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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year-ended December 31, 2003.

or

For the transition period from              to             

Commission file number: 333-106529

DIRECTV HOLDINGS LLC

DIRECTV FINANCING CO., INC.

(Exact Name of Registrant as Specified in Its Charter)

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 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  x    No  ¨

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.  x

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

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.

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,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “foresee”,”project” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Risk factors which could cause actual performance and future actions to differ materially from forward-looking statements made herein include, among others, the following:

We urge you to consider these factors carefully in evaluating forward-looking statements. 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.

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PART I

ITEM 1. BUSINESS

Description of Our Business

We are the largest provider of direct broadcast satellite, or DBS, television services and the second largest MVPD provider in the United States, in each case based on the number of subscribers. We provide our customers with access to hundreds of channels of digital-quality video and audio programming that are transmitted directly to our customers’ homes or businesses via high-powered geosynchronous satellites. As of December 31, 2003, we had approximately 12.2 million subscribers, of which approximately 10.7 million were owned and operated subscribers and approximately 1.5 million were subscribers who received our service from members and affiliates of the National Rural Telecommunications Co-operative, or NRTC.

We believe we provide one of the most extensive collections of programming available in the MVPD industry. We currently distribute to our U.S. customers more than 850 digital video and audio channels, including about 125 basic entertainment channels, 31 premium movie channels, over 25 regional and specialty sports networks, an aggregate of over 600 local channels, over 35 Spanish and Chinese language special interest channels, up to 55 pay-per-view movie and event choices and seven high-definition television, or HDTV, channels. Although we distribute over 600 local channels, a customer receives only the local channels in the customer’s home market. Currently, we deliver local channels in 64 major metropolitan markets or about 72% of U.S. television households. Assuming the successful launch of a new high-powered, spot-beam satellite, DIRECTV 7S, along with approval from the FCC to move our DIRECTV 5 satellite to an orbital slot currently controlled by Telesat Canada, we expect to provide local channel coverage to approximately 130 markets, or about 92% of U.S. television households, by the end of 2004.

We also provide premium professional and collegiate sports programming such as the NFL SUNDAY TICKET^™ package, which allows subscribers to view as many as 14 NFL games played each Sunday during the regular season. Under our contract with the NFL, we have exclusive DBS television, high-definition and interactive rights to the NFL SUNDAY TICKET package through 2007 and exclusive multi-channel television rights through 2005.

To subscribe to our service, customers purchase receiving equipment from us or through one of approximately 18,000 retail locations in the United States, including Best Buy and Circuit City, as well as independent satellite television retailers and dealers.

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 purchasing and installing a DIRECTV System, customers activate our service by calling us and subscribing to one of our programming packages.

Infrastructure

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In addition, based on a review of various strategies and technologies, we are exploring alternatives to maximize the capacity of the DIRECTV platform to provide our customers expanded local and HDTV services. The implementation of such strategies will require additional capital expenditures in the future.

The National Rural Telecommunications Cooperative

As of December 31, 2003, 1.5 million of our approximately 12.2 million subscribers received DIRECTV services from the members and affiliates of the NRTC. Pursuant to an agreement entered into in 1992 between a predecessor of DIRECTV, Inc. and the NRTC, the NRTC has the exclusive right to distribute our services transmitted from 27 of the 32 frequencies located at 101 WL to customers located primarily in rural areas of the United States. As part of a settlement reached in January 2004 regarding certain disputes arising from the agreement, the NRTC and we agreed that the term of the agreement shall continue until the later of the useful life of our initial direct-to-home satellite, DIRECTV 1, or June 30, 2008. In addition, the NRTC and we agreed to enter into a new agreement on the same terms that will run from the expiration of the prior agreement to June 30, 2011. See “Legal Proceedings “ in Item 3. The NRTC separately contracted with its members and affiliates to provide them with rights to market and sell these services. The NRTC pays us a fee on the revenues from these services, which are branded using the DIRECTV name pursuant to a trademark license agreement between us and the NRTC. NRTC “territories” comprise approximately 10 million of the approximately 107 million U.S. television households.

We have also separately contracted with the NRTC and with Pegasus Satellite Television, Inc., or Pegasus, the NRTC’s largest affiliate whose territory covers approximately 8 million of the 10 million NRTC households. Our agreements with the NRTC and Pegasus permit each of them to market and sell services, including premium services, that we transmit from the other 5 frequencies located at the 101 WL orbital slot, as well as frequencies

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located at 110 WL and 119 WL orbital slots. For these separately contracted services, the NRTC and Pegasus pay us a percentage of subscriber revenues generated. As of December 31, 2003, approximately 1.2 million of the 1.5 million NRTC subscribers were customers of Pegasus. See “Legal Proceedings” in Item 3.

News Corporation Transactions

On December 22, 2003, General Motors Corporation, the former parent of The DIRECTV Group, or GM, The DIRECTV Group and The News Corporation Limited, or News Corporation, completed a series of transactions that resulted in the split-off of The DIRECTV Group from GM and the simultaneous sale of GM’s 19.8% interest in The DIRECTV Group to News Corporation. Immediately after the split-off, News Corporation acquired an additional 14.2% of The DIRECTV Group’s outstanding common stock from the former GM Class H common stockholders, which provided News Corporation with a total of 34% of the outstanding capital stock of The DIRECTV Group. Upon completion of these transactions, News Corporation transferred its interest in The DIRECTV Group to its 82% owned subsidiary, Fox Entertainment Group, Inc.

Our Key Strengths

Our business is characterized by the following key strengths:

Our satellite-based service provides us with many advantages over ground-based cable services, including the ability to distribute hundreds of channels to millions of recipients nationwide with

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minimal incremental cost per additional subscriber, comprehensive coverage to areas with low population density in the United States and the ability to quickly introduce new services to a large number of customers.

Our Business Strategy

Our overall goal is to provide customers with the best television experience in the United States. We believe our association with News Corporation’s global economies of scale and world-class content will help us attain this goal. Our strategy focuses on attaining leadership in technology, offering our customers compelling and differentiated content, and providing high-quality customer service. If we are successful in executing this strategy, we believe that we will generate strong subscriber revenue and cash flow growth in the future.

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Competition

Our industry is highly competitive. Our competition includes companies that offer video, audio, interactive programming, telephony, data and other entertainment services, including cable television, wireless companies, DBS companies and companies that are developing new technologies. Many of our competitors have access to substantially greater financial and marketing resources than we have. We believe that the quality and variety of video, audio and interactive programming, quality of picture, access to service, availability of a broadband internet service, customer service and price are the key elements for gaining and maintaining market share.

Other domestic or foreign satellite operators also have proposed to offer direct-to-home satellite service to U.S. customers using U.S.-licensed satellite frequencies or foreign-licensed frequencies that have the ability of covering the United States. SES Americom, for example, is the licensee of U.S. frequencies that can be used to offer direct-to-home service, and has petitioned the FCC for a declaratory ruling to allow it to provide DBS service using frequencies assigned to it by the Government of Gibraltar and the United Kingdom.

