8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report

(Date of earliest event reported) February 10, 2003

GENERAL MOTORS CORPORATION

(Exact name of registrant as specified in its charter)

STATE OF DELAWARE	1-143	38-0572515
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
300 Renaissance Center, Detroit, Michigan		48265-3000
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (313)-556-5000

ITEM 7.    Financial Statements, Pro Forma Financial Information and Exhibits

Exhibit No.	Exhibit
99.1	HUGHES and DIRECTV press release, dated February 10, 2003.
99.2	“Recent Developments” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.
99.3	“Management’s Discussion and Analysis of Results of Operations and Financial Condition” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.
99.4	“Audited Financial Statements” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.

ITEM 9.    REGULATION FD DISCLOSURE

On February 10, 2003, DIRECTV Holdings LLC, a wholly-owned subsidiary of Hughes Electronics Corporation (which is a wholly-owned subsidiary of General Motors Corporation (GM)), announced that it intends to privately offer up to $1.4 billion principal amount of senior notes due 2013. DIRECTV also intends to arrange $1.55 billion of new senior secured credit facilities. DIRECTV expects to close the senior notes offering and the new credit facilities by early March 2003. A copy of HUGHES’ and DIRECTV’s press release, dated February 10, 2003, is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

A copy of the “Recent Developments” section of the preliminary offering memorandum for the senior notes is attached hereto as Exhibit 99.2 and is incorporated herein by reference. A copy of the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” section of the preliminary offering memorandum is attached hereto as Exhibit 99.3 and is incorporated herein by reference. A copy of the “Audited Financial Statements” section of the preliminary offering memorandum is attached hereto as Exhibit 99.4 and is incorporated herein by reference. Exhibit 99.4 includes DIRECTV Holdings LLC audited consolidated balance sheets for the years ended December 31, 2001 and 2000, 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 ended December 31, 2001 and the notes hereto. Exhibit 99.3 includes unaudited financial information for the nine month periods ended September 30, 2002 and 2001.

DIRECTV is the nation’s leading digital satellite television service provider with more than 11 million customers. DIRECTV and the Cyclone Design logo are registered trademarks of DIRECTV, Inc., a unit of Hughes Electronics Corporation. HUGHES is a unit of General Motors Corporation. The earnings of HUGHES are used to calculate the earnings attributable to the General Motors Class H common stock (NYSE:GMH).

NOTE: GM believes that some of the foregoing statements may constitute forward-looking statements. When used in this release, the words “estimate,” “plan,” “project,” “anticipate,” “expect,” “intend,” “outlook,” “believe,” and other similar expressions are intended to identify such forward-looking statements and information. Important factors that may cause actual results of HUGHES to differ materially from the forward-looking statements in this release are set forth in the Form 10-Ks filed with the SEC by General Motors and HUGHES.

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SIGNATURE

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

	GENERAL MOTORS CORPORATION                         (Registrant)
Date February 13, 2003	By:	/s/    Peter R. Bible
		(Peter R. Bible Chief Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Exhibit
99.1	HUGHES and DIRECTV press release, dated February 10, 2003.
99.2	“Recent Developments” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.
99.3	“Management’s Discussion and Analysis of Results of Operations and Financial Condition” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.
99.4	“Audited Financial Statements” section of the DIRECTV Holdings LLC senior notes preliminary offering memorandum.

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EX-99.1

Exhibit 99.1

Media Contact: Robert Marsocci (310) 662-9986

Richard Doré (310) 662-9670

Investor Relations: (310) 662-9688

DIRECTV U.S. to raise UP TO $2.95 billion in debt

El Segundo, Calif., Feb. 10, 2003 — DIRECTV Holdings LLC, a wholly owned subsidiary of Hughes Electronics Corporation (HUGHES), announced that it intends to privately offer up to $1.4 billion principal amount of senior notes due 2013. DIRECTV also intends to arrange $1.55 billion of new senior secured credit facilities. DIRECTV expects to close the senior notes offering and the new credit facilities by early March 2003.

DIRECTV plans to distribute to HUGHES the net proceeds from the sale of the senior notes and the term loan portion of the new senior secured credit facilities to enable HUGHES to repay outstanding indebtedness under its existing credit facilities, to fund HUGHES’ business plan through projected cash flow breakeven and for HUGHES’ other corporate purposes. HUGHES’ existing $1.8 billion senior secured credit facilities will terminate upon such repayment.

The ten-year senior notes will be unsecured indebtedness guaranteed on a senior basis by all of DIRECTV’s domestic subsidiaries. The senior notes will be sold to qualified institutional buyers in reliance on Rule 144A, and outside the United States in compliance with Regulation S under the Securities Act. The senior notes initially will not be registered under the Securities Act of 1933 or state securities laws and may not be offered or sold by holders thereof without registration unless an exemption from such registration is available.

The new senior secured credit facilities will have a term of five to seven years and will be secured by substantially all of DIRECTV’s assets and guaranteed by all of DIRECTV’s domestic subsidiaries. It is anticipated that up to $500 million of the facilities will be undrawn at closing.

DIRECTV is the nation’s leading digital satellite television service provider with more than 11 million customers. DIRECTV and the Cyclone Design logo are registered trademarks of DIRECTV, Inc., a unit of Hughes Electronics Corporation. HUGHES is a unit of General Motors Corporation. The earnings of HUGHES are used to calculate the earnings attributable to the General Motors Class H common stock (NYSE:GMH).

NOTE: HUGHES believes that some of the foregoing statements may constitute forward-looking statements. When used in this release, the words “estimate,” “plan,” “project,” “anticipate,” “expect,” “intend,” “outlook,” “believe,” and other similar expressions are intended to identify such forward-looking statements and information. Important factors that may cause actual results of HUGHES to differ materially from the forward-looking statements in this release are set forth in the Form 10-Ks filed with the SEC by General Motors and HUGHES.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the senior notes or any other securities.

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EX-99.2

Exhibit 99.2

Recent Developments

The Senior Secured Credit Facility.  In connection with this offering, we plan to obtain a senior secured credit facility with total term loan and revolving loan commitments of $1.55 billion. We expect to borrow $1.05 billion under the term loan portions of the senior secured credit facility upon the closing of that facility, which is expected to be completed shortly after the closing of this offering, and the remaining $250 million available under the Term Loan A portion within 270 days thereafter. We intend to distribute to Hughes 100% of the net proceeds from the borrowings under the term loan portions of the senior secured credit facility (including the $250 million delayed borrowing under the Term Loan A portion), together with the net proceeds from this offering, to enable Hughes to repay existing debt, provide operating cash to Hughes’ other subsidiaries and fund Hughes’ general corporate purposes, including working capital. Until we obtain the revolving credit facility, we may only distribute $1.15 billion of the net proceeds from the offering of the Notes to Hughes. After we obtain the revolving credit facility, we may distribute the remaining net proceeds from the Notes up to the amount of commitments under the revolving credit facility. See “Description of the Notes—Certain Covenants—Limitation on Restricted Payments.” Borrowings under the revolving loan portion of the senior secured credit facility will be used by us to fund our working capital needs and for general corporate purposes, including outstanding letters of credit. As of September 30, 2002, there were $46.1 million aggregate face amount of letters of credit outstanding under Hughes’ existing credit facility. We expect that any letters of credit outstanding under Hughes’ existing credit facility at the time of closing of our new senior secured credit facility will be converted to letters of credit under our senior secured credit facility. See “Use of Proceeds.” The closing of the senior secured credit facility is not a condition to the closing of this offering.

2002 Financial and Operating Results.  Although audited consolidated financial statements for the year ended December 31, 2002 are not yet available, the following summarizes preliminary unaudited revenue data and estimates of EBITDA for the period. The revenue and EBITDA data presented in the following summary may be revised significantly as a result of management’s review or in connection with the preparation of audited consolidated financial statements. The following summary should be read in conjunction with the historical consolidated financial statements and the other financial information appearing elsewhere in this offering memorandum, including “—Summary Financial and Operating Data,” “Capitalization,” “Selected Financial Data” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition.” Based upon our operating data and upon our preliminary unaudited consolidated financial statements for the year ended December 31, 2002, we expect:

• revenues of approximately $6.44 billion, an increase of approximately $890 million, or 16%, over the prior year’s revenues of approximately $5.55 billion;

• full year monthly ARPU of $59.80 in 2002, compared to full year monthly ARPU of $58.70 in 2001;

• EBITDA of approximately $654 million, an increase of approximately $438 million over EBITDA of approximately $216 million for the prior year ;

• EBITDA margin of approximately 10%, compared with EBITDA margin of approximately 4% for the prior year;

• the addition of approximately 1.05 million net owned and operated subscribers;

• average subscriber churn of 1.6% per month, compared to average subscriber churn of 1.8% per month for the prior year; and

• average subscriber acquisition costs of $540 per owned and operated subscriber, compared to average subscriber acquisition costs of $570 per owned and operated subscriber for the prior year.

We urge you not to place undue reliance on these preliminary results, as they are subject to change pending the completion of our 2002 year end audit, nor should you assume that any indicated trends will continue. We will include a copy of our audited consolidated financial statements for the year ended December 31, 2002 in the final offering memorandum if the audit has been completed at the date of the final offering memorandum.

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Termination of Merger with EchoStar. On October 28, 2001, Hughes and GM, together with EchoStar Communications Corporation, or EchoStar, announced the signing of definitive agreements that provided for the split-off of Hughes from GM and the subsequent merger of the Hughes business with EchoStar. On December 9, 2002, GM, Hughes and EchoStar entered into a termination, settlement and release agreement pursuant to which GM, Hughes and EchoStar agreed to terminate the merger agreement and certain related agreements.

Exclusive Rights to NFL SUNDAY TICKET^™.  In December 2002, we announced a new five-year agreement with the National Football League to extend our exclusive DBS television rights to NFL SUNDAY TICKET^™ through 2007 and exclusive multichannel television rights through 2005. Our agreement with the NFL will allow us to distribute expanded programming to our NFL SUNDAY TICKET^™ subscribers, including the NFL CHANNEL^™ on DIRECTV. The agreement will also allow us to provide our NFL SUNDAY TICKET^™ subscribers who have the appropriate set-top receiver with exclusive enhanced technical innovations, which may include high-definition telecasts, viewer-selected cameras and replays and other advanced digital technology.

Transfer of Certain Securities to Hughes.    During the first quarter of 2003, we expect to distribute substantially all of our remaining equity investments in third parties to Hughes, including our equity investments in Crown Media, TiVo, and XM Satellite Radio. These equity securities had an aggregate estimated fair market value of $47.9 million as of December 31, 2002.

GM’s Ownership of Hughes.    Media sources have recently reported that GM is engaged in preliminary discussions with certain parties regarding potential strategic transactions involving Hughes or us. While GM has acknowledged that it is evaluating a number of strategic options for Hughes, it has stated that it is not in a position to comment on anything specific at this time. As of the date of this offering memorandum, we are unable to determine whether any such strategic options will be pursued by GM, and, if so, what the effects on Hughes or us would be.

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EX-99.3

Exhibit 99.3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF

OPERATIONS AND FINANCIAL CONDITION

The following is a discussion of our results of operations and financial position for the periods described below. This discussion should be read in conjunction with the consolidated financial statements and related notes included in this offering memorandum. This discussion of our results of operations and financial condition may include forward-looking statements about our markets, the demand for our products and services and our future results. These statements are based on certain assumptions that we consider reasonable. Our actual results may differ materially from those forward looking statements. For information about these assumptions and other risks and exposures relating to our business and our company, you should refer to the section of this offering memorandum entitled “Risk Factors.”

Business Overview

On June 11, 2002, we were formed as a wholly-owned subsidiary of Hughes. Hughes, which is a wholly-owned subsidiary of GM, contributed its wholly-owned subsidiary, DIRECTV Enterprises, LLC, or DIRECTV Enterprises, and its subsidiaries to us along with certain premium subscription programming contracts that it acquired from United States Satellite Broadcasting Company, Inc., or USSB, in May 1999. The wholly-owned domestic subsidiaries of DIRECTV Enterprises consist of DIRECTV Operations, LLC, DIRECTV Merchandising, Inc., DIRECTV Customer Services, Inc., USSB II, Inc., and DIRECTV, Inc. Our formation and capitalization is the result of transfers of net assets by entities under common control. Therefore, the financial statements reflect Hughes’ 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 Hughes.

In April 1999, Hughes acquired Primestar Inc.’s 2.3 million subscriber medium-power direct-to-home satellite business. The Primestar business was discontinued on September 30, 2000, after converting approximately 1.5 million customers to the DIRECTV service.

In May 1999, Hughes acquired the high-power satellite assets and orbital frequencies of Tempo Satellite Inc. The acquisition of Tempo’s assets provided an in-orbit satellite, a satellite that had not yet been launched (the DIRECTV 5 satellite) and related orbital frequencies. In May 1999, Hughes contributed the Tempo assets to DIRECTV Enterprises.

The USSB acquisition by Hughes provided contracts for 25 channels of video programming, including premium networks such as HBO^®, Showtime^®, Cinemax^®, and The Movie Channel^®, which are now being offered to our customers. In June 2002, Hughes contributed the premium programming contracts to DIRECTV Holdings LLC.

During the fourth quarter of 2001, we successfully launched and commenced service of the DIRECTV 4S high-powered spot-beam satellite at the 101 degrees west longitude, or WL, orbital location. In the second quarter of 2002, we launched the DIRECTV 5 satellite and commenced service at the 119 WL orbital location. The DIRECTV 4S and DIRECTV 5 satellites enabled us to increase our capacity to approximately 800 channels, including the capacity to transmit more than 530 local channels.

During 2001, we announced a 22% reduction of our workforce, excluding our customer service representatives. As a result, 475 employees, across all business disciplines, were given notification of termination that resulted in a charge to operations of $47.9 million in “General and administrative expenses” in the consolidated statements of operations. Of that charge, $42.6 million related to employee severance benefits and $5.3 million related to other costs primarily associated with a remaining lease obligation for excess office space and employee equipment. As of September 30, 2002, all 475 employees had been terminated. The remaining accrual for employee severance and other costs amounted to $7.5 million at September 30, 2002.

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During April 2002, we entered into settlement negotiations with 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. As of December 31, 1999, we had accrued $50.0 million associated with the expected settlement of the claim. As a result of the settlement, we recorded a charge of $56.0 million to “General and administrative expenses” in the consolidated statements of operations for the year ended December 31, 2000, representing the unaccrued portion of GECC’s original claim. The portion of the settlement associated with interest is reflected as a charge to “Interest expense, net” in the amount of $23.0 million and $39.0 million, for the years ended December 31, 2001 and 2000, respectively. The settlement, inclusive of an additional $12.0 million of interest expense accrued in 2002, was paid to GECC in June 2002.

In August 2002, we sold about 8.8 million shares of common stock of Thomson multimedia, SA, or Thomson, for approximately $211.0 million in cash, resulting in a pre-tax gain of $158.6 million recorded in “Other income, net” in the consolidated statements of operations for the nine months ended September 30, 2002. 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, recorded in “Other income, net” in the consolidated statements of operations.

During 2002, we recognized other-than-temporary declines in certain marketable securities, which resulted in a charge of $97.6 million to “Other income, net” in the fourth quarter of 2002.

Explanation of Key Metrics and Other Items

Revenues.  Revenues are mostly derived from subscriber subscriptions to basic and premium channel programming, pay-per-view programming and seasonal and live sporting events. To a lesser extent, revenues are also derived from fees from subscribers with multiple set-top receivers, DIRECTV The Guide, access card sales and advertising services.

Revenues also include fees earned from the 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 vast majority of our services only through 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, and copyright fees associated with our content. 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 incurred 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 incurred for DIRECTV receiving equipment, if any.

Subscriber Acquisition Costs—Direct Customer Acquisitions.  These costs consist of hardware and installation costs incurred for new DIRECTV subscribers added through our direct customer acquisition program.

SAC.  SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, is calculated 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.

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

Upgrade and other marketing costs represent the cost of selling and promoting additional DIRECTV services to existing subscribers, such as premium channel programming, pay-per-view programming, and seasonal and live sporting events. These costs are incurred in an effort to increase average 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.

EBITDA.  EBITDA is defined as operating income (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with accounting principles generally accepted in the United States. Our management uses EBITDA to evaluate our operating performance, to allocate resources and capital and as a measure of performance for incentive compensation purposes. We believe EBITDA is a measure of performance used by some investors, equity analysts and others to make informed investment decisions. EBITDA is used as an analytical indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current or projected EBITDA are used to estimate current or prospective enterprise value. Our management believes that EBITDA is a common measure used to compare our operating performance and enterprise value to other communications, entertainment and media service providers. EBITDA does not give effect to cash used for debt service requirements, and thus does not reflect funds available for investment, distributions or other discretionary uses. EBITDA margin is calculated by dividing EBITDA by revenues. EBITDA and EBITDA margin as presented herein may not be comparable to similarly titled measures reported by other companies.

Average Revenue Per Subscriber.  Average revenue per subscriber, or ARPU, represents average monthly revenue per subscriber and is calculated 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. Average subscribers are calculated 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. Average subscribers for the quarter are calculated 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 total number of DIRECTV subscribers. Churn is calculated by dividing the average monthly number of disconnected owned and operated subscribers for the period (total customers disconnected during the period divided by the number of months in the period) by average DIRECTV owned and operated subscribers for the period. Average subscribers are calculated 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. Average subscribers for the quarter are calculated by adding the beginning and ending owned and operated subscribers for the quarter and dividing by two.

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Subscriber Count.  The total number of DIRECTV subscribers includes DIRECTV owned and operated subscribers and customers of the NRTC’s members and affiliates that subscribe to our service. DIRECTV subscribers include only those subscribers who are actively subscribing to the DIRECTV service, plus those subscribers that have temporarily suspended service due to seasonal or other temporary relocations.

Results of Operations

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

	Years Ended December 31,									Nine Months Ended September 30,
	1999			2000			2001			2001			2002
	(dollars in millions, except per subscriber data)
Revenues	$	3,404.6		$	4,694.0		$	5,552.1		$	4,032.9		$	4,631.8
Operating costs and expenses, exclusive of depreciation and amortization expense shown below
Programming and other costs		1,444.3			1,890.3			2,211.2			1,544.5			1,867.7
Subscriber service expenses		335.7			502.5			479.9			355.5			455.4
Subscriber acquisition costs:
Third party customer acquisitions		923.1			1,285.0			1,585.7			1,216.9			1,038.7
Direct customer acquisitions		—			—			72.8			42.7			87.9
Retention, upgrade and other marketing costs		116.6			274.4			378.2			262.7			286.2
Broadcast operations expenses		126.2			164.5			119.1			92.0			93.1
General and administrative expenses		291.2			455.0			489.1			379.3			348.0
Depreciation and amortization expense		250.6			395.4			438.5			329.9			283.2
Total operating costs and expenses		3,487.7			4,967.1			5,774.5			4,223.5			4,460.2
Operating income (loss)		(83.1	)		(273.1	)		(222.4	)		(190.6	)		171.6
Interest expense, net		(69.5	)		(151.9	)		(123.5	)		(94.6	)		(74.0	)
Other income, net		—			—			85.1			97.7			159.4
Income (loss) before income taxes		(152.6	)		(425.0	)		(260.8	)		(187.5	)		257.0
Income tax benefit (expense)		48.1			147.3			82.5			58.8			(96.7	)
Net income (loss)	$	(104.5	)	$	(277.7	)	$	(178.3	)	$	(128.7	)	$	160.3
Other Data:
Operating income (loss)	$	(83.1	)	$	(273.1	)	$	(222.4	)	$	(190.6	)	$	171.6
Add back: depreciation and amortization expense		250.6			395.4			438.5			329.9			283.2
EBITDA(1)	$	167.5		$	122.3		$	216.1		$	139.3		$	454.8
Average monthly revenue per subscriber (ARPU)	$	55.80		$	57.70		$	58.70		$	57.90		$	58.10
Average monthly subscriber churn—%		1.6			1.7			1.8			1.9			1.7
Average subscriber acquisition costs—per subscriber (SAC)	$	490		$	455		$	570		$	600		$	535
Total number of subscribers—platform (000’s)		7,739			9,128			10,335			9,914			10,920
Total owned and operated subscribers (000’s)		6,308			7,418			8,443			8,055			9,201

(1) EBITDA is defined as operating income (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with accounting principles generally accepted in the United States. Our management uses EBITDA to evaluate our operating performance, to allocate resources and capital and as a measure of performance for incentive compensation purposes. We believe EBITDA is a measure of performance used by some investors, equity analysts and others to make informed investment decisions. EBITDA is used as an analytical indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current or projected EBITDA are used to estimate current or prospective enterprise value. Our management believes that EBITDA is a common measure used to compare our operating performance and enterprise value to other communications, entertainment and media service providers. EBITDA does not give effect to cash used for debt service requirements, and thus does not reflect funds available for investment, dividends or other discretionary uses. EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies.

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Nine months ended September 30, 2002 compared with nine months ended September 30, 2001

Subscribers.  We had approximately 9.2 million owned and operated subscribers at September 30, 2002, compared with approximately 8.1 million owned and operated subscribers at September 30, 2001, representing the net addition of 1.1 million new subscribers during this period. Including the subscribers of NRTC’s members and affiliates, we had a total of about 10.9 million and 9.9 million subscribers at September 30, 2002 and 2001, respectively.

Average monthly churn for the nine months ended September 30, 2002 was 1.7% compared to 1.9% for the nine months ended September 30, 2001. The reduction in churn was due to an increased number of new subscribers signing up for twelve month programming commitments, improved customer service and more stringent credit screening practices for new customers.

Revenues.  Revenues for the nine months ended September 30, 2002 increased 14.9% or $598.9 million to $4,631.8 million compared with $4,032.9 million for the nine months ended September 30, 2001. The increase resulted primarily from the new subscribers added during the period and higher ARPU on the larger subscriber base. ARPU was $58.10 for the first nine months of 2002 compared with $57.90 for the same period of 2001. The higher ARPU was primarily due to broader local channel offerings, higher revenues from seasonal and live sporting events and other subscriber revenues, such as fees from an increased number of our subscribers with multiple set-top receivers. These increases were partially offset by lower pay-per-view revenues due to declining subscriber purchases during the nine months ended September 30, 2002 compared to the same period in the previous year.

Programming and Other Costs.  Programming and other costs increased 20.9% to $1,867.7 million for the first nine months in 2002 from $1,544.5 million for same period of 2001. As a percentage of revenue, programming and other costs were 40.3% and 38.3% for the first nine months ended September 30, 2002 and 2001, respectively. The increase in programming and other costs resulted primarily from higher programming costs associated with the increase in subscribers and higher programming costs due to rate increases.

Subscriber Service Expenses.  Subscriber service expenses were $455.4 million for the first nine months of 2002 compared to $355.5 million for the first nine months of 2001. This increase was mostly due to added service costs to support the increased subscriber base, and increased call volume resulting from broader local channel offerings and repackaging of our services in 2002.

Subscriber Acquisition Costs—Third Party Customer Acquisitions.  Third party customer acquisition costs were $1,038.7 million for the nine months ended September 30, 2002 compared with $1,216.9 million for the nine months ended September 30, 2001. The $178.2 million decrease resulted 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. These decreases were partially offset by higher third party commissions due to purchases of multiple set top receivers by new subscribers.

Subscriber Acquisition Costs—Direct Customer Acquisitions.  Subscriber acquisition costs incurred through our direct customer acquisition program were $87.9 million for the nine months ended September 30, 2002 compared to $42.7 million for the same period in the previous year. The increase of $45.2 million was due to an increase in gross subscriber additions through the our direct customer acquisition program in 2002 compared to 2001.

SAC.  SAC on a per subscriber basis was $535 for the first nine months of 2002 compared to $600 for the same period of 2001. The decrease in SAC was due to the elimination of manufacturer subsidies on most set-top receivers in January 2002 and lower amortization expense on deferred commissions, partially offset by increased third party commissions due to purchases of multiple set-top receivers by new subscribers.

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Retention, Upgrade and Other Marketing Costs.  Retention, upgrade and other marketing costs increased $23.5 million to $286.2 million for the first nine months of 2002 from $262.7 million for the comparable period of 2001 due primarily to increased dealer commissions for additional set-top receiver sales to existing subscribers.

Broadcast Operations Expenses.  Broadcast operations expenses were $93.1 million for the nine months ended September 30, 2002 compared to $92.0 million for same period of 2001. The slight increase was due to increased costs to support broader local channel offerings offset by lower operating expenses.

General and Administrative Expenses.  General and administrative expenses were $348.0 million for the first nine months of 2002 compared to $379.3 million for the same period of 2001. Most of the decrease was attributable to the 2001 workforce reduction discussed above.

EBITDA.  EBITDA and EBITDA margin increased to $454.8 million and 9.8% for the nine months ended September 30, 2002 from $139.3 million and 3.5% for the nine months ended September 30, 2001. The change was primarily attributable to additional profit resulting from the higher revenues, lower total subscriber acquisition costs, and lower general and administrative expenses due to the 2001 charge associated with the work force reduction.

Depreciation and Amortization Expense.  Depreciation and amortization expense decreased to $283.2 million for the nine months ended September 30, 2002 from $329.9 million for the nine months ended September 30, 2001. The decrease of $46.7 million was due to the discontinuation of amortization expense related to goodwill and intangible assets with indefinite lives in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” See “New Accounting Standards” below for further discussion. This decrease was partially offset by higher depreciation for capital additions, and the DIRECTV 4S and DIRECTV 5 satellites placed into service in December 2001 and May 2002, respectively.

Operating Income/Loss.  Operating income for the first nine months of 2002 was $171.6 million compared to a $190.6 million operating loss for the same period in 2001, representing a $362.2 million improvement. This improvement is primarily related to additional profit resulting from the higher revenues, lower total subscriber acquisition costs, lower general and administrative expenses due to the workforce reduction and the decrease in amortization expense that resulted from the adoption of SFAS No. 142.

Interest Expense, Net.  Interest expense, net decreased $20.6 million to $74.0 million for the first nine months of 2002 from $94.6 million for the first nine months of 2001. The decrease was attributable primarily to lower interest expense due to lower long-term obligations, including manufacturer subsidies and above-market programming contracts, and lower interest expense associated with the GECC settlement.

Manufacturer subsidies earned by manufacturers prior to September 2000 are payable over five years, plus interest. The decrease in the manufacturer subsidy obligation resulted from scheduled payments. The above-market programming obligation was established in purchase accounting as part of the Primestar and USSB transactions and represents the present value of the portion of certain acquired programming contracts that were deemed above market. Interest is recognized associated with the above-market programming obligation over the life of the related programming contracts using the interest method. The decrease in the above market programming obligation resulted from scheduled payments.

Other Income, Net.  Other income, net increased $61.7 million to $159.4 million for the first nine months in 2002 from $97.7 million for the same period in 2001. Other income, net for 2002 included a $158.6 million gain on the sale of about 8.8 million shares of Thomson common stock. Other income, net for 2001 included a $108.3 million gain on the sale of 4.1 million shares of Thomson common stock offset by the write-down of certain marketable equity securities due to other-than-temporary declines in their fair value.

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Income Tax Expense/Benefit.  Income tax expense was $96.7 million for the first nine months in 2002 compared to an income tax benefit of $58.8 million for the same period in 2001. The tax expense in 2002 was incurred because we generated income before income taxes for the nine months ended September 30, 2002, while in the first nine months of 2001 we incurred a loss before income taxes.

Net Income/Loss.  Net income for the first nine months in 2002 increased by $289.0 million to $160.3 million from a loss of $128.7 million for the same period in 2001.

Year ended December 31, 2001 compared with the year ended December 31, 2000

Subscribers.  We had approximately 8.4 million owned and operated subscribers at December 31, 2001, compared with approximately 7.4 million owned and operated subscribers at December 31, 2000, representing the net addition of 1.0 million new subscribers during this period. Including the subscribers of NRTC’s members and affiliates, we had a total of about 10.3 million and 9.1 million subscribers at December 31, 2001 and 2000, respectively.

Average monthly churn for the year ended December 31, 2001 was 1.8% compared to 1.7% for the year ended December 31, 2000.

Revenues.  Revenues increased 18.3% or $858.1 million to $5,552.1 million in 2001 from $4,694.0 million in 2000. The increase resulted primarily from higher basic and premium programming revenues due mostly to the additional net new subscribers in 2001. Also contributing to the increase were higher revenues from local channel offerings, pay-per-view movies, sporting events and other subscriber revenues, such as fees from an increased number of our subscribers with multiple set-top receivers.

Programming and Other Costs.  Programming and other costs increased 17.0% to $2,211.2 million in 2001 from $1,890.3 million in 2000. As a percentage of revenue, programming and other costs were 39.8% and 40.3% for the year ended December, 2001 and 2000, respectively. The increase in programming and other costs resulted from higher programming costs associated with the increase in subscribers.

Subscriber Service Expenses.  Subscriber service expenses were $479.9 million in 2001 compared to $502.5 million in 2000. This decrease was mostly due to the elimination of service costs for Primestar subscribers. We completed the conversion of the Primestar subscribers to our platform and exited the Primestar business in September 2000.

Subscriber Acquisition Costs—Third Party Customer Acquisitions.  Third party customer acquisition costs were $1,585.7 million in 2001 compared with $1,285.0 million in 2000. The $300.7 million increase resulted primarily from increased third party commissions due to higher gross subscriber additions in 2001 compared to 2000 and higher commission rates that resulted from customers taking the free installation offer.

Subscriber Acquisition Costs—Direct Customer Acquisitions.  Subscriber acquisition costs incurred through our direct customer acquisition program, which was introduced in 2001, were $72.8 million.

SAC.  SAC on a per subscriber basis was $570 for 2001 compared to $455 for 2000. The increase in SAC was due to higher commission rates that resulted from an increase in customers choosing our free installation offer and the introduction of the direct customer acquisition program.

Retention, Upgrade and Other Marketing Costs.  Retention, upgrade and other marketing costs increased by $103.8 million to $378.2 million in 2001 from $274.4 million in 2000 due to costs associated with our free installation under our movers program and higher marketing costs. These increases were partially offset by the elimination of $30.0 million of conversion costs due to the completion of Primestar subscriber conversions to our platform in 2000.

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Broadcast Operations Expenses.  Broadcast operations expenses declined $45.4 million to $119.1 million in 2001 from $164.5 million in 2000. The decrease was mostly due to the elimination of medium-power broadcast operating expenses from the Primestar business which we exited in September 2000.

General and Administrative Expenses.  General and administrative expenses were $489.1 million in 2001 compared to $455.0 million in 2000, an increase of $34.1 million. This increase was due primarily to the $47.9 million accrual related to the workforce reduction, as discussed above, partially offset by approximately $16.0 million of decreased bad debt expense that resulted from the elimination of higher risk Primestar subscribers and improved credit scoring on new subscribers.

EBITDA.  EBITDA and EBITDA margin increased to $216.1 million and 3.9% in 2001 from $122.3 million and 2.6% in 2000. This change resulted from the increased profit on the higher revenues and the improvement in subscriber service expenses and broadcast operations expenses due mostly to the exit of the Primestar business in September 2000. These improvements were partially offset by the increased subscriber acquisition costs due to higher gross subscriber additions and the introduction of the direct customer acquisition program; the higher retention, upgrade and other marketing costs due mostly to the introduction of free installation for our movers program; and the 2001 charge related to our workforce reduction.

Depreciation and Amortization Expense.  Depreciation and amortization expense increased to $438.5 million in 2001 from $395.4 million in 2000. The increase of $43.1 million resulted from a full year of depreciation expense associated with DIRECTV receiving equipment leased to Primestar medium-power subscribers, who converted to the DIRECTV platform, being included in 2001. The conversion efforts were completed in September 2000.

Operating Loss.  Operating loss in 2001 decreased $50.7 million to $222.4 million from $273.1 million in 2000. This change resulted from the increased profit on the higher revenues and the improvement in subscriber service expenses and broadcast operations expenses due mostly to the exit of the Primestar business in September 2000. These improvements were partially offset by the increased subscriber acquisition costs due to higher gross subscriber additions and the introduction of the direct customer acquisition program; the higher retention, upgrade and other marketing costs due mostly to the introduction of free installation for our movers program; the 2001 charge related to our workforce reduction; and the increase in depreciation and amortization expense due mostly to the converted Primestar subscribers leasing receiving equipment.

Interest Expense, Net.  Interest expense, net decreased to $123.5 million in 2001 from $151.9 million in 2000 due to a decline in interest on certain long term obligations, including long-term manufacturer subsidy and above-market contract obligations, and a decline in interest associated with the GECC settlement.

Other Income, Net.  Other income, net for 2001 includes a gain of $108.3 million associated with the sale of 4.1 million shares of Thomson common stock, offset in part by the write-down of certain other marketable equity securities due to an other-than-temporary decline in their fair value.

Income Tax Benefit.  Income tax benefit was $82.5 million in 2001 compared to an income tax benefit of $147.3 million in 2000. The lower tax benefit in 2001 was mostly due to the decrease in our loss before income taxes.

Net Loss.  The net loss decreased $99.4 million in 2001 to $178.3 million from $277.7 million in 2000.

Year ended December 31, 2000 compared with the year ended December 31, 1999

Subscribers.  At December 31, 2000, we had about 7.4 million owned and operated subscribers (including 1.3 million subscribers that had converted from the Primestar service to our platform), compared with about 5.0 million owned and operated subscribers (including 0.4 million subscribers that had converted from the Primestar service to our platform) and 1.3 million Primestar subscribers at December 31, 1999. Including the NRTC’s

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members and affiliates subscribers, we had a total of about 9.1 million and 7.7 million subscribers at December 31, 2000 and 1999, respectively.

Average monthly churn for the year ended December 31, 2000 was 1.7% compared to 1.6% for 1999.

Revenues.  Revenues increased 37.9% or $1,289.4 million to $4,694.0 million in 2000 from $3,404.6 million in 1999. The increase resulted primarily from higher basic and premium programming revenues due mostly to the addition of approximately 1.5 million net new subscribers in 2000, excluding Primestar subscriber conversions, and added revenues from Primestar, additional premium channel services from the USSB transaction, and a price increase on basic subscription packages. Revenues in 1999 included revenues that resulted from the Primestar and USSB transactions only from and after the respective dates of acquisition.

Programming and Other Costs.  Programming and other costs increased 30.9% to $1,890.3 million in 2000 from $1,444.3 million in 1999. As a percentage of revenue, programming and other costs were 40.3% and 42.4% for the year ended December, 2000 and 1999, respectively. The increase in programming and other costs resulted primarily from a full year of added programming costs associated with the premium channels and the additional net new subscribers in 2000.

Subscriber Service Expenses.  Subscriber service expenses were $502.5 million in 2000 compared to $335.7 million in 1999. This increase was mostly due to added service costs to convert Primestar subscribers to our platform and to support the significant increase in subscribers.

Subscriber Acquisition Costs—Third Party Customer Acquisitions.  Third party customer acquisition costs were $1,285.0 million in 2000 compared with $923.1 million in 1999. The $361.9 million increase resulted from higher costs associated with an increase in gross subscriber additions and higher acquisition advertising costs.

Subscriber Acquisition Costs—Direct Customer Acquisitions.  The direct customer acquisition program was not introduced until 2001; therefore, there is no discussion of the comparison of 2000 to 1999.

SAC.  SAC on a per subscriber basis was $455 for 2000 compared to $490 for 1999. The decrease in SAC was due to a decrease in manufacturer subsidies.

Retention, Upgrade and Other Marketing Costs.  Retention, upgrade and other marketing costs increased $157.8 million to $274.4 million in 2000 from $116.6 million in 1999 due primarily to higher costs associated with converting Primestar subscribers to our platform, increased dealer commissions for additional set-top receiver sales and advanced set-top receiver sales to existing subscribers.

Broadcast Operations Expenses.  Broadcast operations expenses increased $38.3 million to $164.5 million in 2000 from $126.2 million in 1999. The increase was mostly due to the added costs associated with the first full year of operations for our Los Angeles broadcast facility in 2000 and added costs for the introduction of local channel offerings.

General and Administrative Expenses.  General and administrative expenses were $455.0 million in 2000 compared to $291.2 million in 1999, an increase of $163.8 million. This increase resulted primarily from the $56.0 million charge for the GECC settlement, an increase in bad debt expense associated with the acquired Primestar subscriber base and generally higher costs that resulted from growth in the business.

EBITDA.  EBITDA and EBITDA margin decreased to $122.3 million and 2.6% in 2000 from $167.5 million and 4.9% in 1999. This change resulted from the increased profit on the higher revenues, which was more than offset by higher costs to support the conversion of Primestar subscribers to our platform, the increase in subscriber acquisition costs and the GECC settlement.

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Depreciation and Amortization Expense.  Depreciation and amortization expense increased to $395.4 million in 2000 from $250.6 million in 1999. The $144.8 million increase resulted primarily from a full year of amortization expense associated with the goodwill and intangible assets that arose from the Primestar and USSB transactions and increased depreciation expense associated with customer leased DIRECTV receiving equipment that arose from the conversion of the Primestar subscribers to our platform.

Operating Loss.  The operating loss in 2000 increased $190.0 million to $273.1 million from $83.1 million in 1999. This change resulted from the increased profit on the higher revenues, which was more than offset by higher costs to support the conversion of Primestar subscribers to our platform, the increase in subscriber acquisition costs, the GECC settlement and the increase in depreciation and amortization expense due mostly to the Primestar and USSB transactions.

Interest Expense, Net.  Interest expense, net increased to $151.9 million in 2000 from $69.5 million in 1999 due to a full year of interest expense in 2000 associated with certain above market programming contracts that resulted from the Primestar and USSB transactions and interest associated with the GECC settlement.

Income Tax Benefit.  The income tax benefit was $147.3 million in 2000 compared to an income tax benefit of $48.1 million in 1999. The higher tax benefit was mostly due to the increased loss before income taxes in 2000.

Net Loss.  The net loss increased $173.2 million in 2000 to $277.7 million from $104.5 million in 1999.

Liquidity and Capital Resources

Since the inception of our business in 1994, we have incurred significant operating losses, which have been funded from capital contributions from Hughes.

We expect to fund cash requirements for our operating and capital expenditures from cash generated by operations and additional borrowings under the revolving loan portion of the senior secured credit facility, as needed. We expect to have approximately $200 million of borrowing capacity under such revolving loan portion to fund our operations, after deducting the $50 million letter of credit subfacility which may be used for letters of credit issued for our benefit or for the benefit of Hughes or its other subsidiaries. We intend to use the net proceeds from this offering, together with all borrowings under the term loan portions of the senior secured credit facility, to make a distribution to Hughes. We may make additional distributions to Hughes from time to time to the extent permitted by the terms of the documents governing our indebtedness. At September 30, 2002, we had cash and cash equivalents of $11.4 million, compared to $15.4 million at December 31, 2001.

In the first nine months of 2002, we generated net cash flow of approximately $75.1 million primarily consisting of $211.0 million of proceeds from the sale of the Thomson investment and $146.8 million of cash provided by operations, offset by $289.2 million of expenditure for satellites, property and equipment. We made cash distributions to Hughes amounting to $79.1 million for the first nine months of 2002.

As a measure of liquidity, the current ratio was 0.81 at September 30, 2002 compared to 0.80 at December 31, 2001. The working capital deficit decreased by $45.0 million from December 31, 2001 due mostly to a decrease in accrued liabilities resulting mostly from the payment for the GECC settlement, offset in part by a decrease in non-subscriber related receivables.

We believe that amounts available to us under the revolving portion of our senior secured credit facility and future cash flows will be sufficient to fund our operations for the foreseeable future. See “Description of Senior Secured Credit Facility.” However, several factors may affect our ability to fund our operations. For instance, our ability to borrow under the senior secured credit facility will be contingent upon meeting financial and other covenants. Our senior secured credit facility will also include certain operational restrictions. These covenants may limit our ability to, among other things: incur or guarantee additional indebtedness; make restricted

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payments, including distributions to Hughes; create or permit to exist certain liens; enter into business combinations and asset sale transactions; make investments; enter into transactions with affiliates; and enter into new businesses. In addition, our future cash flows may be reduced if our operations suffer due to increased subscriber turnover or retention costs, satellite malfunction or signal theft. See “Risk Factors—Risks Related to Our Business.” If the funds from our cash flow or our senior secured credit facility are insufficient to meet our cash requirements, we would need to raise additional capital. We cannot assure you that additional financing will be available to us from our parent, third parties, or the capital markets on acceptable terms, or at all, if needed in the future.

Acquisitions, Investments and Divestitures

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 that we recorded in “Other income, net” in our consolidated statements of operations for the nine months ended September 30, 2002. 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 that we recorded in “Other income, net” in our consolidated statements of operations.

Hughes acquired USSB, Primestar and certain assets of Tempo in 1999 as more fully described below, and as discussed in Note 1 to the consolidated financial statements. The financial results associated with these transactions and the acquisitions of DIRECTV have been included in the consolidated financial statements from the date of each acquisition.

On June 1, 1999, we acquired the assets of the Boise Customer Care Center from AT&T for approximately $23.8 million. The Boise Customer Care Center provided customer care for the Primestar medium-power business and now supports our business.

On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of USSB, a provider of premium subscription television programming via the digital broadcasting system that it shared with us. The total consideration of approximately $1.6 billion paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million shares of GM Class H common stock (prior to giving effect to the GM Class H three-for-one stock split during June 2000).

On April 28, 1999, Hughes completed the acquisition of Primestar’s 2.3 million subscriber medium-power, direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H common stock (prior to giving effect to the GM Class H three-for-one stock split during June 2000), for a total purchase price of $1.3 billion. As part of the acquisition of Primestar, Hughes also purchased the satellite assets of Tempo, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc., for $500 million in cash.

As part of the Primestar acquisition, we formulated a detailed exit plan during the second quarter of 1999 and we immediately began to migrate the medium-power customers to our high-power platform. Exit costs of $150.0 million were accrued in determining the purchase price allocated to the net assets acquired. The principal components of those exit costs include costs associated with the termination of assumed contracts and costs related to the removal of equipment for the medium-power business. Subsequent to the acquisition of Primestar, we converted a total of approximately 1.5 million customers to our high-power service. The Primestar service ceased operations, as planned, on September 30, 2000. The amount of accrued exit costs remaining at December 31, 2001 and 2000 was $4.0 million and $25.9 million, respectively, which primarily represented the remaining obligations on certain contracts.

The acquisitions discussed above were accounted for by the purchase method of accounting, and, accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on the

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estimated fair values at the date of acquisition based upon independent third-party appraisal. The excess purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill, resulting in an addition to goodwill of $3,116.2 million in 1999.

On an unaudited pro forma basis, DIRECTV, USSB and Primestar collectively had revenues of $4,194.6 million and a net loss of $66.9 million for 1999, assuming the acquisitions had occurred as of the beginning of the period, giving effect to purchase accounting adjustments and excluding the effect of non-recurring charges. This pro forma data is presented for informational purposes only and may not necessarily reflect the results of our operations for the period presented, nor are they necessarily indicative of future operations.

Commitments and Contingencies

Litigation.  See “Business—Legal Proceedings” and Note 16 to our consolidated financial statements for a discussion of the various legal proceedings and other disputes that we are involved in.

Other.  We use in-orbit and launch insurance to mitigate the potential financial impact of satellite fleet in-orbit and launch failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites. The insurance generally does not compensate for business interruption or loss of future revenues or customers, however we rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact of satellite failure on our ability to provide service. Where insurance costs related to known satellite anomalies are prohibitive, our insurance policies contain coverage exclusions. The book value of satellites that were insured with coverage exclusions amounted to $171.0 million and the book value of satellites not insured amounted to $237.6 million as of September 30, 2002. In the fourth quarter of 2002, insurance coverage on three satellites expired and was not renewed. As a result, the book value of satellites that were not insured amounted to $474.7 million at December 31, 2002.

At December 31, 2001, minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for real property and aggregated $148.5 million, payable as follows: $49.8 million in 2002, $37.5 million in 2003, $16.9 million in 2004, $14.3 million in 2005, $11.4 million in 2006 and $18.6 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases, net of sublease rental income, were $24.5 million in 2001, $15.5 million in 2000 and $11.7 million in 1999.

In December 2002, we announced a five-year agreement that will provide us with the exclusive DBS television rights to the NFL SUNDAY TICKET^TM through 2007 and the exclusive multi-channel television rights through 2005. The NFL SUNDAY TICKET^TM allows us to distribute up to 14 out-of-market games each week during the NFL season. After considering the new NFL agreement, minimum payments under our contractual commitments, which include agreements for programming, manufacturer subsidies, telemetry tracking and control services, and satellite construction, were approximately $252.0 million for the fourth quarter of 2002, and are anticipated to be approximately $498.1 million in 2003, $375.4 million in 2004, $293.5 million in 2005, $545.3 million in 2006, $692.3 million in 2007, and $13.8 million thereafter.

Certain Relationships and Related Party Transactions

We purchase telemetry, tracking and control services for our satellites, other than DIRECTV 5 and DIRECTV 6, from PanAmSat, which is an approximately 81% owned subsidiary of Hughes. Our agreement with PanAmSat for these services for DIRECTV 4S continues until DIRECTV 4S is retired from service. Our agreement with respect to our other satellites serviced by PanAmSat expires at the earlier of a satellite’s retirement or ten years after date of completion of in-orbit testing for such satellite. We also have operational agreements with PanAmSat for in-orbit testing services as well as operational policies regarding our satellites. These costs are recorded in “Broadcast operations expenses” in the consolidated statements of operations and any amounts due to PanAmSat are recorded in “Accrued liabilities” in the consolidated balance sheets.

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We purchase DIRECTV receiving equipment from HNS, pay manufacturer subsidies to HNS and provide DIRECTV access cards to HNS. Manufacturer subsidies are recorded as a subscriber acquisition cost in the consolidated statements of operations. The cost of DIRECTV receiving equipment purchased from HNS is recorded in inventory and recognized as a subscriber acquisition cost when shipped to subscribers, or carried as a fixed asset when leased by a subscriber. Amounts paid to HNS for DIRECTV receiving equipment are not necessarily indicative of the cost to purchase the receiving equipment from third parties. DIRECTV system access cards provided to HNS are recorded as “Revenues” in the consolidated statements of operations. No DIRECTV system access cards were provided to HNS by us prior to 2000. Amounts due to HNS are recorded in “Accrued liabilities” or “Other liabilities and deferred credits” in the consolidated balance sheets. No amounts were receivable from HNS at December 31, 2001 or 2000.

Transfer of Certain Securities to Hughes.  During the first quarter of 2003, we expect to distribute substantially all of our remaining equity investment securities to Hughes, including our equity investments in Crown Media, TiVo, and XM Satellite Radio. These equity securities had an aggregate estimated fair market value of $47.9 million as of December 31, 2002.

Income Taxes.  We and Hughes join in the filing of a consolidated U.S. federal income tax return with GM. The amount of income tax liability or receivable recorded by Hughes is generally equivalent to the amount Hughes would have recorded on a separate return basis.

The amount of income tax benefit or expense we report is generally equivalent to the portion of the Hughes consolidated provision for income taxes that is directly attributable to us. The income tax balances reported in the consolidated balance sheets are determined based upon our tax sharing agreement with Hughes, which provides that the current tax liability or receivable be computed as if we were a separate taxpayer, however, tax losses not utilized to reduce our tax liability in the period in which such losses originated are not available to reduce our tax liability in future periods.

For the reported periods, losses generated by us provided tax benefits to Hughes that were recognized by Hughes and us in our respective financial statements. Pursuant to the tax sharing agreement, to the extent that we do not utilize losses to reduce a current tax liability, any excess losses will not be available to us to reduce future tax liabilities. Accordingly, the tax benefits attributable to such losses are transferred to Hughes in a non-cash transaction and recorded as a reduction to “Net capital contribution from Parent” in the consolidated statements of changes in owner’s equity. The amount of such benefits transferred to Hughes were $142.6 million, $367.5 million and $171.5 million in 2001, 2000 and 1999, respectively.

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 and assumptions that affect amounts reported therein, including the financial information reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may materially differ from those estimates. The following represent what we believe are the critical accounting policies most affected by significant management estimates and judgments:

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 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 anticipated cash flows 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. The cash flows used

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in such analyses are typically derived from the expected cash flows associated with the asset under review, which is determined from management estimates and judgments of expected future results. Should the actual cash flows vary from the estimated amount, a write-down of the asset may be warranted in a future period.

Valuation of Goodwill and Intangible Assets with Indefinite Lives.  We evaluate the carrying value of goodwill and intangible assets with indefinite lives on an annual basis, and when events and circumstances warrant such a review in accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, “Goodwill and Other Intangible Assets,” which is described in Note 2 to our consolidated financial statements. SFAS No. 142 requires the use of fair value in determining the amount of impairment, if any, for recorded goodwill and intangible assets with indefinite lives. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The cash flows used in such analyses are typically derived from the expected cash flows associated with the asset under review, which is determined from management estimates and judgments of expected future results. Should the actual cash flows vary from the estimated amount, a write-down of the asset may be warranted in a future period.

Financial Instruments and Investments.  We maintain investments in equity securities of unaffiliated companies. Marketable equity securities are considered available-for-sale and carried at current fair value based on quoted market prices with unrealized gains or losses (excluding other-than-temporary losses), net of taxes, reported as part of accumulated other comprehensive income (loss), or OCI, a separate component of stockholder’s equity. We continually review our investments to determine whether a decline in fair value below the cost basis is “other-than-temporary.” We consider, among other factors: the magnitude and duration of the decline; the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors; and our intent and ability to hold the investment. If the decline in fair value is judged to be other-than-temporary, the cost basis of the security is written-down to fair value and the amount recognized in the consolidated statements of operations as part of “Other income, net.” Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of an investment, thereby possibly requiring a charge in a future period.

Reserves for Doubtful Accounts.  A significant amount of management estimate and judgment is required in determining the amount of reserves required for the potential non-collectibility of accounts receivable. Management uses its judgment for estimating the amount of required reserves based upon past experience of collection and consideration of other relevant factors, such as credit risk of the counterparty; however, past experience may not be indicative of future collections and unforeseen circumstances could occur that could adversely effect the counterparty’s ability to pay its obligations. Therefore, additional charges could be incurred in the future to reflect differences between estimated and actual collection experience.

Contingent Matters.  A significant amount of management estimation and judgment is required in determining when, or if, an accrual should be recorded for a contingent matter, particularly for those contingent matters described in “Commitments and Contingencies” above and in Note 16 to our consolidated financial statements, and the amount of such accrual, if any. Due to the uncertainty of determining the likelihood of a future event occurring and the potential impact of such an event, it is possible that upon further development or resolution of a contingent matter, a charge could be recorded in a future period that would be material to our continuing operations and financial position.

Accounting Changes

We adopted SFAS No. 141, “Business Combinations,” on July 1, 2001. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and prohibits the amortization of goodwill and intangible assets with indefinite lives acquired thereafter. The adoption of SFAS No. 141 did not affect our results of operations or financial position.

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In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 refines existing impairment accounting guidance and extends the use of this accounting to discontinued operations. SFAS No. 144 requires the use of discontinued operations accounting treatment for both reporting segments and distinguishable components thereof. SFAS No. 144 also eliminates the existing exception to the consolidation of a subsidiary for which control is likely to be temporary. The adoption of the statement on January 1, 2002 did not affect our results of operations or financial position.

We adopted SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 requires that existing and future goodwill and intangible assets with indefinite lives not be amortized, but written down, as needed, based upon an impairment analysis that must occur at least annually, or sooner if an event occurs or circumstances change that would more likely than not result in an impairment loss. All other intangible assets are amortized over their estimated useful lives. SFAS No. 142 requires us to perform step one of a two-part transitional impairment test to compare the fair value of our intangible assets with their respective carrying amount, including goodwill. If the carrying value exceeds the fair value, step two of the transitional impairment test must be performed to measure the amount of the impairment loss, if any. SFAS No. 142 also requires that intangible assets be reviewed as of the date of adoption to determine if they continue to qualify as intangible assets under the criteria established under SFAS No. 141, “Business Combinations,” and to the extent previously recorded intangible assets do not meet the criteria that they be reclassified to goodwill.

As part of the 1999 Primestar acquisition, dealer network and subscriber base intangible assets were identified and valued in accordance with APB Opinion No. 16 “Business Combination.” The dealer network intangible asset originally valued as part of the Primestar acquisition was based on the established distribution, customer service and marketing capability that had been put in place by Primestar. The subscriber base intangible asset originally valued as part of the Primestar acquisition was primarily based on the expected non-contractual future cash flows to be earned over the life of the Primestar subscribers converted to the DIRECTV service. In accordance with SFAS No. 142, we completed a review of our intangible assets and determined that the previously recorded dealer network and subscriber base intangible assets established under APB. Opinion No. 16 did not meet the contractual or other legal rights criteria. The dealer network and subscriber base intangible assets also did not meet the separability criteria because the intangible assets could not be sold, transferred, licensed, rented or exchanged individually or in combination with other assets or liabilities, apart from selling our entire business. As a result, in the first quarter of 2002, we reclassified $209.8 million, net of $140.2 million of accumulated amortization, of previously reported intangible assets to goodwill. As a result of this reclassification, approximately $13.2 million of quarterly amortization expense ceased, beginning January 1, 2002. In October 2002, EITF 02-17 “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination” was issued, which gave clarifying guidance on the treatment of certain subscriber related relationships. As a result, as of the beginning of the fourth quarter of 2002, the subscriber base and dealer network intangible assets were reinstated and are being amortized over their remaining lives of 2 and 12 years, respectively. As a result of this change, quarterly amortization expense will increase by $18.5 million beginning in the fourth quarter of 2002.

In the first quarter of 2002 we also completed the required transitional impairment test for intangible assets with indefinite lives, which consists of FCC licenses for direct-to-home broadcasting frequencies (“Orbital Slots”), and determined that no impairment existed because the fair value of these assets exceeded the carrying value as of January 1, 2002.

In the second quarter of 2002, with the assistance of an independent valuation firm, we completed step one of the transitional test to determine whether a potential impairment existed on goodwill recorded at January 1, 2002. Primarily based on the present value of expected future cash flows, it was determined that the fair value of DIRECTV exceeded its carrying values, therefore a step two impairment test is not required.

In accordance with SFAS No. 142, we will perform our annual impairment test during the fourth quarter of each year. If an impairment loss results from the annual impairment test, the loss will be recorded as a pre-tax

15

charge to operating income. We completed our annual impairment test in the fourth quarter of 2002 and determined that no impairment existed since the fair value of DIRECTV continues to exceed its carrying value.

The following represents our reported net loss on a comparable basis excluding the after-tax effect of amortization expense associated with goodwill and intangible assets with indefinite lives:

	Years Ended,
	December 31,
	1999			2000			2001
	(dollars in millions)
Reported net loss	$	(104.5	)	$	(277.7	)	$	(178.3	)
Add:
Goodwill amortization		49.5			77.2			77.6
Intangible assets with indefinite lives amortization		7.5			11.6			11.6
Adjusted net loss	$	(47.5	)	$	(188.9	)	$	(89.1	)

New Accounting Standards

In December 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 148,” Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123.” This statement amends SFAS No. 123 “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We currently follow the intrinsic value based method accounting for stock based compensation of Accounting Principles Board, or APB, No. 25. We will adopt the fair value based method of accounting for stock-based compensation for all stock based compensation granted after December 31, 2002 in accordance with the original transition provisions of SFAS No. 123. Adoption of this standard will result in an increase in compensation cost recognized in operating results. See Note 13 to the consolidated financial statements for pro forma information regarding the compensation costs that would have been recognized had we followed the fair value based method of accounting for stock based compensation for the years ended December 31, 2001, 2000 and 1999.

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the related revenues should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 will apply to revenue arrangements entered into after June 30, 2003; however, upon adoption, the EITF allows the guidance to be applied on a retroactive basis, with the change, if any, reported as a cumulative effect of accounting change in the consolidated statement of operations. We have not yet determined the impact this issue will have on our results of operations or financial position or whether it will be applied retroactively.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires the recognition of costs associated with exit or disposal activities when incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces previous guidance provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” We adopted SFAS No. 146 on January 1, 2003. The adoption of this statement did not affect our results of operations or financial position.

16

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 such assumptions because the amounts noted below are the result of analyses used for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered projections by us of future events or losses.

General.  Our cash flows and earnings are subject to fluctuations resulting from changes in the market value of our equity investments.

Investments.  We maintain investments in publicly-traded common stock of unaffiliated companies and are therefore subject to equity price risk. These investments are classified as available-for-sale and, consequently, are reflected in our consolidated balance sheets at fair value with unrealized gains or losses, net of taxes, recorded as part of accumulated other comprehensive income (loss), a separate component of stockholder’s equity. Declines in market value that are judged to be “other-than-temporary” are charged to “Other, net” in the consolidated statements of operations. The fair values of the investments in such common stock were $71.8 million and $470.4 million at September 30, 2002 and December 31, 2001, respectively, based on closing market prices. A 10% decline in the market price of these investments would cause the fair value of the investments in common stock to decrease by $7.2 million and $47.0 million at September 30, 2002 and December 31, 2001, respectively. We have not taken action to hedge this market risk exposure. During the first quarter of 2003, we expect to distribute substantially all of our remaining equity investment securities to Hughes, including our equity investments in Crown Media, TiVo, and XM Satellite Radio. These equity securities had an aggregate estimated fair market value of $47.9 million as of December 31, 2002.

17

EX-99.4

Exhibit 99.4

INDEX TO FINANCIAL STATEMENTS

	Page
DIRECTV Holdings LLC—Audited Financial Statements
Independent Auditor’s Report	F-2
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999	F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000	F-4
Consolidated Statements of Changes in Owner’s Equity for the years ended December 31, 2001, 2000 and 1999	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

INDEPENDENT AUDITORS’ REPORT

To DIRECTV Holdings LLC:

We have audited the accompanying Consolidated Balance Sheets of DIRECTV Holdings LLC as of December 31, 2001 and 2000, 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, 2001. These financial statements are the responsibility of DIRECTV Holdings LLC’s management. Our responsibility is to express an opinion on these financial statements 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 financial statements present fairly, in all material respects, the financial position of DIRECTV Holdings LLC at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Los Angeles, California

January 31, 2003

F-2

DIRECTV HOLDINGS LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2001			2000			1999
	(dollars in millions)
Revenues	$	5,552.1		$	4,694.0		$	3,404.6
Operating costs and expenses, exclusive of depreciation and amortization expense shown below
Programming and other costs		2,211.2			1,890.3			1,444.3
Subscriber service expenses		479.9			502.5			335.7
Subscriber acquisition costs:
Third party customer acquisitions		1,585.7			1,285.0			923.1
Direct customer acquisitions		72.8			—			—
Retention, upgrade and other marketing costs		378.2			274.4			116.6
Broadcast operations expenses		119.1			164.5			126.2
General and administrative expenses		489.1			455.0			291.2
Depreciation and amortization expense		438.5			395.4			250.6
Total operating costs and expenses		5,774.5			4,967.1			3,487.7
Operating loss		(222.4	)		(273.1	)		(83.1	)
Interest expense, net		(123.5	)		(151.9	)		(69.5	)
Other income, net		85.1			—			—
Loss before income taxes		(260.8	)		(425.0	)		(152.6	)
Income tax benefit		82.5			147.3			48.1
Net loss	$	(178.3	)	$	(277.7	)	$	(104.5	)

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

F-3

DIRECTV HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS

	December 31,
	2001			2000
	(dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	15.4		$	18.4
Accounts receivable, net of allowances of $ 53.2 and $ 55.8		470.9			502.1
Inventories, net		66.2			78.8
Prepaid expenses and other		604.9			565.6
Total current assets		1,157.4			1,164.9
Satellites, net		984.6			839.1
Property, net		893.8			894.5
Goodwill, net		2,888.5			2,967.5
Intangible assets, net		642.2			707.5
Investments and other assets		500.5			756.8
Total assets	$	7,067.0		$	7,330.3
LIABILITIES AND OWNER’S EQUITY
Current Liabilities
Accounts payable	$	131.2		$	247.4
Accrued liabilities		1,159.8			1,152.7
Unearned subscriber revenue		161.0			130.9
Total current liabilities		1,452.0			1,531.0
Other liabilities and deferred credits		702.4			824.5
Deferred income taxes		299.4			290.5
Owner’s Equity
Capital stock and additional paid-in capital		5,413.1			5,149.5
Accumulated deficit		(959.5	)		(781.2	)
Subtotal owner’s equity		4,453.6			4,368.3
Accumulated other comprehensive income
Accumulated unrealized gains on securities		159.6			316.0
Total owner’s equity		4,613.2			4,684.3
Total liabilities and owner’s equity	$	7,067.0		$	7,330.3

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

F-4

DIRECTV HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CHANGES IN OWNER’S EQUITY

	Owner’s Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Owner’s Equity			Comprehensive Income (Loss)
	(dollars in millions)
Balance at December 31, 1998	$	697.7	$	(399.0	)				$	298.7
Net loss				(104.5	)					(104.5	)	$	(104.5	)
Transfers of acquired assets from Parent		3,504.1								3,504.1
Net capital contribution from Parent		377.9								377.9
Unrealized holding gains on securities						$	347.6			347.6			347.6
Comprehensive income												$	243.1
Balance at December 31, 1999		4,579.7		(503.5	)		347.6			4,423.8
Net loss				(277.7	)					(277.7	)	$	(277.7	)
Net capital contribution from Parent		569.8								569.8
Unrealized holding losses on securities							(31.6	)		(31.6	)		(31.6	)
Comprehensive loss												$	(309.3	)
Balance at December 31, 2000		5,149.5		(781.2	)		316.0			4,684.3
Net loss				(178.3	)					(178.3	)	$	(178.3	)
Net capital contribution from Parent		263.6								263.6
Unrealized holding losses on securities							(103.3	)		(103.3	)		(103.3	)
Less: reclassification adjustment for net gain recognized during the period							(53.1	)		(53.1	)		(53.1	)
Comprehensive loss												$	(334.7	)
Balance at December 31, 2001	$	5,413.1	$	(959.5	)	$	159.6		$	4,613.2

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

F-5

DIRECTV HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2001			2000			1999
	(dollars in millions)
Cash Flows from Operating Activities
Net Loss	$	(178.3	)	$	(277.7	)	$	(104.5	)
Adjustments to reconcile net loss to net cash used in operating activities
Tax benefit		(82.5	)		(147.3	)		(48.1	)
Depreciation and amortization		438.5			395.4			250.6
Net loss on sale or disposal of property		11.8			33.5			0.8
Net gain on sale of investments		(87.8	)		—			—
Cost of employee benefit programs		3.6			5.1			4.0
Change in other operating assets and liabilities
Accounts receivable, net		31.2			(118.6	)		(48.6	)
Inventories		12.6			(42.2	)		(34.6	)
Prepaid expenses and other		11.2			(175.9	)		(166.5	)
Investments and other assets		8.0			6.2			35.5
Accounts payable		(116.3	)		7.2			24.2
Accrued liabilities		7.1			216.9			199.4
Unearned subscriber revenue		30.1			2.3			(50.7	)
Other liabilities and deferred credits		(177.2	)		(168.8	)		(111.8	)
Net cash used in operating activities		(88.0	)		(263.9	)		(50.3	)
Cash Flows from Investing Activities
Expenditures for property and equipment		(250.4	)		(546.4	)		(277.0	)
Expenditures for satellites		(199.9	)		(107.2	)		(136.0	)
Proceeds from sale of property and investments		132.7			6.4			0.5
Investments in companies		—			(21.3	)		(95.8	)
Net cash used in investing activities		(317.6	)		(668.5	)		(508.3	)
Cash Flows from Financing Activities
Net cash contribution from Parent		402.6			932.2			563.1
Net cash provided by financing activities		402.6			932.2			563.1
Net increase (decrease) in cash and cash equivalents		(3.0	)		(0.2	)		4.5
Cash and cash equivalents at beginning of the year		18.4			18.6			14.1
Cash and cash equivalents at end of the year	$	15.4		$	18.4		$	18.6

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

F-6

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1:    Basis of Presentation and Description of Business

On June 11, 2002, Hughes Electronics Corporation (“Hughes” or “Parent”) established DIRECTV Holdings, LLC (“DIRECTV Holdings” or “DIRECTV”). Upon establishing DIRECTV Holdings, Hughes contributed its wholly-owned subsidiary, DIRECTV Enterprises LLC and its subsidiaries (“DTVE”), to DIRECTV Holdings along with certain premium subscription programming contracts that it acquired from United States Satellite Broadcasting Company, Inc. (“USSB”) in May 1999 (see Note 15 for further discussion). The formation of DIRECTV Holdings is the result of transfers of net assets by entities under common control. Therefore, the financial statements reflect Hughes’ 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 Hughes (See Note 2 for further discussion).

DIRECTV Holdings is a wholly-owned subsidiary of Hughes, which is a wholly-owned subsidiary of General Motors Corporation (“GM”). DTVE’s wholly-owned subsidiaries consist of DIRECTV Operations LLC, DIRECTV Merchandising, Inc., DIRECTV Customer Service, Inc., USSB II, Inc., and DIRECTV, Inc.

In April 1999 Hughes acquired PRIMESTAR Inc.’s 2.3 million subscriber medium-power direct-to-home satellite business (“PRIMESTAR”). PRIMESTAR provided medium-power direct-to-home satellite services to the PRIMESTAR By DIRECTV customers. PRIMESTAR’s programming was broadcast from a leased medium-power satellite owned by GE Americom Communications, Inc. and located at 85 degrees west longitude, or WL. PRIMESTAR’s program transmission services were provided by a third party. The medium-power PRIMESTAR business was discontinued on September 30, 2000, after converting approximately 1.5 million customers to the DIRECTV service. On January 9, 2001, PRIMESTAR was merged into DTVE.

In May 1999 Hughes acquired the high-power satellite assets and orbital frequencies of Tempo Satellite, Inc. (“The Tempo Satellite Assets”). The acquisition of The Tempo Satellite Assets provided an in-orbit satellite, a satellite that had not yet been launched (the DIRECTV 5 satellite) and related orbital frequencies. In May 1999, Hughes contributed The Tempo Satellite Assets to DTVE.

The USSB acquisition provided contracts for 25 channels of video programming, including premium networks such as HBO^®, Showtime^®, Cinemax^®, and The Movie Channel^®, which are now being offered to DIRECTV’s customers.

The acquisitions discussed above are described in more detail in Note 15.

The DIRECTV^® service was introduced in the United States in 1994 and was one of the first high-powered, all digital, direct-to-home television distribution services in North America. At December 31, 2001, DIRECTV owned a fleet of six in-orbit high-power satellites, four of which are located at 101 WL, one of which is located at 119 WL, and one of which is located at 110 WL. In May 2002, DIRECTV successfully launched the DIRECTV-5 satellite, which is located at 119 WL. DIRECTV entertainment and information programs are transmitted from its digital broadcast centers located in Castle Rock, Colorado and Los Angeles, California to its in-orbit satellites. The programming is then received by customers using DIRECTV receiving equipment, which includes a small satellite dish, a digital set-top receiver and a remote control. DIRECTV receiving equipment is manufactured by Hughes Network Systems, Inc. (“HNS”), a subsidiary of Hughes, Thomson Multimedia S.A. (RCA) and other name brand consumer electronics companies. The DIRECTV receiving equipment is distributed to consumers through national retail and consumer electronics stores, satellite television dealers, regional telephone companies, DIRECTV’s direct customer acquisition program and rural and urban dealer networks. DIRECTV has a single operating segment with all revenues to date generated from U.S. based subscribers and customers.

F-7

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DIRECTV participates in the centralized cash management system of Hughes, wherein cash receipts are transferred to and cash disbursements are funded by Hughes on a daily basis. The amount of cash and cash equivalents reported by DIRECTV represent amounts held outside of the cash management system.

Since its inception in 1994, DIRECTV has incurred significant operating losses, which have been funded from capital contributions from Hughes. In the second quarter of 2003, DIRECTV plans to enter into credit facilities that will be used to pay a dividend to Hughes and fund future operations, independent of continued support from Hughes. Subsequent to the financing transactions, DIRECTV expects to fund cash requirements for operating and capital expenditures from cash generated by operations and additional borrowings, as needed. Should DIRECTV not enter into these credit facilities, Hughes remains committed to fund operations for the foreseeable future.

The net cash activity associated with Hughes, which includes the activity associated with the cash management system and Hughes’ funding of DIRECTV payroll is recorded on a quarterly basis as a net contribution from or to Parent in the consolidated statements of changes in owner’s equity. The net cash activity with Hughes resulted in a net capital contribution from Parent of $402.6 million, $932.2 million and $563.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. The net capital contribution from Parent also includes the non-cash cost of employee benefits allocated from Hughes that are discussed in Note 11 and is offset by the non-cash tax benefits transferred to Hughes that are discussed below in Note 2. Related-party transactions are discussed further in Note 14.

Merger Transaction

On October 28, 2001, Hughes and GM, together with EchoStar Communications Corporation (“EchoStar”), announced the signing of definitive agreements that provided for the split-off of Hughes from GM and the subsequent merger of the Hughes business with EchoStar (the “Merger”). On December 9, 2002, Hughes, GM and EchoStar entered into a Termination, Settlement and Release Agreement (the “Termination Agreement”), pursuant to which the companies agreed to terminate the Agreement and Plan of Merger, dated as of October 28, 2001, as amended, between Hughes and EchoStar (the “Merger Agreement”) and certain related agreements.

Note 2:    Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of DIRECTV Holdings and its majority owned subsidiaries, after elimination of intercompany accounts and transactions. The contribution of PRIMESTAR and The Tempo Satellite Assets by Hughes to DTVE and subsequent contribution of DTVE and the premium subscription programming contracts of USSB by Hughes to DIRECTV Holdings (collectively the “Reorganization”) has been treated as a transfer of net assets by entities under common control. Accordingly, the financial statements reflect Hughes’ historical cost basis in the net assets and the results of operations associated with the net assets since the date of their original acquisition by Hughes. The acquisitions of PRIMESTAR, USSB and The Tempo Satellite Assets have been reflected as “Transfers of acquired assets from Parent” as of their respective dates of original acquisition by Hughes in the accompanying consolidated statements of changes in owner’s equity. The acquisitions were funded through the issuance of GM Class H common stock and cash payments by Hughes, which totaled $3,504.1 million, and recorded as a capital contribution from Parent in “Transfers of acquired assets from Parent” in the consolidated statements of changes in owner’s equity in 1999. The cash portion of the contributions of $17.7 million, which represented the cash on-hand at USSB and PRIMESTAR at the date of acquisition, is included in “Net cash contribution from Parent” in the consolidated statements of cash flows.

F-8

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Use of Estimates in the Preparation of the Financial Statements

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates.

Revenue Recognition

Subscription and pay-per-view revenues are recognized when programming is broadcast to subscribers. Equipment rental revenue is recognized monthly as earned. Advertising revenue is recognized when the related services are performed. Programming payments received from subscribers in advance of the broadcast are recorded as “Unearned subscriber revenue” in the consolidated balance sheets until earned.

Programming and Other Costs

The cost of television programming distribution rights is recognized when the related programming is distributed. The cost of television programming rights to distribute live sporting events is charged to expense using the straight-line method over the course of the season or tournament. These costs are included in “Programming and other costs” in the consolidated statements of operations.

Advance payments in the form of cash and equity instruments from programming content providers for carriage of their signal are deferred and recognized as a reduction of “Programming and other costs” in the consolidated statements of operations on a straight-line basis over the related contract term. Equity instruments are recorded at fair value based on quoted market prices or appraised values based on an independent third-party valuation. Also recorded as a reduction of programming costs is the amortization of a provision for above-market programming contracts that was recorded in connection with the USSB transaction discussed in Note 15. The provision was based upon an independent third-party appraisal and recorded at its net present value, with interest expense recognized over the remaining term of the contract. The current and long-term portions of these deferred credits are recorded in the consolidated balance sheets in “Accrued liabilities” and “Other liabilities and deferred credits” and amortized using the interest method over the related contract terms ranging from 17 months to 92 months.

Subscriber Acquisition Costs

Subscriber acquisition costs (“SAC”) in the consolidated statements of operations consist of costs incurred to acquire new DIRECTV subscribers through third parties and DIRECTV’s direct customer acquisition program. The deferred portion of the costs are included in “Prepaid expenses and other” in the consolidated balance sheets.

SAC is incurred to acquire new DIRECTV subscribers and consists of subsidies paid to manufacturers of DIRECTV receiving equipment, if any, and the cost of print and television advertising. Additional components of SAC include amounts paid for third party customer acquisitions, which consist of the cost of commissions paid to authorized retailers and dealers for subscribers added through their respective distribution channels, and the cost of installation and hardware subsidies for subscribers added through DIRECTV’s direct customer acquisition program. The cost of advertising and manufacturer subsidies is expensed as incurred. Manufacturer subsidies for hardware activated on the DIRECTV services prior to August 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

F-9

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

obligation. The current portion of these manufacturer subsidies are recorded in the consolidated balance sheets in “Accrued liabilities”, with the long-term portion recorded in “Other Liabilities and Deferred Credits”.

Substantially all commissions paid to retailers and dealers for third party customer acquisitions, although paid in advance, are earned by the retailer or dealer over 12 months from the date of subscriber activation and may be recouped by DIRECTV on a pro-rata basis should the subscriber cancel the DIRECTV service during the 12-month service period. Accordingly, prepaid commissions are deferred and amortized to expense over the 12-month service period. The amount deferred is limited to the estimated average gross margin (equal to an average subscriber’s revenue to be earned over 12 months, less the related cost of programming) to be derived from the subscriber over the 12-month period. The excess commission over the estimated gross margin and non-refundable commissions are expensed immediately.

The cost of installation and hardware under DIRECTV’s direct customer acquisition program is deferred when a customer commits to 12 months of the DIRECTV service. The amount deferred is amortized to expense over the commitment period and limited to the estimated gross margin (equal to the contractual revenues to be earned from the subscriber over 12 months, less the related cost of programming) expected to be earned over the contract term, less a reserve for estimated unrecoverable amounts. The cost of installation and hardware in excess of the estimated gross margin and where no customer commitment is obtained is expensed immediately.

DIRECTV actively monitors the recoverability of prepaid commissions and deferred installation and hardware costs. To the extent DIRECTV needs to charge back prepaid commissions, DIRECTV offsets the amount due against amounts payable to the retailers/dealers and therefore, recoverability of prepaid commissions, net of existing reserves, is reasonably assured. Generally, new subscribers secure their accounts by providing a credit card or other identifying information and agree that a pro-rated early termination fee of $150 will be assessed if the subscriber cancels service prior to the end of the commitment period. As a result, with the ability to charge the subscriber an early termination fee, together with existing reserves, the recoverability of deferred installation and hardware costs is reasonably assured.

Income Taxes

DIRECTV and Hughes join in the filing of a consolidated U.S. federal income tax return with GM. The amount of income tax liability or receivable recorded by Hughes is generally equivalent to the amount Hughes would have recorded on a separate return basis.

The amount of income tax benefit or expense reported by DIRECTV is generally equivalent to the portion of the Hughes consolidated provision for income taxes that is directly attributable to DIRECTV. The income tax balances reported in the consolidated balance sheets are determined based upon DIRECTV’s tax sharing agreement with Hughes, which provides that the current tax liability or receivable be computed as if DIRECTV were a separate taxpayer, however, tax losses not utilized to reduce a DIRECTV tax liability in the period in which such losses originated are not available to reduce a tax liability in future periods.

For the reported periods, losses generated by DIRECTV provided tax benefits to Hughes that were recognized by Hughes and DIRECTV in their respective financial statements. Pursuant to the tax sharing agreement, to the extent that DIRECTV does not utilize losses to reduce a current tax liability, any excess losses will not be available to DIRECTV to reduce future tax liabilities. Accordingly, the tax benefits attributable to such losses are transferred to Hughes in a non-cash transaction and recorded as a reduction to “Net capital contribution from Parent” in the consolidated statements of changes in owner’s equity. The amount of such benefits transferred to Hughes were $142.6 million, $367.5 million and $171.5 million in 2001, 2000 and 1999, respectively.

F-10

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash Flows

Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less.

Cash payments of $95.4 million, $110.3 million, and $67.5 million were made for interest in 2001, 2000, and 1999, respectively, primarily associated with certain above-market programming contracts acquired in the PRIMESTAR and USSB transactions, which are discussed in Note 15. No cash payments were made for income taxes in 2001, 2000 or 1999.

Inventories

Inventories consist primarily of DIRECTV receiving equipment, which is mostly used for DIRECTV’s direct customer acquisition program, and DIRECTV system access cards (finished goods). Inventories are stated at the lower of average cost or market.

	2001			2000
	(dollars in millions)
Finished goods	$	72.4		$	81.1
Inventory valuation reserve		(6.2	)		(2.3	)
Inventories, net	$	66.2		$	78.8

Property, Satellites and Depreciation

Property and satellites are carried at cost. Satellite costs include the costs of satellites currently being constructed and those that have been successfully launched. Successfully launched satellites include the costs of construction, launch and launch insurance. Capitalized subscriber leased set-top receivers include the costs of hardware and installation. Depreciation is computed generally using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the life of the asset or term of the lease.

Goodwill and Intangible Assets

Goodwill, which represents the excess of the cost over the fair value of the net tangible and identifiable intangible assets of acquired businesses, and intangible assets are amortized using the straight-line method over periods not exceeding 40 years. As discussed below, with the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, on January 1, 2002, DIRECTV ceased amortization of goodwill and intangible assets with indefinite lives.

Valuation of Long-Lived Assets

DIRECTV evaluates the carrying value of long-lived assets to be held and used, including intangible assets, 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 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 anticipated cash flows 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.

F-11

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial Instruments and Investments

DIRECTV maintains investments in equity securities of unaffiliated companies. Marketable equity securities are considered available-for-sale and carried at current fair value based on quoted market prices, with unrealized gains or losses (excluding other-than-temporary losses), net of taxes, reported as part of “Accumulated Other Comprehensive Income” (“OCI”). DIRECTV continually reviews its investments to determine whether a decline in fair value below cost basis is “other-than-temporary”. DIRECTV considers, among other factors; the magnitude and duration of the decline; the financial health of and business outlook of the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors; and DIRECTV’s intent and ability to hold the investment. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written-down to fair value and is recognized in the consolidated statements of operations as part of “Other income, net”. Non-marketable securities are carried at cost. The carrying value of cash and cash equivalents, accounts receivable, investments and other assets, accounts payable, and amounts included in “Accrued liabilities” in the consolidated balance sheets, which meet the definition of a financial instrument, approximated fair value at December 31, 2001 and 2000.

Stock Compensation

Hughes issues GM Class H common stock options to employees, including DIRECTV employees, with grant prices equal to the fair value of the underlying security at the date of grant. No compensation cost has been recognized for options in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. See Note 13 for information regarding the pro forma effect on earnings of recognizing compensation cost based on the estimated fair value of the stock options granted.

Advertising Expenses

Advertising costs, which are expensed as incurred, net of payments received from programming content providers for marketing support, were $116.3 million in 2001, $78.3 million in 2000 and $50.4 million in 1999.

Market Concentrations and Credit Risk

Accounts Receivable, Net—Subscribers. DIRECTV sells programming services and extends credit, in amounts generally not exceeding $100 each, to a large number of individual residential subscribers throughout the United States. Management monitors DIRECTV’s exposure for credit losses and maintains allowances for anticipated losses.

Accounts Receivable, Net—NRTC and Affiliates. DIRECTV has significant accounts receivable from the National Rural Telecommunications Cooperative (“NRTC”) and the NRTC’s largest affiliate, Pegasus Satellite Television, Inc. (“Pegasus”). The accounts receivable from the NRTC are associated with an agreement granting NRTC an exclusive right to distribute certain DIRECTV programming in certain territories until the end of life of the DIRECTV-1 satellite. The NRTC pays DIRECTV a fee based on gross revenues billed to customers located in those territories. The NRTC also pays DIRECTV customer-based fees for technical and operational services such as satellite telemetry, tracking and control, and security, broadcast and billing services. A significant portion of the receivable from the NRTC represents reimbursement of programming costs incurred by DIRECTV on behalf of the NRTC. Pursuant to its agreement with DIRECTV, NRTC has provided DIRECTV with an irrevocable letter of credit renewable every six months, in an amount approximating the prior three months of programming and operational receivables (at time of renewal) under the agreement.

F-12

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A portion of the amounts receivable from Pegasus results from DIRECTV separately contracting with Pegasus to permit Pegasus to market and sell primarily premium movie services transmitted from five frequencies located at 101 WL, as well as frequencies located at 110 and 119 WL. Further, DIRECTV has recorded amounts receivable of approximately $52 million as of January 31, 2003, from Pegasus as a result of a marketing agreement, now terminated, pursuant to which Pegasus was to pay DIRECTV a specified amount for certain new customer activations in Pegasus territories that DIRECTV had subsidized. The payment of these amounts is currently in dispute as described in Note 16.

Management monitors DIRECTV’s exposure for credit losses through assessing the collectibility of the amounts receivable from Pegasus and the NRTC on a regular basis. As applicable, allowances are maintained for anticipated losses.

Accounting Change

DIRECTV adopted SFAS No. 141, “Business Combinations”, on July 1, 2001. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and prohibits the amortization of goodwill and intangible assets with indefinite lives acquired thereafter. The adoption of SFAS No. 141 did not affect DIRECTV’s results of operations or financial position.

New Accounting Standards

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148,”Accounting for Stock-Based Compensation-Transition and Disclosure – an amendment of SFAS No. 123”. This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. DIRECTV currently follows the intrinsic value based method accounting for stock based compensation of APB No. 25. DIRECTV will adopt the fair value based method of accounting for stock-based compensation for all stock based compensation granted after December 31, 2002 in accordance with the original transition provisions of SFAS No. 123. Adoption of this standard will result in an increase in compensation cost recognized in operating results. See Note 13 to the consolidated financial statements for pro-forma information regarding the compensation costs that would have been recognized had DIRECTV followed the fair value based method of accounting for stock based compensation for the years ended December 31, 2001, 2000 and 1999.

In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the related revenues should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 will apply to revenue arrangements entered into after June 30, 2003; however, upon adoption, the EITF allows the guidance to be applied on a retroactive basis, with the change, if any, reported as a cumulative effect of accounting change in the consolidated statements of operations. DIRECTV has not yet determined the impact this issue will have on its results of operations or financial position or whether it will be applied retroactively.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 requires the recognition of costs associated with exit or disposal activities when incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces previous guidance provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits

F-13

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. DIRECTV adopted SFAS No. 146 on January 1, 2003. The adoption of this statement did not affect DIRECTV’s results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 refines existing impairment accounting guidance and extends the use of this accounting to discontinued operations. SFAS No. 144 requires the use of discontinued operations accounting treatment for both reporting segments and distinguishable components thereof. SFAS No. 144 also eliminates the existing exception to the consolidation of a subsidiary for which control is likely to be temporary. The adoption of the statement on January 1, 2002 did not affect DIRECTV’s results of operations or financial position.

DIRECTV adopted SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 requires that existing and future goodwill and intangible assets with indefinite lives not be amortized, but written down, as needed, based upon an impairment analysis that must occur at least, annually, or sooner if an event occurs or circumstances change that would more likely than not result in an impairment loss. All other intangible assets are amortized over their estimated useful lives. SFAS No. 142 requires that DIRECTV perform step one of a two-part transitional impairment test to compare its fair value with its respective carrying amount, including goodwill. If the carrying value exceeds the fair value, step two of the transitional impairment test must be performed to measure the amount of the impairment loss, if any. SFAS No. 142 also requires that intangible assets be reviewed as of the date of adoption to determine if they continue to qualify as intangible assets under the criteria established under SFAS No. 141, “Business Combinations”, and to the extent previously recorded intangible assets do not meet the criteria that they be reclassified to goodwill.

As part of the 1999 PRIMESTAR acquisition, dealer network and subscriber base intangible assets were identified and valued in accordance with APB Opinion No. 16 “Business Combinations”. The dealer network intangible asset originally valued as part of the PRIMESTAR acquisition was based on the established distribution, customer service and marketing capability that had been put in place by PRIMESTAR. The subscriber base intangible asset originally valued as part of the PRIMESTAR acquisition was primarily based on the expected non-contractual future cash flows to be earned over the life of the PRIMESTAR subscribers converted to the DIRECTV service. In accordance with SFAS No. 142, DIRECTV completed a review of its intangible assets and determined that the previously recorded dealer network and subscriber base intangible assets established under APB Opinion No. 16 did not meet the contractual or other legal rights criteria. The dealer network and subscriber base intangible assets also did not meet the separability criteria because the intangible assets could not be sold, transferred, licensed, rented or exchanged individually or in combination with other assets or liabilities, apart from selling the entire DIRECTV business. As a result, in the first quarter of 2002, DIRECTV reclassified $209.8 million, net of $140.2 million of accumulated amortization, of previously reported intangible assets to goodwill. As a result of this reclassification, approximately $13.2 million of quarterly amortization expense ceased, beginning January 1, 2002. In October 2002, EITF 02-17 “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination” was issued, which gave clarifying guidance on the treatment of certain subscriber related relationships. As a result, as of the beginning of the fourth quarter of 2002, the subscriber base and dealer network intangible assets were reinstated and are being amortized over their remaining lives of 2 and 12 years, respectively. As a result of this change, quarterly amortization expense will increase by $18.5 million beginning in the fourth quarter of 2002.

In the first quarter of 2002 DIRECTV also completed the required transitional impairment test for intangible assets with indefinite lives, which consists of Federal Communications Commission licenses for direct-to-home broadcasting frequencies (“Orbital Slots”), and determined that no impairment existed because the fair value of these assets exceeded the carrying value as of January 1, 2002.

F-14

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the second quarter of 2002, with the assistance of an independent valuation firm, DIRECTV completed step one of the transitional test to determine whether a potential impairment existed on goodwill recorded at January 1, 2002. Primarily based on the present value of expected future cash flows, it was determined that the fair value of DIRECTV exceeded its carrying value, therefore a step two impairment test is not required.

In accordance with SFAS No. 142, DIRECTV will perform its annual impairment test during the fourth quarter of each year, commencing in the fourth quarter of 2002. If an impairment loss results from the annual impairment test, the loss will be recorded as a pre-tax charge to operating income.

The following represents DIRECTV’s reported net loss on a comparable basis excluding the after-tax effect of amortization expense associated with goodwill and intangible assets with indefinite lives:

	Years Ended, December 31
	2001			2000			1999
	(dollars in millions)
Reported net loss	$	(178.3	)	$	(277.7	)	$	(104.5	)
Add:
Goodwill amortization		77.6			77.2			49.5
Intangible assets with indefinite lives amortization		11.6			11.6			7.5
Adjusted net loss	$	(89.1	)	$	(188.9	)	$	(47.5	)

Note 3:    Accounts Receivable, Net

Net accounts receivable are as follows:

	2001			2000
	(dollars in millions)
Subscribers	$	249.6		$	266.5
NRTC and affiliates		181.7			152.9
Other		92.8			138.5
		524.1			557.9
Less allowance for doubtful accounts		(53.2	)		(55.8	)
Total	$	470.9		$	502.1

Note 4:    Prepaid Expenses and Other

Prepaid expenses and other are as follows:

	2001		2000
	(dollars in millions)
Commissions to distributors	$	432.2	$	454.5
Deferred hardware and installation costs		32.8		—
Deferred income taxes		97.5		47.0
Other		42.4		64.1
Total	$	604.9	$	565.6

F-15

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5:    Satellites, Net and Property, Net

	Estimated Useful Lives (years)	2001			2000
	(dollars in millions)
Satellites	12-16	$	1,286.9		$	1,087.0
Less accumulated depreciation			(302.3	)		(247.9	)
Satellites, net		$	984.6		$	839.1
Land and improvements		$	13.2		$	12.8
Buildings and leasehold improvements	3-30		115.8			94.9
Machinery and equipment	3-10		702.9			506.8
Subscriber leased equipment	4		512.9			524.7
Construction in progress			185.6			180.3
Total			1,530.4			1,319.5
Less accumulated depreciation			(636.6	)		(425.0	)
Property, net		$	893.8		$	894.5

Note 6:    Goodwill and Intangible Assets

DIRECTV had $2,888.5 million and $2,967.5 million of goodwill, net of accumulated amortization of $204.3 million and $126.7 million at December 31, 2001 and 2000, respectively. DIRECTV had $642.2 million and $707.5 million of intangible assets, net of accumulated amortization of $176.6 million and $111.3 million at December 31, 2001 and 2000, respectively. Intangible assets at December 31, 2001 consist of $432.4 million, net of $30.6 million of accumulated amortization for Orbital Slots which have indefinite useful lives, and intangible assets related to subscriber base and dealer networks of $102.9 million, net of $117.1 million of accumulated amortization, and $106.9 million, net of $23.1 million of accumulated amortization, respectively. Intangible assets are amortized over 5 to 40 years. Amortization expense for goodwill and intangible assets was $142.9 million, $145.9 million and $92.1 million for 2001, 2000 and 1999, respectively. Estimated amortization expense in each of the next five years is as follows: $18.5 million in 2002, $74.0 million in 2003, $31.1 million in 2004, $9.2 million in 2005, $9.2 million in 2006 and $67.8 thereafter. See Note 2 for discussion of the effect of SFAS No. 142 on the consolidated financial statements.

Note 7:    Investments

Investments in marketable equity securities stated at current fair value and classified as available-for-sale totaled $431.3 million and $709.2 million at December 31, 2001 and 2000, respectively. Accumulated unrealized after-tax holding gains recorded as part of OCI were $159.6 million and $316.0 million at December 31, 2001 and 2000, respectively. During 2001, DIRECTV recognized other-than-temporary declines in certain marketable equity investments that resulted in a pre-tax charge of $20.5 million. Also, during 2001 DIRECTV sold about 4.1 million shares of Thomson Multimedia S.A. common stock for approximately $132.7 million, which resulted in a pre-tax gain of $108.3 million. The net amount of gain and losses realized from the sale or write-down of investments is reflected as a reclassification adjustment in OCI and included in the consolidated statements of operations in “Other income, net”. Investments in non-marketable securities, which are carried at cost, totaled $40.0 million and $8.6 million at December 31, 2001 and 2000, respectively.

In August 2002, DIRECTV sold about 8.8 million shares of Thomson multimedia S.A. common stock for approximately $211.0 million in cash, resulting in a pre-tax gain of $158.6 million. Also during 2002, DIRECTV recognized other-than-temporary declines in certain marketable equity securities, which resulted in a charge of $97.6 million in the fourth quarter of 2002.

F-16

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8:    Accrued Liabilities

	2001		2000
	(dollars in millions)
Programming costs	$	391.5	$	317.6
Provision for GECC dispute		168.0		145.0
Manufacturer subsidies		132.4		116.9
Third party commissions		112.9		202.8
Current portion of provision for above-market programming contracts		106.3		94.3
Subscriber service expenses		46.9		41.0
Payroll and employee benefits		27.8		43.0
Other		174.0		192.1
Total	$	1,159.8	$	1,152.7

During 2001, DIRECTV announced a 22% reduction of its approximately 2,170 employees, excluding DIRECTV customer service representatives. As a result, 475 employees, across all business disciplines, were given notification of termination that resulted in a charge of $47.9 million in “General and administrative expenses” in the consolidated statements of operations. Of that charge, $42.6 million related to employee severance benefits and $5.3 million was for other costs primarily related to a remaining lease obligation associated with excess office space and employee equipment. As of December 31, 2001, 461 employees had been terminated with the remaining employees terminated in the first quarter of 2002. The remaining accrual for employee severance and other costs amounted to $16.6 million at December 31, 2001.

Note 9:    Other Liabilities and Deferred Credits

	2001		2000
	(dollars in millions)
Provision for above-market programming contracts	$	430.1	$	536.6
Advance payments for programming carriage and marketing support		146.8		78.8
Manufacturer subsidies		123.6		203.3
Other		1.9		5.8
Total	$	702.4	$	824.5

Note 10:    Income Taxes

The income tax benefit is based on the reported loss before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, which are available to DIRECTV pursuant to its tax sharing agreements with Hughes and as measured by applying currently enacted tax laws. As of December 31, 2001 all tax basis net operating losses generated by DIRECTV have been transferred to Hughes as described in Note 2. DIRECTV joins with GM in filing a U.S. federal income tax return.

The income tax benefit consisted of the following:

	2001			2000			1999
	(dollars in millions)
Taxes currently receivable–U.S. federal and state	$	142.6		$	367.5		$	171.5
Deferred tax liabilities, net–U.S. federal and state		(60.1	)		(220.2	)		(123.4	)
Total income tax benefit	$	82.5		$	147.3		$	48.1

F-17

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

	2001			2000			1999
	(dollars in millions)
Expected income tax benefit at U.S. statutory rate of 35%	$	91.2		$	148.8		$	53.4
U.S. state income tax benefit		9.1			16.3			5.5
Non-deductible goodwill amortization		(17.8	)		(17.8	)		(10.8	)
Total income tax benefit	$	82.5		$	147.3		$	48.1

Temporary differences and tax attributes that give rise to the deferred tax assets and liabilities at December 31, 2001 and 2000 were as follows:

	2001				2000
	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
	(dollars in millions)
Depreciation and amortization			$	469.0			$	393.6
Unrealized holding gains on securities				104.5				206.3
Accrued costs and expenses	$	141.2		—	$	79.3		—
Manufacturer subsidies and prepaid third party commissions		—		83.8		—		77.2
Acquired net operating losses		75.3		—		75.3		—
Programming contract liabilities		242.3		—		288.0		—
Other temporary differences		5.0		8.4		—		9.0
Total deferred taxes	$	463.8	$	665.7	$	442.6	$	686.1

At December 31, 2001 and 2000, DIRECTV had current deferred tax assets of $189.1 million and $132.7 million, respectively, and non-current deferred tax assets of $274.7 million and $309.9 million, respectively. At December 31, 2001 and 2000, DIRECTV had current deferred tax liabilities of $91.6 million and $85.7 million, respectively, and non-current deferred tax liabilities of $574.1 million and $600.4 million, respectively.

Note 11:    Retirement Programs and Other Post-Retirement Benefits

Employees of DIRECTV participate in contributory and non-contributory defined benefit retirement plans maintained by Hughes. These plans are available to substantially all full-time employees of DIRECTV. Benefits are based on years of service and compensation earned during a specified period of time before retirement. The accumulated benefit obligation and net assets available for benefits for employees of DIRECTV have not been separately determined and are not included in DIRECTV’s consolidated balance sheets. In addition to pension benefits, Hughes charges DIRECTV for the cost of certain other post-retirement benefits. The accumulated post-retirement benefit obligation related to employees of DIRECTV has not been separately determined and is not included in the accompanying consolidated balance sheets. DIRECTV also participates in other Hughes health and welfare plans. DIRECTV’s portion of the cost of these benefit plans, allocated from Hughes, are recorded as a non-cash transaction in “Net capital contribution from Parent” in the consolidated statements of changes in owner’s equity and charged to “General and administrative expenses” in the consolidated statements of operations.

F-18

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 12:    Owner’s Equity

The following represents changes in the components of OCI, net of taxes, as of December 31:

	2001								2000								1999
	Pre-tax Amount			Tax Credit		Net Amount			Pre-tax Amount			Tax Credit		Net Amount			Pre-tax Amount		Tax Expense			Net Amount
	(dollars in millions)
Unrealized gains (losses) on securities	$	(170.4	)	$	67.1	$	(103.3	)	$	(52.3	)	$	20.7	$	(31.6	)	$	574.6	$	(227.0	)	$	347.6
Reclassification adjustment for net gains recognized during the period	$	(87.8	)	$	34.7	$	(53.1	)		—			—		—			—		—			—

Note 13:    Incentive Plans

DIRECTV participates in the Hughes Electronics Corporation Incentive Plan (the “Plan”), as approved by the GM Board of Directors in 1999. Under the Plan, shares, rights or options to acquire up to 233 million shares of GM Class H common stock on a cumulative basis were authorized for grant, of which 75 million shares were available at December 31, 2001 subject to GM Executive Compensation Committee approval.

The GM Executive Compensation Committee may grant options and other rights to acquire shares of GM Class H common stock under the provisions of the Plan. The option price is equal to 100% of the fair market value of GM Class H common stock on the date the options are granted. These nonqualified options generally vest over two to five years, expire 10 years from date of grant and are subject to earlier termination under certain conditions. No compensation cost has been recognized for options in accordance with the provisions of APB No. 25.

Changes in the status of outstanding options granted to employees of DIRECTV were as follows:

	Shares Under Option		Weighted-Average Exercise Price
GM Class H Common Stock
Outstanding at December 31, 1998	5,717,358		$	12.41
Granted	2,040,900			15.76
Exercised	(1,193,673	)		10.46
Terminated	(232,638	)		13.87
Outstanding at December 31, 1999	6,331,947		$	13.81
Granted	7,422,400			36.76
Exercised	(617,225	)		12.97
Terminated	(200,503	)		30.93
Outstanding at December 31, 2000	12,936,619		$	26.75
Granted	12,017,600			24.22
Exercised	(318,445	)		13.10
Terminated	(2,689,600	)		25.09
Outstanding at December 31, 2001	21,946,174		$	25.77

F-19

DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes information about the Plan stock options outstanding at December 31, 2001:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life (years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
$ 3.00 to $8.99	167,440	3.02	$	7.46	167,440	$	7.46
9.00 to 16.99	4,173,709	6.28		12.97	3,387,809		12.47
17.00 to 24.99	5,122,075	8.78		19.95	1,123,975		18.26
25.00 to 32.99	6,252,950	9.05		27.89	19,533		31.89
33.00 to 41.99	6,230,000	8.28		37.50	1,125,800		40.48
	21,946,174	8.20	$	25.77	5,824,557	$	18.92

The following table represents pro forma information as if DIRECTV recorded compensation cost using the fair value of issued options on their grant date. The amount of assumed stock compensation costs represents an allocation from Hughes based upon the actual options granted and held by DIRECTV employees.

	2001			2000			1999
	(dollars in millions)
Net loss, as reported	$	(178.3	)	$	(277.7	)	$	(104.5	)
Assumed stock compensation cost		(59.9	)		(32.7	)		(7.5	)
Pro forma net loss	$	(238.2	)	$	(310.4	)	$	(112.0	)

The pro forma amounts for compensation cost are not indicative of the effects on operating results for future periods. Estimated compensation cost is based upon the Black-Scholes valuation model for estimating the fair value of the options.

The following table presents the estimated weighted-average fair value of options granted under the Plan using the Black-Scholes valuation model and the assumptions used in the calculations:

	2001			2000			1999
Estimated fair value per option granted	$	13.66		$	20.39		$	8.01
Average exercise price per option granted		24.71			37.44			15.75
Expected stock volatility		51.3	%		42.1	%		38.0	%
Risk-free interest rate		5.1	%		6.5	%		5.2	%
Expected option life (in years)		7.0			6.9			7.0

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 14:    Related-Party Transactions

The following represents a summary of purchases of equipment and services from related parties and the allocation of the cost of employee benefits from Hughes for the years ended December 31:

	2001		2000		1999
	(dollars in millions)
PanAmSat Corporation	$	6.7	$	8.8	$	14.0
Hughes Network Systems		92.4		169.9		75.1
Hughes		3.6		5.1		4.0
Total	$	102.7	$	183.8	$	93.1

The following represents a summary of services provided to related parties during the years ended December 31:

	2001		2000		1999
	(dollars in millions)
Hughes Network Systems	$	17.9	$	25.4	—
Hughes and other		4.6		4.6	—
Total	$	22.5	$	30.0	—

The following represents a summary of amounts due to related parties as of December 31:

	2001		2000
	(dollars in millions)
PanAmSat Corporation	$	2.3
Hughes Network Systems		67.5	$	89.5
Total	$	69.8	$	89.5

Transactions with PanAmSat Corporation (“PanAmSat”), which is an approximately 81% owned subsidiary of Hughes, represent the purchase of telemetry, tracking and control services (“TT&C”) for certain DIRECTV satellites and the lease of additional satellite transponder capacity. The agreement with PanAmSat for TT&C for DIRECTV 4S continues until DIRECTV 4S is retired from service. The agreement with PanAmSat for TT&C with respect to DIRECTV’s other satellites expires at the earlier of the satellite’s retirement or ten years after date of completion of in-orbit testing for each satellite. The satellite transponder lease expired in 2002. These costs are recorded in “Broadcast operations expenses” in the consolidated statements of operations and any amounts due to PanAmSat are recorded in “Accrued liabilities” in the consolidated balance sheets.

Transactions with Hughes Network Systems (“HNS”) represent the purchase of DIRECTV receiving equipment from HNS, the payment of manufacturer subsidies to HNS and the provision of DIRECTV access cards to HNS. Manufacturer subsidies amounted to $22.8 million, $40.2 million and $50.7 million in 2001, 2000 and 1999, respectively, and are recorded in “Subscriber acquisition costs” in the consolidated statements of operations. Purchases of DIRECTV receiving equipment from HNS amounted to $69.6 million, $129.7 million and $24.4 million in 2001, 2000 and 1999, respectively, the cost of which are recorded in inventory and recognized in “Subscriber acquisition costs” when shipped to subscribers, or carried as a fixed asset when leased by a subscriber. Amounts paid to HNS for DIRECTV receiving equipment purchased from HNS are not necessarily indicative of the cost to purchase the receiving equipment from third parties. DIRECTV system access cards provided to HNS amounted to $17.9 million and $25.4 million in 2001 and 2000, respectively, and

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

are recorded as “Revenues” in the consolidated statements of operations. No DIRECTV system access cards were provided to HNS by DIRECTV prior to 2000. Amounts due to HNS are recorded in “Accrued liabilities” or “Other Liabilities and Deferred Credits” in the consolidated balance sheets. No amounts were receivable from HNS at December 31, 2001 or 2000.

DIRECTV also provides certain accounting and administrative services to Hughes and certain of Hughes’ other subsidiaries in accordance with established service agreements. The amount due to DIRECTV from Hughes relative to the cost of providing these services is recorded as an offset to “General and administrative expenses” in the consolidated statements of operations and amounted to $4.6 million, $4.6 million and $0 in 2001, 2000 and 1999, respectively.

DIRECTV does not receive an allocation of general corporate expenses from Hughes. Management believes that DIRECTV’s consolidated financial statements reflect its cost of doing business in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 55, “Allocation of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions of Lesser Business Components of Another Entity.”.

In 2001, Hughes entered into a lease with a third party for DIRECTV’s engineering facilities. DIRECTV has made all payments under the lease to the third party and has reflected such payments in “General and administrative expenses” in the consolidated statements of operations.

In February 2003, DIRECTV entered into an intellectual property license agreement with Hughes. Under the license agreement, Hughes granted DIRECTV a royalty free license to exploit certain intellectual property owned by or licensed to Hughes for the DIRECTV business.

Amounts due to and from related parties are non-interest bearing, with the exception of the manufacturer subsidies payable to HNS, which bear an interest rate of 7.75%. Interest expense incurred related to manufacturer subsidies for 2001, 2000 and 1999 was $4.9 million, $4.7 million and $1.4 million, respectively.

Note 15:    Acquisitions

Hughes acquired USSB, PRIMESTAR and certain assets of Tempo Satellite, Inc. in 1999, as more fully described below and as discussed in Note 1. The financial results associated with these transactions and DIRECTV’s acquisitions have been included in the consolidated financial statements from the date of each acquisition.

On June 1, 1999, DIRECTV acquired the assets of the Boise Customer Care Center from AT&T for approximately $23.8 million. The Boise Customer Care Center provided customer care for the PRIMESTAR medium-power business and now supports the DIRECTV business.

On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of USSB, a provider of premium subscription television programming via the digital broadcasting system that it shared with DIRECTV. The total consideration of approximately $1.6 billion paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million shares of GM Class H common stock (prior to giving effect to the GM Class H three-for-one stock split during June 2000).

On April 28, 1999, Hughes completed the acquisition of PRIMESTAR’s 2.3 million subscriber medium-power direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H common stock (prior to giving effect to the GM Class H three-for-one stock split during June 2000), for a total purchase price of $1.3 billion. As part of the acquisition of PRIMESTAR, Hughes also purchased The Tempo Satellite Assets of Tempo Satellite Inc., a wholly-owned subsidiary of TCI Satellite Entertainment Inc, for $500.0 million in cash.

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As part of the PRIMESTAR acquisition, a detailed exit plan was formulated during the second quarter of 1999 and DIRECTV immediately began to migrate the medium-power customers to DIRECTV’s high-power platform. Accordingly, exit costs of $150.0 million were accrued in determining the purchase price allocated to the net assets acquired. The principal components of such exit costs include costs associated with the termination of assumed contracts and costs related to the removal of equipment for the medium-power business. Subsequent to the acquisition of PRIMESTAR, DIRECTV converted a total of approximately 1.5 million customers to its high power service. The PRIMESTAR By DIRECTV service ceased operations, as planned, on September 30, 2000. The amount of accrued exit costs remaining at December 31, 2001 and 2000 was $4.0 million and $25.9 million, respectively, which primarily represents the remaining obligations on certain contracts.

The acquisitions discussed above were accounted for by the purchase method of accounting, and accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of acquisition based upon independent third-party appraisal. The excess purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill, resulting in an addition to goodwill of $3,116.2 million in 1999.

The following selected unaudited pro forma information is being provided to present a summary of the results of DIRECTV, USSB, PRIMESTAR and The Tempo Satellite Assets for 1999 as if the acquisitions had occurred as of the beginning of the period, giving effect to purchase accounting adjustments. The pro forma data is presented for informational purposes only and may not necessarily reflect the results of operations of DIRECTV for the period presented, nor are they necessarily indicative of future operations. The following unaudited pro forma information excludes the effect of non-recurring charges:

	1999
	(dollars in millions)
Revenues	$	4,194.6
Net loss		(66.9	)

Note 16:    Commitments and Contingencies

Litigation

General Electric Capital Corporation (“GECC”) and DIRECTV entered into a contract on July 31, 1995, in which GECC agreed to establish and manage a private label consumer credit program for consumer purchases of hardware and related DIRECTV^®programming. Under the contract, GECC also agreed to provide certain related services to DIRECTV, including credit risk scoring, billing and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV’s performance under the contract. A trial commenced on June 12, 2000 regarding the contract and on July 21, 2000, the jury returned a verdict in favor of GECC and awarded contract damages in the amount of $133.0 million, which included pre-judgment interest, and the trial judge issued an order granting GECC $48.5 million in interest under Connecticut’s offer-of-judgment statute. With this order, the total judgment entered in GECC’s favor was $181.5 million. Hughes and DIRECTV appealed the judgment and while the appeal was pending, post-judgment interest on the total judgment was accruing at a rate of 6.241% per year, compounded annually, from the date judgment was entered in October 2000. During April 2002, DIRECTV entered into settlement negotiations with GECC. On June 4, 2002, the parties executed an agreement to settle the matter for $180.0 million. As of December 31, 1999, DIRECTV had accrued $50.0 million associated with the expected settlement of the claim. As a result of the June 4, 2002 settlement, DIRECTV recorded a charge of $56.0 million to “General and administrative expenses” in the consolidated statement of operations for the year ended December 31, 2000, representing the unaccrued portion of GECC’s original claim. The portion of the settlement associated with interest is reflected as a charge

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to “Interest expense, net” in the amount of $23.0 million and $39.0 million, for the years ended December 31, 2001 and 2000, respectively. The settlement, inclusive of an additional $12.0 million of interest expense accrued in 2002, was paid to GECC in June 2002.

On June 3, 1999, the NRTC filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc., a subsidiary of Hughes Electronics Corporation, in the United States District Court for the Central District of California, alleging that DIRECTV, Inc. breached its DBS Distribution Agreement with the NRTC. Hughes Communications Galaxy, Inc. was the original party to the DBS Distribution Agreement with the NRTC and assigned its rights and obligations to and under the DBS Distributions Agreement to DIRECTV, Inc. The DBS Distribution Agreement provides the NRTC with certain distribution rights, in certain specified portions of the U.S., for a specified period of time, with respect to DIRECTV^® programming delivered over 27 of the 32 frequencies at the 101 WL. The NRTC claims that DIRECTV, Inc. has wrongfully deprived it of the exclusive right to distribute programming formerly provided by United States Satellite Broadcasting Company, Inc., or USSB, over the other five frequencies at 101 WL, and seeks recovery of related revenues from the date USSB was acquired by Hughes Electronics Corporation. DIRECTV, Inc. denies that the NRTC is entitled to exclusive distribution rights to the former USSB^® programming because, among other things, the NRTC’s exclusive distribution rights are limited to programming distributed over 27 of the 32 frequencies at 101 WL. The NRTC also pled, in the alternative, the right to distribute former USSB programming on a non-exclusive basis, but stipulated to dismiss this claim without prejudice on August 25, 2000. DIRECTV, Inc. maintains that the NRTC’s right under the DBS Distribution Agreement is to market and sell the former USSB programming as its non-exclusive sales agent and that NRTC is not entitled to the additional claimed revenues. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. intend to vigorously defend against the NRTC claims. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. also filed a counterclaim against the NRTC seeking a declaration of the parties’ rights under the DBS Distribution Agreement.

On August 26, 1999, the NRTC filed a second lawsuit in the United States District Court for the Central District of California against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. alleging breach of the DBS Distribution Agreement. In this lawsuit, the NRTC is asking the court to require DIRECTV, Inc. and Hughes Communications Galaxy, Inc. to pay the NRTC a proportionate share of unspecified financial benefits that DIRECTV, Inc. derives from programming providers and other third parties. DIRECTV, Inc. denies that it owes any sums to the NRTC on account of the allegations in these matters and plans to vigorously defend itself against these claims. On June 21, 2001, the court permitted the NRTC to amend the action to also seek an exclusive right to distribute in its territories, and to retain revenues from, “Advanced Services,” which the NRTC defines to include services such as Wink, TiVo, Ultimate TV and AOL-TV. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. deny that the NRTC is entitled to exclusive distribution rights to the so-called Advanced Services because, among other things, the services are not services transmitted by DIRECTV, Inc. over the 27 frequencies as to which the NRTC has contractual rights.

Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. in the United States District Court for the Central District of California. The plaintiffs alleged, among other things, that DIRECTV, Inc. has 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 two cases against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. The plaintiffs also alleged that DIRECTV, Inc. misused their subscriber information, thereby violating plaintiffs’ trade secret rights, and interfered with their contractual relationships with manufacturers and distributors by preventing those parties from selling receiving equipment to the plaintiffs’ retailers. On October 19, 2000, Golden Sky agreed to dismiss its equipment-related claims with prejudice. On November 1, 2002, plaintiffs and DIRECTV, Inc. and Hughes Communications

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Galaxy, Inc. stipulated to the dismissal of plaintiffs’ trade secret claims without prejudice, and on October 11, 2002, Pegasus and DIRECTV, Inc. and Hughes Communications Galaxy, Inc. stipulated to the dismissal of Pegasus’ equipment-related claims without prejudice. Neither dismissal required payment of funds by DIRECTV, Inc., Hughes Communications Galaxy, Inc. or plaintiffs. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. deny that either has wrongfully interfered with any of the plaintiffs’ business relationships and will vigorously defend the remaining claims in the lawsuit. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. filed a counterclaim on March 9, 2001, seeking judicial declarations that the contracts between Pegasus and the NRTC, and Golden Sky and the NRTC, do not include rights of first refusal and will terminate when the DIRECTV 1 satellite is removed from orbit. On June 21, 2001, the court permitted Pegasus and Golden Sky to amend their complaint to seek an exclusive right, also derivative from the NRTC’s claimed right, to distribute in their territories, and to retain revenues from, the “Advanced Services.” DIRECTV, Inc. and Hughes Communications Galaxy, Inc. deny that Pegasus and Golden are entitled to exclusive distribution rights to the so-called Advanced Services because, among other things, the services are not services transmitted by DIRECTV, Inc. over the 27 frequencies as to which the NRTC and derivatively, Pegasus and Golden Sky, have contractual rights.

A class action suit was filed in the United States District Court for the Central District of California against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. on behalf of the NRTC’s participating members on February 29, 2000. The court certified a class on December 27, 2000. The class asserted claims identical to the claims that were asserted by Pegasus and Golden Sky in their lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. described in the preceding paragraph. Similar to Golden Sky, however, the class has dismissed its equipment-related claims without prejudice. On November 1, 2002, the class, DIRECTV, Inc. and Hughes Communications Galaxy, Inc. also stipulated to the dismissal without prejudice of the class’ trade secret claims, without payment of funds by either DIRECTV, Inc., Hughes Communications Galaxy, Inc., or the class. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. filed counterclaims against the class identical to those filed against Pegasus and Golden Sky as described above. On June 21, 2001, the class was also permitted to amend its complaint to seek an exclusive right, derivative from the NRTC’s claimed right, to distribute in their territories, and to retain revenues from, the “Advanced Services.” DIRECTV, Inc. and Hughes Communications Galaxy, Inc. deny that the class is entitled to exclusive distribution rights to the so-called Advanced Services because, among other things, the services are not services transmitted by DIRECTV, Inc. over the 27 frequencies as to which the NRTC and derivatively, the class, have contractual rights.

The United States District Court for the Central District of California consolidated for purposes of discovery and other pretrial proceedings each of the NRTC, Pegasus and Golden Sky and class action lawsuits described above. The court has ordered the parties to participate in a pre-trial mediation and has set each of the cases for trial on June 3, 2003. The process by which the cases will be tried, has not been finally determined. An amount of loss, if any, cannot be estimated at this time in the NRTC, Pegasus and class action litigation.

DIRECTV, Inc. filed suit in California State Court, Los Angeles County, on June 22, 2001 against Pegasus Satellite Television Inc. and Golden Sky Systems, Inc. (referred to together as “Defendants”) to recover monies calculated at approximately $52 million as of January 31, 2003 that Defendants owe DIRECTV, Inc. under the parties’ Seamless Marketing Agreement, which provides for reimbursement to DIRECTV, Inc. of certain subscriber acquisition costs incurred by DIRECTV, Inc. on account of new subscriber activations in Defendants’ territory. Defendants had ceased making payments altogether, and indicated that they did not intend to make any further payments due under the agreement. On July 13, 2001, Defendants sent notice of termination of the agreement and on July 16, 2001, Defendants answered DIRECTV, Inc.’s complaint and filed a cross complaint alleging counts of fraud in the inducement, breach of contract, breach of the covenant of good faith and fair dealing, intentional interference with contractual relations, intentional interference with prospective economic

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

advantage and violation of California Bus. and Prof. Code 17200. Defendants also thereafter removed the action to federal district court, Central District of California, where it was transferred to the judge hearing the other cases among NRTC, Pegasus and a class of NRTC members, on the one hand, and DIRECTV, Inc. and Hughes Communications Galaxy, Inc., on the other. The court consolidated the cases for purposes of discovery and other pretrial proceedings. On September 16, 2002, the court permitted Pegasus to amend its counterclaim to eliminate the interference and Section 17200 claims, and to add claims for both rescission of the agreement and specific performance of an audit right provided in the agreement, in the event it is determined that Pegasus breached the agreement and owes money thereunder to DIRECTV, Inc. On September 30, 2002, DIRECTV, Inc. moved to dismiss Pegasus’ claims for breach of the covenant of good faith and fair dealing and specific performance. The court granted DIRECTV, Inc.’s motion as to the specific performance claim, and further granted DIRECTV, Inc.’s motion on the good faith and fair dealing claim to the extent Pegasus sought punitive damages. DIRECTV, Inc. denies any liability to Defendants, and intends to vigorously pursue its damages claim against Defendants and defend against Defendants’ counterclaims. The case is also currently scheduled for trial beginning June 3, 2003.

On February 1, 2001, the NRTC filed a third lawsuit in the United States District Court for the Central District of California against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. seeking a declaration from the court that it is not required to defend and indemnify DIRECTV, Inc. and Hughes Communications Galaxy, Inc., for the Pegasus and Golden Sky and class action lawsuits. The NRTC has been paying and continues to pay DIRECTV, Inc.’s and Hughes Communications Galaxy, Inc.’s legal fees in those matters under protest. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. filed a counterclaim on February 21, 2001 seeking a declaratory judgment that the NRTC is indeed responsible for the defense and indemnity of DIRECTV, Inc. and Hughes Communications Galaxy, Inc.

On September 19, 2001, the NRTC filed a fourth lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. in the United States District Court of the Central District of California, seeking a declaration from the Court that the NRTC is not required to defend and indemnify DIRECTV, Inc. and Hughes Communications Galaxy, Inc. for the Pegasus Development Corporation and Personalized Media Communications, LLC lawsuit pending in the United States District Court for the District of Delaware. The NRTC has been paying and continues to pay DIRECTV, Inc.’s and Hughes Communications Galaxy, Inc.’s legal fees in that matter under protest. DIRECTV, Inc. and Hughes Communications Galaxy, Inc. filed a counterclaim on October 26, 2001 seeking a declaratory judgment that the NRTC is indeed responsible for the defense and indemnity of DIRECTV, Inc. and Hughes Communications Galaxy, Inc. The NRTC, DIRECTV, Inc. and Hughes Communications Galaxy, Inc. each filed cross motions for summary judgment in this lawsuit in January 2002. On July 1, 2002, the court entered an order granting the motion of DIRECTV, Inc. and Hughes Communications Galaxy, Inc. for partial summary judgment on the NRTC’s duty to defend, and denying the NRTC’s motion for summary judgment on all claims.

The NRTC’s two indemnity cases have been consolidated with each other, but are proceeding separately from DIRECTV, Inc.’s other litigation with the NRTC, Pegasus and Golden Sky, and the class, described above. The Court has stayed further proceedings in the indemnity cases until determination of the merits of the other, underlying cases.

In April 2001, Robert Garcia, doing business as Direct Satellite TV, an independent retailer of DIRECTV System equipment, instituted arbitration proceedings against DIRECTV, Inc. with the American Arbitration Association in Los Angeles, California regarding his commissions and certain chargeback disputes. The parties have been proceeding with the arbitration, though no hearing date has been set. On October 4, 2001, Mr. Garcia filed a class action complaint against DIRECTV, Inc. and Hughes Electronics Corporation in Los Angeles

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Superior Court asserting the same chargeback/commissions claims and a Consumer Legal Remedies Act claim. Mr. Garcia alleges $300.0 million in class-wide damages and seeks certification of a class of plaintiffs to proceed in arbitration with court oversight. DIRECTV, Inc. and Hughes Electronics Corporation moved to dismiss and compel arbitration, which motion was heard on April 12, 2002. On April 17, 2002, the Los Angeles County Superior Court entered an order compelling plaintiffs in the purported class action of retailers to pursue their individual claims in arbitration. The court’s order purported to retain jurisdiction, however, to determine whether the prerequisites for class treatment of dealer claims within an arbitration are met. The court intends to set a schedule for class discovery and a class certification hearing. DIRECTV, Inc. and Hughes Electronics Corporation disagreed that the court could properly retain jurisdiction to conduct class proceedings, and believed that the court’s order effectively denied DIRECTV, Inc. its contractual right to resolve individual dealer claims in arbitrations conducted under the Federal Arbitration Act. On May 2, 2002, DIRECTV, Inc. and Hughes Electronics Corporation filed a notice of appeal of the order. On December 11, 2002, the appellate court denied DIRECTV, Inc.’s appeal, thus permitting the trial court to set a schedule for class discovery and a class certification hearing. DIRECTV, Inc. and Hughes Electronics Corporation have petitioned the California Supreme Court for review of the order, and intend to oppose certification due to the individual nature of the claims involved, and to vigorously defend against plaintiffs’ allegations.

On May 18, 2001, in Oklahoma State Court, plaintiffs Cable Connection, Inc., TV Options, Inc., Swartzel Electronics, Inc. and Orbital Satellite, Inc. filed a class action complaint against DIRECTV, Inc. and Hughes Electronics Corporation. All four plaintiffs purport to be independent retailers of satellite equipment (three residential and one commercial), who allege claims ranging from breach of contract to fraud, promissory estoppel, antitrust and unfair competition claims. The plaintiffs seek unspecified damages and injunctive relief. They claim to be bringing the complaint on behalf of all DIRECTV dealers, including former Primestar and USSB dealers. On August 17, 2001, DIRECTV, Inc. and Hughes Electronics Corporation successfully stayed the case and the court orally ordered the individual plaintiffs to pursue their claims in arbitration pursuant to the arbitration clause in each of the dealer’s contracts with DIRECTV, Inc. None of the plaintiffs instituted arbitration proceedings. In March 2002, DIRECTV, Inc. filed a motion for a final order of arbitration. Plaintiffs then filed a motion requesting the court to order that a single arbitration be permitted on a class wide basis. DIRECTV, Inc. removed the action to federal court, plaintiffs moved to remand to state court and the federal court granted remand to state court on August 8, 2002. On September 5, 2002, the state court entered its final order compelling plaintiffs to pursue their individual claims in arbitration in Los Angeles, California, but purporting to retain jurisdiction to determine whether the prerequisites for class treatment of dealer claims within an arbitration are met. DIRECTV, Inc. filed a notice of appeal of the order, and the State Supreme Court issued an order to show cause by October 14, 2002, as to why the appeal should not be dismissed. DIRECTV, Inc. responded to the notice and on January 7, 2003, the State Supreme Court issued an order permitting DIRECTV, Inc. to proceed with its appeal. DIRECTV, Inc. intends to vigorously seek to enforce its arbitration agreement, to oppose plaintiffs’ efforts to obtain class treatment, and to defend against plaintiffs’ allegations.

On June 27, 2000, SuperGuide Corporation filed suit in the United States District Court for the Western District of North Carolina against DIRECTV Enterprises, DIRECTV, Inc. and DIRECTV Operations, Inc., which we refer to together in this paragraph as the DIRECTV defendants, