Cash Flows.In 2005, we generated $533.3 million of positive cash flow (defined as net cash
provided by operating activities less net cash used in investing activities). We expect cash flow to be significantly lower in 2006 compared to 2005 due to: an increase in cash required for income
taxes payable to our Parent under our tax sharing agreement resulting from an expected increase in pre-tax earnings; an increase in sports programming contract payments; and slightly
higher capital expenditures for satellites and broadcast equipment to support our launch of new local and HD channels and to

29

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replace
and backup existing satellites; partially offset by cash flow resulting from the expected improvement in operating costs as a percentage of revenues.

Year Ended December 31, 2005 Compared with the Year Ended December 31, 2004

Subscribers.The following table provides our key subscriber data:

|                                      |  | 2005   |   | 2004   |   | Change |   | % Change |   
|------------------------------------- |  | ------ | - | ------ | - | ------ | - | -------- | --
|Total number of subscribers (000's)   |  | 15,133 |   | 13,940 |   | 1,193  |   | 8.6      | % 
|Gross subscriber additions (000's)(1) |  | 4,170  |   | 4,218  |   | (48    | ) | (1.1     | )%
|Net subscriber additions (000's)      |  | 1,193  |   | 1,728  |   | (535   | ) | (31.0    | )%
|Average monthly subscriber churn %    |  | 1.70   | % | 1.59   | % |       |   | 6.9      | % 

---

Our
gross subscriber additions in 2005 of 4,170,000 were slightly lower than the 4,218,000 gross subscriber additions in 2004 primarily due to more stringent credit policies implemented
during the second quarter of 2005. Average monthly churn during 2005 increased to 1.70% due to higher involuntary churn from higher risk subscribers acquired in 2004 and early 2005 and a more
competitive marketplace. After accounting for this churn, we added 1,193,000 net new subscribers in 2005 compared to 1,728,000 in 2004.

Revenues.The following table provides our revenues and ARPU:

|         |  |   |          |  |   | Change  | 
|-------- |  | - | -------- |  | - | ------- | 
|
|
|Revenues |  | $ | 12,216.1 |  | $ | 9,763.9 | 
|ARPU     |  |   | 69.61    |  |   | 66.95   | 

Our
revenues increased $2,452.2 million to $12,216.1 million resulting from higher ARPU on the larger subscriber base and the full year effect of the Pegasus and NRTC
subscribers that we purchased in the second half of 2004. The 4.0% increase in ARPU to $69.61 resulted primarily from price increases on certain programming packages and higher mirroring fees from an
increase in the average number of set-top receivers per subscriber. Excluding the dilutive effect from the consolidation of the former NRTC and Pegasus subscribers, primarily due to the
lower ARPU received from these subscribers, ARPU would have increased approximately 6%.

30

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Total Operating Costs and Expenses.The following table provides our operating costs and expenses:

|                                                                                                         |                                     |                                   |                                    |         |         | Change   |        
|-------------------------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------- | ---------------------------------- | ------- | ------- | -------- | -------
|
|
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below: |                                     |                                   |                                    |         |         |          |        
|                                                                                                         | Programming and other costs         |                                   | $                                  | 5,050.1 |         | $        | 4,010.5
|                                                                                                         | Subscriber service expenses         |                                   |                                    | 935.4   |         |          | 740.2  
|                                                                                                         | Subscriber acquisition costs:       |                                   |                                    |         |         |          |        
|                                                                                                         |                                     | Third party customer acquisitions |                                    |         | 1,999.4 |          |        
|                                                                                                         |                                     | Direct customer acquisitions      |                                    |         | 676.4   |          |        
|                                                                                                         | Upgrade and retention costs         |                                   |                                    | 1,106.5 |         |          | 993.2  
|                                                                                                         | Broadcast operations expenses       |                                   |                                    | 145.8   |         |          | 129.7  
|                                                                                                         | General and administrative expenses |                                   |                                    | 802.3   |         |          | 662.3  
|Depreciation and amortization expense                                                                    |                                     |                                   | 698.2                              |         |         | 561.2    |        
|                                                                                                         |                                     |                                   |                                    |         |         |          |        
|                                                                                                         |                                     |                                   | Total Operating Costs and Expenses |         | $       | 11,414.1 |        
|                                                                                                         |                                     |                                   |                                    |         |         |          |        
|Average subscriber acquisition costsper subscriber (SAC)(2)                                             |                                     | $                                 | 642                                |         | $       | 643      |        

---

Our
total operating costs and expenses increased $1,672.1 million to $11,414.1 million resulting primarily from higher costs for programming, subscriber service expenses,
general and administrative expenses, depreciation and amortization expense, and customer upgrade and retention initiatives. Operating costs and expenses as a percentage of revenues decreased from
approximately 100% in 2004 to 93% in 2005 mostly due to the stabilization of costs in key areas such as subscriber acquisition, upgrade and retention.

Our
programming and other costs increased $1,039.6 million primarily as a result of the increased number of subscribers and annual program supplier rate increases. Subscriber
service expenses increased as a result of the larger subscriber base.

Subscriber
acquisition costs were stable in 2005 compared to 2004. However, SAC per subscriber was slightly lower due to a decrease in the cost of set-top receivers, mostly
offset by an increase in the number of set-top receivers provided to new subscribers, including a greater number of higher cost HD and DVR products.

Increased
volume under our movers and HD upgrade programs drove most of the $113.3 million increase in upgrade and retention costs. Under these programs, we provide additional
equipment, plus installation, to existing subscribers at significantly reduced prices.

The
$140.0 million increase 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 an increase in other expenses, such as labor, benefits and consulting, to support the larger business.

The
$137.0 million increase in depreciation and amortization expense resulted primarily from higher amortization expense of about $181 million resulting from the intangible
assets recorded as part of the NRTC and Pegasus transactions, partially offset by lower depreciation expense resulting from assets becoming fully depreciated in 2005.

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Operating Profit.The improvement in operating profit of $780.1 million was primarily due to
higher margins from the increase in revenues combined with the stabilizing of costs in key areas such as subscriber acquisition, upgrade and retention.

Other Expense.The $66.7 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 debt refinancing transactions.

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.

Income Tax (Expense) Benefit.We recognized an income tax expense of $208.1 million in 2005
compared to an income tax benefit of $61.3 million in 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.

Year Ended December 31, 2004 Compared with the Year Ended December 31, 2003

Subscribers.The following table provides our key subscriber data:

|                                    |  | 2004   |   | 2003   |   | Change |  | % Change |  
|----------------------------------- |  | ------ | - | ------ | - | ------ |  | -------- | -
|Total number of subscribers (000's) |  | 13,940 |   | 12,212 |   | 1,728  |  | 14.2     | %
|Average monthly subscriber churn %  |  | 1.59   | % | 1.55   | % |       |  | 2.6      | %

We
had approximately 13.9 million subscribers at December 31, 2004, which included approximately 1.4 million subscribers in the former NRTC and Pegasus territories
that we purchased in the second half of 2004. At December 31, 2003, we had approximately 12.2 million subscribers, which included 10.7 million owned and operated subscribers and
1.5 million subscribers in the former NRTC and Pegasus territories. In 2004, excluding the subscribers from the former NRTC and Pegasus territories, we added 4.0 million gross new owned
and operated subscribers, an increase of 34% over the prior year, due to a higher number of subscribers acquired in local channel markets, more attractive consumer promotions, and an improved and more
diverse distribution network. After accounting for churn, we added 1.8 million net new owned and operated subscribers, or 1.7 million total subscribers including the former NRTC members
and affiliates and Pegasus during 2004.

Our
average monthly subscriber churn increased to 1.59% for the year ended December 31, 2004 compared to average monthly subscriber churn of 1.55% for the year ended
December 31, 2003 primarily due to a more competitive marketplace and higher involuntary churn mostly related to the substantial increase in gross subscriber acquisitions over the past year.

Revenues.The following table provides our revenues and ARPU:

|         |  |   |         |  |   | Change  | 
|-------- |  | - | ------- |  | - | ------- | 
|
|
|Revenues |  | $ | 9,763.9 |  | $ | 7,695.6 | 
|ARPU     |  |   | 66.95   |  |   | 63.92   | 

The
$2,068.3 million increase in revenues to $9,763.9 million resulted from our new subscribers added in 2004, including those subscribers we added as part of the NRTC and
Pegasus transactions, and higher ARPU on the larger subscriber base. The 4.7% increase in ARPU to $66.95 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. Excluding the dilutive effect from the
consolidation of the former

32

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NRTC
and Pegasus subscribers, primarily due to the lower ARPU received from these subscribers, ARPU would have increased approximately 6%.

Total Operating Costs and Expenses.The following table provides our operating costs and expenses:

|                                                                                                         |                                     |                                    |       |         |         | Change |        
|-------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ----- | ------- | ------- | ------ | -------
|
|
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below: |                                     |                                    |       |         |         |        |        
|                                                                                                         | Programming and other costs         |                                    | $     | 4,010.5 |         | $      | 3,229.8
|                                                                                                         | Subscriber service expenses         |                                    |       | 740.2   |         |        | 623.5  
|                                                                                                         | Subscriber acquisition costs:       |                                    |       |         |         |        |        
|                                                                                                         |                                     | Third party customer acquisitions  |       |         | 1,960.8 |        |        
|                                                                                                         |                                     | Direct customer acquisitions       |       |         | 684.1   |        |        
|                                                                                                         | Upgrade and retention costs         |                                    |       | 993.2   |         |        | 404.4  
|                                                                                                         | Broadcast operations expenses       |                                    |       | 129.7   |         |        | 133.4  
|                                                                                                         | General and administrative expenses |                                    |       | 662.3   |         |        | 565.2  
|Depreciation and amortization expense                                                                    |                                     |                                    | 561.2 |         |         | 497.0  |        
|                                                                                                         |                                     |                                    |       |         |         |        |        
|                                                                                                         |                                     | Total Operating Costs and Expenses |       | $       | 9,742.0 |        | $      
|                                                                                                         |                                     |                                    |       |         |         |        |        
|Average subscriber acquisition costsper subscriber (SAC)                                                |                                     | $                                  | 643   |         | $       | 593    |        

The
$2,505.2 million increase in total operating costs and expenses to $9,742.0 million resulted primarily from higher costs for programming, subscriber acquisitions and
customer upgrade and retention initiatives.

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

Higher
gross subscriber additions during the year ended December 31, 2004 and the increase in SAC per subscriber primarily drove the $861.4 million 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 2.1
set-top receivers per new subscriber during 2003 to about 2.5 during 2004, an increase in the number of subscribers purchasing DVRs and the change in our method of accounting for
subscriber acquisition, upgrade and retention costs. These increases were partially offset by a decrease in the costs of set-top receivers and lower marketing costs per subscriber due to
the effect of our higher gross subscriber additions.

Increased
volume under our DVR, HD, local channel upgrade and movers programs as well as an increased number of subscribers provided with multiple set-top receivers under
other upgrade and retention programs drove most of the $588.8 million increase in upgrade and retention costs. Also contributing to the change was approximately $59.8 million of higher
costs in 2004 compared to 2003 due to the change in our method of accounting for subscriber acquisition, upgrade and retention costs effective January 1, 2004.

Our
higher subscriber service expenses of $116.7 million resulted primarily from increased costs due to our larger subscriber base and higher costs associated with the opening of
two new customer call centers in 2004. General and administrative expenses increased $97.1 million compared to the year ended December 31, 2003 due mostly to higher bad debt expense
resulting from increased activity associated with a larger subscriber base, higher professional service fees and higher employee compensation costs related to stock options and restricted stock units.
The increase of $64.2 million in depreciation and amortization expense resulted primarily from additional amortization expense in 2004

33

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due
to the intangible assets we recorded as part of the NRTC and Pegasus transactions, partially offset by a decrease of $56.4 million due to certain fixed assets being fully depreciated since
2003.

Operating Profit.The decrease in operating profit of $436.9 million was primarily due to
higher subscriber acquisition costs and upgrade and retention costs, partially offset by an increase in gross margin on the higher revenues discussed above.

Interest Expense, Net.The $0.1 million increase in net interest expense was primarily due to
the additional interest expense resulting from the NRTC transactions and higher interest expense on debt outstanding for twelve months of 2004 compared to ten months of 2003. These increases were
partially offset by $11.2 million of interest income received as part of the May 2004 judgment against Pegasus and lower interest expense due to a decrease in long-term
obligations for above-market programming contracts.

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.

Income Tax Benefit (Expense).We recognized an income tax benefit of $61.3 million in 2004
compared to an income tax expense of $98.5 million in 2003 due to our pre-tax loss generated in 2004.

Liquidity and Capital Resources

We generally fund our cash requirements from cash on-hand and cash generated by our operations. We also have up to $500.0 million of borrowing
capacity under our revolving credit facility, which is available to us through 2011. In addition, we have received capital contributions and have borrowed amounts from our Parent in the past to fund
certain transactions. In 2004, we received $1,075.0 million of cash from our Parent, which consisted of $200.0 million through a capital contribution
and $875.0 million through additional borrowings, to fund the NRTC and Pegasus transactions. In the second quarter of 2005, we repaid the $875.0 million of borrowings from our Parent and
received a $538.3 million capital contribution from our Parent to redeem a portion of our senior notes as part of our refinancing transactions discussed above in "Significant Events Affecting
the Comparability of the Results of Operations."