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Government Regulation

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

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

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

The FCC grants authorizations to satellite operators that meet its legal, technical and financial qualification requirements. Such authorizations are conditioned on satisfaction of ongoing due diligence, construction, reporting and related obligations. Further, the FCC must approve the relocation of satellites to different orbital locations or the replacement of an existing satellite with a new satellite.

All of our satellites and earth stations are licensed by the FCC. The FCC generally issues DBS and earth station licenses for a ten-year period, 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 declined to renew the operator’s license, the operator would be required to cease operations and the frequencies would revert to the FCC.

Currently we have several applications pending before the FCC, including applications to relocate our DIRECTV 3 and DIRECTV 5 satellites, as well as an application to launch and operate DIRECTV 7S, our second spot-beam satellite. In connection with the DIRECTV 3 application, we reported to the FCC that the DIRECTV 3 satellite had been moved without receiving prior FCC approval, which could subject us to enforcement action by the FCC. In general, the FCC’s approval of these applications is required for us to continue to expand our offering of local-into-local service into additional local television markets. There can be no assurance that these approvals will be obtained in a timely fashion or at all.

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As a DBS licensee and operator, we are subject to a variety of Communications Act requirements, FCC implementing regulations and copyright laws that could materially affect our business as a distributor of multichannel video and audio programming. They include:

SHVIA also permits satellite retransmission of distant network stations (those that originate outside of a satellite subscriber’s local television market) only to “unserved households.” A subscriber qualifies as an “unserved household” if he or she cannot receive, over the air, a signal of sufficient intensity from a local station affiliated with the same network. In implementing SHVIA, the FCC has required satellite carriers to delete certain programming, including sports programming, from the signals of certain distant stations. In addition, the FCC’s interpretation, implementation and enforcement of other provisions of SHVIA, as well as judicial decisions interpreting and enforcing SHVIA (as codified in the Communications Act and copyright laws), could hamper our ability to retransmit distant network and superstation signals, reduce the number of our existing or future customers 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 addition, the FCC’s sport blackout requirements, which apply to all distant network signals, may require costly upgrades to our system.

Many of the changes to the Communications and Copyright Acts enacted by SHVIA expire at the end of 2004, and require Congressional re-authorization. A failure of Congress to do so could have a material adverse effect on our business. In addition, there could be a number of additional requirements imposed on us through the legislative renewal process that are difficult to predict and that could also adversely affect us.

The FCC has implemented SHVIA’s must carry requirement and adopted further detailed must carry rules covering our carriage of both commercial and non-commercial broadcast television stations. These must carry rules generally require us to carry all of the local broadcast stations requesting carriage in a timely and appropriate manner in markets in which we choose to retransmit the signals of local broadcast stations. 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. For example, the FCC is currently assessing whether cable operators, and possibly DBS operators, must engage in “dual carriage” of local broadcast signals as these broadcasters upgrade their signals to digital transmission. In addition, the FCC is assessing the degree to which satellite carriers are capable of carrying HDTV signals, or multicast digital standard-definition channels, of local broadcasters, and the extent to which the Communications Act requires mandatory carriage of such signals. Compliance with must carry rules may also mean that we may not be able to use capacity that could otherwise be used for new or additional national programming services.

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In addition, unlike other satellite services, the FCC has moved to a system of competitive bidding to assign licenses for additional DBS frequencies. For example, the FCC has scheduled an auction of certain DBS frequencies at western DBS orbital locations to take place in July 2004. There can be no assurance that if we participate in this or other auctions for DBS capacity that we will prevail and obtain it, or that we will be deemed eligible to participate in future auctions.

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On April 25, 2002, SES Americom, Inc. requested a declaratory ruling that it is in the public interest for SES Americom to deliver satellite capacity to third parties to allow such parties to provide direct-to-home programming services to consumers in the United States and certain British Overseas Territories in the Caribbean. SES Americom proposes to employ a satellite purportedly licensed by the Government of Gibraltar to operate in the same uplink and downlink frequency bands as us, from an orbital position that is located in between two orbital locations where we have already positioned our satellites. We have opposed FCC consideration of SES Americom’s petition, and believe that SES Americom’s satellite, if located as currently proposed by SES, would cause interference to our current and planned operations and impose a significant constraint on the further growth of U.S. DBS service. Other foreign operators have followed SES in filing for satellites at the International Telecommunications Union that have U.S. coverage, which could interfere with us or require us to undertake an international coordination process that could result in constraints on our operations or service growth. In addition, EchoStar has filed U.S. applications before the FCC to introduce additional satellites between our operating and planned spacecraft which, if granted, similarly could constrain our operations or service growth. The FCC currently is considering whether to hold a rulemaking proceeding to address these developments, and we cannot predict whether the FCC will do so or the effect of such a proceeding on our business.

In connection with the requirement that we serve an additional 30 local markets with local broadcast channels beyond what had been previously funded, projected or planned by us, we have applied to the FCC for authority to do so by relocating our DIRECTV 5 satellite to 72.5 WL, which is an orbital slot allocated to Canada under International Telecommunications Union rules, and using the frequencies at that slot to offer additional local channel service. Our applications are presently being processed by the FCC, but have been opposed by third parties. While we expect to ultimately obtain the approvals we seek, there can be no assurance that we will do so in a timely fashion or at all. A failure to meet the FCC’s condition of providing additional local channel service could subject us to enforcement action or other penalties by the FCC or the Department of Justice.

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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. Additionally, to the extent that we may seek to provide international service to other countries, we may be required to obtain licenses in such other countries to do so. Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end users vary substantially, and we could also be subject to national communications and/or broadcasting laws with respect to our provision of any international satellite service.

Intellectual Property

Our portfolio of trademarks is an important asset of our business. We hold over 75 U.S. and foreign trademark registrations, including registration of our primary DIRECTV trademark and the Cyclone Design logo under which we do business. These trademarks are licensed royalty-free to third parties for use in the support of our business. We maintain an active program to protect our marks against unauthorized or improper use by third parties. Some of the intellectual property used in our business is owned by The DIRECTV Group and licensed to us.

Employees

As of December 31, 2003, we had 3,261 full-time and 35 part-time employees. We believe that our employee relations are good. None of our employees is represented by any labor union.

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ITEM 2. PROPERTIES

The following table identifies our material real estate properties:

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, 2003 or subsequent thereto, but before the filing of this report are summarized below:

NRTC, Pegasus and Related Litigation. On June 3, 1999 and on August 26, 1999, the NRTC filed lawsuits against certain subsidiaries of The DIRECTV Group, including DIRECTV, Inc., in the U.S. District Court for the Central District of California. For purposes of this section, we refer to all of The DIRECTV Group’s subsidiaries involved in these lawsuits collectively as DIRECTV. The lawsuits alleged that DIRECTV breached its DBS Distribution Agreement with the NRTC and wrongfully deprived it of the exclusive right to distribute certain programming, and sought recovery of related revenues. DIRECTV denied the NRTC claims and asserted counterclaims against the NRTC. A class action was filed in the same court against DIRECTV on behalf of the NRTC’s participating members on February 29, 2000. The class, which the court certified, asserted claims identical to the claims that Pegasus Satellite Television, Inc., or Pegasus, and Golden Sky Systems, Inc., or Golden Sky, asserted as described in the next paragraph. On August 11, 2003, DIRECTV, the NRTC and the class representatives entered into a binding settlement term sheet and on January 5, 2004, the Court approved the class action settlement at a fairness hearing, resulting in the dismissal of all claims by and between DIRECTV, the NRTC and the class.

Pegasus and Golden Sky, the two largest NRTC affiliates, which we refer to in this paragraph as Plaintiffs, filed an action on January 11, 2000 against DIRECTV in the same court as the NRTC case. The Plaintiffs alleged, among other things, that DIRECTV interfered with their contractual relationship with the NRTC. The Plaintiffs alleged that their rights and damages are derivative of the rights and damages asserted by the NRTC in its lawsuits against DIRECTV discussed above. On May 22, 2003, the Court granted DIRECTV’s motion for summary judgment on the interference claims, eliminating all claims for compensatory damages and punitive damages asserted by Plaintiffs and narrowing other of Plaintiffs’ claims. The Plaintiffs have not accepted DIRECTV’s offer to settle on the same terms as the class settlement described above. However, DIRECTV

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believes that the remaining issues regarding the term of Plaintiffs’ contractual rights and its future relationship with DIRECTV have been determined by the settlement because Plaintiffs’ rights are derived from its contract with the NRTC. On January 23, 2004, DIRECTV moved to dismiss all of Plaintiffs’ remaining claims and moved for reconsideration of its summary judgment motion on the terms of Plaintiffs’ member agreement.

DIRECTV filed suit in California State Court, Los Angeles County, on June 22, 2001 against Pegasus and Golden Sky, which we refer to collectively in this paragraph as the Defendants. The lawsuit seeks to recover approximately $54 million, excluding interest, that Defendants owe DIRECTV under the parties’ Seamless Marketing Agreement, which provides for reimbursement to DIRECTV of certain costs that resulted from new subscriber activations in Defendants’ territory. Defendants had ceased making payments, and indicated that they did not intend to make any further payments due under the agreement. On July 16, 2001, Defendants filed a cross complaint. Defendants then removed the action to the U.S. District Court for the Central District of California, where it was transferred to the judge hearing the other cases described above. DIRECTV denies any liability to Defendants, and intends to vigorously pursue the amounts owed to it, plus interest, from Defendants and defend against Defendants’ counterclaims. The trial date is set for March 23, 2004. This matter is not affected by the settlement described above.

On February 1, 2001 and September 19, 2001, the NRTC filed lawsuits in the U.S. District Court for the Central District of California against DIRECTV seeking a declaration from the court that it is not required to defend and indemnify DIRECTV for certain litigation pursued by its members. As part of the settlement described above, these cases were dismissed by the parties on January 8, 2004. The NRTC agreed to waive all claims regarding recoupment of fees and costs paid to date. The NRTC will no longer have the obligation to pay DIRECTV’s costs of defense, including attorneys’ fees, of any litigation other than Pegasus’ current litigation pending in the Central District of California, and the NRTC will not be required to indemnify DIRECTV for any judgment entered in the Pegasus Development Corporation patent litigation described below unless and until a court has entered final judgment that the NRTC has such obligation.

Independent Retailer Litigation. In April 2001, Robert Garcia, doing business as Direct Satellite TV, an independent retailer of DIRECTV system equipment, instituted arbitration proceedings against DIRECTV in Los Angeles, California regarding commissions and certain chargeback disputes. On October 4, 2001, Mr. Garcia filed a class action complaint against DIRECTV in Los Angeles County Superior Court asserting the same claims and a Consumer Legal Remedies Act claim. Mr. Garcia alleges $300 million in class-wide damages and seeks certification of a class of plaintiffs to proceed in arbitration with court oversight. DIRECTV moved to dismiss and compel arbitration. On April 17, 2002, the Court entered an order compelling plaintiffs in the purported class to pursue their individual claims in arbitration, but the court purported to retain jurisdiction to determine whether there should be class treatment of dealer claims within the arbitration. DIRECTV appealed the order which was denied by both the appellate court and the California Supreme Court. On June 23, 2003, the U.S. Supreme Court issued its decision in the case Bazzle v. Green Tree Financial Corp., finding that whether an agreement to arbitrate permits class action arbitration is a decision for the arbitrator, not a court, to make. On October 6, 2003, the U.S. Supreme Court granted DIRECTV’s writ of certiorari vacating the state court decision and remanding the Garcia case for further proceedings consistent with the Bazzle decision. The California Court of Appeals issued an opinion on January 28, 2004 in which it reversed the April 17, 2002 order and remanded the case to the trial court with directions to remand the case to arbitration. On February 23, 2004, the trial court compelled the matter to arbitration and relinquished all jurisdiction in connection with the case. The matter is now pending before the American Arbitration Association.

On May 18, 2001, plaintiffs Cable Connection, Inc., TV Options, Inc., Swartzel Electronics, Inc. and Orbital Satellite, Inc. filed a class action complaint against DIRECTV in Oklahoma State Court, alleging claims similar to those in the above-described Garcia matter on behalf of all DIRECTV dealers. The plaintiffs seek unspecified damages and injunctive relief. As in the Garcia matter, the trial court granted DIRECTV’s motion to compel

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arbitration, but purported to retain jurisdiction to determine whether there should be class treatment of retailer claims within the arbitration. On January 7, 2003, the Oklahoma State Supreme Court issued an order permitting DIRECTV to proceed with an appeal of the trial court order. The appeal was stayed because of the Bazzle case. Following the Bazzle decision, DIRECTV and plaintiffs stipulated to dismiss the appeal and treat the matter in accordance with the Bazzle decision, but the Oklahoma State Supreme Court, in a communication dated July 23, 2003, has decided to retain jurisdiction and has not yet issued any further orders. On March 12, 2004, the plaintiffs served upon DIRECTV a Statement of Claim and Demand for Class Action Arbitration in Los Angeles, California essentially repeating the allegations and demands made in the litigation.

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

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

In April 1997, the International Electronics Technology Corp. filed suit in the U.S. District Court for the Central District of California against DIRECTV, Inc., Hughes Aircraft Co., and Thomson Inc., alleging infringement of one U.S. patent and seeking unspecified damages and injunction. Plaintiff has asserted an interpretation of the claims at issue that relates to conditional access technology, and DIRECTV, Inc. has turned over the defense to NDS Limited, or NDS. Trial has not yet been scheduled. DIRECTV, Inc. has raised defenses of non-infringement and/or invalidity.

(b) Previously reported legal proceedings which have been terminated during the fourth quarter ended December 31, 2003 are summarized below:

In September 2002, DIRECTV, Inc., DIRECTV Enterprises, LLC, and DIRECTV Operations, LLC, which we refer to in this paragraph as the DIRECTV Parties, filed a lawsuit in U.S. District Court in Los Angeles against NDS (and related entities), the provider of DIRECTV’s conditional access system, alleging, among other things, breach of contract and misappropriation of trade secrets. On October 21, 2002, NDS filed counterclaims against the DIRECTV Parties and a chip manufacturer. NDS sought injunctive relief as well as an unspecified amount in punitive damages. On August 5, 2003, the DIRECTV Parties, NDS, the chip manufacturer, The DIRECTV Group and News Corporation, NDS’ parent company, entered into an agreement to stay the litigation pending the closing of the proposed transactions with News Corporation. Upon closing of the News Corporation transactions, the litigation and all claims and counterclaims were dismissed with prejudice.

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

Omitted.

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PART II

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

Omitted.

The following is a discussion of our financial condition and results of operations for the periods described below. This discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report.

Key Terminology used in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revenues. We derive revenues mostly from subscriber subscriptions to basic and premium channel programming, pay-per-view programming and seasonal and live sporting events. We also derive revenues from fees from subscribers with multiple set-top receivers, which we refer to as mirroring fees, DIRECTV-The Guide, access card sales, warranty service fees and advertising services. Revenues also include fees earned from the National Rural Telecommunications Cooperative, or NRTC, which are equal to a percentage of the subscriber revenues earned from the subscribers located in certain areas (mainly rural). As a result of an arrangement with the NRTC, subscribers in such areas may purchase the majority of our services only through the NRTC’s members or affiliates.

Programming and Other Costs. These costs primarily include license fees for subscription service programming, pay-per-view movies, live sports and other events. Other costs include expenses associated with the publication and distribution of DIRECTV-The Guide, access cards provided to set-top receiver manufacturers, continuing service fees paid to third parties for active DIRECTV subscribers, warranty service premiums paid to a third party, and production costs for on-air advertisements sold to third parties.

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

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

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

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

Retention, Upgrade and Other Marketing Costs. Retention and upgrade costs primarily include the costs of loyalty programs offered to existing subscribers in an effort to reduce subscriber churn. Our costs for loyalty programs include the costs of installing or providing hardware under our movers program (for subscribers relocating to a new residence), our multiple set-top receiver offer, our DVR (digital video recorder) and local channel upgrade programs and other similar initiatives, and third party commissions incurred for the sale of additional set-top receivers to existing subscribers. Other marketing costs are primarily associated with payroll and benefit costs for our in-house marketing department, which promotes additional DIRECTV services to existing subscribers, such as premium and local channel programming, pay-per-view programming, and seasonal and live sporting events, in an effort to increase average monthly revenue per subscriber.

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

General and Administrative Expenses. These costs include departmental costs for legal, administrative services, finance 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 disposal of fixed assets.

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

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

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We calculate Operating Profit Before Depreciation and Amortization margin by dividing Operating Profit Before Depreciation and Amortization by total revenues.

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

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

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

Business Overview

On June 11, 2002, The DIRECTV Group, or our Parent, formed DIRECTV Holdings LLC, or DIRECTV, as a wholly-owned subsidiary of The DIRECTV Group, and contributed its wholly-owned subsidiary, DIRECTV Enterprises, LLC, and its subsidiaries to us along with certain premium subscription programming contracts that it acquired in May 1999 from United States Satellite Broadcasting Company, Inc., or USSB. The wholly-owned subsidiaries of DIRECTV Enterprises, LLC consist of DIRECTV Operations, LLC, DIRECTV Merchandising, Inc., DIRECTV Customer Services, Inc., USSB II, Inc., RSG Resource Supply GmbH, DIRECTV, Inc. and Triumph Communications, Inc. Our formation and capitalization is the result of transfers of net assets by entities under common control. Therefore, the financial statements reflect The DIRECTV Group’s historical cost basis in the net assets and the consolidated results of operations associated with the net assets since the date of their original acquisition by The DIRECTV Group.

We are the largest provider of direct broadcast satellite, or DBS, television services and the second largest multi-channel video programming distributor, or MVPD, in the United States, in each case based upon number of subscribers. We own a fleet of seven in-orbit high-power satellites, and we expect to increase our fleet of satellites with the launch of DIRECTV 7S in the second quarter of 2004, DIRECTV 8 in the second quarter of 2005 and DIRECTV 9S in the fourth quarter of 2005. We currently distribute to our U.S. customers more than 850 digital-quality video and audio channels, including about 125 basic entertainment channels, 31 premium movie channels, over 25 regional and specialty sports networks, an aggregate of over 600 local channels, over 35 Spanish and Chinese language special interest channels, up to 55 pay-per-view movie and event choices, seven

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HDTV channels. DIRECTV entertainment and information programs are transmitted from our digital broadcast centers located in Castle Rock, Colorado and Los Angeles, California to our in-orbit satellites. Our programming is then received by customers using DIRECTV receiving equipment, which includes a small satellite dish, a digital set-top receiver and a remote control. DIRECTV receiving equipment is manufactured by Hughes Network Systems, Inc., a subsidiary of The DIRECTV Group, Thomson Inc. (RCA) and other name brand consumer electronics companies. Our DIRECTV receiving equipment is distributed to consumers through national retail and consumer electronics stores, satellite television dealers, regional telephone companies, our direct customer acquisition program and rural and urban dealer networks.

Currently, we deliver local channels in 64 major metropolitan markets or about 72% of U.S. television households. By the end of 2004, we expect to increase our local channel offerings to a minimum of 130 markets with the launch of DIRECTV 7S and the use of our DIRECTV 5 satellite in the 72.5 degrees west longitude, or WL, Canadian orbital location through our arrangement with Telesat Canada, a Canadian telecommunications and broadcast services company, or Telesat. This arrangement is contingent upon FCC approval. Assuming FCC approval is granted, DIRECTV 7S will replace DIRECTV 5 at 119 WL and DIRECTV 5, or a similar satellite, will be relocated to 72.5 WL and used to provide additional local channels and other programming in the United States through 2008. Customers who receive programming from 72.5 WL will require a second satellite dish at their homes or service locations.

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

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

News Corporation Transactions. On December 22, 2003, General Motors Corporation, the former parent of The DIRECTV Group, or GM, The DIRECTV Group and The News Corporation Limited, or News Corporation, completed a series of transactions that resulted in the split-off of The DIRECTV Group from GM and the simultaneous sale of GM’s 19.8% interest in The DIRECTV Group to News Corporation. Immediately after the split-off, News Corporation acquired an additional 14.2% of The DIRECTV Group’s outstanding common stock from the former GM Class H common stockholders, which provided News Corporation with a total of 34% of the outstanding capital stock of The DIRECTV Group. Upon completion of these transactions, News Corporation transferred its interest in The DIRECTV Group to its 82% owned subsidiary, Fox Entertainment Group, Inc.

Competition and Industry Highlights. Our competitors within the MVPD industry include cable television, DBS, direct-to-home satellite and wireless cable companies. The FCC recently reported that approximately 90 million, or 84%, of approximately 107 million U.S. television households subscribe to MVPD services, of which more than 21 million subscribe to DBS. We believe there continues to be significant demand for our high quality television programming service, which we plan to continue to differentiate from other MVPDs with new traditional content, interactivity, high-definition television, or HDTV, programming, DVR content and more. Therefore, we believe there is substantial opportunity for continued subscriber revenue, earnings and cash flow growth.

Although there is substantial opportunity for revenue and earnings growth, our industry is subject to increasing programming costs due to average annual programming rate increases that significantly exceed

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inflation and the high cost of subscriber acquisitions due to significant competition. We believe that there is an opportunity for us to reduce the average annual increase of our programming costs by leveraging our large subscriber base in renegotiations with our program suppliers. We also believe there is an opportunity for us to reduce our subscriber acquisition costs through simplification and standardization of our set-top receiver design, and through streamlining our ordering, distribution, inventory management and sales processes, as well as through technological advances.

Our industry is also subject to high levels of subscriber churn, which requires significant investment for us to manage. We do believe that the cost of managing churn is well worth the investment, since it is more costly to add new subscribers. We manage our churn by providing a high level of customer service and by providing loyalty and retention offers to our existing subscribers. Our loyalty and retention offers include such offers as our additional set-top receiver, DVR and local channel upgrade programs. We find that subscribers that have advanced products, multiple set-top receivers or receive local channels remain DIRECTV subscribers longer than other subscribers. We do believe that we can reduce retention costs by improving our cost structure similar to that described above for our subscriber acquisition costs.

We are also subject to the additional cost of adding more local channel and HDTV programming, which requires significant capital expenditures for satellites, broadcast equipment and additional orbital frequencies to increase our programming content capacity. As part of the December 2003 transaction with News Corporation, the FCC required us to provide local channels in an additional 30 local U.S. markets, subject to certain conditions, for a total of up to 130 local markets by the end of 2004. We believe our continued expansion will require significant capital investment over the next several years, which we believe is necessary for us to remain competitive with other MVPD companies.

Executive Overview and Outlook

Revenues. Our revenue increases over the last three years have been driven by our growing subscriber base and increasing ARPU. We have added more than 1 million net new owned and operated subscribers in each of the last three years. We also expect to add more than 1 million net new owned and operated subscribers in 2004 mostly through the introduction of local channels into additional markets, continued competitive offers to new customers, the introduction of new services and the expected reduction of churn to slightly below the level of churn in 2003. Our ARPU increased 6.9% in 2003 and 1.9% in 2002. We expect ARPU for 2004 to increase slightly above our planned March 2004 price increase of 3.0 - 3.5% per month.

Operating Costs. Over the last three years, our operating costs have decreased as a percentage of revenues from 104% in 2001 to 94% in 2003. We expect operating costs as a percentage of revenues to continue to improve in 2004 due to lower general and administrative expenses, subscriber service expenses and depreciation and amortization expense as a percentage of revenues, partially offset by an increase in retention, upgrade and other marketing costs. Although we believe subscriber acquisition costs will remain fairly constant as a percentage of revenues due to our revenue growth, we believe SAC will be higher in 2004 compared to 2003. Our expected increases in SAC and retention, upgrade and other marketing costs are due to an expected increase in the number of set-top receivers and DVRs per subscriber, partially offset by lower set-top receiver costs.

Cash Flows. We expect cash flows, which we define as net cash provided by operating activities less cash used in investing activities, in 2004 to be slightly less than in 2003 due to higher capital expenditures for satellites and broadcast equipment to support the launch of new local and HDTV channels, and higher working capital requirements mostly related to the timing of payments for our NFL SUNDAY TICKET contract.

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Results of Operations

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

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Discussion of Significant Events Affecting Year to Year Comparability

During the fourth quarter of 2001, we successfully launched and commenced service of the DIRECTV 4S high-powered spot-beam satellite at 101 WL. In the second quarter of 2002, we launched the DIRECTV 5 satellite and commenced service at 119 WL. With the DIRECTV 4S and DIRECTV 5 satellites, we increased our capacity to more than 850 channels, including the capacity to transmit more than 600 local channels.

During 2001, we announced a 22% reduction in our workforce, excluding our customer service representatives. As a result, 475 employees, across all business disciplines, were terminated, which resulted in a charge to operations of $47.9 million in “General and administrative expenses” in the consolidated statements of operations.

During April 2002, we entered into settlement negotiations with General Electric Capital Corporation, or GECC, to settle a claim arising from a contractual arrangement whereby GECC managed a credit program for consumers who purchased our programming and related equipment. On June 4, 2002, the parties executed an agreement to settle the matter for $180.0 million, of which we accrued $145.0 million prior to January 1, 2001, and additional interest of $12.0 million in 2002 and $23.0 million in 2001. We paid the total amount of the settlement to GECC in June 2002.

In 2002, we recognized a net pre-tax gain of $62.0 million included in the consolidated statement of operations in “Other income (loss), net.” The 2002 gain resulted from a gain of $158.6 million from the sale of about 8.8 million shares of Thomson multimedia S.A., or Thomson, stock for approximately $211.0 million, a gain of $2.7 million from the sale of an investment in Wink Communications, Inc. for about $6.3 million and the write-down of certain investments of $99.3 million due to other-than-temporary declines in fair value. In 2001, we also recognized a pre-tax gain of $108.3 million that was included in “Other income (loss), net” due to the sale of 4.1 million shares of Thomson stock for $132.7 million.

In December 2002, we announced a five-year agreement with the NFL for the exclusive digital broadcast satellite television rights to the NFL SUNDAY TICKET through 2007 and exclusive multichannel television rights through 2005. Our agreement with the NFL allows us to distribute expanded programming on the DIRECTV service to our NFL SUNDAY TICKET subscribers, including games broadcast in HDTV and the NFL CHANNEL^™.

During the first quarter of 2003, we raised approximately $2,625.0 million in cash through a series of financing transactions described in “Liquidity and Capital Resources” below. We distributed substantially all of the cash proceeds from the financing transaction, which amounted to $2,558.5 million, net of debt issuance costs, to The DIRECTV Group and recorded the transaction as a distribution to Parent in the consolidated statements of changes in owner’s equity.

In October 2003, we announced that we entered into an agreement with Space Systems/Loral, Inc. to construct two new satellites, DIRECTV 8 and DIRECTV 9S, at an expected cost of approximately $220.0 million, excluding launch and insurance costs. In addition, we agreed to pay Space Systems/Loral, Inc. an additional $25.0 million for the completion of the DIRECTV 7S satellite. We expect DIRECTV 8 to provide national coverage and to operate DIRECTV 9S as a back-up for our DIRECTV 4S and DIRECTV 7S satellites.

Year ended December 31, 2003 compared with the year ended December 31, 2002

Subscribers We had approximately 10.7 million owned and operated subscribers at December 31, 2003 that resulted from our adding 1.2 million net new subscribers during 2003. Including the subscribers of NRTC’s members and affiliates, we had a total of about 12.2 million at December 31, 2003 and 11.2 million subscribers at December 31, 2002.

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Our improvement in average monthly churn from 1.6% in 2002 to 1.5% in 2003 was primarily due to our continued strong customer service, our increased number of markets with local channels resulting in a higher number of subscribers purchasing local channel programming, as well as an increase in the number of our subscribers with multiple set-top receivers and DVRs.

Revenues. The $1,251.0 million increase in revenues to $7,695.6 million resulted from the new subscribers added in 2003 and higher ARPU on the larger subscriber base. The 6.9% increase in ARPU to $63.90 resulted primarily from a March 2003 monthly price increase of about 3.3% on certain programming packages, higher mirroring fees that we collected from an increased number of subscribers with multiple set-top receivers, higher revenues from subscriber purchases of local channels and higher revenues from seasonal and live sporting events that resulted primarily from increased demand and an increased price for the NFL SUNDAY TICKET package.

Total Operating Costs and Expenses. The $1,040.9 million increase in total operating costs and expenses to $7,236.8 million resulted primarily from higher costs for programming, subscriber acquisitions, and customer retention and upgrade initiatives. Also contributing to the increase was higher depreciation and amortization expense.

The higher programming costs resulted from the increased number of subscribers, annual program supplier rate increases, the launch of additional local and other channels during 2003 and increased costs associated with our new NFL SUNDAY TICKET contract.

Higher subscriber additions and an increase in SAC per subscriber primarily drove the increase in subscriber acquisition costs. The higher SAC per subscriber was mostly due to an increase in the number of set-top receivers provided to new subscribers, which rose from an average of about 1.7 set-top receivers per new subscriber in 2002 to about 2.1 in 2003, an increase in the number of subscribers purchasing DVRs and higher advertising costs. The substantial increase in “Subscriber acquisition costs – Direct customer acquisitions” was due to increased volume under our direct sales program, which accounted for about 24% of gross subscriber acquisitions in 2003 compared to about 13% in 2002.

The increased volume under our movers program and DVR and local channel upgrade programs primarily drove the increase in retention and upgrade costs. Under these programs, we provide DVRs or additional equipment, plus installation, to existing subscribers at significantly reduced prices or for free.

The $91.4 million increase in depreciation and amortization expense was due mostly to about $200 million of capital additions completed during 2003, a full year of depreciation recognized on the DIRECTV 5 satellite that was launched in May 2002, and the fourth quarter 2002 reinstatement of amortization expense related to intangible assets in accordance with Emerging Issues Task Force, or EITF, Issue No. 02-17 “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination,” which we discuss more fully in Note 2 to the consolidated financial statements.

Operating Profit Before Depreciation and Amortization and Operating Profit. The $301.5 million increase in operating profit before depreciation and amortization to $955.8 million was mostly due to the higher margins from programming revenues and higher mirroring fees, partially offset by higher subscriber acquisition costs and higher retention and upgrade costs.

The $210.1 million increase in operating profit to $458.8 million resulted from the improvement in operating profit before depreciation and amortization, partially offset by the $91.4 million increase in depreciation and amortization expense.

Net Income. The $28.5 million increase in net income to $164.3 million was due to the increased operating profit, partially offset by the $100.4 million increase in interest expense that resulted from the first quarter 2003

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financing transactions and a 2002 net gain of $62.0 million associated with the sale and write-down of certain investments.

Year ended December 31, 2002 compared with the year ended December 31, 2001

Subscribers. We had approximately 9.5 million owned and operated subscribers at December 31, 2002 that resulted from our adding approximately 1.1 million net new subscribers during 2002. Including the subscribers of NRTC’s members and affiliates, we had a total of about 11.2 million at December 31, 2002 and 10.3 million subscribers at December 31, 2001.

Our average monthly churn for 2002 was 1.6% compared to 1.8% in 2001. Our decreased churn was due to an increase in the number of new subscribers signing up for 12-month programming commitments, improved customer service and more stringent credit screening practices for new customers.

Revenues. The $892.5 million increase in revenues to $6,444.6 million resulted from the new subscribers added in 2002 and higher ARPU on the larger subscriber base. Our 1.9% increase in ARPU to $59.80 was driven mostly by our expanded local channel offerings, higher revenues from seasonal and live sporting events and higher mirroring fees from an increased number of DIRECTV subscribers with multiple set-top receivers.

Total Operating Costs and Expenses. The $421.4 million increase in total operating costs and expenses to $6,195.9 million resulted primarily from higher costs for programming and subscriber services, which were partially offset by the decreases in subscriber acquisition costs and depreciation and amortization expense.

The increase in the number of subscribers and annual program supplier rate increases resulted in higher programming costs.

The increased subscriber service expenses resulted primarily from added service costs to support the increased subscriber base and increased customer service call volume resulting from expanded local channel offerings and repackaging of the DIRECTV service in 2002.

The decrease in subscriber acquisition costs and SAC resulted mostly from the elimination of manufacturer subsidies on most set-top receivers in January 2002, lower third party commissions mostly related to decreased gross subscriber additions through third party customer acquisition programs in 2002 compared to 2001 and lower advertising expenditures in 2002. We partially offset these decreases by $42.3 million of increased direct customer acquisition costs due to increased volume through our direct customer acquisition program in 2002 compared to 2001.

The $32.9 million decrease in depreciation and amortization expense was due to the discontinuation of amortization expense related to goodwill and intangible assets with indefinite lives of $128.8 million in accordance with Statement of Financial Accounting Standards, or SFAS No. 142, “Goodwill and Other Intangible Assets.” This decrease was partially offset by higher depreciation for capital additions and the DIRECTV 4S satellite placed into service in December 2001 and the DIRECTV 5 satellite in May 2002.

Operating Profit Before Depreciation and Amortization and Operating Profit. The $438.2 million increase in operating profit before depreciation and amortization to $654.3 million was mostly due to the higher margins from programming revenues, lower total subscriber acquisition costs and the 2001 charge related to our workforce reduction, partially offset by higher subscriber service expenses.

The $471.1 million increase in operating profit to $248.7 million resulted from the improvement in operating profit before depreciation and amortization, and the decline in depreciation and amortization expense.

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Net Income(Loss). The $314.1 million increase in net income to $135.8 million was due to the increased operating profit, lower interest expense and a 2002 net gain of $59.3 million associated with the sale and write-down of certain equity investments, partially offset by income tax expense of $83.3 million in 2002 compared to an income tax benefit of $82.5 million in 2001 because we generated income before income taxes in 2002, while in 2001 we incurred a loss before income taxes.

The lower interest expense was primarily attributable to lower long-term obligations, including above-market programming contracts and manufacturer subsidies, and lower interest expense associated with the GECC settlement.

We established the above market programming obligation in purchase accounting as part of the 1999 USSB transaction, which represents the present value of the portion of certain acquired programming contracts that were deemed above market with interest recognized over the remaining term of the contract. The decrease in the above market programming obligation resulted from cash payments made during the period. Manufacturer subsidies earned by manufacturers prior to September 2000 are payable over five years, the present value of which was accrued in the period of activation with interest expense recorded over the term of the obligation. The decrease in the manufacturer subsidy obligation resulted from cash payments made during the period.

Liquidity and Capital Resources

Prior to 2003, our net cash requirements were funded by capital contributions from The DIRECTV Group. Since the completion of our financing transactions in the first quarter of 2003, we no longer depend on The DIRECTV Group to provide additional capital and we have funded our cash requirements from cash generated by operations. We have up to $250.0 million of borrowing capacity under our credit facility to fund our operations. The cash proceeds from the offering of the senior notes and the initial borrowings under the term loan portions of the senior secured credit facility, net of estimated debt issuance costs, were $2,558.5 million, which amount was distributed to The DIRECTV Group in the first quarter of 2003. We may make additional distributions to The DIRECTV Group from time to time to the extent permitted by the terms of the documents governing our indebtedness. At December 31, 2003, we had cash and cash equivalents of $390.9 million, compared to $14.1 million at December 31, 2002.

The $376.8 million increase in cash during 2003 resulted mostly from $762.6 million of cash provided by operations, partially offset by $389.0 million of expenditures for satellites, property and equipment. Although we expect 2004 cash flows to be slightly lower than 2003, we expect to generate positive cash flows.

As a measure of liquidity, our current ratio was 0.93 at December 31, 2003 compared to 0.87 at December 31, 2002. Working capital improved to a deficit of $121.4 million at December 31, 2003 from a deficit of $166.6 million at December 31, 2002 due mostly to the increase in cash and accounts receivable, partially offset by an increase in accounts payable and accrued liabilities and the current portion of long-term debt.

We believe that our cash on-hand, future cash flows and amounts available to us under the revolving portion of our senior secured credit facility will be sufficient to fund our operations and commitments, which we discuss below in “Commitments and Contingencies,” for the foreseeable future. However, several factors may affect our ability to fund our operations and commitments. For instance, our ability to borrow under the senior secured credit facility is contingent upon our meeting financial and other covenants, which are described below.

In addition, our future cash flows may be reduced if our operations suffer due to, among other things, increased subscriber churn or retention costs, satellite malfunction or signal theft. If our cash on-hand, future cash flows or our senior secured credit facility are insufficient to meet our cash requirements, we would need to

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raise additional capital. We cannot assure you that additional financing will be available to us from The DIRECTV Group, third parties, or the capital markets on acceptable terms, or at all, if needed in the future.

Notes Payable. On February 28, 2003, DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., which we refer to together as the Co-Issuers, issued $1,400.0 million in senior notes due in 2013 in a private placement transaction. The ten-year senior notes bear interest at 8.375%. Principal on the senior notes is payable upon maturity, while interest is payable semi-annually beginning September 15, 2003. The senior notes have been fully and unconditionally guaranteed, jointly and severally, by each of DIRECTV Holdings’ domestic subsidiaries (other than DIRECTV Financing), or the Guarantor Subsidiaries, on a senior unsecured basis. The amount of interest accrued related to the senior notes was $34.2 million at December 31, 2003. Pursuant to a registration rights agreement with the initial purchasers of the senior notes, the Co-Issuers and the Guarantor Subsidiaries completed an exchange offer on September 24, 2003, whereby all holders of the original notes elected to exchange their existing senior notes for registered notes with identical terms, except that the registered notes have been registered under the Securities Act of 1933, as amended, and do not bear the legends restricting their transfer.

The fair value of our notes payable was approximately $1,619.0 million at December 31, 2003 based on quoted market prices.

Credit Facilities. On March 6, 2003, we entered into a $1,675.0 million senior secured credit facility, comprised of a $375.0 million Term Loan A, of which $175.0 million was drawn, a $1,050.0 million Term Loan B, which was fully drawn, and a $250.0 million revolving credit facility, which was undrawn. We distributed to The DIRECTV Group the $2.56 billion of proceeds, net of debt issuance costs, from these financing transactions.

In August 2003, we amended the senior secured credit facility to replace the $1,050.0 million Term Loan B with a new $1,225.0 million Term Loan B-1 and to reduce the size of the Term Loan A from $375.0 million to $200.0 million, repaying the $175.0 million that was previously outstanding under the Term Loan A with the additional borrowings from the Term Loan B-1. Borrowings under the Term Loan B-1 bear interest at a rate equal to the London Interbank Offered Rate, or LIBOR, plus 2.75%, which may be increased or decreased under certain conditions. The revolving credit facility was not affected by the amendment. We are required to pay a commitment fee of 0.50% per year on the unused commitment under the revolving credit facility. The revolving credit facility has a term of five years and the Term Loan B-1 matures in 2010. As of December 31, 2003, the revolving credit facility was undrawn and the Term Loan B-1 was fully drawn. The revolving portion of the senior secured credit facility is available to fund our working capital and other requirements. The senior secured credit facility is secured by substantially all of our assets and is fully and unconditionally guaranteed, jointly and severally, by all of our domestic subsidiaries.

Principal payments under the Term Loan B-1 are due primarily in 2008 to 2010. However, at each year end we may be required to make a computation of excess cash flows for the year, as defined by the senior secured credit facility agreement, which could result in us making a prepayment under the Term Loan B-1 on April 15^th. The amount payable to our credit holders is equal to one-half of our excess cash flows, if any, with up to $150 million of the remaining amount available for distribution to The DIRECTV Group. We have calculated approximately $401.8 million of excess cash flows at December 31, 2003. As a result, we have reclassified $200.9 million from long-term debt to current portion of long-term debt in our consolidated balance sheets. However, under the terms of the senior secured credit facility agreement, at our request, the lenders under the credit facility may elect to forego all or a portion of the prepayment, if required, prior to April 15^th of each year.

The Term Loan A was undrawn and was terminated on December 1, 2003. Borrowings under the Term Loan B bore interest at LIBOR plus 3.50% until it was replaced by the Term Loan B-1 in August 2003. The amount of interest accrued related to the senior secured credit facility was $7.0 million at December 31, 2003. In

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March 2004, our senior secured credit facility was amended to replace the Term Loan B-1 with a Term Loan B-2, with substantially the same terms except that the interest rate was reduced to LIBOR plus 2.25%.

Covenants and Restrictions. The senior secured credit facility requires us to maintain certain financial covenants. The senior notes and the senior secured credit facility also include covenants that restrict the Co-Issuers and the Guarantor Subsidiaries’ ability to, among other things, (i) incur additional indebtedness, (ii) place liens upon assets, (iii) make distributions, (iv) pay dividends or make certain other restricted payments and investments, (v) consummate asset sales, (vi) enter into certain transactions with affiliates, (vii) conduct businesses other than our current or related businesses, (viii) merge or consolidate with any other person, (ix) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets, (x) make voluntary prepayments of certain debt (including any repayment of our senior notes), and (xi) make capital expenditures. 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. At December 31, 2003, we were in compliance with all such covenants.

Acquisitions, Investments and Divestitures

During the first quarter of 2003, we distributed all of our marketable securities to The DIRECTV Group. The distribution was a transfer of assets by entities under common control and was reflected at our cost basis as a distribution to Parent in the consolidated statements of changes in owner’s equity. These investments, which included our equity investments in Crown Media Holdings, Inc., TiVo Inc. and XM Satellite Radio Holdings, Inc., had an aggregate book value of $52.6 million at the date of transfer, which is net of a $2.9 million accumulated unrealized loss.

In August 2002, we sold about 8.8 million shares of Thomson common stock for approximately $211.0 million in cash, resulting in a pre-tax gain of $158.6 million. In September 2002, we sold our investment in Wink Communications, Inc., representing about 2.1 million common shares, for approximately $6.3 million, which resulted in a pre-tax gain of $2.7 million. We also sold about 4.1 million shares of Thomson common stock in 2001 for approximately $132.7 million in cash, which resulted in a pre-tax gain of $108.3 million. The gains on these transactions were recorded in “Other income (loss), net” in our consolidated statements of operations.

Commitments and Contingencies

Litigation. Litigation is subject to uncertainties and the outcome of litigated matters is not predictable with assurance. Various legal actions, claims and proceedings are pending against us that arise 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 invoke compensatory, punitive, or treble damage claims, or sanctions, that if granted, could require us to pay damages or make other expenditures in amounts that could not be estimated at December 31, 2003. After discussion with counsel representing us in those actions, it is the opinion of management that such liability is not expected to have a material adverse effect on our consolidated results of operations and financial position. For a discussion of material pending legal proceedings, see Item 3. Legal Proceedings of Part I in this Annual Report.

Other. We use in-orbit and launch insurance to mitigate the potential financial impact of satellite fleet in-orbit and launch failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites and does not compensate for business interruption or loss of future revenues or customers. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact a satellite failure could have on our ability to provide service. At December 31, 2003, the net book value of satellites that were not insured amounted to $417.0 million.

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As part of our arrangement with Telesat, we agreed to provide Telesat, subject to FCC approval, the use of our DIRECTV 3 satellite, which we currently use as an in-orbit spare, through the end of its useful life. If the FCC grants approval, DIRECTV 3 will be used by Telesat in a Canadian orbital location. If we are successful in obtaining FCC approval to use 72.5 WL, the net book value of DIRECTV 3, which was $89.0 million at December 31, 2003, will be reclassified as an intangible asset and amortized over the life of our right to use 72.5 WL. However, if we are unsuccessful in obtaining FCC approval to use 72.5 WL, we will be required to immediately write-off the net book value of DIRECTV 3.

The following table sets forth our contractual obligations as of December 31, 2003, including the future periods in which payments are expected.

Certain Relationships and Related Party Transactions

We enter into related party transactions with The DIRECTV Group and certain of its affiliates, including Hughes Network Systems, or HNS, and PanAmSat Corporation, or PanAmSat, as part of our normal operations. We purchase DIRECTV receiving equipment from HNS, which amounted to $271.3 million in 2003, $90.4 million in 2002 and $69.6 million in 2001, and we provide DIRECTV system access cards to HNS, which amounted to $35.2 million in 2003, $22.2 million in 2002 and $17.9 million in 2001. Our other related party transactions, which are not material, include our purchase of telemetry, tracking and control and other satellite services from PanAmSat, certain accounting and administrative services that we provide The DIRECTV Group and certain of its affiliates and the allocation of employee benefit expenses that we receive from The DIRECTV Group.

We also purchase products and services from News Corporation and its affiliated companies, which became a related party as a result of the completion of the News Corporation transactions on December 22, 2003. Our

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related party transactions with News Corporation and its affiliates from December 22 to December 31, 2003 were not material.

We discuss our related party transactions in more detail in Note 15 to the consolidated financial statements.

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect amounts reported therein. Management bases its estimates, judgments and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, our actual results reported in future periods may be affected by changes in those estimates. The following represent 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 to the consolidated financial statements included in this Annual Report.

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. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced 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.

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 to expense based on the ratio of each period’s revenues to the estimated total contract revenues to be earned over the contract period. Management evaluates estimated total contract revenues at least annually. If the minimum guarantee payments on an individual contract exceeds the estimated total contract revenues, we would recognize a loss equal to the amount of such difference immediately.

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, and also when events and circumstances warrant such a review in accordance with SFAS No. 142. We use estimates of fair value to determine the amount of impairment, if any, of recorded goodwill and intangible assets with indefinite lives. Fair value is determined primarily using the estimated future cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved. Changes in our estimates of future cash flows could result in a write-down of goodwill and intangible assets with indefinite lives in a future period, which could be material to our consolidated results of operations and financial position.

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

Contingent Matters. A significant amount of management judgment is required in determining when, or if, an accrual should be recorded for a contingent matter and the amount of such accrual, if any. We develop 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

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event, it is possible that upon further development or resolution of a contingent matter, we could record a charge in a future period that would be material to our consolidated results of operations and financial position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosure

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

Interest Rate Risk. We are subject to interest rate risk related to our outstanding debt. As of December 31, 2003, our $2,625.0 million of total debt consisted of $1,400.0 million of fixed rate borrowings and variable rate borrowings of $1,225.0 million. Outstanding borrowings bore interest rates ranging from 3.959% to 8.375% at December 31, 2003. We are subject to fluctuating interest rates, which may adversely impact our consolidated results of operations and cash flows for our variable rate bank borrowings. Also, to the extent interest rates increase, our cost of financing could increase at such time that fixed rate debt matures and is refinanced. As of December 31, 2003, the hypothetical impact of a one percentage point increase in interest rates related to our outstanding variable rate debt would be to increase annual interest expense by approximately $12 million.

Security Ratings

Debt ratings by the various rating agencies reflect each agency’s opinion of the ability of issuers to repay debt obligations as they come due. Ratings for Moody’s Investor Services, or Moody’s, below Baa3 and for Standard and Poor’s, or S&P, below BBB- denote sub-investment grade status. Ratings in the Ba/BB range generally indicate moderate protection of interest and principal payments, potentially outweighed by exposure to uncertainties or adverse conditions. Ratings in the B range generally indicate that the obligor currently has financial capacity to meet its financial commitments but there is limited assurance over any long period of time that interest and principal payments will be made or that other terms will be maintained. In general, lower ratings result in higher borrowing costs. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization.

On April 9, 2003, Moody’s affirmed its stable outlook and Ba3 senior implied rating for DIRECTV. The ratings action followed the announcement of the News Corporation transactions. The affirmation was based upon Moody’s expectation that the transaction would not have a material impact on our credit metrics. On February 19, 2003, Moody’s assigned a Ba2 senior secured rating to our senior secured credit facilities and a B1 senior unsecured rating to our $1.4 billion senior unsecured notes. Moody’s has also assigned a B2 issuer rating to DIRECTV. Moody’s assigned a stable outlook to our ratings. The rating outlook presumed diminishing capital and investment requirements, combined with operating profit improvement to generate eventual free cash flow, and therefore the ratings were considered to be moderately prospective.

On February 12, 2003, S&P assigned a BB-rating on our senior secured credit facilities and a B rating on our $1.4 billion of senior unsecured notes. The ratings were placed on CreditWatch with positive implications, based on S&P’s assessment of the likelihood that The DIRECTV Group or DIRECTV could be acquired by an entity with a higher credit quality than The DIRECTV Group.

On November 25, 2003, S&P raised its ratings on our senior secured credit facilities to BB from BB- and our $1.4 billion senior unsecured notes to BB- from B. Both ratings remain on Credit Watch with positive implications. The increase in ratings were based on improving operating and financial performance. The above ratings and outlook were affirmed on December 22, 2003 when the News Corporation transactions were completed. The positive CreditWatch remains, pending an assessment of our business plan.

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of DIRECTV Holdings LLC,

We have audited the accompanying consolidated balance sheets of DIRECTV Holdings LLC as of December 31, 2003 and 2002, and the related consolidated statements of operations, consolidated statements of changes in owner’s equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in Item 15. These financial statements and the financial statement schedule are the responsibility of DIRECTV Holdings LLC’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

Los Angeles, California

March 9, 2004

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DIRECTV HOLDINGS LLC

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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DIRECTV HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS

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

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DIRECTV HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CHANGES IN OWNER’S EQUITY

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

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DIRECTV HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS