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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K



(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from                        toCommission file number 333-106529




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

25-1902628
59-3772785(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)2230 East Imperial Highway, El Segundo, California

90245(Address of Principal Executive Offices)

(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



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, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

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

Smaller reporting company o


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

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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Page No.Part IItem 1.

Business


1Item 1A.

Risk Factors


15Item 1B.

Unresolved Staff Comments


26Item 2.

Properties


26Item 3.

Legal Proceedings


26Item 4.

Submission of Matters to a Vote of Security Holders


27Part IIItem 5.

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


28Item 6.

Selected Financial Data


28Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


29Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


46Item 8.

Financial Statements and Supplementary Data


47Report of Independent Registered Public Accounting Firm


47Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006


48Consolidated Balance Sheets as of December 31, 2008 and 2007


49Consolidated Statements of Changes in Owner's Equity for the Years Ended December 31, 2008, 2007 and 2006


50Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006


51Notes to the Consolidated Financial Statements


52Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure


79Item 9A.

Controls and Procedures


79Item 9B.

Other Information


80Part IIIItem 10.

Directors, Executive Officers and Corporate Governance


80Item 11.

Executive Compensation


80Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


80Item 13.

Certain Relationships and Related Transactions, and Director Independence


80Item 14.

Principal Accounting Fees and Services


80Part IVItem 15.

Exhibits and Financial Statement Schedules


81Signatures


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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

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

On
February 27, 2008, Liberty Media Corporation, or Liberty Media, and News Corporation completed a transaction in which Liberty Media acquired News Corporation's approximately
41% interest in our Parent, which we refer to as the Liberty Transaction. On April 3, 2008, Liberty Media announced that it had purchased an additional 78.3 million shares of our
Parent's common stock in a private transaction. Currently, Liberty Media owns approximately 53.6% of our Parent's outstanding common stock, however Liberty Media has agreed to limit its voting rights
to approximately 47.9%.

We
provide over 17.6 million subscribers with access to hundreds of channels of digital-quality video pictures and CD-quality audio programming that we transmit
directly to 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 more than 2,000 digital video and audio channels,
including about 200 basic entertainment and music channels, 40 premium movie channels, over 50 regional and specialty sports networks, over 125 Spanish and other foreign language special interest
channels, over 31 pay-per-view movie and event choices, and about 130 national high-definition, or HD, television channels. Although we distribute more than 1,500
local channelsover 500 in high-definitiona subscriber generally receives only the local channels in the subscriber's home market. As of December 31, 2008,
we provided local channel coverage in standard-definition to approximately 150 markets, covering about 95% of U.S. television households. In addition, we provided HD local channels in 119 markets
representing approximately 89% of U.S. TV households. With the expected launch of an additional satellite in the second half of 2009, we expect to further expand our offering of HD channels.

We
also provide premium professional and collegiate sports programming such as the NFL SUNDAY TICKET package, which allows subscribers to view the largest selection of NFL
games available each Sunday during the regular season. Under our contract with the NFL, we have exclusive

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rights
to provide this service through the 2010 season, including rights to provide related HD, interactive and mobile services.

To
subscribe to the DIRECTV® service, subscribers acquire receiving equipment from either us, our national retailers, independent satellite television retailers or dealers,
or regional telephone companies, which we refer to as telcos. Most set-top receivers provided to new and existing subscribers are leased subsequent to the introduction of a lease program
on March 1, 2006.The receiving equipment consists of a small receiving satellite dish antenna, a digital set-top receiver and a remote control, which we refer to as a
DIRECTV® System. After acquiring and installing a DIRECTV System, subscribers activate the DIRECTV service by contacting us and subscribing to one of our programming packages.

Key Strengths



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Business Strategy

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



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Infrastructure

Satellites.We currently have a fleet of eleven geosynchronous satellites, including ten owned satellites and one leased
satellite. We have seven
Ku-Band satellites at the following orbital locations: 101° WL (three), 110° WL (one), 119° WL (one), 72.5° WL (one), and 95° WL
(one-leased). We also have four Ka-Band satellites at our 99° WL (two) and 103° WL (two) orbital locations. The 72.5° WL orbital location is
used pursuant to an arrangement with Telesat Canada. As a part of the arrangement with Telesat, we have transferred three satellites, two of which are no longer used as they were
de-orbited at the end of their service lives and one of which is nearing the end of its useful life, to orbital locations controlled by Telesat, for use by Telesat for its own services in
Canada.

Satellite To Be Launched.DIRECTV 12 is planned for launch in the second half of 2009. DIRECTV 12 will operate from our 101°
WL orbital
location after successful completion of in-orbit testing. DIRECTV 12 will provide us with increased capability for local and national HD channels, as well as capacity for new interactive
and enhanced services once it becomes operational.

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 a potential
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 expect to purchase launch insurance for DIRECTV 12 covering a portion of the satellite and launch vehicle costs in the event of a total failure. As of December 31, 2008,
the net book value of our in-orbit satellites was $1,688 million, of which $1,489 million was uninsured.

Digital Broadcast Centers.To gather programming content, ensure its digital quality, and transmit content to our satellites, we
have 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 five uplink facilities which are used to provide HD local channels. Our broadcast centers receive programming 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. We designed each broadcast center and uplink facility with redundant systems to minimize service
interruptions.

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Installation Network.The DIRECTV home service provider, or HSP, installation and service network performs installation,
upgrades and other service
call work for us. In 2008, we entered into several transactions that brought a significant portion of this HSP network activity in-house. We now directly employ nearly 4,000 technicians
and utilize an additional 11,000 technicians from nine outsourced companies around the United States. The combined workforce completed approximately 93% of all in-home visits in 2008. We
set the standards for the quality of installation and service, 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, 2008, we used 30 customer service centers employing over 16,000 customer
service representatives.
Most of these customer service centers are operated by Convergys Customer Management Group, Inc., Precision Response Corporation, Sitel Operating Corporation and N.E.W. Customer Service
Companies, Inc. We currently own and operate six customer service centers located in: Boise, Idaho; Tulsa, Oklahoma; Huntsville, Alabama; Missoula, Montana; Huntington, West Virginia; and
Denver, Colorado that employ approximately 5,000 customer service representatives. 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, technical and other 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.

Competition

We face substantial competition in the MVPD industry and from emerging digital media distribution providers. Our competition includes
companies that offer video, audio, interactive programming, telephony, data and other entertainment services, including cable television, other DTH companies, telcos, wireless companies and companies
that are developing new technologies. Many of our competitors have access to substantially greater financial and marketing resources. We believe our brand, the quality and variety of video, audio and
interactive programming, quality of picture, access to service, availability of HD and DVR services, customer service and price are the key elements for attaining and retaining subscribers. According
to the National Cable & Telecommunications Association's 2008 Industry Overview, 96% of the 128.6 million U.S. housing units are passed by cable. Our over 17.6 million subscribers
represent approximately 18% of MVPD subscribers at December 31, 2008.



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ACQUISITIONS, STRATEGIC ALLIANCES AND DIVESTITURES

We review our competitive position on an ongoing basis and, from time to time, consider various acquisitions, strategic alliances and
divestitures, including potential wireless broadband investments or alliances, in order to continue to compete effectively, improve our financial results, grow our business and allocate our resources
efficiently. We also consider periodically making equity investments in companies with which we can jointly provide services to our subscribers.

GOVERNMENT REGULATION

We are subject to government regulation in the United States, primarily by the FCC and, to a certain extent, by the legislative
branches, other federal agencies and state and local authorities. We are also subject to the rules and procedures of the International Telecommunications Union, or ITU, a

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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 in the United States 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 and Related Acts.The Communications Act and other related acts give 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 or have been licensed by the FCC. Currently, three of our satellites are licensed by the government of Canada. 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.

Currently
we have several applications pending before the FCC, including applications to launch and operate future satellites to support DIRECTV's services. 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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International Telecommunications Union Rules.We are required by international rules to coordinate the use of the frequencies on
our satellites with
other satellite operators who may interfere with us or who may suffer interference from our operations.

Other Legal and Regulatory Requirements.DBS/DTH providers are subject to other federal and state regulatory requirements, such
as Federal Trade
Commission, FCC and state telemarketing and advertising rules, and subscriber privacy rules similar to those governing other MVPDs. We have agreed with the Federal Trade Commission to
(1) review and monitor compliance with telemarketing laws by any companies we authorize to do telemarketing as well as by independent retailers, (2) investigate and respond to complaints
about alleged improper telemarketing and (3) terminate our relationship with
marketers or retailers found in violation. Similarly, we have agreed with certain state attorneys general to comply with advertising disclosure requirements and monitor compliance by independent
retailers.

In
addition, although Congress has granted the FCC exclusive jurisdiction over the provision of DTH satellite services, aspects of DBS/DTH service remain regulated at the state and local
level. For example, the FCC has promulgated rules prohibiting restrictions by local government agencies, such as zoning commissions and private organizations, such as homeowners associations, on the
placement of DBS receiving antennas. Local governments and homeowners associations, however, may continue to regulate the placement of such antennas if necessary to accomplish a clearly defined public
safety objective or to preserve a recognized historic district, and may also apply to the FCC for a waiver of FCC rules if there are other local concerns of a special or unusual nature. In addition, a
number of state and local governments have attempted to impose consumer protection, customer service and other types of regulation on DBS operators. Also, while Congress has prohibited local taxation
of the provision of DBS service, taxation at the state level is permissible, and many states have imposed such taxes. Incident to conducting a consumer directed business, we occasionally receive
inquiries or complaints from authorities such as state attorneys general and state consumer protection offices. These matters are generally resolved in the ordinary course of business.

INTELLECTUAL PROPERTY

All 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 of our intellectual property is owned by The DIRECTV Group for the benefit of all of its subsidiaries.

We
believe that our growing portfolio of pending and issued patents are important assets. Our Parent presently holds over 1,850 issued patents worldwide relating to our past and present
businesses, including over 350 patents developed by, or otherwise relating to, our businesses. Our Parent holds a worldwide portfolio of over 1,100 registered trademarks in over 140 countries related
to the DIRECTV name and the Cyclone Design. In addition, we hold trademark registrations relating to its 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. We actively protect our important patents and trademarks against unauthorized or improper use by
third parties.

ENVIRONMENTAL REGULATION

We are subject to the requirements of federal, state, local and foreign environmental laws and regulations. These include laws
regulating air emissions, water discharge and universal and hazardous waste management activities. We have an environmental management function designed to track, facilitate and support our compliance
with these requirements and attempt to maintain compliance with all such requirements. We have made and will continue to make, as necessary, capital and other

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expenditures
to comply with environmental requirements. We do not, however, expect capital or other expenditures for environmental compliance to be material in 2009. In addition, we periodically
review environmental stewardship concepts (such as green initiatives and energy conservation strategies) and implement these whenever feasible. Environmental requirements are complex, change
frequently and have become more stringent over time. Accordingly, we cannot provide assurance that these requirements will not change or become more stringent in the future in a manner that could have
a material adverse effect on our business.

We
are also subject to environmental laws requiring the investigation and cleanup of environmental contamination at facilities we formerly owned or operated or currently own or operate
or to which we sent hazardous wastes for treatment or disposal. We are aware of contamination at one of our former sites. We believe that we have adequately provided for the expected cost of
environmental investigation and cleanup.

EMPLOYEES

As of December 31, 2008, we had approximately 13,900 full-time and 400 part-time employees.

***

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 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, telephone communications and wireless companies and other
land-based and satellite-based system operators with service offerings including video, audio and interactive programming, data and other 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's 2008 Industry Overview, 96% of the 128.6 million U.S. housing units are passed by cable. Of the 128.6 million U.S. housing units,
approximately 97.6 million subscribe to a MVPD service and approximately 66% of MVPD subscribers receive their programming from a cable operator. Cable television operators have advantages
relative to us, including or as a result of:



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

We
do not currently offer local channel coverage to markets covering approximately five percent of U.S. television households, which places us at a competitive disadvantage in those
markets. We also have been unable to secure certain international programming, due to exclusive arrangements of programming providers with certain competitors, which has constrained our ability to
compete for subscribers who wish to obtain such programming.

In
the United States, various telcos and broadband service providers have deployed fiber optic lines directly to customers' homes or neighborhoods 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 various telcos and broadband service providers also sell the DIRECTV service as part of a bundle with their voice
and data services. A new broadly-deployed network with the capability of providing video, voice and data services could present a significant competitive challenge and, in the case of the telcos
companies currently selling the DIRECTV service, could result in such companies focusing less effort and resources selling the DIRECTV service or declining to sell it at all. We may be unable to
develop other distribution methods to make up for lost sales through the telcos.

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.

Emerging digital media competition could materially adversely affect us.

Our business is focused on television, and we face emerging competition from other providers of digital media, some of which have
greater financial, marketing and other resources than we do. Significant changes in consumer behavior with regard to the means by which they obtain video entertainment and information in response to
this emerging digital media competition could materially adversely affect our revenues and earnings or otherwise disrupt our business.

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 canceled 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.