At
December 31, 2005, we had cash and cash equivalents of $1,164.8 million compared to $34.5 million at December 31, 2004. The $1,130.3 million
increase in cash and cash equivalents during 2005 resulted primarily from $1,283.2 million in cash provided by operations and net cash provided by the refinancing transactions discussed above,
partially offset by $747.1 million of cash paid for satellites, property and equipment and $63.1 million of payments made associated with our obligations to the NRTC and its members.

As
a measure of liquidity, our current ratio (ratio of current assets to current liabilities) was 1.04 at December 31, 2005 and 0.65 at December 31, 2004. Working capital
increased by $803.9 million to $97.4 million at December 31, 2005 from a deficit of $706.5 million at December 31, 2004. The change was primarily due to our increase
in cash described above, partially offset by an increase in accounts payable resulting from payment timing differences, higher accrued programming costs and an increase in income taxes payable.

In
2005, we generated $533.3 million of positive cash flow (defined as net cash provided by operating activities less net cash used in investing activities). We expect cash flow
to be significantly lower in 2006 compared to 2005 due to: an increase in cash required for income taxes payable to our Parent under our tax sharing agreement resulting from an expected increase in
pre-tax earnings; an increase in sports programming contract payments; and slightly higher capital expenditures for satellites and broadcast equipment to support our launch of new local
and HD channels and to replace and

34

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backup
existing satellites; partially offset by cash flow resulting from the expected improvement in operating costs as a percentage of revenues.

We
believe that our cash on-hand, future cash flows and amounts available to us under the revolving portion of our 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 we discuss in "Contractual Obligations" below.
Additionally, our ability to borrow under the senior secured credit facility 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 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.

Debt.At December 31, 2005, we had $3,413.1 million in total outstanding borrowings,
bearing a weighted average interest rate of approximately 6.7%. Our outstanding borrowings primarily consist of notes payable and amounts borrowed under a credit facility as more fully described in
Note 9 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, which we incorporate herein by reference.

Our
notes payable and credit facility mature as follows: $7.5 million in 2006; $10.1 million in 2007; $47.6 million in 2008; $97.6 million in 2009;
$297.5 million in 2010 and $2,949.7 million thereafter. These amounts do not reflect potential prepayments that may be required under our senior secured credit facility. We were not
required to make a prepayment for the years ended December 31, 2005 and 2004. However, we made a prepayment of $201.0 million on April 15, 2004 for the year ended
December 31, 2003.

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Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 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 II, Item 8 referenced in the table.

|                                                                                                 |  | Payments due by period
|------------------------------------------------------------------------------------------------ |  | ----------------------
|
|
|Long-Term Debt Obligations (Note 9)(a)                                                           |  | $                     
|Purchase Obligations (Note 17)(b)                                                                |  |                       
|Operating Leases Obligations (Note 17)(c)                                                        |  |                       
|Other Long-Term Liabilities Reflected on the Consolidated Balance Sheets under GAAP (Note 16)(d) |  |                       
|                                                                                                 |  |                       
|Total                                                                                            |  | $                     
|                                                                                                 |  |                       

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Contingencies

For a discussion of "Contingencies," see Note 17 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report,
which we incorporate herein by reference.

Certain Relationships and Related-Party Transactions

For a discussion of "Certain Relationships and Related-Party Transactions," see Note 15 of the Notes to the Consolidated Financial Statements in
Part II, Item 8 of this Annual Report, which we incorporate herein by reference.

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Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates, judgments and assumptions that affect amounts reported therein. Management bases its estimates, judgments and assumptions on historical experience and on various other factors that are
believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, our actual results reported in future periods may be affected by changes in those
estimates. The following represents what we believe are the critical accounting policies that may involve a higher degree of estimation, judgment and complexity. For a summary of our significant
accounting policies, including those discussed below, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, which we incorporate
herein by reference.

Multi-Year Programming Contracts for Live Sporting Events.We charge the cost of
multi-year programming contracts for live sporting events with minimum guarantee payments, such as our agreement with the NFL, to expense based on the ratio of each period's contract
revenues to the estimated total contract revenues to be earned over the contract period. Management evaluates estimated total contract revenues at least annually.

Reserves for Doubtful Accounts.Management estimates the amount of required reserves for the
potential non-collectibility of accounts receivable based upon past experience of collection and consideration of other relevant factors. However, past experience may not be indicative of
future collections and therefore we could incur additional charges in the future to reflect differences between estimated and actual collections.

Contingent Matters.Determining when, or if, an accrual should be recorded for a contingent matter
and the amount of such accrual, if any, requires a significant amount of management judgment and estimation. We develop our judgments and estimates in consultation with outside counsel based on an
analysis of potential outcomes. Due to the uncertainty of determining the likelihood of a future event occurring and the potential financial statement impact of such an event, it is possible that upon
further development or resolution of a contingent matter, we could record a charge in a future period that would be material to our consolidated results of operations and financial position.

Valuation of Long-Lived Assets.We evaluate the carrying value of long-lived
assets to be held and used, other than goodwill and intangible assets with indefinite lives, when events and circumstances warrant such a review. We consider the carrying value of a
long-lived asset impaired when the anticipated undiscounted future cash flow from such asset is separately identifiable and is less than its carrying value. In that event, we recognize a
loss based on the amount by which the carrying value exceeds the fair value of the long-lived asset. We determine fair value primarily using the estimated future cash flows associated with
the asset under review, discounted at a rate commensurate with the risk involved, and other valuation techniques. We determine losses on long-lived assets to be disposed of in a similar
manner, except that we reduce the fair value for the cost of disposal. Changes in estimates of future cash flows could result in a write-down of the asset in a future period.

Recognition of Rebate Related to Long-Term Purchase Agreement.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 with Thomson for the supply of
set-top receivers. As part of this transaction, as amended, we can earn a $57.0 million rebate from Thomson if Thomson's aggregate sales of our set-top receivers equal
at least $4.0 billion over the initial five-year contract term plus an additional one year optional extension period, or the Contract Term. 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 $57.0 million rebate during the initial
contract period. We base our probability assessment for meeting the minimum purchase requirement on our current and

37

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future
business projections, including our belief that existing and new subscribers will likely acquire new set-top receivers due to certain technological advances. Any negative trends in
the purchase of set-top receivers for existing and new subscribers may materially impact our ability to earn the rebate. On a quarterly basis, we will continue to assess whether the rebate
is probable over the Contract Term. If we subsequently determine that it is no longer probable that we will earn the rebate, we would be required to reverse the amount of the credit recognized to date
as a charge to our Consolidated Statement of Operations at the time such determination is made. See Note 16 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of
this Annual Report for further discussion.

Accounting Changes

Subscriber Acquisition, Upgrade and Retention Costs.Effective January 1, 2004, we changed our
method of accounting for subscriber acquisition, upgrade and retention costs. See "Significant Events Affecting the Comparability of the Results of Operations" above for further discussion.

For
additional information regarding "Accounting Changes" and "New Accounting Standards," see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item
8 of this Annual Report, which we incorporate herein by reference.

Security Ratings

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. Ratings in the Ba
range for Moody's Investor Services, or
Moody's, and the BB range for Standard & Poor's Ratings Services, or S&P, generally indicate moderate protection of interest and principal payments, potentially outweighed by exposure to
uncertainties or adverse conditions. Ratings in the B range generally indicate that the obligor currently has financial capacity to meet its financial commitments but there is limited assurance over
any long period of time that interest and principal payments will be made or that other terms will be maintained. In general, lower ratings result in higher borrowing costs. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization.

On
April 4, 2005, in connection with our April 2005 refinancing transactions, Moody's assigned a Ba1 rating to our senior secured credit facility. In addition, it affirmed
our Ba2 senior implied and Ba2 senior unsecured ratings. On June 8, 2005, Moody's assigned a Ba2 rating to our 6.375% senior notes discussed in Note 9 of the Notes to the Consolidated
Financial Statements in Part II, Item 8 of this Annual Report. The ratings remain on stable outlook.

On
April 5, 2005, in connection with our April 2005 refinancing transactions, S&P assigned a BB rating to our senior secured credit facility and affirmed our BB corporate
and BB- senior unsecured ratings. On June 8, 2005, S&P assigned a BB-rating to our 6.375% senior notes and affirmed our corporate, senior secured and unsecured ratings.
All ratings remain on stable outlook.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosure

The following discussion and the estimated amounts generated from the sensitivity analyses referred to below include forward-looking statements of market risk
which assume for analytical purposes that certain adverse market conditions may occur. Actual future market conditions may differ materially from these assumptions because the amounts noted below are
the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, you should not consider the forward-looking statements as our projections of future
events or losses.

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Interest Rate Risk.We are subject to fluctuating interest rates, which may adversely impact our
consolidated results of operations and cash flows. We had outstanding debt of $3,410.0 million at December 31, 2005, excluding the unamortized bond premium, which consisted of fixed rate
borrowings of $1,910.0 million and variable rate borrowings of $1,500.0 million. As of December 31, 2005, a hypothetical one percentage point increase in interest rates related to
our outstanding variable rate debt would have increased our annual interest expense by approximately $15 million.

39

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors of
DIRECTV Holdings LLC
El Segundo, California

We
have audited the accompanying consolidated balance sheets of DIRECTV Holdings LLC (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of
operations, changes in owner's equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the
Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of DIRECTV Holdings LLC at December 31, 2005 and 2004, and
the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

As
discussed in Note 2 of the notes to the consolidated financial statements, effective January 1, 2004, DIRECTV Holdings LLC changed its method of accounting for
subscriber acquisition, upgrade and retention costs.

|/s/DELOITTE & TOUCHE LLPDeloitte & Touche LLP |  |  |  | 
|--------------------------------------------- |  |  |  | 

Los
Angeles, California

March 6,
2006

40

---





DIRECTV HOLDINGS LLC

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                        |                                     | Years Ended December 31,           |         
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | --------
|
|
|Revenues                                                                                                |                                     | $                                  | 12,216.1
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below |                                     |                                    |         
|                                                                                                        | Programming and other costs         |                                    |         
|                                                                                                        | Subscriber service expenses         |                                    |         
|                                                                                                        | Subscriber acquisition costs:       |                                    |         
|                                                                                                        |                                     | Third party customer acquisitions  |         
|                                                                                                        |                                     | Direct customer acquisitions       |         
|                                                                                                        | Upgrade and retention costs         |                                    |         
|                                                                                                        | Broadcast operations expenses       |                                    |         
|                                                                                                        | General and administrative expenses |                                    |         
|Depreciation and amortization expense                                                                   |                                     |                                    | 698.2   
|                                                                                                        |                                     |                                    |         
|                                                                                                        |                                     | Total Operating Costs and Expenses |         
|                                                                                                        |                                     |                                    |         
|Operating Profit                                                                                        |                                     |                                    | 802.0   
|Interest expense, net                                                                                   |                                     |                                    | (201.9  
|Other expense                                                                                           |                                     |                                    | (66.7   
|                                                                                                        |                                     |                                    |         
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change                            |                                     |                                    | 533.4   
|Income tax (expense) benefit                                                                            |                                     |                                    | (208.1  
|                                                                                                        |                                     |                                    |         
|Income (Loss) Before Cumulative Effect of Accounting Change                                             |                                     |                                    | 325.3   
|Cumulative effect of accounting change, net of taxes                                                    |                                     |                                    |        
|                                                                                                        |                                     |                                    |         
|Net Income (Loss)                                                                                       |                                     | $                                  | 325.3   
|                                                                                                        |                                     |                                    |         

---

Reference
should be made to the Notes to the Consolidated Financial Statements.

41

---





DIRECTV HOLDINGS LLC        CONSOLIDATED BALANCE SHEETS

|                                       |                                                           | December 31,                         |        
|-------------------------------------- | --------------------------------------------------------- | ------------------------------------ | -------
|
|
|ASSETS                                 |                                                           |                                      |        
|Current Assets                         |                                                           |                                      |        
|                                       | Cash and cash equivalents                                 |                                      | $      
|                                       | Accounts receivable, net of allowances of $75.0 and $86.4 |                                      |        
|                                       | Inventories                                               |                                      |        
|                                       | Prepaid expenses and other                                |                                      |        
|                                       |                                                           |                                      |        
|                                       |                                                           | Total Current Assets                 |        
|Satellites, net                        |                                                           |                                      | 1,907.9
|Property and Equipment, net            |                                                           |                                      | 848.3  
|Goodwill                               |                                                           |                                      | 3,031.7
|Intangible Assets, net                 |                                                           |                                      | 1,875.0
|Other Assets                           |                                                           |                                      | 135.0  
|                                       |                                                           |                                      |        
|                                       |                                                           | Total Assets                         |        
|                                       |                                                           |                                      |        
|LIABILITIES AND OWNER'S EQUITY         |                                                           |                                      |        
|Current Liabilities                    |                                                           |                                      |        
|                                       | Accounts payable and accrued liabilities                  |                                      | $      
|                                       | Unearned subscriber revenue and deferred credits          |                                      |        
|                                       | Current portion of long-term debt                         |                                      |        
|                                       |                                                           |                                      |        
|                                       |                                                           | Total Current Liabilities            |        
|Long-Term Debt                         |                                                           |                                      | 3,405.3
|Other Liabilities and Deferred Credits |                                                           |                                      | 989.2  
|Deferred Income Taxes                  |                                                           |                                      | 204.4  
|Commitments and Contingencies          |                                                           |                                      |        
|Owner's Equity                         |                                                           |                                      |        
|                                       | Capital stock and additional paid-in capital              |                                      |        
|                                       | Accumulated deficit                                       |                                      |        
|                                       |                                                           |                                      |        
|                                       |                                                           | Total Owner's Equity                 |        
|                                       |                                                           |                                      |        
|                                       |                                                           | Total Liabilities and Owner's Equity |        
|                                       |                                                           |                                      |        

---

Reference
should be made to the Notes to the Consolidated Financial Statements.

42

---





DIRECTV HOLDINGS LLC        CONSOLIDATED STATEMENTS OF CHANGES IN OWNER'S EQUITY

|                                   |  | Capital Stock
and Additional
Paid-in Capital |          | Accumulated
Deficit |   | Accumulated
Other
Comprehensive
Income (Loss) |   | Total
Owner's
Equity |      | Comprehensive
Income (Loss) |  
|---------------------------------- |  | -------------------------------------------- | -------- | ------------------- | - | --------------------------------------------- | - | -------------------- | ---- | --------------------------- | -
|
|Balance at January 1, 2003         |  | $                                            | 5,385.1  |                     | $ | (823.7                                        | ) | $                    | (2.9 | )                           | $
|Net Income                         |  |                                              |          |                     |   | 164.3                                         |   |                      |      |                             |  
|Net capital distribution to Parent |  |                                              | (2,586.2 | )                   |   |                                               |   |                      | 2.9  |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Comprehensive income               |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Balance at December 31, 2003       |  |                                              | 2,798.9  |                     |   | (659.4                                        | ) |                      |     |                             |  
|Net Loss                           |  |                                              |          |                     |   | (420.4                                        | ) |                      |      |                             |  
|Capital contribution from Parent   |  |                                              | 659.8    |                     |   |                                               |   |                      |      |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Comprehensive loss                 |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Balance at December 31, 2004       |  |                                              | 3,458.7  |                     |   | (1,079.8                                      | ) |                      |     |                             |  
|Net Income                         |  |                                              |          |                     |   | 325.3                                         |   |                      |      |                             |  
|Capital contribution from Parent   |  |                                              | 592.2    |                     |   |                                               |   |                      |      |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Comprehensive income               |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  
|Balance at December 31, 2005       |  | $                                            | 4,050.9  |                     | $ | (754.5                                        | ) | $                    |     |                             | $
|                                   |  |                                              |          |                     |   |                                               |   |                      |      |                             |  

---

Reference
should be made to the Notes to the Consolidated Financial Statements.

43

---





DIRECTV HOLDINGS LLC        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                |                                                             | Years Ended December 31,                         |                                          
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------ | -----------------------------------------
|
|
|Cash Flows from Operating Activities                                                                            |                                                             |                                                  |                                          
|Net Income (Loss)                                                                                               |                                                             | $                                                | 325.3                                    
|Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquired assets |                                                             |                                                  |                                          
|                                                                                                                | Cumulative effect of accounting change, net of taxes        |                                                  |                                          
|                                                                                                                | Depreciation and amortization expense                       |                                                  |                                          
|                                                                                                                | Net loss on sale or disposal of property                    |                                                  |                                          
|                                                                                                                | Cost of employee benefits                                   |                                                  |                                          
|                                                                                                                | Amortization of debt issuance costs                         |                                                  |                                          
|                                                                                                                | Write-off of debt issuance costs                            |                                                  |                                          
|                                                                                                                | Deferred income taxes and other                             |                                                  |                                          
|                                                                                                                | Accounts receivable credited against Pegasus purchase price |                                                  |                                          
|                                                                                                                | Change in other operating assets and liabilities            |                                                  |                                          
|                                                                                                                |                                                             | Accounts receivable, net                         |                                          
|                                                                                                                |                                                             | Inventories                                      |                                          
|                                                                                                                |                                                             | Prepaid expenses and other                       |                                          
|                                                                                                                |                                                             | Other assets                                     |                                          
|                                                                                                                |                                                             | Accounts payable and accrued liabilities         |                                          
|                                                                                                                |                                                             | Unearned subscriber revenue and deferred credits |                                          
|                                                                                                                |                                                             | Other liabilities and deferred credits           |                                          
|                                                                                                                |                                                             |                                                  |                                          
|                                                                                                                |                                                             |                                                  | Net Cash Provided by Operating Activities
|                                                                                                                |                                                             |                                                  |                                          
|Cash Flows from Investing Activities                                                                            |                                                             |                                                  |                                          
|                                                                                                                | Cash paid for property and equipment                        |                                                  |                                          
|                                                                                                                | Cash paid for satellites                                    |                                                  |                                          
|                                                                                                                | Cash paid for acquired assets                               |                                                  |                                          
|                                                                                                                | Proceeds from sale of property                              |                                                  |                                          
|                                                                                                                |                                                             |                                                  |                                          
|                                                                                                                |                                                             |                                                  | Net Cash Used in Investing Activities    
|                                                                                                                |                                                             |                                                  |                                          
|Cash Flows from Financing Activities                                                                            |                                                             |                                                  |                                          
|                                                                                                                | Cash proceeds from financing transactions                   |                                                  |                                          
|                                                                                                                | Distribution to Parent                                      |                                                  |                                          
|                                                                                                                | Net cash contribution from Parent                           |                                                  |                                          
|                                                                                                                | Repayment of debt                                           |                                                  |                                          
|                                                                                                                | Repayment of borrowing from Parent                          |                                                  |                                          
|                                                                                                                | Borrowing from Parent                                       |                                                  |                                          
|                                                                                                                | Repayment of other long-term obligations                    |                                                  |                                          
|                                                                                                                | Debt issuance costs                                         |                                                  |                                          
|                                                                                                                |                                                             |                                                  |                                          
|                                                                                                                |                                                             |                                                  | Net Cash Provided by Financing Activities
|                                                                                                                |                                                             |                                                  |                                          
|Net increase (decrease) in cash and cash equivalents                                                            |                                                             |                                                  | 1,130.3                                  
|Cash and cash equivalents at beginning of the year                                                              |                                                             |                                                  | 34.5                                     
|                                                                                                                |                                                             |                                                  |                                          
|Cash and cash equivalents at end of the year                                                                    |                                                             | $                                                | 1,164.8                                  
|                                                                                                                |                                                             |                                                  |                                          
|Supplemental Cash Flow Information                                                                              |                                                             |                                                  |                                          
|Interest paid                                                                                                   |                                                             | $                                                | 229.3                                    
|Income taxes paid                                                                                               |                                                             |                                                  | 36.1                                     

---

Reference
should be made to the Notes to the Consolidated Financial Statements.

44

---





DIRECTV HOLDINGS LLC        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Description of Business

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 or DIRECTV and sometimes refer to The DIRECTV Group, Inc. as The DIRECTV Group or Parent.

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, 103 WL, 110 WL and 119 WL orbital locations. We also broadcast from 72.5 WL under our arrangement with Telesat Canada, or Telesat. Additionally, we broadcast from 95 WL using transponders 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.
Subscribers 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 rural dealer networks, national retail and consumer electronics stores, satellite television dealers, regional Bell operating
companies and other telephone service providers and our direct customer acquisition program. We have a single operating segment with all revenues to date generated from U.S. based subscribers and
customers.

Note 2: Summary of Significant Accounting Policies



We include the accounts of DIRECTV Holdings and our majority owned subsidiaries, after elimination of intercompany accounts and transactions, in the accompanying
consolidated financial statements.



We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which require us to
make estimates and assumptions that affect amounts reported herein. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under
the circumstances. Due to the inherent uncertainty involved in making estimates, our actual results reported in future periods may be affected by changes in those estimates.



We recognize subscription and pay-per-view revenues when programming is broadcast to subscribers. We recognize subscriber fees for
multiple set-top receivers, our published programming guide, warranty services and equipment rental as revenue, as earned. We recognize advertising revenues when the related services are
performed. We defer programming payments received from subscribers in advance of the broadcast as "Unearned subscriber revenue and deferred credits" in the Consolidated Balance Sheets until earned.



We recognize the costs of television programming distribution rights when we distribute the related programming. We recognize the costs of television programming
rights to distribute live sporting events for a season or tournament to expense using the straight-line method over the course of the season or

45

---



tournament.
However, we recognize the costs for live sporting events with multi-year contracts and minimum guarantee payments based on the ratio of each period's revenues to the estimated
total contract revenues to be earned over the contract period. We evaluate estimated total contract revenues at least annually.

We
defer advance payments in the form of cash and equity instruments from programming content providers for carriage of their signal and recognize them as a reduction of "Programming and
other costs" in the Consolidated Statements of Operations on a straight-line basis over the related contract term. We record equity instruments at fair value based on quoted market prices
or values determined by management, which may include independent third party valuations. We also record the amortization of a provision for above-market programming contracts that we recorded in
connection with the 1999 acquisition of certain premium subscription programming contracts from United States Broadcasting Company, Inc. as a reduction of programming costs. We determined the
provision based upon an independent third party appraisal and recorded the provision at its net present value, with interest expense recognized over the remaining term of the contract. We record the
current and long-term portions of these deferred credits in the Consolidated Balance Sheets in "Accounts payable and accrued liabilities," "Unearned subscriber revenue and deferred
credits" and "Other Liabilities and Deferred Credits" and amortize these deferred credits using the interest method over the related contract terms.



Subscriber acquisition costs, or SAC, in the Consolidated Statements of Operations consist of costs we incur to acquire new DIRECTV subscribers through third
parties and our direct customer acquisition program.

Effective
January 1, 2004, we changed our method of accounting for subscriber acquisition costs to expense subscriber acquisition costs as incurred as subscribers activate the
DIRECTV service. Previously, we deferred a portion of subscriber acquisition costs, equal to the amount of profit to be
earned from the subscriber, typically over the 12 month subscriber contract, and amortized these costs to expense over the contract period. See "Accounting Changes" below for further discussion
of the change in accounting method.

Third
party customer acquisition costs represent direct costs we incur to acquire new DIRECTV subscribers through third parties, which include our national retailers as well as
independent satellite television retailers, dealers, regional Bell operating companies and others. These costs also consist of third party commissions, print and television advertising and subsidies
we incur for DIRECTV System equipment, if any. Although paid in advance, the retailer or dealer earns substantially all commissions paid for third party customer acquisitions over 12 months
from the date of subscriber activation. Should the subscriber cancel DIRECTV service during the 12 month service period, we are reimbursed for the unearned portion of the commission by the
retailer or dealer and record a decrease to third party customer acquisition costs.

Direct
customer acquisition costs consist primarily of hardware, installation, advertising, marketing and customer call center expenses we incur for new DIRECTV subscribers added through
our direct customer acquisition program.



Upgrade and retention costs in the Consolidated Statements of Operations consist primarily of costs for loyalty programs offered to existing subscribers. The
costs for loyalty programs include the

46

---



costs
of installing or providing hardware under our movers program (for subscribers relocating to a new residence), multiple set-top receiver offers, DVR (digital video recorder), HD
(high-definition), local channel upgrade programs and other similar initiatives, and third party commissions we incur for the sale of additional set-top receivers to existing
subscribers.

Effective
January 1, 2004, we changed our method of accounting for upgrade and retention costs to expense the cost of installation and hardware under our loyalty programs.
Previously, we deferred a portion of upgrade and retention costs equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and amortized
these costs to expense over the contract period. See "Accounting Changes" below for further discussion of the change in accounting method.



Cash and cash equivalents consist of highly liquid investments we purchase with original maturities of three months or less.



Inventories consist of finished goods for DIRECTV System equipment and DIRECTV System access cards. We state inventories at the lower of average cost or market.



We carry property and satellites at cost, net of accumulated depreciation. The amounts we capitalize for satellites currently being constructed and those that
have been successfully launched include the costs of construction, launch, launch insurance, incentive obligations and related capitalized interest. We generally compute depreciation using the
straight-line method over the estimated useful lives of the assets. We amortize leasehold improvements over the lesser of the life of the asset or term of the lease.



Goodwill and intangible assets with indefinite lives are carried at historical cost and are subject to write-down, as needed, based upon an impairment
analysis that we must perform at least annually, or sooner if an event occurs or circumstances change that would more likely than not result in an impairment loss. We perform our annual impairment
analysis in the fourth quarter of each year. If an impairment loss results from the annual impairment test, we would record the loss as a pre-tax charge to operating income.

We
amortize other intangible assets using the straight-line method over their estimated useful lives, which range from 4 to 15 years.



We evaluate the carrying value of long-lived assets to be held and used, other than goodwill and intangible assets with indefinite lives, when events
and circumstances warrant such a review. We consider the carrying value of a long-lived asset impaired when the anticipated undiscounted future cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, we would recognize a loss based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
We determine fair value primarily using estimated future cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved, or other valuation

47

---



techniques.
We determine losses on long-lived assets to be disposed of in a similar manner, except that we reduce the fair value for the cost of disposal.



We maintain investments in equity securities of unaffiliated companies. We account for investments in which we own at least 20% of the voting securities or have
significant influence under the equity method of accounting. We record equity method investments at cost and adjust for the appropriate share of the net earnings or losses of the investee.



We defer costs we incur to issue debt and amortize these costs to interest expense using the straight-line method over the term of the respective
obligation.



At times, The DIRECTV Group grants restricted stock units and common stock options to employees, including DIRECTV employees. For grants and modifications of
awards on or after January 1, 2003, we recognize compensation expense equal to the fair value of the stock-based award at grant over the course of its vesting period following Statement of
Financial Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based Compensation," as amended. We accounted for stock options, restricted stock units and other stock-based awards
granted prior to January 1, 2003 under the intrinsic value method of Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees." Our compensation
expense also includes the costs associated with former employees of News Corporation, the parent company of The DIRECTV Group's largest stockholder, who retained their News Corporation stock options
and are now employed by us.

The
following table presents 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
restricted stock units for the year ended December 31, 2003 (dollars in millions):

Net income, as reported

$
164.3Add: Stock compensation cost, net of taxes, included above


4.8Deduct: Total stock compensation cost, net of taxes, under the fair value based method


(30.0
)Pro forma net income

$
139.1




We join in the filing of The DIRECTV Group's consolidated U.S. federal income tax return. Our tax sharing agreement with The DIRECTV Group was amended as of
February 28, 2003 resulting from our first quarter of 2003 financing transactions. The agreement was amended to permit us to utilize tax
losses incurred subsequent to February 27, 2003 to reduce our tax liability in future periods. Losses that we generate provide tax benefits to both us and The DIRECTV Group and are recognized
by us in our financial statements as well as the financial statements of The DIRECTV Group.

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. However, tax losses incurred prior to February 28, 2003 that were not utilized to reduce our tax liability in the period in which such losses originated are not
available to

48

---



reduce
our tax liability in future periods. We transferred the tax benefits attributable to such losses incurred prior to February 28, 2003 to The DIRECTV Group in non-cash
transactions and we reported such transfer as a capital distribution to Parent in the Consolidated Statements of Changes in Owner's Equity.



We expense advertising costs as incurred and include these expenses primarily in subscriber acquisition costs. Advertising expenses, net of payments received from
programming content providers for marketing support, were $163.1 million in 2005, $123.7 million in 2004 and $121.4 million in 2003.



We sell programming services and extend credit, in amounts generally not exceeding $100 each, to a large number of individual residential subscribers throughout
the United States. As applicable, we maintain allowances for anticipated losses.



Subscriber 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 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 the 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 increased $89.3 million and net income would have decreased $55.8 million for the year ended December 31, 2003.

The
following table presents our results of operations for the years ended December 31, 2005, 2004 and 2003 on a pro forma basis, as if we had historically expensed, as incurred,
subscriber acquisition, upgrade and retention costs:

Years Ended December 31,2005

2004

2003(Dollars in Millions)Total Operating Costs and Expenses

$
11,414.1

$
9,742.0

$
7,326.1Operating Profit


802.0


21.9


369.5Net Income (Loss)


325.3


(108.9
)

108.5


Stock-Based Compensation.As discussed above, beginning on January 1, 2003, we adopted the fair value based method of
accounting for stock-based employee compensation of 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 its 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

49

---



Operations
for stock options and other stock-based awards granted to employees or modified on or after January 1, 2003.

Other.In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 153, "Exchanges of
Nonmonetary Assetsan amendment of APB Opinion No. 29," or SFAS No. 153. SFAS No. 153 eliminates the exception for nonmonetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of this standard did not materially affect our consolidated results of operations or financial position.

New Accounting Standards

In May 2005, the FASB issued SFAS 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 SFAS No. 154 will have a material effect on our consolidated results of operations or financial position on the date of adoption.

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment," or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
supersedes APB Opinion No. 25, requires that compensation cost relating to share-based payment transactions be recognized in the financial statements, based on the fair value of the equity or
liability instruments issued. SFAS No. 123R is effective as of the beginning of the first annual reporting period that begins after June 15, 2005 and
applies to all awards granted, modified, repurchased or cancelled after the effective date. We do not expect the adoption of this standard to have a significant impact on our consolidated results of
operations or financial position.

Note 3: Accounts Receivable, Net

|                                     |                          | 2005 |         | 2004  |  
|------------------------------------ | ------------------------ | ---- | ------- | ----- | -
|
|Subscriber                           |                          | $    | 626.6   |       | $
|Trade                                |                          |      | 444.3   |       |  
|                                     |                          |      |         |       |  
|Subtotal                             |                          |      | 1,070.9 |       |  
|Less allowance for doubtful accounts |                          |      | (75.0   | )     |  
|                                     |                          |      |         |       |  
|                                     | Accounts receivable, net |      | $       | 995.9 |  
|                                     |                          |      |         |       |  

50

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Note 4: Prepaid Expenses and Other

|                                    |       | 2005 |       | 2004 
|----------------------------------- | ----- | ---- | ----- | -----
|
|Deferred income taxes               |       | $    | 148.1 |      
|Income taxes receivable from Parent |       |      |      |      
|Other                               |       |      | 136.9 |      
|                                    |       |      |       |      
|                                    | Total |      | $     | 285.0
|                                    |       |      |       |      

Note 5: Satellites, Net and Property and Equipment, Net

|                                     |                             | Estimated
Useful Lives
(years) |  | 2005 |          | 2004    |  
|------------------------------------ | --------------------------- | ------------------------------ |  | ---- | -------- | ------- | -
|
|Satellites                           |                             | 12-16                          |  | $    | 1,645.3  |         | $
|Satellites under construction        |                             |                               |  |      | 834.2    |         |  
|                                     |                             |                                |  |      |          |         |  
|Total                                |                             |                                |  |      | 2,479.5  |         |  
|Less accumulated depreciation        |                             |                                |  |      | (571.6   | )       |  
|                                     |                             |                                |  |      |          |         |  
|                                     | Satellites, net             |                                |  |      | $        | 1,907.9 |  
|                                     |                             |                                |  |      |          |         |  
|Land and improvements                |                             |                               |  | $    | 18.1     |         | $
|Buildings and leasehold improvements |                             | 4-30                           |  |      | 165.5    |         |  
|Machinery and equipment              |                             | 3-24                           |  |      | 1,521.8  |         |  
|Subscriber leased set-top receivers  |                             | 4-5                            |  |      | 231.1    |         |  
|Construction in progress             |                             |                               |  |      | 278.8    |         |  
|                                     |                             |                                |  |      |          |         |  
|Total                                |                             |                                |  |      | 2,215.3  |         |  
|Less accumulated depreciation        |                             |                                |  |      | (1,367.0 | )       |  
|                                     |                             |                                |  |      |          |         |  
|                                     | Property and Equipment, net |                                |  |      | $        | 848.3   |  
|                                     |                             |                                |  |      |          |         |  

We
capitalized interest costs of $30.5 million during 2005, $15.8 million during 2004 and $13.0 million during 2003, as part of the cost of our property and
satellites under construction. Depreciation expense was $344.1 million in 2005, $392.1 million in 2004 and $420.8 million in 2003.

Note 6: Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill, in millions, for the year ended December 31, 2004. There were no changes in
the carrying amount of goodwill for the year ended December 31, 2005.

Balance as of January 1, 2004

$
2,891.1Additions


140.6Balance as of December 31, 2004

$
3,031.7


We
performed our annual impairment tests for goodwill and orbital slots in the fourth quarters of 2005, 2004, and 2003. Based on our annual impairment tests, no impairment existed.

51

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The following table sets forth the amounts recorded for intangible assets at December 31:

2005

2004Estimated
Useful Lives
(years)

Gross
Amount

Accumulated
Amortization

Net
Amount

Gross
Amount

Accumulated
Amortization

Net
Amount(Dollars in Millions)Orbital slots

Indefinite

$
463.0

$
30.6

$
432.4

$
463.0

$
30.6

$
432.472.5 WL Orbital license

4


172.5


57.5


115.0


172.5


15.7


156.8Subscriber related

5-10


1,340.1


348.7


991.4


1,336.8


93.9


1,242.9Dealer network

15


130.0


53.1


76.9


130.0


43.8


86.2Distribution rights

7


334.1


74.8


259.3


334.1


27.5


306.6Total Intangible Assets



$
2,439.7

$
564.7

$
1,875.0

$
2,436.4

$
211.5

$
2,224.9


The following table represents the amounts recorded as amortization expense for intangible assets for the years ended December 31:

2005

2004

2003(Dollars in Millions)72.5 WL Orbital license

$
41.8

$
15.7Subscriber related


254.8


115.8

$
64.8Dealer network


9.3


9.2


9.2Distribution rights


47.3


27.5


Total Amortization Expense for Intangible Assets

$
353.2

$
168.2

$
74.0


Estimated
amortization expense for intangible assets in each of the next five years and thereafter is as follows: $353.4 million in 2006, $353.4 million in 2007,
$342.9 million in 2008, $248.1 million in 2009, $89.0 million in 2010 and $55.8 million thereafter.

Note 7: Investments

Investments in companies accounted for under the equity method at December 31, 2005 amounted to $23.5 million. During the year ended
December 31, 2005, we recorded $1.8 million of equity losses from unconsolidated affiliates in "Other expense" in the Consolidated Statements of Operations.

During
the first quarter of 2003, we distributed all of our marketable securities to The DIRECTV Group. We considered the distribution as a transfer of assets by entities under common
control and recorded the transfer as a distribution to Parent in the consolidated statements of changes in owner's equity at our cost basis. These investments had an aggregate book value of
$52.6 million at the date of transfer, which is net of a $2.9 million accumulated unrealized loss.

52

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Note 8: Accounts Payable and Accrued Liabilities

|                                                                    |       | 2005 |       | 2004   
|------------------------------------------------------------------- | ----- | ---- | ----- | -------
|
|Programming costs                                                   |       | $    | 807.6 |        
|Accounts payable                                                    |       |      | 670.8 |        
|Third party commissions                                             |       |      | 177.0 |        
|Income taxes payable to Parent                                      |       |      | 119.0 |        
|Current portion of provision for above-market programming contracts |       |      | 86.1  |        
|Payroll and employee benefits                                       |       |      | 59.6  |        
|Other                                                               |       |      | 442.8 |        
|                                                                    |       |      |       |        
|                                                                    | Total |      | $     | 2,362.9
|                                                                    |       |      |       |        

Note 9: Debt

|                                        |                      | Interest Rates at
December 31, 2005 |   | 2005 |         | 2004   
|--------------------------------------- | -------------------- | ----------------------------------- | - | ---- | ------- | -------
|
|8.375% senior notes                     |                      | 8.375                               | % | $    | 910.0   |        
|6.375% senior notes                     |                      | 6.375                               | % |      | 1,000.0 |        
|Credit facility                         |                      | 5.813                               | % |      | 1,500.0 |        
|Other                                   |                      |                                    |   |      | 3.1     |        
|Borrowing from Parent                   |                      |                                    |   |      |        |        
|                                        |                      |                                     |   |      |         |        
|                                        | Total debt           |                                     |   |      |         | 3,413.1
|Less: current portion of long-term debt |                      | 5.813                               | % |      | 7.8     |        
|                                        |                      |                                     |   |      |         |        
|                                        | Total long-term debt |                                     |   |      | $       | 3,405.3
|                                        |                      |                                     |   |      |         |        

During
the second quarter of 2005, we refinanced a significant portion of our outstanding debt, as discussed in more detail below. As of December 31, 2005, our outstanding debt
included the following notes payable and credit facility:

Notes Payable.Our $910.0 million in senior notes outstanding at December 31, 2005 are due in 2013, bear
interest at 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.

Our
$1,000.0 million in senior notes outstanding at December 31, 2005 are due in 2015, bear interest at 6.375%, and are referred to as the 6.375% senior notes. Principal on
the 6.375% senior notes is payable upon maturity, while interest is payable semi-annually beginning December 15, 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 (together with DIRECTV Holdings, the
Co-Issuers) and have been registered under the Securities Act of 1933, as amended. The 8.375% senior notes and the 6.375% senior notes are unsecured and 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.

The
fair value of our 8.375% senior notes was approximately $982.3 million at December 31, 2005 with a carrying value of $910.0 million and $1,569.8 million
at December 31, 2004 with a carrying value

53

---



of
$1,400.0 million. The fair value of our 6.375% senior notes was approximately $983.8 million at December 31, 2005 with a carrying value of $1,000.0 million. The fair
values were calculated based on quoted market prices on those dates.

Credit Facility.At December 31, 2005, our senior secured credit facility consisted of a $500.0 million
six-year Term Loan A, a $1,000.0 million eight-year Term Loan B and a $500.0 million undrawn six-year revolving credit facility. The Term Loan A and
Term Loan B components of the senior secured credit facility currently bear interest at a rate equal to the London InterBank Offered Rate, or LIBOR, plus 1.25% and 1.50%, respectively. In addition, we
pay a commitment fee of 0.225% per year for the unused commitment under the revolving credit facility. The interest rate and commitment fee may be increased or decreased under certain conditions. The
senior secured credit facility is secured by substantially all of our assets and is fully and unconditionally guaranteed, jointly and severally, by the Guarantor Subsidiaries.

Our
notes payable and credit facility mature as follows: $7.5 million in 2006; $10.1 million in 2007; $47.6 million in 2008; $97.6 million in 2009;
$297.5 million in 2010; and $2,949.7 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 of excess cash flows 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 years ended
December 31, 2005 and 2004. However, we made a prepayment of $201.0 million on April 15, 2004 for the year ended December 31, 2003. The amount of interest accrued related
to our outstanding debt
was $28.4 million at December 31, 2005 and $36.5 million at December 31, 2004. The unamortized bond premium included in total debt as of December 31, 2005 was
$3.1 million.

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 the Co-Issuers and the Guarantor Subsidiaries' 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 person, (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 the revolving credit facility could be terminated. At December 31, 2005, we were in
compliance with all such covenants.

2005 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 that 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%.

On
May 19, 2005, we redeemed $490.0 million of 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.

54

---



On
June 15, 2005, the Co-Issuers issued $1,000.0 million of 6.375% senior notes. 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.

The
repayment of our 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
2005 pre-tax charge of $64.9 million ($40.1 million after tax) of which $41.0 million was associated with the premium that we paid for the redemption of our 8.375%
senior notes and $23.9 million with our 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 Statements of Operations.

Prior Debt Transactions.During 2004, as part of the National Rural Telecommunications Cooperative, or NRTC, and Pegasus
Satellite Television, Inc., or Pegasus, transactions discussed in Note 16, we borrowed $875.0 million from our Parent. As mentioned above, during 2005 we repaid the
$875.0 million borrowing to our Parent in conjunction with our 2005 refinancing transactions.

During
2003, we raised approximately $2,625.0 million of cash through the issuance of $1,400.0 million of 8.375% senior notes and $1,225.0 million of borrowings
under a credit facility. We distributed the cash proceeds from the financing transactions, which amounted to $2,558.5 million, net of debt issuance costs, to The DIRECTV Group in the first
quarter of 2003.

Note 10: Other Liabilities and Deferred Credits

|                                                                       |       | 2005 |       | 2004 
|---------------------------------------------------------------------- | ----- | ---- | ----- | -----
|
|NRTC transaction obligations                                           |       | $    | 359.1 |      
|Programming costs and provision for above-market programming contracts |       |      | 321.3 |      
|Deferred credits                                                       |       |      | 268.8 |      
|Other                                                                  |       |      | 40.0  |      
|                                                                       |       |      |       |      
|                                                                       | Total |      | $     | 989.2
|                                                                       |       |      |       |      

Note 11: Income Taxes

We
base our income tax expense or benefit on our reported income or loss before income taxes. Our deferred income tax assets and liabilities reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, which are available to us pursuant to our tax sharing agreement
with The DIRECTV Group and as measured by applying currently enacted tax laws.

As
described in Note 2, all tax basis net operating losses we incurred prior to February 28, 2003, have been transferred to The DIRECTV Group.

The
income tax (expense) benefit consisted of the following:

|                                                            |                                    | 2005 |        | 2004   |   | 2003 |     
|----------------------------------------------------------- | ---------------------------------- | ---- | ------ | ------ | - | ---- | ----
|
|Taxes currently (payable) receivableU.S. federal and state |                                    | $    | (199.3 | )      | $ | 40.7 |     
|Deferred tax liabilities, netU.S. federal and state        |                                    |      | (8.8   | )      |   | 20.6 |     
|                                                            |                                    |      |        |        |   |      |     
|                                                            | Total income tax (expense) benefit |      | $      | (208.1 | ) | $    | 61.3
|                                                            |                                    |      |        |        |   |      |     

55

---



Our
provision for income taxes varies from the provision computed using the U.S. federal statutory income tax rate for the reasons set forth in the following table:

|                                                                    |                                    | 2005 |        | 2004   |   | 2003 |     
|------------------------------------------------------------------- | ---------------------------------- | ---- | ------ | ------ | - | ---- | ----
|
|Expected income tax (expense) benefit at U.S. statutory rate of 35% |                                    | $    | (186.7 | )      | $ | 59.5 |     
|U.S. state income tax (expense) benefit                             |                                    |      | (18.5  | )      |   | 4.4  |     
|Other expense                                                       |                                    |      | (2.9   | )      |   | (2.6 | )   
|                                                                    |                                    |      |        |        |   |      |     
|                                                                    | Total income tax (expense) benefit |      | $      | (208.1 | ) | $    | 61.3
|                                                                    |                                    |      |        |        |   |      |     

Temporary
differences and carry-forwards that gave rise to the deferred tax assets and liabilities were as follows:

|                                                |                      | 2005 |       | 2004 
|----------------------------------------------- | -------------------- | ---- | ----- | -----
|
|
|Depreciation and amortization                   |                      |      |       |      
|Accruals and advances                           |                      | $    | 103.6 |      
|Programming contract liabilities                |                      |      | 306.4 |      
|Prepaid expenses                                |                      |      |      |      
|Net operating loss and tax credit carryforwards |                      |      |      |      
|Other temporary differences                     |                      |      | 20.8  |      
|                                                |                      |      |       |      
|                                                | Total deferred taxes |      | $     | 430.8
|                                                |                      |      |       |      

We
included current deferred tax assets of $148.1 million at December 31, 2005 and $124.8 million at December 31, 2004 in "Prepaid expenses and other" in the
Consolidated Balance Sheets.

We
recorded total taxes receivable from The DIRECTV Group in "Prepaid expenses and other" of $49.3 million at December 31, 2004. In addition, we recorded
$119.0 million at December 31, 2005 and $5.0 million at December 31, 2004 of taxes payable to The DIRECTV Group in "Accounts payable and accrued liabilities."

Note 12: Pension and Other Post-Retirement Benefits

Many of our employees participate in our funded and unfunded contributory and non-contributory defined benefit pension plans maintained by The DIRECTV
Group. The plans provide defined benefits based on years of service and final average salary or based on eligible compensation while employed by us. We have not separately determined the accumulated
benefit obligation and net assets available for benefits for our employees and do not include these items in our Consolidated Balance Sheets. In addition to pension benefits, The DIRECTV Group charges
us for the cost of certain other post-retirement benefits. The accumulated post-retirement benefit obligation related to our employees has not been separately determined and is
not included in the accompanying Consolidated Balance Sheets. We also participate in other health and welfare plans of The DIRECTV Group. Our portion of the cost of these benefit plans, allocated from
The DIRECTV Group, amounted to $11.6 million in 2005, $11.1 million in 2004, and $14.3 million in 2003. In 2003, we recorded the amount as a non-cash transaction in
"Net capital contribution from Parent" in the Consolidated Statements of Changes in Owner's Equity and charged it to "General and administrative expenses" in the Consolidated Statements of Operations.

56

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Note 13: Owner's Equity

The following represents changes in the components of other comprehensive income (loss), net of taxes:

2003Pre-tax
Amount

Tax
Expense

Net
Amount(Dollars in Millions)Distribution of investments to Parent

$
4.7

$
(1.8
)
$
2.9


Note 14: Incentive Plans

We participate in The DIRECTV Group, Inc. 2004 Stock Plan, or the 2004 Plan. Under the 2004 Plan, as approved by The DIRECTV Group stockholders on
June 2, 2004, shares, rights or options to acquire up to 21 million shares of common stock on a cumulative basis were authorized for grant through March 16, 2014, subject to The
DIRECTV Group's Compensation Committee approval.

In
connection with the News Corporation transactions, on December 22, 2003, vesting accelerated for 4.3 million options that our employees held and were issued under the
former Hughes Electronics Corporation Incentive Plan, or the HEC Plan, because the News Corporation transactions represented a qualifying change-in-control.

The
exercise price of options granted to our employees is equal to at least 100% of the fair market value of the common stock on the date the options are granted. The options granted to
our employees were fully vested as of December 31, 2005 and have a weighted average remaining contractual life of 5.3 years.

At
December 31, 2005, there were 19.7 million options exercisable at prices ranging from $10.39 to $41.06 with a weighted average exercise price of $26.64. At
December 31, 2004, there were 20.3 million options exercisable with a weighted average exercise price of $26.54. At December 31, 2003, there were 19.6 million options
exercisable at weighted average exercise price of $26.63.

57

---



Changes
in the status of The DIRECTV Group outstanding common stock options granted to our employees were as follows:

|                                 |  | Shares
Under Option |   | Weighted-Average
Exercise Price
|-------------------------------- |  | ------------------- | - | -------------------------------
|Outstanding at January 1, 2003   |  | 21,104,899          |   | $                              
|Granted                          |  |                    |   |                                
|Exercised                        |  | (613,265            | ) |                                
|Terminations and transfers, net  |  | 183,450             |   |                                
|                                 |  |                     |   |                                
|Outstanding at December 31, 2003 |  | 20,675,084          |   |                                
|                                 |  |                     |   |                                
|Granted                          |  |                    |   |                                
|Exercised                        |  | (277,857            | ) |                                
|Terminations and transfers, net  |  | (92,741             | ) |                                
|                                 |  |                     |   |                                
|Outstanding at December 31, 2004 |  | 20,304,486          |   |                                
|                                 |  |                     |   |                                
|Granted                          |  |                    |   |                                
|Exercised                        |  | (148,450            | ) |                                
|Terminations and transfers, net  |  | (450,928            | ) |                                
|                                 |  |                     |   |                                
|Outstanding at December 31, 2005 |  | 19,705,108          |   |                                
|                                 |  |                     |   |                                

The
DIRECTV Group's Compensation Committee has also granted restricted stock units that vest over two to four years under the 2004 Plan and the HEC Plan. During the year ended
December 31, 2005, 2.4 million restricted stock units were granted to our employees with a weighted average grant-date fair value of approximately $16.64. During the year
ended December 31, 2004, 2.7 million restricted stock units were granted to our employees with a weighted average grant-date fair value of approximately $17.46. During the
year ended December 31, 2003, 2.1 million restricted stock units were granted to our employees with a weighted average grant-date fair value of approximately $10.50.

As
a result of the above discussed stock options and restricted stock units, we recorded $27.1 million of stock compensation expense in 2005, $28.0 million of stock
compensation expense in 2004 and $5.7 million of stock compensation expense in 2003.

Note 15: 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 normal operations.

We
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
Securities and Exchange Commission Staff Accounting Bulleting No. 55, "Allocation of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business
Components of Another Entity; Cheap Stock."

During
2004, as part of the NRTC and Pegasus transactions discussed in Note 16, we borrowed $875.0 million from The DIRECTV Group and received a capital contribution of
$200.0 million from The DIRECTV Group. Interest expense incurred related to the borrowing from The DIRECTV Group was $6.5 million in 2005 and $5.9 million in 2004. During 2005, we
repaid the $875.0 million borrowing and received a $538.3 million capital contribution from The DIRECTV Group in conjunction with our debt refinancing. See Note 9 for further
discussion of the debt refinancing.

58

---



Also
during 2004, The DIRECTV Group contributed certain assets to us that included two satellites, SPACEWAY 1 and SPACEWAY 2, and the related ground segment equipment, and goodwill that
resulted from the 1997 repurchase of our stock from a third party. We recorded these transactions in 2004 as a capital contribution from Parent in the amount of $431.8 million. During 2005, The
DIRECTV Group contributed to us certain SPACEWAY satellite assets at its cost in the amount of $26.8 million, which we also recorded as a capital contribution.

Through
February 28, 2003, we participated in the centralized cash management system of The DIRECTV Group, wherein we transferred our cash receipts to and we funded our cash
disbursements from The DIRECTV Group on a daily basis. We recorded the net cash activity associated with The DIRECTV Group, which included the activity associated with the cash management system and
The DIRECTV Group's funding of our payroll, as a net capital contribution from Parent in the amount of $4.9 million for the year ended December 31, 2003.

During
the first quarter of 2003, we raised approximately $2,625.0 million of cash through the issuance of notes and bank borrowings. We distributed the cash proceeds from the
financing transactions, which amounted to $2,558.5 million, net of debt issuance costs, to The DIRECTV Group in the first quarter of 2003 and recorded the distribution as a net capital
distribution to Parent in the Consolidated Statements of Changes in Owner's Equity. Upon completion of the financing transactions, we ceased participating in The DIRECTV Group's centralized cash
management system.

In
February 2003, we entered into an intellectual property license agreement with The DIRECTV Group. Under the license agreement, The DIRECTV Group granted us a
royalty-free license to use certain intellectual property owned by or licensed to The DIRECTV Group for our business.

We
purchase telemetry, tracking and control services, or TT&C, for certain of 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 Group's 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 discussed in Note 2. We recorded DIRECTV System access cards provided to
HNS as "Revenues" in the Consolidated Statements of Operations.

News Corporation and affiliates.Beginning December 23, 2003, with the completion of the News Corporation
transactions, we consider News Corporation and its affiliated companies as related parties. As of December 31, 2005, News Corporation owned approximately 34% of the outstanding common stock of
The DIRECTV Group. As of December 31, 2005, we had the following types of contractual arrangements with News Corporation entities: 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; purchase of employee services and sale of advertising
space. The amount of products and services purchased from News Corporation and its affiliates for the period December 23, 2003 to December 31, 2003 was not material.

59

---



The
following table summarizes related-party transactions:

2005

2004

2003(Dollars in Millions)Sales:The DIRECTV Group and affiliates

$
4.8

$
25.8

$
43.2News Corporation and affiliates


17.9


10.1


Total

$
22.7

$
35.9

$
43.2Purchases:The DIRECTV Group and affiliates

$
14.8

$
187.8

$
299.5News Corporation and affiliates


652.2


447.8


Total

$
667.0

$
635.6

$
299.5


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

2005

2004(Dollars in Millions)Accounts receivable

$
9.5

$
13.7Accounts payable:The DIRECTV Group and affiliates

$
40.4

$
23.9News Corporation and affiliates


150.0


104.5Total

$
190.4

$
128.4Borrowing from Parent

$


$
875.0


Note 16: Acquisitions and Other Transactions



Effective June 1, 2004, we and 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, 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 have the right to sell our services in all territories across the United States. We recorded the present value of the cash
payments to be made to the NRTC plus fees paid associated with the transaction, the total of which amounted to $334.1 million, 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. We are amortizing the distribution rights intangible asset to expense over seven years, which represented the remaining life of
the terminated DIRECTV service distribution agreement.

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. We paid $187.2 million in the third quarter of 2004 for members electing a lump-sum payout plus additional fees associated with the
transaction and recorded $198.3 million in "Accounts payable and accrued liabilities" and "Other Liabilities and Deferred Credits" for those

60

---



members
electing the long-term payment option of seven years plus interest. 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.

As
of December 31, 2005, we owe the NRTC and its members who elected the long-term payment option $424.0 million, which is payable approximately as follows:
$66.9 million in 2006, $71.0 million in 2007, $75.3 million in 2008, $79.9 million in 2009, $83.3 million in 2010 and $47.6 million thereafter. These amounts
are recorded in "Accounts payable and accrued liabilities" and "Other Liabilities and Deferred Credits" in the Consolidated Balance Sheets.



On August 27, 2004, we acquired the subscribers 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.

During
the third quarter of 2004, we funded the cash requirements for the Pegasus and NRTC transactions described above by $875.0 million of borrowings from Parent and a
$200.0 million capital contribution from Parent.



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 was previously 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 WL orbital location through
2008. As additional consideration for our use of 72.5 WL, we also agreed to allow Telesat to use DIRECTV 5 or a similar satellite for a five year period, subject to certain conditions, beginning at
the end of 2008. Upon receipt of final approval from the Federal Communications Commission in the third quarter of 2004, we transferred DIRECTV 3 to Telesat and relocated one of our satellites to 72.5
WL to provide additional local channels and other programming in the United States. We recorded these transactions as an exchange of similar productive assets based on the net book values of the
assets exchanged. As a result, we recorded a $172.5 million 72.5 WL orbital license intangible asset, which is equal to the $81.4 million net book value of the DIRECTV 3 satellite
transferred from satellites, net, and an accrual for deferred lease revenues of $91.1 million, representing the value of the transferred satellite over the five year lease period. We are
amortizing the 72.5 WL 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.



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 Agreement, as amended, we received approximately
$200 million in cash from Thomson and can earn a $57.0 million rebate from Thomson

61

---



if
Thomson's aggregate sales of our set-top receivers equal at least $4.0 billion over the initial five year contract term plus an additional one year optional extension period, or
the Contract Term. Also as part of the Agreement, as amended, we can earn, on a pro rata basis, an additional $63.0 million rebate from Thomson if Thomson's aggregate sales of our
set-top receivers are in excess of $4.0 billion and up to $5.7 billion during the Contract Term. 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 is recorded as an offset to "Subscriber acquisition
costs" and "Upgrade and retention costs" in the Consolidated Statements of Operations, as appropriate, on a pro rata basis as the set-top receivers purchased from Thomson are activated. 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
$57.0 million rebate during the initial contract period. We record a proportionate amount of the $57.0 million rebate as a credit to "Subscriber acquisition costs" and "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 $46.3 million of the deferral and the initial rebate in 2005 in the Consolidated Statements of Operations. We recognized
$21.4 million of the deferral and rebate in 2004.

We
included the approximately $200 million in cash we received from Thomson in cash flows from operating activities in the Consolidated Statements of Cash Flows for the year ended
December 31, 2004.

Note 17: Commitments and 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
December 31, 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.

On
August 27, 2004, the U.S. Bankruptcy Court, District of Maine, entered an order approving among other things, the acquisition transaction with Pegasus described above in
Note 16, as well as a Global Settlement Agreement pursuant to which all pending litigation between us, The DIRECTV Group, the NRTC and Pegasus was settled and mutual releases of claims were
affected. Pegasus had filed a voluntary petition for Chapter 11 bankruptcy in such court following entry of judgment on May 24, 2004 in our favor for approximately $63 million in a case
arising out of Pegasus' breach of the parties' Seamless Marketing Agreement. This judgment was stayed under applicable bankruptcy law, and Pegasus also had filed various claims in the bankruptcy
proceeding against us, The DIRECTV Group and the NRTC. As part of the purchase price we paid in the transactions with Pegasus, we received credit for the $63 million judgment. As a result of
the settlement and release, all previously pending litigation described above between us and Pegasus has been dismissed with prejudice.

62

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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 that a satellite failure could have on our ability to provide service. At December 31, 2005, the net book value of uninsured satellites amounted to $646.2 million.



At December 31, 2005, our minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for real
property and aggregated $107.0 million, payable as follows: $26.9 million in 2006, $24.1 million in 2007, $22.7 million in 2008, $9.9 million in 2009,
$10.0 million in 2010 and $13.4 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options, which we have not considered in the amounts
disclosed. Our rental expense under operating leases was $45.5 million for the year ended December 31, 2005, $44.2 million for the year ended December 31, 2004 and
$33.3 million for the year ended December 31, 2003.

At
December 31, 2005, we anticipate minimum payments under agreements to purchase broadcast programming, the purchase of services that we have outsourced to third parties, such as
call center operations, billing services and TT&C, and the cost of planned satellite construction and launch contracts to be approximately $905.8 million in 2006, $996.5 million in 2007,
$943.3 million in 2008, $888.9 million in 2009, $886.5 million in 2010 and $465.0 million thereafter.

Note 18: Condensed Consolidating Financial Statements

The following presents the condensed consolidating statements of operations and the condensed consolidating statements of cash flows for the years ended
December 31, 2005, 2004 and 2003 and the condensed consolidating balance sheets as of December 31, 2005 and 2004 of the Co-Issuers, 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.

63

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Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2005

|                                                                                                        |                                     | Co-Issuers                         |        | Guarantor
Subsidiaries |       | Eliminations |         | DIRECTV
Holdings
Consolidated |       
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ------ | ---------------------- | ----- | ------------ | ------- | ----------------------------- | ------
|
|Revenues                                                                                                |                                     | $                                  | 688.9  |                        | $     | 12,216.1     |         | $                             | (688.9
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        | Programming and other costs         |                                    |        | 579.1                  |       |              | 5,159.2 |                               |       
|                                                                                                        | Subscriber service expenses         |                                    |        |                       |       |              | 935.4   |                               |       
|                                                                                                        | Subscriber acquisition costs:       |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Third party customer acquisitions  |        |                        |      |              |         | 1,999.4                       |       
|                                                                                                        |                                     | Direct customer acquisitions       |        |                        |      |              |         | 676.4                         |       
|                                                                                                        | Upgrade and retention costs         |                                    |        |                       |       |              | 1,106.5 |                               |       
|                                                                                                        | Broadcast operations expenses       |                                    |        |                       |       |              | 145.8   |                               |       
|                                                                                                        | General and administrative expenses |                                    |        | 0.8                    |       |              | 802.2   |                               |       
|Depreciation and amortization expense                                                                   |                                     |                                    |       |                        |       | 698.2        |         |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Total Operating Costs and Expenses |        |                        | 579.9 |              |         | 11,523.1                      |       
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Operating Profit                                                                                        |                                     |                                    | 109.0  |                        |       | 693.0        |         |                               |      
|Equity in pre-tax income of consolidated subsidiaries                                                   |                                     |                                    | 639.5  |                        |       |             |         |                               | (639.5
|Interest expense, net                                                                                   |                                     |                                    | (150.2 | )                      |       | (51.7        | )       |                               |      
|Other expense                                                                                           |                                     |                                    | (64.9  | )                      |       | (1.8         | )       |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Income Before Income Taxes                                                                              |                                     |                                    | 533.4  |                        |       | 639.5        |         |                               | (639.5
|Income tax expense                                                                                      |                                     |                                    | (208.1 | )                      |       | (249.5       | )       |                               | 249.5 
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Net Income                                                                                              |                                     | $                                  | 325.3  |                        | $     | 390.0        |         | $                             | (390.0
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       

Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2004

|                                                                                                        |                                     | Co-Issuers                         |        | Guarantor
Subsidiaries |       | Eliminations |         | DIRECTV
Holdings
Consolidated |       
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ------ | ---------------------- | ----- | ------------ | ------- | ----------------------------- | ------
|
|Revenues                                                                                                |                                     | $                                  | 926.2  |                        | $     | 9,763.9      |         | $                             | (926.2
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        | Programming and other costs         |                                    |        | 627.5                  |       |              | 4,308.6 |                               |       
|                                                                                                        | Subscriber service expenses         |                                    |        |                       |       |              | 740.2   |                               |       
|                                                                                                        | Subscriber acquisition costs:       |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Third party customer acquisitions  |        |                        |      |              |         | 1,960.8                       |       
|                                                                                                        |                                     | Direct customer acquisitions       |        |                        |      |              |         | 684.1                         |       
|                                                                                                        | Upgrade and retention costs         |                                    |        |                       |       |              | 993.2   |                               |       
|                                                                                                        | Broadcast operations expenses       |                                    |        |                       |       |              | 129.7   |                               |       
|                                                                                                        | General and administrative expenses |                                    |        | 1.0                    |       |              | 661.9   |                               |       
|Depreciation and amortization expense                                                                   |                                     |                                    |       |                        |       | 561.2        |         |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Total Operating Costs and Expenses |        |                        | 628.5 |              |         | 10,039.7                      |       
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Operating Profit (Loss)                                                                                 |                                     |                                    | 297.7  |                        |       | (275.8       | )       |                               |      
|Equity in pre-tax loss of consolidated subsidiaries                                                     |                                     |                                    | (789.7 | )                      |       |             |         |                               | 789.7 
|Interest expense, net                                                                                   |                                     |                                    | (182.2 | )                      |       | (9.9         | )       |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Loss Before Income Taxes and Cumulative Effect of Accounting Change                                     |                                     |                                    | (674.2 | )                      |       | (285.7       | )       |                               | 789.7 
|Income tax benefit                                                                                      |                                     |                                    | 253.8  |                        |       | 102.9        |         |                               | (295.4
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Loss Before Cumulative Effect of Accounting Change                                                      |                                     |                                    | (420.4 | )                      |       | (182.8       | )       |                               | 494.3 
|Cumulative effect of accounting change, net of taxes                                                    |                                     |                                    |       |                        |       | (311.5       | )       |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Net Loss                                                                                                |                                     | $                                  | (420.4 | )                      | $     | (494.3       | )       | $                             | 494.3 
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       

64

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Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2003

|                                                                                                        |                                     | Co-Issuers                         |        | Guarantor
Subsidiaries |       | Eliminations |         | DIRECTV
Holdings
Consolidated |       
|------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ------ | ---------------------- | ----- | ------------ | ------- | ----------------------------- | ------
|
|Revenues                                                                                                |                                     | $                                  | 851.3  |                        | $     | 7,696.2      |         | $                             | (851.9
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown separately below |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        | Programming and other costs         |                                    |        | 534.4                  |       |              | 3,546.7 |                               |       
|                                                                                                        | Subscriber service expenses         |                                    |        |                       |       |              | 623.5   |                               |       
|                                                                                                        | Subscriber acquisition costs:       |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Third party customer acquisitions  |        |                        |      |              |         | 1,388.4                       |       
|                                                                                                        |                                     | Direct customer acquisitions       |        |                        |      |              |         | 395.1                         |       
|                                                                                                        | Upgrade and retention costs         |                                    |        |                       |       |              | 404.4   |                               |       
|                                                                                                        | Broadcast operations expenses       |                                    |        |                       |       |              | 133.4   |                               |       
|                                                                                                        | General and administrative expenses |                                    |        | 0.9                    |       |              | 564.9   |                               |       
|Depreciation and amortization expense                                                                   |                                     |                                    |       |                        |       | 497.0        |         |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|                                                                                                        |                                     | Total Operating Costs and Expenses |        |                        | 535.3 |              |         | 7,553.4                       |       
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Operating Profit                                                                                        |                                     |                                    | 316.0  |                        |       | 142.8        |         |                               |      
|Equity in pre-tax income of consolidated subsidiaries                                                   |                                     |                                    | 132.8  |                        |       |             |         |                               | (132.8
|Interest expense, net                                                                                   |                                     |                                    | (186.0 | )                      |       | (6.0         | )       |                               |      
|Other expense                                                                                           |                                     |                                    |       |                        |       | (4.0         | )       |                               |      
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Income Before Income Taxes                                                                              |                                     |                                    | 262.8  |                        |       | 132.8        |         |                               | (132.8
|Income tax expense                                                                                      |                                     |                                    | (98.5  | )                      |       | (49.8        | )       |                               | 49.8  
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       
|Net Income                                                                                              |                                     | $                                  | 164.3  |                        | $     | 83.0         |         | $                             | (83.0 
|                                                                                                        |                                     |                                    |        |                        |       |              |         |                               |       

Condensed Consolidating Balance Sheet  As of December 31, 2005

|                                       |                                              | Co-Issuers           |         | Guarantor
Subsidiaries |         | Eliminations |          | DIRECTV
Holdings
Consolidated |         
|-------------------------------------- | -------------------------------------------- | -------------------- | ------- | ---------------------- | ------- | ------------ | -------- | ----------------------------- | --------
|
|ASSETS                                 |                                              |                      |         |                        |         |              |          |                               |         
|Total Current Assets                   |                                              | $                    | 1,206.8 |                        | $       | 1,528.0      |          | $                             | (7.7    
|Satellites, net                        |                                              |                      |        |                        |         | 1,907.9      |          |                               |        
|Property and Equipment, net            |                                              |                      |        |                        |         | 848.3        |          |                               |        
|Goodwill                               |                                              |                      | 1,827.6 |                        |         | 1,204.1      |          |                               |        
|Intangible Assets, net                 |                                              |                      |        |                        |         | 1,875.0      |          |                               |        
|Other Assets                           |                                              |                      | 3,748.9 |                        |         | 100.2        |          |                               | (3,714.1
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|Total Assets                           |                                              | $                    | 6,783.3 |                        | $       | 7,463.5      |          | $                             | (3,721.8
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|LIABILITIES AND OWNER'S EQUITY         |                                              |                      |         |                        |         |              |          |                               |         
|Total Current Liabilities              |                                              | $                    | 81.6    |                        | $       | 2,555.8      |          | $                             | (7.7    
|Long-Term Debt                         |                                              |                      | 3,405.3 |                        |         |             |          |                               |        
|Other Liabilities and Deferred Credits |                                              |                      |        |                        |         | 1,324.6      |          |                               | (131.0  
|Owner's Equity                         |                                              |                      |         |                        |         |              |          |                               |         
|                                       | Capital stock and additional paid-in capital |                      |         | 4,050.9                |         |              | 4,875.0  |                               |         
|                                       | Accumulated deficit                          |                      |         | (754.5                 | )       |              | (1,291.9 | )                             |         
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|                                       |                                              | Total Owner's Equity |         |                        | 3,296.4 |              |          | 3,583.1                       |         
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|Total Liabilities and Owner's Equity   |                                              | $                    | 6,783.3 |                        | $       | 7,463.5      |          | $                             | (3,721.8
|                                       |                                              |                      |         |                        |         |              |          |                               |         

65

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Condensed Consolidating Balance Sheet  As of December 31, 2004

|                                       |                                              | Co-Issuers           |         | Guarantor
Subsidiaries |         | Eliminations |          | DIRECTV
Holdings
Consolidated |         
|-------------------------------------- | -------------------------------------------- | -------------------- | ------- | ---------------------- | ------- | ------------ | -------- | ----------------------------- | --------
|
|ASSETS                                 |                                              |                      |         |                        |         |              |          |                               |         
|Total Current Assets                   |                                              | $                    | 46.6    |                        | $       | 1,292.4      |          | $                             | (7.7    
|Satellites, net                        |                                              |                      |        |                        |         | 1,597.4      |          |                               |        
|Property and Equipment, net            |                                              |                      |        |                        |         | 686.1        |          |                               |        
|Goodwill                               |                                              |                      | 1,827.6 |                        |         | 1,204.1      |          |                               |        
|Intangible Assets, net                 |                                              |                      |        |                        |         | 2,224.9      |          |                               |        
|Other Assets                           |                                              |                      | 4,062.9 |                        |         | 67.4         |          |                               | (4,007.5
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|Total Assets                           |                                              | $                    | 5,937.1 |                        | $       | 7,072.3      |          | $                             | (4,015.2
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|LIABILITIES AND OWNER'S EQUITY         |                                              |                      |         |                        |         |              |          |                               |         
|Total Current Liabilities              |                                              | $                    | 195.5   |                        | $       | 1,850.0      |          | $                             | (7.7    
|Long-Term Debt                         |                                              |                      | 3,276.6 |                        |         |             |          |                               |        
|Other Liabilities and Deferred Credits |                                              |                      | 86.1    |                        |         | 2,179.7      |          |                               | (964.9  
|Owner's Equity                         |                                              |                      |         |                        |         |              |          |                               |         
|                                       | Capital stock and additional paid-in capital |                      |         | 3,458.7                |         |              | 4,724.8  |                               |         
|                                       | Accumulated deficit                          |                      |         | (1,079.8               | )       |              | (1,682.2 | )                             |         
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|                                       |                                              | Total Owner's Equity |         |                        | 2,378.9 |              |          | 3,042.6                       |         
|                                       |                                              |                      |         |                        |         |              |          |                               |         
|Total Liabilities and Owner's Equity   |                                              | $                    | 5,937.1 |                        | $       | 7,072.3      |          | $                             | (4,015.2
|                                       |                                              |                      |         |                        |         |              |          |                               |         

Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2005

|                                                     |                                                     | Co-Issuers                                          |         | Guarantor
Subsidiaries |         | DIRECTV
Holdings
Consolidated |        
|---------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | ------- | ----------------------------- | -------
|
|Cash Flows from Operating Activities                 |                                                     |                                                     |         |                        |         |                               |        
|                                                     | Net Cash Provided by (Used in) Operating Activities |                                                     | $       | (384.3                 | )       | $                             | 1,667.5
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|Cash Flows from Investing Activities                 |                                                     |                                                     |         |                        |         |                               |        
|                                                     | Cash paid for property and equipment                |                                                     |         |                       |         |                               | (380.5 
|                                                     | Cash paid for satellites                            |                                                     |         |                       |         |                               | (366.6 
|                                                     | Cash paid for acquired assets                       |                                                     |         |                       |         |                               | (3.3   
|                                                     | Proceeds from sale of property                      |                                                     |         |                       |         |                               | 0.5    
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|                                                     |                                                     | Net Cash Used in Investing Activities               |         |                        |        |                               |        
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|Cash Flows from Financing Activities                 |                                                     |                                                     |         |                        |         |                               |        
|                                                     | Cash proceeds from financing transactions           |                                                     |         | 3,003.3                |         |                               |       
|                                                     | Cash contribution from Parent                       |                                                     |         | 538.3                  |         |                               |       
|                                                     | Repayment of debt                                   |                                                     |         | (2,001.8               | )       |                               |       
|                                                     | Repayment of borrowing from Parent                  |                                                     |         | (875.0                 | )       |                               |       
|                                                     | Borrowings from (loans to) related parties          |                                                     |         | 875.0                  |         |                               | (875.0 
|                                                     | Repayment of other long-term obligations            |                                                     |         |                       |         |                               | (63.1  
|                                                     | Debt issuance costs                                 |                                                     |         | (4.7                   | )       |                               |       
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|                                                     |                                                     | Net Cash Provided by (Used in) Financing Activities |         |                        | 1,535.1 |                               |        
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|Net increase (decrease) in cash and cash equivalents |                                                     |                                                     | 1,150.8 |                        |         | (20.5                         | )      
|Cash and cash equivalents at beginning of the year   |                                                     |                                                     | 14.0    |                        |         | 20.5                          |        
|                                                     |                                                     |                                                     |         |                        |         |                               |        
|Cash and cash equivalents at the end of the year     |                                                     | $                                                   | 1,164.8 |                        | $       |                              |        
|                                                     |                                                     |                                                     |         |                        |         |                               |        

66

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Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2004

|                                                     |                                                     | Co-Issuers                                          |        | Guarantor
Subsidiaries |       | DIRECTV
Holdings
Consolidated |       
|---------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | ---------------------- | ----- | ----------------------------- | ------
|
|Cash Flows from Operating Activities                 |                                                     |                                                     |        |                        |       |                               |       
|                                                     | Net Cash Provided by (Used in) Operating Activities |                                                     | $      | (381.7                 | )     | $                             | 806.2 
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|Cash Flows from Investing Activities                 |                                                     |                                                     |        |                        |       |                               |       
|                                                     | Cash paid for property and equipment                |                                                     |        |                       |       |                               | (249.0
|                                                     | Cash paid for satellites                            |                                                     |        |                       |       |                               | (422.5
|                                                     | Cash paid for acquired assets                       |                                                     |        |                       |       |                               | (965.8
|                                                     | Proceeds from sale of property                      |                                                     |        |                       |       |                               | 3.7   
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|                                                     |                                                     | Net Cash Used in Investing Activities               |        |                        |      |                               |       
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|Cash Flows from Financing Activities                 |                                                     |                                                     |        |                        |       |                               |       
|                                                     | Repayment of debt                                   |                                                     |        | (213.2                 | )     |                               |      
|                                                     | Cash contribution from Parent                       |                                                     |        | 200.0                  |       |                               |      
|                                                     | Borrowing from Parent                               |                                                     |        | 875.0                  |       |                               |      
|                                                     | Borrowings from (loans to) related parties          |                                                     |        | (875.0                 | )     |                               | 875.0 
|                                                     | Repayment of other long-term obligations            |                                                     |        |                       |       |                               | (31.5 
|                                                     | Debt issuance costs                                 |                                                     |        | (2.4                   | )     |                               |      
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|                                                     |                                                     | Net Cash Provided by (Used in) Financing Activities |        |                        | (15.6 | )                             |       
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|Net increase (decrease) in cash and cash equivalents |                                                     |                                                     | (397.3 | )                      |       | 16.1                          |       
|Cash and cash equivalents at beginning of the year   |                                                     |                                                     | 411.3  |                        |       | 4.4                           |       
|                                                     |                                                     |                                                     |        |                        |       |                               |       
|Cash and cash equivalents at the end of the year     |                                                     | $                                                   | 14.0   |                        | $     | 20.5                          |       
|                                                     |                                                     |                                                     |        |                        |       |                               |       

Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2003

|                                                     |                                                     | Co-Issuers                                          |       | Guarantor
Subsidiaries |       | DIRECTV
Holdings
Consolidated |       
|---------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ----- | ---------------------- | ----- | ----------------------------- | ------
|
|Cash Flows from Operating Activities                 |                                                     |                                                     |       |                        |       |                               |       
|                                                     | Net Cash Provided by Operating Activities           |                                                     | $     | 61.0                   |       | $                             | 725.7 
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|Cash Flows from Investing Activities                 |                                                     |                                                     |       |                        |       |                               |       
|                                                     | Cash paid for property and equipment                |                                                     |       |                       |       |                               | (228.2
|                                                     | Cash paid for satellites                            |                                                     |       |                       |       |                               | (160.8
|                                                     | Proceeds from sale of property                      |                                                     |       |                       |       |                               | 0.6   
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|                                                     |                                                     | Net Cash Used in Investing Activities               |       |                        |      |                               |       
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|Cash Flows from Financing Activities                 |                                                     |                                                     |       |                        |       |                               |       
|                                                     | Net cash contribution from (distribution to) Parent |                                                     |       | 352.6                  |       |                               | (347.7
|                                                     | Cash proceeds from financing transactions           |                                                     |       | 2,625.0                |       |                               |      
|                                                     | Distribution to Parent                              |                                                     |       | (2,558.5               | )     |                               |      
|                                                     | Debt issuance costs                                 |                                                     |       | (68.8                  | )     |                               |      
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|                                                     |                                                     | Net Cash Provided by (Used in) Financing Activities |       |                        | 350.3 |                               |       
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|Net increase (decrease) in cash and cash equivalents |                                                     |                                                     | 411.3 |                        |       | (10.4                         | )     
|Cash and cash equivalents at beginning of the year   |                                                     |                                                     |      |                        |       | 14.8                          |       
|                                                     |                                                     |                                                     |       |                        |       |                               |       
|Cash and cash equivalents at the end of the year     |                                                     | $                                                   | 411.3 |                        | $     | 4.4                           |       
|                                                     |                                                     |                                                     |       |                        |       |                               |       

67

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DIRECTV HOLDINGS LLC        SUPPLEMENTARY DATA

|Selected Quarterly Data (Unaudited)                                                          |                                     | 1st                               |                                    | 2nd     |       | 3rd     |         | 4th   |        
|-------------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------- | ---------------------------------- | ------- | ----- | ------- | ------- | ----- | -------
|
|2005 Quarters                                                                                |                                     |                                   |                                    |         |       |         |         |       |        
|Revenues                                                                                     |                                     | $                                 | 2,800.8                            |         | $     | 2,960.5 |         | $     | 3,048.4
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown below |                                     |                                   |                                    |         |       |         |         |       |        
|                                                                                             | Programming and other costs         |                                   |                                    | 1,149.6 |       |         | 1,137.7 |       |        
|                                                                                             | Subscriber service expenses         |                                   |                                    | 220.5   |       |         | 219.2   |       |        
|                                                                                             | Subscriber acquisition costs:       |                                   |                                    |         |       |         |         |       |        
|                                                                                             |                                     | Third party customer acquisitions |                                    |         | 587.9 |         |         | 467.9 |        
|                                                                                             |                                     | Direct customer acquisitions      |                                    |         | 157.7 |         |         | 154.3 |        
|                                                                                             | Upgrade and retention costs         |                                   |                                    | 252.2   |       |         | 223.2   |       |        
|                                                                                             | Broadcast operations expenses       |                                   |                                    | 35.4    |       |         | 35.3    |       |        
|                                                                                             | General and administrative expenses |                                   |                                    | 181.9   |       |         | 218.3   |       |        
|Depreciation and amortization expense                                                        |                                     |                                   | 177.2                              |         |       | 171.4   |         |       | 167.2  
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|                                                                                             |                                     |                                   | Total Operating Costs and Expenses |         |       | 2,762.4 |         |       | 2,627.3
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Operating Profit                                                                             |                                     |                                   | 38.4                               |         |       | 333.2   |         |       | 170.6  
|Interest expense, net                                                                        |                                     |                                   | (56.0                              | )       |       | (54.2   | )       |       | (52.4  
|Other expense                                                                                |                                     |                                   | (0.4                               | )       |       | (65.2   | )       |       | (0.8   
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Income (Loss) Before Income Taxes                                                            |                                     |                                   | (18.0                              | )       |       | 213.8   |         |       | 117.4  
|Income tax (expense) benefit                                                                 |                                     |                                   | 6.9                                |         |       | (82.0   | )       |       | (45.1  
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Net Income (Loss)                                                                            |                                     | $                                 | (11.1                              | )       | $     | 131.8   |         | $     | 72.3   
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|2004 Quarters                                                                                |                                     |                                   |                                    |         |       |         |         |       |        
|Revenues                                                                                     |                                     | $                                 | 2,080.8                            |         | $     | 2,216.9 |         | $     | 2,506.5
|Operating Costs and Expenses, exclusive of depreciation and amortization expense shown below |                                     |                                   |                                    |         |       |         |         |       |        
|                                                                                             | Programming and other costs         |                                   |                                    | 848.1   |       |         | 856.5   |       |        
|                                                                                             | Subscriber service expenses         |                                   |                                    | 146.0   |       |         | 166.0   |       |        
|                                                                                             | Subscriber acquisition costs:       |                                   |                                    |         |       |         |         |       |        
|                                                                                             |                                     | Third party customer acquisitions |                                    |         | 436.5 |         |         | 445.4 |        
|                                                                                             |                                     | Direct customer acquisitions      |                                    |         | 151.3 |         |         | 162.1 |        
|                                                                                             | Upgrade and retention costs         |                                   |                                    | 174.2   |       |         | 226.8   |       |        
|                                                                                             | Broadcast operations expenses       |                                   |                                    | 30.0    |       |         | 35.2    |       |        
|                                                                                             | General and administrative expenses |                                   |                                    | 149.5   |       |         | 149.9   |       |        
|Depreciation and amortization expense                                                        |                                     |                                   | 123.8                              |         |       | 111.7   |         |       | 142.5  
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|                                                                                             |                                     |                                   | Total Operating Costs and Expenses |         |       | 2,059.4 |         |       | 2,153.6
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Operating Profit (Loss)                                                                      |                                     |                                   | 21.4                               |         |       | 63.3    |         |       | 2.5    
|Interest expense, net                                                                        |                                     |                                   | (47.4                              | )       |       | (46.0   | )       |       | (43.1  
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change                 |                                     |                                   | (26.0                              | )       |       | 17.3    |         |       | (40.6  
|Income tax (expense) benefit                                                                 |                                     |                                   | 10.0                               |         |       | (6.6    | )       |       | 14.5   
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Income (Loss) Before Cumulative Effect of Accounting Change                                  |                                     |                                   | (16.0                              | )       |       | 10.7    |         |       | (26.1  
|Cumulative effect of accounting change, net of taxes                                         |                                     |                                   | (311.5                             | )       |       |        |         |       |       
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        
|Net Income (Loss)                                                                            |                                     | $                                 | (327.5                             | )       | $     | 10.7    |         | $     | (26.1  
|                                                                                             |                                     |                                   |                                    |         |       |         |         |       |        

68

---





ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

We carried out an evaluation as of the end of the period covered by this Annual Report on Form 10-K under the supervision and with the
participation of management, including our principal executive officers and our financial officers, of the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act). Based on the evaluation, our principal executive officers
and our financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2005.

There
has been no change in the 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 year ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted.

ITEM 11.    EXECUTIVE COMPENSATION

Omitted.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Omitted

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate fees Deloitte & Touche LLP billed for professional services in 2005 and 2004 were:

Type of Fees

2005

2004(Dollars in Millions)Audit Fees

$
0.5

$
0.5Audit-Related Services


0.1


0.8Total

$
0.6

$
1.3


"Audit
Fees" are fees Deloitte & Touche LLP bills us for professional services for the audit of our consolidated financial statements included in Form 10-K and
review of our consolidated financial statements included in Form 10-Qs. Deloitte & Touche LLP bills us for "Audit-Related Services," which are principally for accounting
consultations and assurance and related services associated with our financing transactions. The DIRECTV Group engages our accountant on our behalf to render audit and non-audit services
for us.

69

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

|   |  |                                                                                                                        |  | Page Number
|-- |  | ---------------------------------------------------------------------------------------------------------------------- |  | -----------
|1. |  | All Financial Statements                                                                                               |  | See Part II
|2. |  | Financial Statement Schedule II-Valuation and Qualifying Accounts for the Years Ended December 31, 2005, 2004 and 2003 |  | 73         
|3. |  | Exhibits (Including Those Incorporated By Reference)                                                                   |  |            

|Exhibit
Number |  | Exhibit Name                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Formation of DIRECTV Holdings LLC dated as of June 11, 2002 (incorporated by reference to Exhibit 3.1 to the Form S-4 of DIRECTV Holdings LLC filed June 26, 2003 (the "Form S-4")).                                                                                                                                                                                                                                                               
|3.2            |  | Certificate of Incorporation of DIRECTV Financing Co., Inc. dated as of February 5, 2003 (incorporated by reference to Exhibit 3.2 to the Form S-4).                                                                                                                                                                                                                                                                                                              
|3.3            |  | Limited Liability Company Agreement of DIRECTV Holdings LLC dated as of June 11, 2002 (incorporated by reference to Exhibit 3.9 to the Form S-4).                                                                                                                                                                                                                                                                                                                 
|3.4            |  | Bylaws of DIRECTV Financing Co., Inc. (incorporated by reference to Exhibit 3.10 to the Form S-4).                                                                                                                                                                                                                                                                                                                                                                
|4.1            |  | Indenture dated as of February 28, 2003 by and among DIRECTV Holdings LLC, DIRECTV Financing Co., Inc., as Issuers, DIRECTV, Inc., USSB II, Inc., DIRECTV Customer Services, Inc., DIRECTV Merchandising, Inc., DIRECTV Enterprises, LLC, DIRECTV
Operations, LLC, as Guarantors, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Form 10-Q of Hughes Electronics Corporation ("HEC") for the quarter ended March 31, 2003).
|4.2            |  | Supplemental Indenture dated as of September 30, 2004 by and among DIRECTV Home Services, LLC, DIRECTV Holdings LLC, DIRECTV Financing Co., Inc., the Guarantors and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.2 to the
Form 10-K of DIRECTV Holdings LLC filed February 28, 2005).                                                                                                                                                
|4.3            |  | Form of 83/8% Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Form 10-Q of HEC for the quarter ended March 31, 2003).                                                                                                                                                                                                                                                                                                                      
|4.4            |  | 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 by reference to Exhibit 10.1 to the Current Report on Form 8-K
of the DIRECTV Holdings LLC, filed on June 20, 2005 (the "June 20, 2005 Form 8-K").                                                                                                                      
|4.5            |  | Form of 63/8% Senior Notes due 2015 (incorporated by reference to Exhibit 10.1 to the June 20, 2005 Form 8-K).                                                                                                                                                                                                                                                                                                                                                    
|10.1           |  | Intellectual Property License Agreement dated as of February 10, 2003, between HEC and DIRECTV Enterprises, LLC, as licensee (incorporated by reference to Exhibit 10.16 of the Form S-4).                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

70

---



|10.2  |  | Office Sublease for Corporate Headquarters between Raytheon Company, f/k/a Hughes Aircraft Company, and DIRECTV, Inc. dated March 20, 1996 (incorporated by reference to Exhibit 10.17 of the Form S-4).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3  |  | 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 Current Report on Form 8-K of DIRECTV Holdings LLC filed on June 2, 2004).                                                                                                                                                                                                                                                                                                                                                                    
|10.4  |  | Member Offer Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of DIRECTV Holdings LLC filed on June 3, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.5  |  | 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 Current Report on Form 8-K of DIRECTV Holdings LLC filed on August 3, 2004 (the "August 3, 2004 8-K")).                                                                                                                                                                                                                                                                                        
|10.6  |  | 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 August 3, 2004 8-K).                                                                                                                                                                                                                                                                                                                                                                                            
|10.7  |  | 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 August 3, 2004 8-K).                                                                                                                                                                                                                                                                                                                                                                           
|10.8  |  | Credit Agreement dated as of April 13, 2005 by and among DIRECTV Holdings LLC, Bank of America, N.A., as Administrative Agent and Collateral Agent, the lenders party to the Credit Agreement, certain subsidiaries of the DIRECTV Holdings LLC, 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 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 13, 2005 (the "April 13, 2005 8-K")).
|10.9  |  | Security Agreement, dated as of April 13, 2005, by and among DIRECTV Holdings LLC, its subsidiaries named therein as grantors and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.2 to the April 13, 2005
8-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.10 |  | Pledge Agreement, dated as of April 13, 2005, by and among DIRECTV Holdings LLC, its subsidiaries named therein as pledgors and Bank of America, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.3 to the April 13, 2005
8-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1* |  | Certification of Chief Executive Officer of DIRECTV Holdings LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ("Section 302").                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|31.2* |  | Certification of Chief Financial Officer of DIRECTV Holdings LLC pursuant to Section 302.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

71

---



|31.3* |  | Certification of Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to Section 302.                                                                                              
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.4* |  | Certification of 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.                                                                                          

---

A
copy of any of the exhibits included in this Annual Report on Form 10-K, other than those as to which confidential treatment has been granted by the Securities and
Exchange Commission, upon payment of a fee to cover the reasonable expenses of furnishing such exhibits, may be obtained by written request to us at the address set forth on the front cover, attention
General Counsel.

72

---





DIRECTV HOLDINGS LLC        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

|Description                          |                                                          | Balance at
beginning
of year |   | Additions
charged
to costs
and
expenses |   | Additions
charged
to other
accounts |        | Deductions |   | Balance at
end of year |   
|------------------------------------ | -------------------------------------------------------- | ---------------------------- | - | --------------------------------------- | - | ----------------------------------- | ------ | ---------- | - | ---------------------- | --
|
|For the Year Ended December 31, 2005 |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|Allowances Deducted from Assets      |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|                                     | Accounts receivable (allowance for doubtful receivables) |                              | $ | (86.4                                   | ) | $                                   | (233.9 | )          | $ | (100.8                 | )a
|                                     |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|For the Year Ended December 31, 2004 |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|Allowances Deducted from Assets      |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|                                     | Accounts receivable (allowance for doubtful receivables) |                              | $ | (51.1                                   | ) | $                                   | (188.6 | )          | $ | (77.9                  | )a
|                                     |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|For the Year Ended December 31, 2003 |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|Allowances Deducted from Assets      |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   
|                                     | Accounts receivable (allowance for doubtful receivables) |                              | $ | (54.3                                   | ) | $                                   | (129.8 | )          | $ | (68.0                  | )a
|                                     |                                                          |                              |   |                                         |   |                                     |        |            |   |                        |   

---

Reference
should be made to the Notes to the Consolidated Financial Statements.

73

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

|                     |  | DIRECTV HOLDINGS LLC
(Registrant)
|-------------------- |  | ---------------------------------
|Date: March 10, 2006 |  | By:                              

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 10th day of March 2006 by the following persons on
behalf of the registrant and in the capacities indicated.

|/s/CHASE CAREYChase Carey                 |  | President, Chief Executive Officer and Director                   |  | }Principal Executive Officer 
|----------------------------------------- |  | ----------------------------------------------------------------- |  | -----------------------------
|/s/MICHAEL W. PALKOVICMichael W. Palkovic |  | Executive Vice President, Chief Financial Officer and Director    |  | }Principal Financial Officer 
|/s/PATRICK T. DOYLEPatrick T. Doyle       |  | Senior Vice President and Treasurer                               |  | }Principal Accounting Officer
|/s/LARRY D. HUNTERLarry D. Hunter         |  | Executive Vice President, General Counsel, Secretary and Director |  |                              

74

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

|                     |  | DIRECTV FINANCING CO., INC.
(Registrant)
|-------------------- |  | ----------------------------------------
|Date: March 10, 2006 |  | By:                                     

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 10th day of March 2006 by the following persons on
behalf of the registrant and in the capacities indicated.

|/s/CHASE CAREYChase Carey                 |  | President, Chief Executive Officer and Director      |  | }Principal Executive Officer 
|----------------------------------------- |  | ---------------------------------------------------- |  | -----------------------------
|/s/MICHAEL W. PALKOVICMichael W. Palkovic |  | Executive Vice President and Chief Financial Officer |  | }Principal Financial Officer 
|/s/PATRICK T. DOYLEPatrick T. Doyle       |  | Senior Vice President and Treasurer                  |  | }Principal Accounting Officer

75

---



EXHIBIT INDEX

|Exhibit
Number |  | Exhibit Name                                                                                                                                                                                  
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1*          |  | Certification of Chief Executive Officer of DIRECTV Holdings LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ("Section 302").                                                   
|31.2*          |  | Certification of Chief Financial Officer of DIRECTV Holdings LLC pursuant to Section 302.                                                                                                     
|31.3*          |  | Certification of Chief Executive Officer of DIRECTV Financing Co., Inc. pursuant to Section 302.                                                                                              
|31.4*          |  | Certification of 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.                                                                                          

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A
copy of any of the exhibits included in this Annual Report on Form 10-K, other than those as to which confidential treatment has been granted by the Securities and
Exchange Commission, upon payment of a fee to cover the reasonable expenses of furnishing such exhibits, may be obtained by written request to us at the address set forth on the front cover, attention
General Counsel.

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