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In
addition, many of our programming agreements are long term agreements and contain fixed 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, especially in a difficult economic environment, cause subscribers to terminate their subscriptions or potential new
subscribers to refrain from subscribing to our service. Furthermore, due to the economy and other factors, 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 has adopted rules requiring us to negotiate in good faith with broadcast stations seeking carriage outside of the mandatory carriage regime described elsewhere. 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 at a lower cost 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 churn by
subscribers who are unable to pay their monthly subscription fees, a slowing economy, significant signal theft, consumer fraud, 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 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 and financial performance.

Results are impacted by the effect of, and changes in, United States economic conditions and weakening economic conditions may reduce subscriber
spending and our rate of growth of subscriber additions and may increase subscriber churn.

Our business may be affected by factors in the United States that are beyond our control, such as downturns in economic activity, or in
the MVPD industry. Factors such as interest rates and the health of the housing market may impact our business. A substantial portion of our revenues come from

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residential
customers whose spending patterns may be affected by prevailing economic conditions. Our market share in multiple dwelling units such as apartment buildings is lower than that of many of
our competitors. If unemployment and foreclosures of single family residences increase, our earnings and financial performance could be negatively affected more than those of our competitors. In
addition, if our customers seek alternative means to obtain video entertainment, they may choose to purchase fewer services from us. Due to the economic and competitive environment, we may need to
spend more to acquire and retain customers who in turn spend less on our services. If our ARPU decreases, our margins could become compressed and the long term value of a customer would then decrease.
The weak economy may affect our net subscriber additions and reduce subscriber spending and, if these economic conditions continue or deteriorate further, our subscriber growth could decline and our
churn rate could increase which would have a material adverse effect on our earnings and financial performance.

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 has been 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 us. Entities such as telcos are implementing and supporting digital video delivery over existing telephone lines and building out
fiber optic lines to enhance their capabilities to deliver programming services. Satellite operators such as SES have begun offering turn-key packages of digital programming on a wholesale
basis for distribution by rural telcos. While these entities are not currently providing MVPD services on a significant basis, many have the capabilities for such services and are growing their
businesses. We may not be able to compete successfully with new entrants in the market for video services.

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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 final disposition of these
claims is not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations for any one period. Further,
no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

See
"Legal Proceedings-Intellectual Property Litigation" in Part I, Item 3 of this Annual Report.

Our principal stockholder has significant influence over our management and over actions requiring stockholder approval and its interests may differ
from ours.

As of December 31, 2008, Liberty Media Corporation, or Liberty Media, held approximately 54% of the issued and outstanding
shares of our Parent's common stock. John Malone, Chairman and Chief Executive of Liberty Media, is the Chairman of our Board of Directors. Additionally, two other current Liberty Media executives are
members of our Parent's Board of Directors. As a result, Liberty Media has significant influence relating to our management and actions that require stockholder approval. The interests of Liberty
Media may differ from the interests of other holders of our common stock. The extent of Liberty Media's stock ownership in our Parent also may have the effect of discouraging offers to acquire control
of us and may preclude holders of our Parent's common stock from receiving any

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premium
above market price for their shares that may be offered in connection with any attempt to acquire control of our Parent.

We rely on key personnel.

We believe that our future success will depend to a significant extent upon the performance of certain of our key executives. The loss
of certain of our key executives could have a material adverse effect on our business, financial condition and results of operations.

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 due to competition for launch slots, weather and also due to general delays that result when a launch
provider experiences a launch failure, 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 and operational 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. We estimate the overall historical loss rate for all launches of commercial satellites in the last
five years to be approximately 5% but it 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 or a portion thereof, and not the business interruption or other associated direct and indirect costs. For our DIRECTV 12 satellite, scheduled for launch in the second half of 2009, we expect
to purchase launch insurance covering a portion of the satellite and launch vehicle costs in the event of a total loss of the satellite prior to separation from the launch vehicle. We do not currently
expect to purchase in-orbit insurance for the DIRECTV 12 satellite.

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

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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 16 years. The actual useful lives of the satellites may be shorter or longer, 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 or will have in 2009, in-orbit satellite capacity to expeditiously recover
transmission of most our programming in the event one of our in-orbit satellites fails. However, programming continuity cannot be assured in the event of multiple satellite losses.

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 all or a portion of the unamortized book
value of covered satellites. Although the insurance 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 that a satellite failure may have on our ability to provide service.

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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, even if insured, 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.

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 MVPDs 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 were recently extended for another five years, through October 2012, though it is currently considering proposals that
could shorten the term of this extension to two years if a cable operator could show that competition from new entrant MVPDs at that time had reached a sufficient penetration level in the relevant
marketing area.

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.
Although the FCC recently addressed some of these issues in a limited fashion by placing access conditions on certain regional sports networks affiliated with Time Warner Cable, Inc. and
Comcast Corporation, it is not clear that such provisions will be sufficient to assure our continued access to this programming on fair and nondiscriminatory terms.

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

The FCC's interpretation, implementation and enforcement of 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. In implementing SHVIA, the FCC has required satellite
carriers to delete certain programming, including sports programming, from the signals of certain distant stations. Compliance with those FCC

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requirements
may require costly upgrades to our broadcast 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 able to use capacity that could otherwise be used for new or additional local or national programming
services. In addition, the FCC has begun to consider an obligation for carriage of local digital broadcast transmissions after the digital television transition currently scheduled for June 12,
2009. If the FCC were to require us to carry all local signals in HD format wherever we carry any local signals in HD format as of that date, we would be unable to comply in many markets where we
currently carry such signals without ceasing HD local service entirely in some markets, and would be precluded from launching additional markets currently planned for later this year.

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
cards used in our conditional access system have been compromised in the past and could be 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 provide our
subscribers with more advanced access cards that we believe significantly enhance the security of our signal. Currently, we believe these access cards have not been compromised. However, we cannot
guarantee that new cards will prevent the theft of our satellite programming signals in the future. Furthermore, there can be no assurance that we will succeed in developing the technology we need to
effectively restrict or eliminate signal theft. If our current access cards are compromised, 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.

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.

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In
certain cases, satellite system operators are obligated by governmental regulation and procedures of the ITU 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, the FCC has conditionally granted Spectrum Five authority to provide DBS service using
frequencies assigned to it by the Government of the Netherlands from an orbital slot located halfway between slots at which we currently operate. Other operators have filed similar requests. We
believe this closer 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. In addition, the FCC is currently conducting a rulemaking proceeding to consider, among other things, the adoption of operating parameters under which
such "tweener" systems would be automatically deemed coordinated.

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 our 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 canceled, 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 affects 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.

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We face risks arising from the outcome of various legal proceedings.

We are involved in various legal proceedings, including those arising in the ordinary course of business and those described under the
caption "Legal Proceedings" in Item 3. While we do not believe that any of these proceedings alone or in the aggregate will have a material effect on our consolidated financial position, an
adverse outcome in one or more of these matters could be material to our consolidated results of operations and cash flows for any one period. Further, no assurance can be given that any adverse
outcome would not be material to our consolidated financial position.

We control a substantial portion of interaction with our customers and we may not be as efficient or effective as our outsourced providers resulting
in higher costs.

We have a number of insourced call centers and recently insourced a substantial portion of our installation service providers to handle
customer service calls, installations and repairs. We may not be as efficient or effective as our outsourced providers resulting in higher costs. Also, there is a risk that our customer satisfaction
could be impacted, which may lead to higher
subscriber churn and an inability to attract new subscribers. In addition, our outsourced providers could encounter financial difficulties, which may disrupt our ability to make installation service
calls or to provide a level of customer service we expect, and which also may lead to higher subscriber churn and an inability to attract new subscribers.

We face risks arising from possible union legislation in the United States.

There is a possibility that the proposed Employee Free Choice Act, or EFCA may be enacted. The EFCA, also referred to as the "card
check" bill, if passed in its current form could significantly change the nature of labor relations in the United States, specifically, how union elections and contract negotiations are conducted.
With respect to our owned and operated HSP business, it would be easier for unions to win elections and we could face arbitrator-imposed labor scheduling, costs and standards. Therefore, the EFCA
could impose more labor relations requirements and union activity on our business, thereby potentially increasing our costs, and could have a material adverse effect on our overall competitive
position. Currently, neither we nor most of our outsourced HSP vendors have any unions.

We may not be able to obtain or retain certain foreign regulatory approvals.

There can be no assurance that any current regulatory approvals held by us are, or will remain, sufficient in the view of foreign
regulatory authorities, or that any additional necessary approvals will be granted on a timely basis or at all, in all jurisdictions in which we operate, or that applicable restrictions in those
jurisdictions will not be unduly burdensome. The failure to obtain the authorizations necessary to operate satellites or provide satellite service internationally could have a material adverse effect
on our ability to generate revenue and our overall competitive position.

We have significant debt.

We 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 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

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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.

***

ITEM 2.    PROPERTIES

As of December 31, 2008, we had approximately 120 owned and leased locations operating in the United States. The major locations
include eight administrative offices, two broadcast centers and six call centers.

***

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, 2008 or subsequent thereto, but before the filing of this report, are summarized below:

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

Finisar Corporation.As previously reported, we were successful in 2008 in our effort to have the jury verdict in the Finisar case
vacated on appeal.
The original verdict found the patent to be valid and willfully infringed, and the jury awarded approximately $79 million in damages. The trial court increased the damages award by
$25 million because of the jury finding of willful infringement and awarded pre-judgment interest of $13 million. DIRECTV was also ordered to pay into escrow $1.60 per new
set-top receiver manufactured for use with the DIRECTV system beginning June 17, 2006 and continuing until the patent expires in 2012 or was otherwise found to be invalid. On
April 18, 2008, the Court of Appeals reversed the verdict of the district court in part, vacated the findings of infringement, and remanded for further proceedings on the remaining issues
finding that the district court had applied erroneous interpretations of certain terms of the claims. The Court found a principal independent claim to be anticipated and therefore invalid, and
remanded for further proceedings regarding validity of other asserted claims in view of this finding. The Court reversed the verdict of willful infringement, and affirmed the earlier ruling finding
several claims to be invalid prior to trial. Following these decisions, our appeal bond was terminated and the escrowed royalties were returned to us. In the remand now pending, initial summary
judgment motions on invalidity of additional claims have been submitted. If necessary, there will be further proceedings and a trial of remaining issues, which is presently scheduled for October 2009.

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Early Cancellation Fees.In 2008, a number of plaintiffs filed putative class action lawsuits in state and federal courts
challenging the early
cancellation fees DIRECTV assesses its customers when they do not fulfill their programming commitments. There are several lawsuits currently pendingsome in California state court
purporting to represent statewide classes, and some in federal courts purporting to represent nationwide classes. The lawsuits seek both monetary and injunctive relief. While the theories of liability
vary, the lawsuits generally challenge these fees under state consumer protection laws as both unfair and inadequately disclosed to customers. Each of the lawsuits is at an early stage. Where
possible, we are moving to compel these cases to arbitration in accordance with our Customer Agreement, but in states such as California where the enforceability of the arbitration provision is
limited, we intend to defend against these allegations in court. We believe that our early cancellation fees are adequately disclosed, and represent reasonable estimates of the costs we incur when
customers cancel service before fulfilling their programming commitments.

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

(b)   The
following previously reported legal proceeding was terminated during the fourth quarter ended December 31, 2008.

SuperGuide Corporation.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., DIRECTV Operations, LLC, and The DIRECTV Group, Inc., Thomson Inc., and EchoStar Communications
Corporation, EchoStar Satellite Corporation and EchoStar Technologies Corporation. The action alleged infringement of three U.S. patents and sought unspecified damages and injunctive relief. Gemstar
Development Corp. was added as a third party defendant because it asserted to have exclusive control of the patents by reason of a license agreement with SuperGuide Corporation. In August 2005, the
Court granted summary judgment on two of the patents, dismissing the claims of infringement relating to them with prejudice, leaving only one patent at issue which expired in 2005. After a bench
trial, on July 19, 2007 the Court entered judgment denying Gemstar's assertion and holding that SuperGuide has the relevant rights relating to the remaining patent. Proceedings regarding the
remaining patent were then initiated. On October 14, 2008, DIRECTV and Thomson agreed with SuperGuide to settle the case, and DIRECTV was dismissed from the case on October 20, 2008.

***

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

None.

***

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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.

***

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

The following is a discussion of our results of operations and financial condition. This discussion should be read in conjunction with
the consolidated financial statements and related notes included elsewhere in this Annual Report. Information in this section is organized as follows:



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SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Years Ended December 31,2008

2007

2006(Dollars in Millions)Consolidated Statements of Operations Data:Revenues

$
17,310

$
15,527

$
13,744Total operating costs and expenses


14,980


13,125


11,396Operating profit


2,330


2,402


2,348Interest income


37


69


69Interest expense


(315
)

(216
)

(218
)Other, net


5


(5
)

(4
)Income before income taxes


2,057


2,250


2,195Income tax expense


(807
)

(891
)

(839
)Net income

$
1,250

$
1,359

$
1,356




December 31,2008

2007(Dollars in Millions)Consolidated Balance Sheet Data:Cash and cash equivalents

$
1,149

$
802Total current assets


2,946


2,547Total assets


12,546


12,297Total current liabilities


3,006


2,916Long-term debt


5,725


3,347Total owner's equity


2,647


4,740


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Years Ended December 31,2008

2007

2006(Dollars in Millions)Other Data:Operating profit before depreciation and amortization(1)Operating profit

$
2,330

$
2,402

$
2,348Add: Depreciation and amortization expense


2,061


1,448


873Operating profit before depreciation and amortization

$
4,391

$
3,850

$
3,221Operating profit before depreciation and amortization margin


25.4
%

24.8
%

23.4
%Cash flow informationNet cash provided by operating activities

$
3,277

$
2,909

$
2,342Net cash used in investing activities


(1,857
)

(2,335
)

(1,779
)Net cash used in financing activities


(1,073
)

(1,128
)

(372
)Free cash flow(2)Net cash provided by operating activities

$
3,277

$
2,909

$
2,342Less: Cash paid for property and equipment


(501
)

(621
)

(504
)Less: Cash paid for subscriber leased equipmentsubscriber acquisitions


(599
)

(762
)

(599
)Less: Cash paid for subscriber leased equipmentupgrade and retention


(537
)

(774
)

(473
)Less: Cash paid for satellites


(128
)

(169
)

(222
)Free cash flow

$
1,512

$
583

$
544


---

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

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.
Our management believes 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

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assets,
potential variations in expected useful lives when compared to other companies and periodic changes to estimated useful lives.

Operating
profit before depreciation and amortization margin is calculated by dividing operating profit before depreciation and amortization by Revenues.

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SIGNIFICANT TRANSACTIONS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS

Acquisitions

180 Connect.On July 8, 2008, we acquired 100% of 180 Connect's outstanding common stock and exchangeable shares. Simultaneously,
in a
separate transaction, UniTek USA, LLC acquired 100% of 180 Connect's cable service operating unit and operations in certain of our installation services markets in exchange for satellite
installation operations in certain markets and $7 million in cash. These transactions provide us with control over a significant portion of our home service provider network. We paid
$91 million in cash, net of the $7 million we received from UniTek USA, for the acquisition, including the equity purchase price, repayment of assumed debt and related transaction costs.

Other Developments

Lease Program.On March 1, 2006, we introduced a new set-top receiver lease program. Prior to March 1, 2006, we expensed
most set-top receivers provided to new and existing subscribers upon activation as a subscriber acquisition or upgrade and retention cost in the Consolidated Statements of Operations.
Subsequent to the introduction of our lease program, we lease most set-top receivers provided to new and existing subscribers, and therefore capitalize the set-top receivers in
"Property and equipment, net" in the Consolidated Balance Sheets.

The
following table sets forth the amount of set-top receivers we capitalized, and depreciation expense we recorded under the lease program for the years ended
December 31:

2008

2007

2006(Dollars in Millions)Capitalized subscriber leased equipment:Cash paid for subscriber leased equipmentsubscriber acquisitions

$
599

$
762

$
599Cash paid for subscriber leased equipmentupgrade and retention


537


774


473Total subscriber leased equipment capitalized

$
1,136

$
1,536

$
1,072Depreciation expensesubscriber leased equipment

$
1,100

$
645

$
147


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

KEY TERMINOLOGY

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

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

Subscriber Service Expenses.Subscriber service expenses include the costs of customer call centers, billing, remittance processing and
certain home
services expenses, such as in-home repair costs.

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

Subscriber Acquisition Costs.These costs include the cost of set-top receivers and other equipment, commissions we pay to national
retailers, independent satellite television retailers, dealers, telcos, and the cost of installation, advertising, marketing and customer call center expenses associated with the acquisition of new
subscribers. Set-top receivers leased to new subscribers are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets and depreciated over their useful lives. The
amount of set-top receivers capitalized each period for subscriber acquisitions is included in "Cash paid for subscriber leased equipment-subscriber acquisitions" in the Consolidated
Statements of Cash Flows.

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

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

Average Monthly Revenue Per Subscriber.We calculate ARPU by dividing average monthly revenues for the period (total revenues during
the period
divided by the number of months in the period) by average subscribers for the period. We calculate average subscribers for the period by adding the number of subscribers as of the beginning of the
period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one.

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

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

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

EXECUTIVE OVERVIEW AND OUTLOOK

The United States is undergoing a period of substantial economic uncertainty. A more severe downturn in economic activity could have a
detrimental impact on our forecasted revenue, operating margins, net subscriber additions, free cash flow and net income. Please refer to "Risk Factors" in Item 1A for a further discussion of
risks, which may affect forecasted results or our business generally.

Revenues.In 2008, our revenues increased by 11.5% due to a larger subscriber base and a 6.1% increase in ARPU. In 2009, we anticipate
revenues will
increase in the high single-digit percentage range due to an increase in total subscribers and ARPU growth of about 4%. ARPU increases are expected to be driven primarily by price increases and the
higher penetration of advanced products but will be lower
than in 2008 due to the ongoing impact of more competitive promotions offered to both new and existing customers as well as lower revenues in 2009 from the completion of the lease of one of our backup
satellites in early 2009. After accounting for churn, our net new subscriber additions in 2008 were 861,000 which increased our total subscriber base by 5.1% to 17.6 million customers. In 2009,
we expect net new subscriber additions to approximate the net new subscriber additions in 2008 due to increased gross additions offset by higher subscriber disconnections.

Operating Results.In 2008, our operating profit before depreciation and amortization increased 14.1% to $4,391 million and
operating profit
before depreciation and amortization margin improved from 24.8% in 2007 to 25.4% in 2008. These increases were primarily due to the gross profit generated from the higher revenues, partially offset by
higher subscriber acquisition and upgrade and retention costs for the increased number of new and existing customers adding HD and DVR services as well as increased general and administrative costs.

In
2009, we expect a modest increase in both operating profit before depreciation and amortization and operating profit before depreciation and amortization margin over the 2008 results.
These improvements are anticipated to be due to the expected increase in revenues, partially offset by modest increases in certain of our significant cost categories.

Our
operating profit decreased 3.0% to $2,330 million in 2008 primarily due to the increase in depreciation and amortization expense from the set-top receiver lease
program, partially offset by increased operating profits before depreciation and amortization. Operating profit in 2009 is expected to increase as the anticipated higher operating profit before
depreciation and amortization is expected to be only partially offset by higher depreciation and amortization expense resulting from the set-top receiver lease program.

Free Cash Flow.In 2008, we generated $1,512 million of free cash flow, defined as net cash provided by operating activities less
cash paid
for property and satellites. During 2009, we expect

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continued
free cash flow growth primarily as a result of the anticipated increase in operating profit before depreciation and amortization. We anticipate these increases to be partially offset by an
increase in cash paid for interest due to the issuance of $2,490 million of debt in May 2008.

Year Ended December 31, 2008 Compared with the Year Ended December 31, 2007

The following table provides operating results and a summary of key subscriber data:

Change2008

2007

$

%(Dollars in Millions,
Except Per Subscriber Amounts)Revenues

$
17,310

$
15,527

$
1,783


11.5
%Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


7,424


6,681


743


11.1
%Subscriber service expenses


1,139


1,137


2


0.2
%Broadcast operations expenses


265


216


49


22.7
%Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


2,191


1,901


290


15.3
%Upgrade and retention costs


1,027


958


69


7.2
%General and administrative expenses


873


784


89


11.4
%Depreciation and amortization expense


2,061


1,448


613


42.3
%Total operating costs and expenses


14,980


13,125


1,855


14.1
%Operating profit

$
2,330

$
2,402

$
(72
)

(3.0
)%Other data:Operating profit before depreciation and amortization

$
4,391

$
3,850

$
541


14.1
%Total number of subscribers (000's)(1)


17,621


16,831


790


4.7
%ARPU

$
83.90

$
79.05

$
4.85


6.1
%Average monthly subscriber churn %


1.47
%

1.51
%




(2.6
)%Gross subscriber additions (000's)


3,904


3,847


57


1.5
%Subscriber disconnections (000's)


3,043


2,969


74


2.5
%Net subscriber additions (000's)


861


878


(17
)

(1.9
)%Average subscriber acquisition costsper subscriber (SAC)

$
715

$
692

$
23


3.3
%


---

Subscribers.In 2008, gross subscriber additions increased primarily due to growth in the direct sales and retail distribution channels
due in large
part to more attractive promotions and higher demand for HD and DVR services partially offset by the loss of a distribution relationship with BellSouth during the last three quarters of 2008. Average
monthly subscriber churn decreased primarily due to increased sales of HD and DVR services as well as from lower involuntary churn associated with the continued effect of stringent credit policies.
Net subscriber additions declined slightly from 2007 as the increase in gross additions was offset by higher subscriber disconnections.

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Revenues.Our revenues increased as a result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily
from price
increases on programming packages, higher HD and DVR service fees, and an increase in lease fees due to higher average number of receivers per subscriber, partially offset by more competitive customer
promotions and slightly lower upfront equipment fees.

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

Broadcast
programming and other costs increased due to annual program supplier rate increases and the larger number of subscribers in 2008. Subscriber service expenses remained
essentially flat with a larger subscriber base in 2008 due to the cost savings from a decline in customer call volume and a lower call handle time. Broadcast operations expense increased in 2008 due
primarily to costs to support advanced services, HD enhancements and video-on-demand.

Subscriber
acquisition costs increased due to higher sales, marketing and advertising costs and higher costs associated with the acquisition of higher quality and advanced product
customers. SAC per subscriber, which includes the cost of capitalized set-top receivers, increased due to higher sales, marketing and advertising costs and higher costs associated with the
acquisition of higher quality and advanced product customers, partially offset by lower set-top receiver costs.

Upgrade
and retention costs increased in 2008 due to an increase in the movers program and other marketing programs.

General
and administrative expenses increased in 2008 primarily due to a $25 million one-time gain recognized in the second quarter of 2007 related to hurricane
insurance recoveries, a $14 million charge in 2008 for the write-off of accounts receivable for equipment and other costs incurred to effect the orderly transition of services from
one of our home service providers that ceased operations, $24 million in charges associated with the settlement of multiple legal proceedings and an increase in labor and benefit costs.

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

Interest income and expense.The decrease in interest income to $37 million in 2008 from $69 million in 2007 was due to lower
interest
rates and lower average cash balances due mostly from the remittance of $3.4 billion in dividends to our parent. The increase in interest expense to $315 million in 2008 from
$216 million in 2007 was due to an increase in the average debt balance compared to 2007 and lower capitalization of interest cost in 2008. We capitalized $18 million of interest costs
in 2008 and $51 million in 2007. The reduction in the capitalization of interest costs was due to the successful completion and launch of two satellites.

Income Tax Expense.We recognized income tax expense of $807 million in 2008 compared to $891 million in 2007. The lower
income tax
expense in 2008 is primarily attributable to the lower income before income taxes.

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Year Ended December 31, 2007 Compared with the Year Ended December 31, 2006

The following table provides operating results and a summary of key subscriber data:

Change2007

2006

$

%(Dollars in Millions,
Except Per Subscriber Amounts)Revenues

$
15,527

$
13,744

$
1,783


13.0
%Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


6,681


5,830


851


14.6
%Subscriber service expenses


1,137


1,057


80


7.6
%Broadcast operations expenses


216


179


37


20.7
%Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


1,901


1,844


57


3.1
%Upgrade and retention costs


958


852


106


12.4
%General and administrative expenses


784


761


23


3.0
%Depreciation and amortization expense


1,448


873


575


65.9
%Total operating costs and expenses


13,125


11,396


1,729


15.2
%Operating profit

$
2,402

$
2,348

$
54


2.3
%Other data:Operating profit before depreciation and amortization

$
3,850

$
3,221

$
629


19.5
%Total number of subscribers (000's)


16,831


15,953


878


5.5
%ARPU

$
79.05

$
73.74

$
5.31


7.2
%Average monthly subscriber churn %


1.51
%

1.60
%




(5.6
)%Gross subscriber additions (000's)


3,847


3,809


38


1.0
%Subscriber disconnections (000's)


2,969


2,989


(20
)

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


878


820


58


7.1
%Average subscriber acquisition costsper subscriber (SAC)

$
692

$
641

$
51


8.0
%


Subscribers.In 2007, gross subscriber additions increased due to higher demand for HD and DVR services, partially offset by the effect
of more
stringent credit policies. Average monthly subscriber churn decreased primarily due to increased sales of HD and DVR services as well as the effect of more stringent credit policies. Net subscriber
additions increased due to the higher gross subscriber additions and lower average monthly subscriber churn.

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

Operating profit before depreciation and amortization.The improvement of operating profit before depreciation and amortization was
primarily due to
the gross profit generated from the higher revenues
and the increase in the amount of set-top receivers capitalized in 2007 under the lease program implemented on March 1, 2006, partially offset by higher subscriber acquisition,
upgrade and retention costs for the increased number of new and existing customers adding HD and DVR services.

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Broadcast
programming and other costs increased due to annual program supplier rate increases and the larger number of subscribers in 2007. Subscriber service expenses increased due to
the larger subscriber base in 2007. Broadcast operations expense increased in 2007 due primarily to costs to support new HD local channel markets.

Subscriber
acquisition costs increased due to higher advertising and direct sales marketing costs as well as higher costs associated with the increase in subscribers taking advanced
products in 2007. This increase was partially offset by $159 million of higher costs in 2006 related to set-top receivers being expensed prior to the implementation of the lease
program on March 1, 2006, after which most set-top receivers were capitalized as well as lower set-top receiver costs. SAC per subscriber, which includes the cost of
capitalized set-top receivers, increased due to higher direct sales marketing and advertising costs and higher costs associated with the increase in subscribers taking HD and DVR services,
partially offset by lower set-top receiver costs.

Upgrade
and retention costs increased in 2007 due to higher volume of subscribers upgrading to HD and DVR services, partially offset by $115 million of higher costs in 2006
related to set-top receivers being expensed prior to the implementation of the lease program and lower set-top receiver costs.

General
and administrative expenses increased in 2007 due to higher labor, employee benefit, and legal costs, partially offset by a $10 million reduction in bad debt expense
compared to 2006.

Operating profit.The increase in operating profit was primarily due to higher operating profit before depreciation and amortization,
partially
offset by higher depreciation and amortization expense in 2007 resulting from the capitalization of set-top receivers under the lease program.

Income tax expense.The $52 million increase in income tax expense was primarily due to an increase in the state effective income
tax rate
from 5.0% in 2006 to 6.6% in 2007 resulting from changes in state filing methods.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are our cash, cash equivalents and the cash flow that we generate from our operations. From 2006 to
2008 we experienced significant growth in net cash provided by operating activities and free cash flow. We expect net cash provided by operating activities and free cash flow to continue to grow and
believe that our existing cash balances and cash provided by operations will be sufficient to fund our existing business plan. Additionally, as of December 31, 2008, we had the ability to
borrow up to $500 million under our existing credit facility, which is available until 2011. Borrowings under this facility may be required to fund strategic investment opportunities should
they arise.

At
December 31, 2008, our cash and cash equivalents totaled $1,149 million compared with $802 million at December 31, 2007.

As
a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 0.98 at December 31, 2008 and 0.87 at December 31, 2007. Working capital
increased by $309 million to a deficit of $60 million at December 31, 2008 from working capital deficit of $369 million at December 31, 2007. The increase during the
period was mostly due to the increase in our cash and cash equivalent balances resulting from the changes discussed below.

Summary Cash Flow Information

Years Ended December 31,2008

2007

2006(Dollars in Millions)Net cash provided by operating activities

$
3,277

$
2,909

$
2,342Net cash used in investing activities


(1,857
)

(2,335
)

(1,779
)Net cash used in financing activities


(1,073
)

(1,128
)

(372
)Free cash flow:Net cash provided by operating activities

$
3,277

$
2,909

$
2,342Less: Cash paid for property and equipment


(501
)

(621
)

(504
)Less: Cash paid for subscriber leased equipmentsubscriber acquisitions


(599
)

(762
)

(599
)Less: Cash paid for subscriber leased equipmentupgrade and retention


(537
)

(774
)

(473
)Less: Cash paid for satellites


(128
)

(169
)

(222
)Free cash flow

$
1,512

$
583

$
544


Cash Flows Provided By Operating Activities

The increases in net cash provided by operating activities in 2008 and 2007 were primarily due to our higher operating profit before
depreciation and amortization, which resulted from the higher gross profit generated from an increase in revenues.

Cash Flows Used In Investing Activities

Beginning March 2006, we introduced a set-top receiver lease program under which most set-top receivers
provided to new and existing subscribers are capitalized. Prior to this lease program we expensed the cost of these set-top receivers. As a result of this lease program, our capital
expenditures for property and equipment increased from 2006 to 2007. During 2008, we experienced a reduction in set-top receiver costs and benefited from the use of refurbished set-top
receivers from our lease

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program,
which resulted in a reduction in capital expenditures for property and equipment from 2007 to 2008.

Also
during 2006, 2007 and 2008, we were in the process of constructing three satellites. We have completed and placed two of these satellites into service, which resulted in decreasing
satellite capital expenditures over the three year period. We expect to launch the last of these satellites in 2009. Additionally, our capital expenditures for broadcast facilities and equipment to
support our HD programming has decreased from 2006 to 2008 as we have largely completed the build out of the infrastructure necessary to launch HD programming both locally and nationally.

Additionally,
we paid $97 million in 2008 for the acquisition of home service providers. These transactions are described in Note 12 of the Notes to the Consolidated
Financial Statements in Part II, Item 8 of this Annual Report. Our cash spending on investments is discretionary and we may fund strategic investment opportunities should they arise in
the future.

Cash Flows Used in Financing Activities

During 2008 we had $2,490 million of net cash proceeds from the issuance of senior notes and borrowings under our senior secured
credit facility which were completed in May 2008 as described in Note 7 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Also, we
paid cash dividends to our Parent in the amounts of $3,400 million in 2008, $1,050 million in 2007 and $300 million in 2006. We may provide additionally dividends to our Parent to
fund its cash requirements, including additional share repurchase programs or other distributions to shareholders, or to fund strategic investment opportunities should they arise. We may use available
cash and cash equivalents, cash from operations, or incur additional borrowings, which may include borrowings under our $500 million revolving credit facility, to fund such dividends.

Free Cash Flow

Free cash flow increased in 2008 as compared to 2007 due to an increase in net cash provided by operating activities described above,
and the decrease in capital expenditures. The decrease in capital expenditures resulted from lower set-top receiver costs for set-top receivers capitalized under our lease
program and lower capital expenditures for satellite and broadcast facilities and equipment to support HD programming.

Free
cash flow increased in 2007 compared to 2006 as the increase in net cash provided by operating activities discussed above was partially offset by an increase in capital expenditures
for leased set-top receivers. Capital expenditures for leased set-top receivers increased as a result of an increase in the amount of set-top receivers capitalized
in 2007 under our lease program implemented in March 2006.

During
2009, we expect continued free cash flow growth primarily as a result of the anticipated increase in operating profit before depreciation and amortization. We anticipate these
increases to be partially offset by an increase in cash paid for interest due to the issuance of $2,490 million of debt in May 2008.

Debt

At December 31, 2008, we had $5,833 million in total outstanding borrowings, bearing a weighted average interest rate of
5.7%. Our outstanding borrowings primarily consist of notes payable and amounts borrowed under our senior secured credit facility as more fully described in Note 7 of the

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Notes
to the Consolidated Financial Statements in Item 8, Part II of this Annual Report, which we incorporate herein by reference.

Our
notes payable and senior secured credit facility and other borrowings mature as follows: $108 million in 2009; $308 million in 2010; $108 million in 2011;
$20 million in 2012; $2,796 million in 2013; and $2,500 million thereafter. However, these amounts do not reflect potential prepayments that may be required under our senior
secured credit facility, which could result from a computation that we are required to make each year end under the credit agreement. We were not required to make a prepayment for the years ended
December 31, 2008 and 2007.

Covenants and Restrictions.The senior secured credit facility requires us to comply with certain financial covenants. The senior notes
and the
senior secured credit facility also include covenants that restrict our ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or
make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another entity, (vi) sell,
assign, lease or otherwise dispose of all or substantially all of its 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 its borrowings under the senior notes and senior secured credit facility could become
immediately payable and its revolving credit facility could be terminated. At December 31, 2008, we were in compliance with all such covenants and we expect to continue to be in compliance with
all covenants in 2009.

The
senior notes and senior secured credit facility also provide that the borrowings may be required to be prepaid if certain change-in-control events occur. In
September 2008, Liberty Media became the majority owner of our Parent's outstanding common stock. There was no ratings decline for the senior notes associated with that event, and we were not required
either to offer to redeem the senior notes pursuant to their respective indentures or to prepay any of the borrowings under the senior secured credit facility.

Contingencies

Several factors may affect our ability to fund our operations and commitments that we discuss in "Contractual Obligations",
"Off-Balance Sheet Arrangements" and "Contingencies" below. In addition, our future cash flows may be reduced if we experience, among other things, significantly higher subscriber
additions than planned, increased subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft
or if we are required to make a prepayment on our term loans under our senior secured credit facility. Additionally, our ability to borrow under the senior secured credit facility is contingent upon
us meeting financial and other covenants associated with its facility as more fully described above.

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CONTRACTUAL OBLIGATIONS

The following table sets forth our contractual obligations as of December 31, 2008, including the future periods in which
payments are expected. Additional details regarding these obligations are provided in the Notes to the Consolidated Financial Statements in Part II, Item 8 referenced in the table.

Payments due by periodContractual Obligations

Total

Less than 1 year

1-3 years

3-5 years

More than 5 years(Dollars in Millions)Long-term debt obligations (Note 7)(a)

$
7,900

$
440

$
1,069

$
3,373

$
3,018Purchase obligations (Note 13)(b)


3,598


1,305


1,934


336


23Operating lease obligations (Note 13)(c)


210


36


64


58


52Other long-term liabilities reflected on the Consolidated Balance Sheets under GAAP (Notes 13)(d),(e)


259


99


145


2


13Total

$
11,967

$
1,880

$
3,212

$
3,769

$
3,106


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OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2008, we were not contingently liable under any off balance sheet arrangements.

CONTINGENCIES

For a discussion of contingencies, see Note 13 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 11 of the Notes to the Consolidated
Financial Statements in Part II, Item 8 of this Annual Report, which we incorporate herein by reference.

CRITICAL ACCOUNTING ESTIMATES

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. 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, actual results reported for 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.

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. Estimates of forecasted revenues rely on assumptions regarding the number of subscribers to a
given sporting events package and the estimated package price throughout the contract. While we base our estimates on past experience and other relevant factors, actual results could differ from our
estimates. If actual results were to significantly vary from forecasted amounts, the profit recorded on such contracts in a future period could vary from current rates and the resulting change in
profits recorded could be material to our consolidated results of operations.

Income Taxes.We must make certain estimates and judgments in determining provisions for income taxes. These estimates and judgments
occur in the
calculation of tax credits, tax benefits and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense
for tax and financial statement purposes.

We
assess the recoverability of deferred tax assets at each reporting date and where applicable, record a valuation allowance to reduce the total deferred tax asset to an amount that
will, more-likely-than-not, be realized in the future. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course of
operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operating activities. The underlying assumptions we
use in forecasting future taxable income require significant judgment. In the event that actual income from operating activities differs from forecasted

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DIRECTV HOLDINGS LLC

amounts,
or if we change our estimates of forecasted income from operating activities, we could record additional charges in order to adjust the carrying value of deferred tax assets to their
realizable amount. Such charges could be material to our consolidated financial statements.

In
addition, the recognition of a tax benefit for tax positions involves dealing with uncertainties in the application of complex tax regulations. Judgment is required in assessing the
future tax consequences of events that have been recognized in our financial statements or tax returns. We provide for taxes for uncertain tax positions where assessments have not been received in
accordance with Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109," or
FIN 48. We believe such tax reserves are adequate in relation to the potential for additional assessments. Once established, we adjust these amounts only when more information is available or
when an event occurs necessitating a change to the reserves. Future events such as changes in the facts or law, judicial decisions regarding
the application of existing law or a favorable audit outcome will result in changes to the amounts provided.

Contingent Matters.Determining when, or if, an accrual should be recorded for a contingent matter, including but not limited to legal
and tax
issues, 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 financial statements.

Depreciable Lives of Leased Set-Top Receivers.We currently lease most set-top receivers provided to new and existing
subscribers and therefore capitalize the cost of those set-top receivers. We depreciate capitalized set-top receivers over a three year estimated useful life, which is based
on, among other things, management's judgment of the risk of technological obsolescence. Changes in the estimated useful lives of set-top receivers capitalized could result in significant
changes to the amounts recorded as depreciation expense. Based on the book value of the set-top receivers capitalized as of December 31, 2008, if we extended the depreciable life of
the set-top receivers by one half of a year, it would result in an approximately $255 million reduction in annual depreciation expense.

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.

Valuation of Goodwill and Intangible Assets with Indefinite Lives.We evaluate the carrying value of goodwill and intangible assets with
indefinite
lives annually in the fourth quarter or more frequently when events and circumstances change that would more likely than not result in an impairment loss.
We completed our annual impairment testing during the fourth quarter of 2008, and determined that there was no impairment of goodwill or intangible assets with indefinite lives.

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The
goodwill evaluation requires the estimation of our business as a whole. We determine fair values primarily using estimated cash flows discounted at a rate commensurate with the risk
involved, when appropriate. Estimation of future cash flows requires significant judgment about future operating results, and can vary significantly from one evaluation to the next. Risk adjusted
discount rates are not fixed and are subject to change over time. As a result, changes in estimated future cash flows and/or changes in discount rates could result in a write-down of
goodwill or intangible assets with indefinite lives in a future period, which could be material to our consolidated financial statements.

ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of accounting changes and new accounting pronouncements 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 and expected loss given a default. Ratings in the Baa range for Moody's Investors Service and the BBB range for Standard & Poor's Ratings Services, or S&P, generally indicate adequate
current protection of interest payments and principal security, with certain protective elements lacking. Ratings in the Ba range for Moody's and the BB range for S&P, generally indicate moderate
protection of interest and principal payments, potentially outweighed by exposure to uncertainties or adverse conditions. 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.

Currently,
we have the following security ratings:

Senior Secured

Senior Unsecured

Corporate

OutlookStandard & Poor's

BBB-

BB

BB

StableMoody's

Baa3

Ba3

Ba2

Stable


***

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 such 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.



We are subject to fluctuating interest rates, which may adversely impact our consolidated results of operations and cash flows. We had outstanding debt of
$5,831 million at December 31, 2008, excluding the unamortized bond premium, which consisted of fixed rate borrowings of $3,410 million and variable rate borrowings of
$2,421 million. As of December 31, 2008, 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 $24 million.

***

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DIRECTV HOLDINGS LLC

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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, 2008 and 2007, 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, 2008. Our audits also included the financial statement schedules
listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on
the financial statements and financial statement schedules 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included 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, 2008 and
2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present 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, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109.

/s/ DELOITTE & TOUCHE LLP


Los
Angeles, California

February 26,
2009

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DIRECTV HOLDINGS LLC        CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,2008

2007

2006(Dollars in Millions)Revenues

$
17,310

$
15,527

$
13,744Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other


7,424


6,681


5,830Subscriber service expenses


1,139


1,137


1,057Broadcast operations expenses


265


216


179Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs


2,191


1,901


1,844Upgrade and retention costs


1,027


958


852General and administrative expenses


873


784


761Depreciation and amortization expense


2,061


1,448


873Total operating costs and expenses


14,980


13,125


11,396Operating profit


2,330


2,402


2,348Interest income


37


69


69Interest expense


(315
)

(216
)

(218
)Other, net


5


(5
)

(4
)Income before income taxes


2,057


2,250


2,195Income tax expense


(807
)

(891
)

(839
)Net income

$
1,250

$
1,359

$
1,356


---

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

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DIRECTV HOLDINGS LLC        CONSOLIDATED BALANCE SHEETS

December 31,2008

2007(Dollars in Millions)ASSETSCurrent assetsCash and cash equivalents

$
1,149

$
802Accounts receivable, net


1,308


1,387Inventories


182


187Deferred income taxes


46


29Prepaid expenses and other


261


142Total current assets


2,946


2,547Satellites, net


1,980


2,030Property and equipment, net


3,348


3,230Goodwill


3,189


3,032Intangible assets, net


871


1,223Other assets


212


235Total assets

$
12,546

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

$
2,582

$
2,548Unearned subscriber revenues and deferred credits


316


320Current portion of long-term debt


108


48Total current liabilities


3,006


2,916Long-term debt


5,725


3,347Deferred income taxes


405


336Other liabilities and deferred credits


763


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


2,403


2,782Retained earnings


244


1,958Total owner's equity


2,647


4,740Total liabilities and owner's equity

$
12,546

$
12,297


---

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

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

Capital stock
and additional
paid-in capital

Retained
earnings
(deficit)

Total owner's equity(Dollars in Millions)Balance at January 1, 2006

$
4,051

$
(754
)
$
3,297Net income





1,356


1,356Dividend to Parent


(300
)




(300
)Capital contribution from Parent


34





34Other


1





1Balance at December 31, 2006


3,786


602


4,388Net income





1,359


1,359Dividend to Parent


(1,050
)




(1,050
)Capital contribution from Parent


41





41Adjustment to initially record cumulative effect of adopting FIN 48, net of tax





(3
)

(3
)Other


5





5Balance at December 31, 2007


2,782


1,958


4,740Net income





1,250


1,250Dividend to Parent


(436
)

(2,964
)

(3,400
)Capital contribution from Parent


43





43Other


14





14Balance at December 31, 2008

$
2,403

$
244

$
2,647


---

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

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DIRECTV HOLDINGS LLC        CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,2008

2007

2006(Dollars in Millions)Cash Flows From Operating ActivitiesNet income

$
1,250

$
1,359

$
1,356Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization expense


2,061


1,448


873Amortization of deferred revenues and deferred credits


(104
)

(98
)

(41
)Deferred income taxes


52


162


178Other


54


52


42Change in other operating assets and liabilitiesAccounts receivable, net


93


(120
)

(271
)Inventories


22


(47
)

141Prepaid expenses and other


(109
)

3


(35
)Accounts payable and accrued liabilities


(47
)

138


19Unearned subscriber revenues and deferred credits


(4
)

60


Other, net


9


(48
)

80Net cash provided by operating activities


3,277


2,909


2,342Cash Flows From Investing ActivitiesCash paid for property and equipment


(501
)

(621
)

(504
)Cash paid for subscriber leased equipmentsubscriber acquisitions


(599
)

(762
)

(599
)Cash paid for subscriber leased equipmentupgrade and retention


(537
)

(774
)

(473
)Cash paid for satellites


(128
)

(169
)

(222
)Proceeds from sale of property








12Investment in companies, net of cash acquired


(97
)




Other


5


(9
)

7Net cash used in investing activities


(1,857
)

(2,335
)

(1,779
)Cash Flows From Financing ActivitiesCash proceeds from debt issuance


2,490





Debt issuance costs


(19
)




Repayment of long-term debt


(53
)

(10
)

(8
)Repayment of other long-term obligations


(98
)

(72
)

(67
)Cash dividends to Parent


(3,400
)

(1,050
)

(300
)Excess tax benefit from share-based compensation


7


4


3Net cash used in financing activities


(1,073
)

(1,128
)

(372
)Net increase (decrease) in cash and cash equivalents


347


(554
)

191Cash and cash equivalents at beginning of the year


802


1,356


1,165Cash and cash equivalents at end of the year

$
1,149

$
802

$
1,356Supplemental Cash Flow InformationInterest paid

$
289

$
211

$
215Income taxes paid


753


730


728


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

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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, DIRECTV, we or us and
sometimes refer to The DIRECTV Group, Inc. as The DIRECTV Group or Parent. We are the largest provider of direct-to-home, or DTH, digital television services and the
second largest provider in the multi-channel video programming distribution, or MVPD, industry in the United States.

Note 2: Basis of Presentation and 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 requires 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 revenues 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 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 "Broadcast
programming and other" 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. Through the end of 2006, we also recorded the amortization of a provision

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

for
above-market programming contracts that we recorded in connection with the 1999 acquisition of certain premium subscription programming contracts from United States Satellite Broadcasting
Company, Inc. as a reduction of programming costs.



Subscriber acquisition costs consist of costs we incur to acquire new subscribers. We include the cost of set-top receivers and other equipment,
commissions we pay to national retailers, independent satellite television retailers, dealers, telephone communication companies and the cost of installation, advertising, marketing and customer call
center expenses associated with the acquisition of new subscribers in subscriber acquisition costs. We expense these costs as incurred, or when subscribers activate the DIRECTV® service,
as appropriate, except for the cost of set-top receivers leased to new subscribers, which we capitalize in "Property and equipment, net" in the Consolidated Balance Sheets. Although paid
in advance, the retailer or dealer earns substantially all commissions paid for customer acquisitions over 12 months from the date of subscriber activation. Should the subscriber cancel our
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 subscriber acquisition costs. We
implemented a lease program on March 1, 2006 after which most set-top receivers provided to new subscribers are capitalized. We include the amount of our set-top
receivers capitalized each period for subscriber acquisition activities in the Consolidated Statements of Cash Flows under the caption "Cash paid for subscriber leased equipmentsubscriber
acquisitions." See Note 4 below for additional information.



Upgrade and retention costs consist primarily of costs we incur for loyalty programs offered to existing subscribers. The costs for loyalty programs include the
costs of installing or providing hardware under our movers program (for subscribers relocating to a new residence), multiple set-top receiver offers, digital video recorder, or DVR,
high-definition, or HD, 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. We expense these costs as incurred, except for the cost of set-top receivers leased to existing subscribers, which we capitalize in "Property and equipment, net" in
the Consolidated Balance Sheets. We implemented a lease program on March 1, 2006, after which most set-top receivers provided to existing subscribers under upgrade and retention
programs are capitalized. We include the amount of our set-top receivers capitalized each period for upgrade and retention activities in the Consolidated Statements of Cash Flows under the
caption "Cash paid for subscriber leased equipmentupgrade and retention." See Note 4 below for additional information.



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



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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



We carry property and equipment, 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 5 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 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.

The
carrying value of cash and cash equivalents, accounts receivable, investments and other assets, accounts payable, and amounts included in accrued liabilities and other meeting the
definition of a financial instrument approximated their fair values at December 31, 2008 and 2007.



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.

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The DIRECTV Group grants restricted stock units and common stock options to employees, including DIRECTV employees.

We
record compensation expense equal to the fair value of stock-based awards at the date approved on a straight-line basis over the requisite service period of up to three
years, reduced for estimated forfeitures and adjusted for anticipated payout percentages related to the achievement of performance targets.



We join in the filing of The DIRECTV Group's consolidated U.S. federal income tax return. 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.

We
determine deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for
the year in which we expect the differences to reverse. We must make certain estimates and judgments in determining income tax provisions, assessing the likelihood of recovering our deferred tax
assets, and evaluating tax positions.

With
the adoption of the Financial Accounting Standards Board, or FASB, Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109," or FIN 48, on January 1, 2007, we now recognize a benefit in "Income tax expense" in the Consolidated Statements of Operations for uncertain tax positions that
are more-likely-than-not to be sustained upon examination, measured at the largest amount that has a greater than 50% likelihood of being realized upon settlement.
Unrecognized tax benefits represent tax benefits taken or expected to be taken in income tax returns, for which the benefit has not yet been recognized in "Income tax expense" in the Consolidated
Statements of Operations due to the uncertainty of whether such benefits will be ultimately realized. We recognize interest and penalties accrued related to unrecognized tax benefits in "Income tax
expense" in the Consolidated Statements of Operations. Unrecognized tax benefits are recorded in "Income tax expense" in the Consolidated Statement of Operations at such time that the benefit is
effectively settled.



We expense advertising costs primarily in "Subscriber acquisition costs" in the Consolidated Statements of Operations as incurred. Advertising expenses, net of
payments received from programming content providers for marketing support, were $211 million in 2008, $178 million in 2007 and $191 million in 2006.



We sell programming services and extend credit, in amounts generally not exceeding $200 each, to a large number of individual residential subscribers throughout
the United States. As applicable, we maintain allowances for anticipated losses.

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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

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

Level 1:

Quoted market prices in active markets for identical assets or liabilities.Level 2:

Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3:

Unobservable inputs that are not corroborated by market data.


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

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

We
adopted FIN 48 on January 1, 2007, the cumulative effect of which resulted in a $3 million decrease to the January 1, 2007 balance of "Retained earnings"
in the Consolidated Balance Sheets. As of the date of adoption, our unrecognized tax benefits totaled $26 million, including $3 million of tax positions the recognition of which would
affect the annual effective income tax rate. As of the date of adoption, we have accrued $1 million in interest and penalties as part of our liability for unrecognized tax benefits. See
Note 8 below for additional information regarding unrecognized tax benefits.

On
December 31, 2007, our Parent adopted the measurement date provision of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R)." This provision requires the measurement of plan assets and benefit obligations as of the date of our fiscal year
end and accordingly resulted in a change in the measurement date, which was previously November 30.

On
December 31, 2006, our Parent adopted the provisions of SFAS No. 158 that requires our Parent to recognize the funded status of its defined benefit postretirement plans
in its Consolidated Balance Sheets and recognize changes in the funded status of its defined benefit postretirement plans as a component of other comprehensive income, net of tax, in stockholders'
equity in the Consolidated Balance Sheets, in the year in which changes occur. The adoption of this standard had no effect on our

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

consolidated
results of operations or financial position, as DIRECTV Holdings does not sponsor postretirement plans, but rather our employees participate in the plans that are sponsored and carried as
an obligation by our Parent.



In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment to ARB
No. 51" which establishes standards of accounting and reporting of noncontrolling interests in subsidiaries, currently known as minority interests, in consolidated financial statements,
provides guidance on accounting for changes in the parent's ownership interest in a subsidiary and establishes standards of accounting of the deconsolidation of a subsidiary due to the loss of
control. SFAS No. 160 requires an entity to present minority interests as a component of equity. Additionally, SFAS No. 160 requires an entity to present net income and consolidated
comprehensive income attributable to the parent and the minority interest separately on the face of the consolidated financial statements. We do not expect the adoption of SFAS No. 160 to have
any effect on our consolidated results of operations and financial position when adopted, as required, on January 1, 2009.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations." SFAS No. 141R will require the acquiring entity to record 100% of all assets and
liabilities acquired, including goodwill and any non-controlling interest, generally at their fair values for all business combinations, whether partial, full or step acquisitions. Under
SFAS No. 141R certain contingent assets and liabilities, as well as contingent consideration, will also be required to be recognized at fair value on the date of acquisition and acquisition
related transaction and restructuring costs will be expensed. Additionally, SFAS No. 141R requires disclosures about the nature and financial effect of the business combination and also changes
the accounting for certain income tax assets recorded in purchase accounting. The adoption of SFAS No. 141R as required, on January 1, 2009, will change the way we account for
adjustments to deferred tax asset valuation allowances recorded in purchase accounting for prior business combinations and will change the accounting for all business combinations consummated after
January 1, 2009.

Note 3: Accounts Receivable, Net

The following table sets forth the amounts recorded for "Accounts receivable, net" in our Consolidated Balance Sheets as of
December 31:

2008

2007(Dollars in Millions)Subscriber

$
807

$
774Trade and other


533


652Subtotal


1,340


1,426Less: Allowance for doubtful accounts


(32
)

(39
)Accounts receivable, net

$
1,308

$
1,387


57

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Note 4: Satellites, Net and Property and Equipment, Net

The following table sets forth the amounts recorded for "Satellites, net" and "Property and equipment, net" in our Consolidated Balance
Sheets at December 31:

Estimated
Useful Lives
(years)

2008

2007(Dollars in Millions)Satellites


10-15

$
2,483

$
2,179Satellites under construction





292


474Total





2,775


2,653Less: Accumulated depreciation





(795
)

(623
)Satellites, net




$
1,980

$
2,030Land and improvements




$
26

$
24Buildings and leasehold improvements


6-30


287


250Machinery and equipment


3-23


2,911


2,395Subscriber leased set-top receivers


3-5


3,577


2,673Construction in progress





235


344Total





7,036


5,686Less: Accumulated depreciation





(3,688
)

(2,456
)Property and equipment, net




$
3,348

$
3,230


We
capitalized interest costs of $18 million in 2008, $51 million in 2007 and $55 million in 2006, as part of the cost of our property and satellites under
construction. Depreciation expense was $1,707 million in 2008, $1,094 million in 2007 and $519 million in 2006.

On
March 1, 2006, we introduced a new set-top receiver lease program. Prior to March 1, 2006, most set-top receivers provided to new and existing
subscribers were immediately expensed upon activation as a subscriber acquisition or upgrade and retention cost in the Consolidated Statements of Operations. Subsequent to the introduction of the
lease program, we lease most set-top receivers provided to new and existing subscribers, and therefore capitalize the set-top receivers in "Property and equipment, net" in the
Consolidated Balance Sheets. We depreciate capitalized set-top receivers over a three year estimated useful life and include the amount of set-top receivers capitalized each
period in the Consolidated Statements of Cash Flows.

The
following table sets forth the amount of set-top receivers we capitalized, and depreciation expense we recorded under the lease program for the years ended
December 31:

Capitalized subscriber leased equipment:

2008

2007

2006(Dollars in Millions)Subscriber leased equipmentsubscriber acquisitions

$
599

$
762

$
599Subscriber leased equipmentupgrade and retention


537


774


473Total subscriber leased equipment capitalized

$
1,136

$
1,536

$
1,072Depreciation expensesubscriber leased equipment

$
1,100

$
645

$
147


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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Note 5: Goodwill and Intangible Assets

The following table sets forth the changes in the carrying amounts of "Goodwill" in the Consolidated Balance Sheets for the years ended
December 31, 2008 and 2007:

(Dollars in Millions)Balance as of December 31, 2007

$
3,032Acquisitions related to home service provider business


157Balance as of December 31, 2008

$
3,189


There
were no changes to "Goodwill" in the Consolidated Balance Sheets during 2007.

The
following table sets forth the components for "Intangible assets, net" in the Consolidated Balance Sheets at:

December 31, 2008

December 31, 2007Estimated Useful Lives (years)

Gross Amount

Accumulated Amortization

Net Amount

Gross Amount

Accumulated Amortization

Net Amount(Dollars in Millions)Orbital slots


Indefinite

$
432




$
432

$
432




$
43272.5° WL orbital license


5


219

$
180


39


219

$
140


79Subscriber related


5-10


1,348


1,116


232


1,348


860


488Dealer network


15


130


79


51


130


71


59Distribution rights


7


334


217


117


334


169


165Total intangible assets




$
2,463

$
1,592

$
871

$
2,463

$
1,240

$
1,223


Amortization expense for intangible assets was $352 million in 2008, and $353 million in 2007 and 2006.

Estimated
amortization expense for intangible assets in each of the next five years and thereafter is as follows: $289 million in 2009, $90 million in 2010,
$34 million in 2011, $10 million in 2012, $10 million in 2013 and $6 million thereafter.

We
performed our annual impairment tests for goodwill and orbital slots in the fourth quarters of 2008, 2007 and 2006. Based on our annual impairment tests, no impairment existed.

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Note 6: Accounts Payable and Accrued Liabilities; Other Liabilities and Deferred Credits

The following represent significant components of "Accounts payable and accrued liabilities" in our Consolidated Balance Sheets as of
December 31:

2008

2007(Dollars in Millions)Programming costs

$
1,532

$
1,397Accounts payable


325


345Payroll and employee benefits


96


73Interest payable


45


26Property and income taxes


35


71Other


549


636Total accounts payable and accrued liabilities

$
2,582

$
2,548


The
significant components of "Other liabilities and deferred credits" in our Consolidated Balance Sheets are as follows as of December 31, 2008:

2008

2007(Dollars in Millions)Programming costs

$
251

$
368Other accrued taxes


202


92Deferred credits


122


213Other


188


285Total other liabilities and deferred credits

$
763

$
958


Note 7: Debt

The following table sets forth our outstanding debt:

December 31,Interest Rates at
December 31, 20082008

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


8.375
%
$
910

$
9106.375% senior notes due in 2015


6.375
%

1,000


1,0007.625% senior notes due in 2016


7.625
%

1,500


Senior secured credit facility, net of unamortized discount of $9 million as of December 31, 2008


3.165
%

2,421


1,483Unamortized bond premium





2


2Total debt





5,833


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





(108
)

(48
)Long-term debt




$
5,725

$
3,347


60

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

2008 Financing Transactions

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

We
issued $1,500 million in senior notes due in 2016 in a private placement transaction. The eight-year notes bear interest at 7.625%. Principal on the senior notes is
payable upon maturity, while interest is payable semi-annually commencing November 15, 2008. The senior notes have been fully and unconditionally guaranteed, jointly and severally,
by substantially all of our current and certain of our future domestic subsidiaries on a senior unsecured basis. On November 11, 2008, we completed an exchange offer in which holders of
substantially all of the outstanding principal amount of the senior notes exchanged the original senior notes for registered notes with identical terms, except that the registered notes are registered
under the Securities Act of 1933, as amended, and do not bear the legends restricting their transfer.

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

Notes Payable.All of our senior notes have been registered under the Securities Act of 1933, as amended. The 8.375% senior notes,
6.375% senior
notes and 7.625% senior notes are unsecured and have been fully and unconditionally guaranteed, jointly and severally, by substantially all of our assets. Principal on the senior notes is payable upon
maturity, while interest is payable semi-annually.

The
fair value of our 8.375% senior notes was approximately $904 million at December 31, 2008 and approximately $948 million at December 31, 2007. The fair
value of our 6.375% senior notes was approximately $911 million at December 31, 2008 and approximately $962 million at December 31, 2007. The fair value of our 7.625%
senior notes was approximately $1,451 million at December 31, 2008. We calculated the fair values based on quoted market prices of our senior notes, which is a Level 1 input under
SFAS No. 157, on those dates.

Credit Facility.At December 31, 2008, our senior secured credit facility consisted of a $463 million six-year Term Loan A,
a $972 million eight-year Term Loan B, a $986 million five-year Term Loan C and a $500 million undrawn six-year revolving credit facility. The
Term Loan A, Term Loan B and Term Loan C components of the senior secured credit facility currently bear interest at a rate equal to the London InterBank Offered Rate, or LIBOR, plus 0.75%, 1.50% and
2.25%, respectively. In addition, we pay a commitment fee of 0.175% 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 substantially
all of our material domestic subsidiaries.

Our
notes payable and credit facility mature as follows: $108 million in 2009, $308 million in 2010, $108 million in 2011, $20 million in 2012,
$2,796 million in 2013 and $2,500 million thereafter. These

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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, 2008, 2007, or 2006. The amount of interest accrued related to our
outstanding debt was $45 million at December 31, 2008 and $26 million at December 31, 2007.

Covenants and Restrictions.The senior secured credit facility requires us to comply with certain financial covenants. The senior notes
and the
senior secured credit facility also include covenants that restrict our ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or
make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another entity, (vi) sell,
assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions as provided in the credit
agreement and senior notes indentures. Should we fail to comply with these covenants, all or a portion of our borrowings under the senior notes and senior secured credit facility could become
immediately payable and the revolving credit facility could be terminated. The senior notes and senior secured credit facility also provide that the borrowings may be required to be prepaid if certain
change-in-control events occur. In September 2008, Liberty Media became the majority owner of our Parent's outstanding common stock. There was no ratings decline for the senior
notes associated with that event, and we were not required either to offer to redeem any of the senior notes pursuant to their respective indentures or to prepay any of the borrowings under the senior
secured credit facility. At December 31, 2008, we were in compliance with all such covenants.

Restricted Cash.As of December 31, 2008, we had $8 million of restricted cash included as part of "Prepaid expenses and
other" in our
Consolidated Balance Sheets. We did not have restricted cash as of December 31, 2007.

Note 8: Income Taxes

We base our income tax expense or benefit on reported "Income before income taxes." 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.

Our
income tax expense consisted of the following for the years ended December 31:

2008

2007

2006(Dollars in Millions)Current tax expense:U.S. federal

$
(691
)
$
(633
)
$
(556
)State and local


(64
)

(156
)

(111
)Total


(755
)

(789
)

(667
)Deferred tax (expense) benefit:U.S. federal


(12
)

(82
)

(175
)State and local


(40
)

(20
)

3Total


(52
)

(102
)

(172
)Total income tax expense

$
(807
)
$
(891
)
$
(839
)


62

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Our income tax expense was different than the amount computed using the U.S. federal statutory income tax rate for the reasons set forth in the following table
for the years ended December 31:

2008

2007

2006(Dollars in Millions)Expected tax expense at U.S. federal statutory income tax rate

$
(720
)
$
(788
)
$
(768
)U.S. state and local income tax expense, net of federal benefit


(77
)

(102
)

(70
)Tax credits and other


(10
)

(1
)

(1
)Total income tax expense

$
(807
)
$
(891
)
$
(839
)


Temporary
differences and carryforwards that gave rise to deferred tax assets and liabilities at December 31 were as follows:

2008

2007Deferred
Tax
Assets

Deferred
Tax
Liabilities

Deferred
Tax
Assets

Deferred
Tax
Liabilities(Dollars in Millions)Depreciation and amortization

$


$
503

$


$
515Accruals and advances


90


50


108


49Programming contract liabilities


143





168


Prepaid expenses





26





38State taxes





25


19


Tax credits


17








Other temporary differences


3


6


6


4Subtotal


253


610


301


606Valuation allowance


(2
)




(2
)

Total deferred taxes

$
251

$
610

$
299

$
606


We
assessed the deferred tax assets for the respective periods for recoverability and, where applicable, we recorded a valuation allowance to reduce the total deferred tax assets to an
amount that will, more likely than not, be realized in the future.

The
valuation allowance of $2 million at December 31, 2008, is attributable to unused capital losses which are available for carry-forward.

A
reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in millions):

Gross unrecognized tax benefits at January 1, 2007

$
25Increases in tax positions for prior years


31Increases in tax positions for the current year


32Gross unrecognized tax benefits at December 31, 2007


88Increases in tax positions for prior years


76Increases in tax positions for the current year


21Settlement with taxing authorities


1Gross unrecognized tax benefits at December 31, 2008

$
186


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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

As
of December 31, 2008, our unrecognized tax benefits totaled $202 million, including accrued interest and penalties of $16 million. If our tax positions are
ultimately sustained approximately $33 million of the unrecognized tax benefits would be recognized as a reduction in our annual effective income tax rate.

During
the year ended December 31, 2008, we recognized $13 million of interest expense for unrecognized tax benefits in "Income tax expense" in the Consolidated Statement
of Operations.

We
file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state jurisdictions. For U.S. federal tax purposes, the tax years 2003 through
2008 remain open to examination. The California tax years 1994 through 2008 remain open to examination and the income tax returns in the other state tax jurisdictions in which we have operations are
generally subject to examination for a period of 3 to 5 years after filing of the respective return.

We
do not anticipate changes to the total unrecognized tax benefits in the next twelve months that will have a significant effect on our consolidated financial statements.

Note 9: Pension and Other Postretirement Benefit Plans

Most of our employees are eligible to participate in 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 other 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 $16 million in 2008,
$16 million in 2007 and $15 million in 2006.

Note 10: Share-Based Payment

Under The DIRECTV Group, Inc. Amended and Restated 2004 Stock Plan as approved by our Parent's stockholders on June 5,
2007, shares, rights or options to acquire up to 21 million shares of common stock plus the number of shares that were granted under a former plan but which, after December 22, 2003 are
forfeited, expire or are canceled without the delivery of shares of common stock or otherwise result in the return of such shares to us, were authorized for grant through June 4, 2017, subject
to the approval of the Compensation Committee of our Parent's Board of Directors. Our Parent issues new shares of our common stock when restricted stock units are earned and when stock options are
exercised.

Restricted Stock Units.The Compensation Committee of The DIRECTV Group has granted restricted stock units under our Parent's stock
plans to certain
of our employees and executives. Annual awards are mostly performance-based, with final payments in shares of our Parent's common stock. Final payment can be reduced from the target award amounts
based on our Parent company's performance over a three-year performance period in comparison with pre-established targets.

During
the year ended December 31, 2008, our employees were granted 2.3 million restricted stock units with a weighted average grant-date fair value of $23.15
per share. During the year ended December 31, 2007, our employees were granted 2.5 million restricted stock units with a weighted

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

average
grant-date fair value of approximately $23.69 per share. During the year ended December 31, 2006, our employees were granted 2.7 million restricted stock units with a
weighted average grant-date fair value of approximately $13.57 per share. The grant date fair value of restricted stock units is based on the closing stock price of our Parent's common
stock on the date of grant.

Stock Options.The DIRECTV Group Compensation Committee has also granted stock options to acquire our Parent's common stock under our
Parent's stock
plans to certain of our employees and executives. The exercise price of options granted is equal to at least 100% of the fair market value of the common stock on the date the options were granted.
These nonqualified options generally vest over one to five years, expire ten years from date of grant and are subject to earlier termination under certain conditions. During the year ended
December 31, 2007, our employees were granted 1.2 million stock options with a grant-date fair value of approximately $8.27 per share. No stock options were granted to our
employees during 2008 or 2006. The grant date fair value of common stock options is determined by our Parent using the Black-Scholes valuation model.

The
following table presents amounts recorded related to share-based compensation for the years ended December 31:

2008

2007

2006(Dollars in Millions)Share-based compensation expense recognized

$
43

$
41

$
34Tax benefits associated with share-based compensation expense


16


16


13Actual tax benefits realized for the deduction of share-based compensation expense


30


19


13


As
of December 31, 2008, there was $61 million of unrecognized compensation costs related to unvested restricted stock units and stock options, which we expect to recognize
as follows: $38 million in 2009 and $23 million in 2010.

As
of December 31, 2008, our employees held 10.5 million stock options and 6.5 million restricted stock units.

Note 11: Related Party Transactions

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

The DIRECTV Group and affiliates

We determine our income taxes based upon our tax sharing agreement with The DIRECTV Group, which generally provides that the current
income tax liability or receivable be computed as if we were a separate taxpayer. Payments made to our Parent under this tax sharing arrangement were $721 million in 2008, $709 million
in 2007 and $727 million in 2006. We also receive an allocation of employee benefit expenses from The DIRECTV Group. We believe that our consolidated financial statements reflect our cost of
doing business in accordance with SEC Staff Accounting Bulletin No. 55, "Allocation of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business
Components of Another Entity."

We
paid dividends to our Parent in the amounts of $3,400 million in 2008, $1,050 million in 2007 and $300 million in 2006 from available cash and cash equivalents.

65

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Liberty Media, Liberty Global and Discovery Communications

As a result of the completion of the Liberty Transaction, beginning February 27, 2008, transactions with Liberty Media
Corporation, or Liberty Media, and its affiliates, including its equity method investees, may be considered to be related party transactions as Liberty Media currently owns approximately 54% of our
outstanding common stock. Our transactions with Liberty Media and its affiliates consist primarily of the purchase of programming.

In
addition, John Malone, Chairman of the Board of Directors of The DIRECTV Group, Inc. and of Liberty Media, has an approximate 23% voting interest in Discovery
Communications, Inc., or Discovery Communications, and an approximate 32% voting interest in Liberty Global Inc., or Liberty Global, and serves as Chairman of Liberty Global, and certain
of Liberty Media's management and directors also serve as directors of Discovery Communications or Liberty Global. As a result of this common ownership and management, transactions with Discovery
Communications and Liberty Global, and their subsidiaries or equity method investees may be considered to be related party transactions. Our transactions with Discovery Communications and Liberty
Global consist primarily of purchases of programming created, owned or distributed by Discovery Communications and its subsidiaries and investees.

News Corporation and affiliates

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

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

Other

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

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

The
following table summarizes sales and purchase transactions with related parties:

2008

2007

2006(Dollars in Millions)Sales:Liberty Media and affiliates

$
36

$


$
Discovery Communications, Liberty Global and affiliates


10





News Corporation and affiliates


2


17


22The DIRECTV Group and affiliates








1Other


2





Total

$
50

$
17

$
23Purchases:Liberty Media and affiliates

$
267

$


$
Discovery Communications, Liberty Global and affiliates


164





News Corporation and affiliates


157


835


740The DIRECTV Group and affiliates





1


Other


35


23


10Total

$
623

$
859

$
750


The
following table sets forth the amount of accounts receivable from and accounts payable to related parties as of December 31:

2008

2007(Dollars in Millions)Accounts receivable

$
29

$
20Accounts payable


156


270


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

Note 12: Acquisitions



180 Connect.On July 8, 2008, we acquired 100% of 180 Connect Inc.'s outstanding common stock and exchangeable shares.
Simultaneously,
in a separate transaction, UniTek USA, LLC acquired 100% of 180 Connect's cable service operating unit and operations in certain of our installation services markets in exchange for satellite
installation operations in certain markets and $7 million in cash. These transactions provide us with control over a significant portion of our home service provider network.
We paid $91 million in cash, net of the $7 million we received from UniTek USA, for the acquisition, including the equity purchase price, repayment of assumed debt and related
transaction costs.

We
accounted for the 180 Connect acquisition using the purchase method of accounting, and began consolidating the results from the date of acquisition. The December 31, 2008
consolidated financial statements reflect the preliminary allocation of the $91 million net purchase price to assets acquired and the liabilities assumed based on their estimated fair values at
the date of acquisition using

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

information
currently available. The assets acquired included approximately $5 million in cash. Amounts allocated to tangible assets, deferred tax assets and liabilities, and accrued
liabilities are estimates pending the completion of analyses currently in process. The excess of the purchase price over the estimated fair values of the net assets acquired has been recorded as
goodwill, resulting in an increase in goodwill of $142 million during 2008. We are currently evaluating whether the recorded goodwill will be deductible for tax purposes. The purchase price
allocation is expected to be completed during the first half of 2009.

The
following table sets forth the preliminary allocation of the purchase price to the 180 Connect net assets acquired on July 8, 2008 (dollars in millions):

Total current assets

$
21Property and equipment


16Goodwill


142Total assets acquired

$
179Total current liabilities

$
80Other liabilities


8Total liabilities assumed

$
88Net assets acquired

$
91


The
following selected unaudited pro forma information is being provided to present a summary of the combined results of us and 180 Connect for 2008 and 2007 as if the acquisition had
occurred as of the beginning of the respective periods, giving effect to purchase accounting adjustments. The pro forma data is presented for informational purposes only and may not necessarily
reflect the results of our operations had 180 Connect operated as part of us for each of the periods presented, nor are they necessarily indicative of the results of future operations. The pro forma
information excludes the effect of non-recurring charges.

Years Ended December 31,2008

2007(Dollars in Millions,
Except Per Share Amounts)Revenues

$
17,310

$
15,527Net income


1,208


1,324


Other.In August 2008, we paid $11 million in cash to purchase certain assets and we assumed certain liabilities of another home
service
provider. We accounted for the acquisition using the purchase method of accounting, and began consolidating the results from the date of acquisition. Amounts allocated to tangible assets, deferred tax
assets and liabilities, and accrued liabilities are estimates pending the completion of analyses currently in process. The excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, resulting in an increase in goodwill of $15 million during 2008. We expect the recorded goodwill to be deductible for tax purposes.

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Note 13: Commitments and Contingencies



At December 31, 2008, minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for real
property and satellite transponder leases and aggregated $210 million, payable as follows: $36 million in 2009, $34 million in 2010, $30 million in 2011, $28 million
in 2012, $30 million in 2013 and $52 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options, which we have not considered in the amounts
disclosed. Rental expenses under operating leases were $53 million in 2008, $52 million in 2007 and $49 million in 2006.

At
December 31, 2008, our minimum payments under agreements to purchase broadcast programming, and the purchase of services that we have outsourced to third parties, such as
billing services, satellite telemetry, tracking and control, satellite construction, and launch contracts and broadcast center services aggregated $3,598 million, payable as follows:
$1,305 million in 2009, $1,178 million in 2010, $756 million in 2011, $228 million in 2012, $108 million in 2013 and $23 million thereafter.

At
December 31, 2008, other long-term obligations totaling $232 million are payable approximately as follows: $87 million in 2009, $86 million in
2010, $48 million in 2011, $2 million in 2012, no amounts payable in 2013 and $9 million thereafter. These amounts are recorded in "Accounts
payable and accrued liabilities" and "Other liabilities and deferred credits" in our Consolidated Balance Sheets.



Litigation.Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance.
Various legal
actions, claims and proceedings are pending against us arising in the ordinary course of business. We have established loss provisions for matters in which losses are probable and can be reasonably
estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that if granted, could require us to pay damages or make other expenditures in amounts that could
not be estimated at December 31, 2008. After discussion with counsel representing us in those actions, it is the opinion of management that such litigation is not expected to have a material
adverse effect on our consolidated financial statements.

Finisar Corporation.As previously reported, we were successful in 2008 getting the jury verdict in the Finisar case vacated on appeal.
The original
verdict found the patent to be valid and willfully infringed, and the jury awarded approximately $79 million in damages. The trial court increased the damages award by $25 million
because of the jury finding of willful infringement and awarded pre-judgment interest of $13 million. DIRECTV was also ordered to pay into escrow $1.60 per new set-top
receiver manufactured for use with the DIRECTV system beginning June 17, 2006 and continuing until the patent expires in 2012 or was otherwise found to be invalid. On April 18, 2008, the
Court of Appeals reversed the verdict of the district court in part, vacated the findings of infringement, and remanded for further proceedings on the remaining issues finding that the district court
had applied erroneous interpretations of certain terms of the claims. The Court found a principal independent claim to be anticipated and therefore invalid, and remanded for further proceedings
regarding validity of other asserted claims in view of this finding. The Court reversed the verdict of willful infringement, and affirmed the earlier ruling finding several claims to be invalid prior
to trial. Following these decisions, our appeal bond was terminated and the escrowed royalties were returned to us. In the remand now pending, initial summary judgment motions on invalidity of
additional claims

69

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

have
been submitted. If necessary, there will be further proceedings and a trial of remaining issues, which is presently scheduled for October 2009.

Satellites.We may purchase in-orbit and launch insurance to mitigate the potential financial impact of satellite launch and
in-orbit failures if the premium costs are considered economic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites.
We do not insure against lost revenues in the event of a total or partial loss of the capacity of a satellite. We generally rely on in-orbit spare satellites and excess transponder
capacity at key orbital slots to mitigate the impact a satellite failure could have on our ability to provide service. At December 31, 2008, the net book value of in-orbit
satellites was $1,688 million, of which $1,489 million was uninsured.

Other.In July 2008, we amended our agreement with Thomson such that the amount of the rebate we can earn from the purchase of set-top
receivers was reduced from $57 million to $42 million and in return, we are no longer required to purchase $4 billion in set-top receivers over the contract term. We
continue to be obligated to grant Thomson a portion of all set-top receiver purchases. As of December 31, 2008, included in "Accounts receivable, net" and "Other assets" in the
Consolidated Balance Sheets is a receivable for $21 million related to this agreement.

70

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Note 14: Condensed Consolidating Financial Statements

The following presents the condensed consolidating statements of operations for the years ended December 31, 2008, 2007 and
2006, the condensed consolidating balance sheets as of December 31, 2008 and 2007, and the condensed consolidating statements of cash flows for the years ended December 31, 2008, 2007
and 2006 of DIRECTV Holdings together with DIRECTV Financing Co., Inc., or the Co-Issuers, and each of DIRECTV Holdings' material subsidiaries (other than DIRECTV Financing),
or the Guarantor Subsidiaries, and the eliminations necessary to present DIRECTV Holdings' financial statements on a consolidated basis. These condensed consolidating financial statements should be
read in conjunction with the accompanying consolidated financial statements of DIRECTV Holdings.

Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2008

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$
287

$
17,310

$
(287
)
$
17,310Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





7,424





7,424Subscriber service expenses





1,139





1,139Broadcast operations expenses





265





265Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





2,191





2,191Upgrade and retention costs





1,027





1,027General and administrative expenses





1,160


(287
)

873Depreciation and amortization expense





2,061





2,061Total operating costs and expenses





15,267


(287
)

14,980Operating profit


287


2,043





2,330Equity in income of consolidated subsidiaries


1,235





(1,235
)

Interest income


36


1





37Interest expense


(298
)

(17
)




(315
)Other, net





5





5Income before income taxes


1,260


2,032


(1,235
)

2,057Income tax expense


(10
)

(797
)




(807
)Net income

$
1,250

$
1,235

$
(1,235
)
$
1,250


71

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2007

Co-Issuers

Guarantor
Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)Revenues

$
67

$
15,527

$
(67
)
$
15,527Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





6,681





6,681Subscriber service expenses





1,137





1,137Broadcast operations expenses





216





216Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





1,901





1,901Upgrade and retention costs





958





958General and administrative expenses





851


(67
)

784Depreciation and amortization expense





1,448





1,448Total operating costs and expenses





13,192


(67
)

13,125Operating profit


67


2,335





2,402Equity in income of consolidated subsidiaries


1,394





(1,394
)

Interest income


69








69Interest expense


(193
)

(23
)




(216
)Other, net





(5
)




(5
)Income before income taxes


1,337


2,307


(1,394
)

2,250Income tax benefit (expense)


22


(913
)




(891
)Net income

$
1,359

$
1,394

$
(1,394
)
$
1,359


72

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Statement of Operations  For the Year Ended December 31, 2006

Co-Issuers

Guarantor Subsidiaries

Eliminations

Consolidated(Dollars in Millions)Revenues

$


$
13,744

$


$
13,744Operating costs and expensesCosts of revenues, exclusive of depreciation and amortization expenseBroadcast programming and other





5,830





5,830Subscriber service expenses





1,057





1,057Broadcast operations expenses





179





179Selling, general and administrative expenses, exclusive of depreciation and amortization expenseSubscriber acquisition costs





1,844





1,844Upgrade and retention costs





852





852General and administrative expenses





761





761Depreciation and amortization expense





873





873Total operating costs and expenses





11,396





11,396Operating profit





2,348





2,348Equity in income of consolidated subsidiaries


1,430





(1,430
)

Interest income


69








69Interest expense


(189
)

(29
)




(218
)Other, net





(4
)




(4
)Income before income taxes


1,310


2,315


(1,430
)

2,195Income tax expense


46


(885
)




(839
)Net income

$
1,356

$
1,430

$
(1,430
)
$
1,356


73

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Balance Sheet  As of December 31, 2008

Co-Issuers

Guarantor Subsidiaries

Eliminations

DIRECTV
Holdings
Consolidated(Dollars in Millions)ASSETSTotal current assets

$
1,221

$
1,821

$
(96
)
$
2,946Satellites, net





1,980





1,980Property and equipment, net





3,348





3,348Goodwill


1,827


1,362





3,189Intangible assets, net





871





871Other assets


8,070


1,739


(9,597
)

212Total assets

$
11,118

$
11,121

$
(9,693
)
$
12,546LIABILITIES AND OWNER'S EQUITYTotal current liabilities

$
216

$
2,888

$
(98
)
$
3,006Long-term debt


5,725








5,725Deferred income taxes





621


(216
)

405Other liabilities and deferred credits


2,530


763


(2,530
)

763Owner's equityCapital stock and additional paid-in capital


2,403


4,476


(4,476
)

2,403Retained earnings


244


2,373


(2,373
)

244Total owner's equity


2,647


6,849


(6,849
)

2,647Total liabilities and owner's equity

$
11,118

$
11,121

$
(9,693
)
$
12,546


74

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Balance Sheet  As of December 31, 2007

Co-Issuers

Guarantor Subsidiaries

Eliminations

DIRECTV Holdings Consolidated(Dollars in Millions)ASSETSTotal current assets

$
865

$
1,763

$
(81
)
$
2,547Satellites, net





2,030





2,030Property and equipment, net





3,230





3,230Goodwill


1,828


1,204





3,032Intangible assets, net





1,223





1,223Other assets


6,126


490


(6,381
)

235Total assets

$
8,819

$
9,940

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

$
132

$
2,865

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


3,347








3,347Deferred income taxes





559


(223
)

336Other liabilities and deferred credits


600


958


(600
)

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


2,782


4,420


(4,420
)

2,782Retained earnings


1,958


1,138


(1,138
)

1,958Total owner's equity


4,740


5,558


(5,558
)

4,740Total liabilities and owner's equity

$
8,819

$
9,940

$
(6,462
)
$
12,297


75

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2008

Co-Issuers

Guarantor
Subsidiaries

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

$
1,335

$
1,942

$
3,277Cash flows from investing activitiesCash paid for property and equipment





(501
)

(501
)Cash paid for subscriber leased equipmentsubscriber acquisitions





(599
)

(599
)Cash paid for subscriber leased equipmentupgrade and retention





(537
)

(537
)Cash paid for satellites





(128
)

(128
)Investment in companies, net of cash acquired





(97
)

(97
)Other





5


5Net cash used in investing activities





(1,857
)

(1,857
)Cash flows from financing activitiesCash proceeds from debt issuance


2,490





2,490Debt issuance costs


(19
)




(19
)Repayment of long-term debt


(53
)




(53
)Repayment of other long-term obligations





(98
)

(98
)Cash dividends to Parent


(3,400
)




(3,400
)Excess tax benefit from share-based compensation





7


7Net cash used in financing activities


(982
)

(91
)

(1,073
)Net increase (decrease) in cash and cash equivalents


353


(6
)

347Cash and cash equivalents at beginning of the period


790


12


802Cash and cash equivalents at the end of the period

$
1,143

$
6

$
1,149


76

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Table of Contents

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2007

Co-Issuers

Guarantor
Subsidiaries

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

$
496

$
2,413

$
2,909Cash flows from investing activitiesCash paid for property and equipment





(621
)

(621
)Cash paid for subscriber leased equipment-subscriber acquisitions





(762
)

(762
)Cash paid for subscriber leased equipment-upgrade and retention





(774
)

(774
)Cash paid for satellites





(169
)

(169
)Other





(9
)

(9
)Net cash used in investing activities





(2,335
)

(2,335
)Cash flows from financing activitiesRepayment of long-term debt


(10
)




(10
)Repayment of other long-term obligations





(72
)

(72
)Cash dividend to Parent


(1,050
)




(1,050
)Excess tax benefit from share-based compensation





4


4Net cash used in financing activities


(1,060
)

(68
)

(1,128
)Net (decrease) increase in cash and cash equivalents


(564
)

10


(554
)Cash and cash equivalents at beginning of the year


1,354


2


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

$
790

$
12

$
802


77

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Condensed Consolidating Statement of Cash Flows  For the Year Ended December 31, 2006

Co-Issuers

Guarantor
Subsidiaries

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

$
497

$
1,845

$
2,342Cash flows from investing activitiesCash paid for property and equipment





(504
)

(504
)Cash paid for subscriber leased equipment-subscriber acquisitions.





(599
)

(599
)Cash paid for subscriber leased equipment-upgrade and retention





(473
)

(473
)Cash paid for satellites





(222
)

(222
)Proceeds from sale of property





12


12Other





7


7Net cash used in investing activities





(1,779
)

(1,779
)Cash flows from financing activitiesRepayment of long-term debt


(8
)




(8
)Repayment of other long-term obligations





(67
)

(67
)Cash dividend to Parent


(300
)




(300
)Excess tax benefit from share-based compensation





3


3Net cash used in financing activities


(308
)

(64
)

(372
)Net increase in cash and cash equivalents


189


2


191Cash and cash equivalents at beginning of the year


1,165





1,165Cash and cash equivalents at the end of the year

$
1,354

$
2

$
1,356


Note 15: Selected Quarterly Data (Unaudited)

The following table presents unaudited selected quarterly data for 2008 and 2007:

1st

2nd

3rd

4th(Dollars in Millions)2008 QuartersRevenues

$
4,049

$
4,196

$
4,324

$
4,741Operating profit


593


717


532


488Net income


332


402


266


2502007 QuartersRevenues

$
3,539

$
3,726

$
3,885

$
4,377Operating profit


566


722


538


576Net income


325


416


301


317


***

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DIRECTV HOLDINGS LLC

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

None.

***

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation as of the end of the year covered by this Annual Report on Form 10-K under the
supervision and with the participation of management, including our principal executive officers and 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 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, 2008.

There
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during our fiscal quarter ended December 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Internal Control Over Financial Reporting



Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of
America, or GAAP, and includes those policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on their assessment and those criteria, management
believes that, as of December 31, 2008, our internal control over financial reporting is effective.

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DIRECTV HOLDINGS LLC

This
annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's
report in this annual report.

***

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 ACCOUNTING FEES AND SERVICES

The aggregate fees Deloitte & Touche LLP billed for professional services in 2008 and 2007 were:

Type of Fees

2008

2007(Dollars in Millions)Audit Fees and Audit-Related Services

$
3

$
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.

***

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DIRECTV HOLDINGS LLC

PART IV



ITEM 15.    EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

Page Number1.

All Financial Statements

See Part II2.

Financial Statement Schedule II-Valuation and Qualifying Accounts for the Years Ended December 31, 2008, 2007 and 2006

843.

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") filed May 8, 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

Supplemental Indenture dated as of April 28, 2006 by and among LABC Productions, LLC, DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as
trustee (incorporated by reference to Exhibit 4.5 to the Form 10-K of The DIRECTV Group, Inc. filed March 1, 2007)*4.4

Form of 83/8% Senior Notes due 2013 (incorporated by reference to Exhibit 4.1 to the Form 10-Q of HEC filed May 8, 2003).*4.5

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").*4.6

Form of 63/8% Senior Notes due 2015 (incorporated by reference to Exhibit 10.1 to the June 20, 2005 Form 8-K).


81

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DIRECTV HOLDINGS LLC

Exhibit
Number

Exhibit Name*4.7

Supplemental Indenture dated as of April 28, 2006 by and among LABC Productions, LLC, DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as
trustee (incorporated by reference to Exhibit 4.8 to the Form 10-K of The DIRECTV Group, Inc. filed March 1, 2007)*4.8

Indenture, dated as of May 14, 2008, by and among DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.1 to the Form 8-K of DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. filed May 16, 2008)*4.9

Form of 75/8% Senior Notes due 2016 (incorporated by reference to Exhibit 4.10 to the Form 10-K of The DIRECTV Group, Inc. filed February 26, 2009)*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).*10.2

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 April 13, 2005 (the "April 13, 2005 8-K")).*10.3

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).*10.4

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).*10.5

Amendment No.1, dated as of May 14, 2008, by and among DIRECTV Holdings LLC, the Guarantors and Lenders signatory thereto and Bank of America, N.A. as Administrative Agent (incorporated by reference to
Exhibit 10.3 of the Form 8-K of DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. filed May 16, 2008)*10.6

Tranche C Term Loan Joinder Agreement, dated as of May 14, 2008, by and among DIRECTV Holdings LLC and Bank of America, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to
Exhibit 10.4 of the Form 8-K of DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. filed May 16, 2008)**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.


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DIRECTV HOLDINGS LLC

Exhibit
Number

Exhibit Name**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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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(Dollars in Millions)For the Year Ended December 31, 2008Allowances Deducted from AssetsAccounts receivable

$
(39
)
$
(181
)
$
(192)
(a)
$
380
(b)
$
(32
)For the Year Ended December 31, 2007Allowances Deducted from AssetsAccounts receivable

$
(39
)
$
(172
)
$
(158)
(a)
$
330
(b)
$
(39
)For the Year Ended December 31, 2006Allowances Deducted from AssetsAccounts receivable

$
(50
)
$
(184
)
$
(119)
(a)
$
314
(b)
$
(39
)


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

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DIRECTV HOLDINGS LLC

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: February 26, 2009

By:

/s/ PATRICK T. DOYLE Patrick T. Doyle
Executive Vice President and
Chief Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 26th day of February 2009 by the following persons on
behalf of the Registrant and in the capacities indicated.

/s/ CHASE CAREY Chase Carey

President, Chief Executive Officer and Director

}Principal Executive Officer/s/ PATRICK T. DOYLE Patrick T. Doyle

Executive Vice President and Chief Financial Officer

}Principal Financial Officer/s/ JOHN F. MURPHY John F. Murphy

Senior Vice President, Controller and Chief Accounting Officer

}Principal Accounting Officer/s/ LARRY D. HUNTER Larry D. Hunter

Executive Vice President, General Counsel, Secretary and Director/s/ MICHAEL W. PALKOVIC Michael W. Palkovic

Executive Vice President, Operations and Director


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DIRECTV HOLDINGS LLC

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: February 26, 2009

By:

/s/ PATRICK T. DOYLE Patrick T. Doyle
Executive Vice President and
Chief Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 26th day of February 2009 by the following persons on
behalf of the registrant and in the capacities indicated.

/s/ CHASE CAREY Chase Carey

President, Chief Executive Officer and Director

}Principal Executive Officer/s/ PATRICK T. DOYLE Patrick T. Doyle

Executive Vice President and Chief Financial Officer

}Principal Financial Officer/s/ JOHN F. MURPHY John F. Murphy

Senior Vice President, Controller and Chief Accounting Officer

}Principal Accounting Officer


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DIRECTV HOLDINGS LLC

EXHIBIT INDEX

Exhibit Number

Exhibit Name31.1

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.


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.

---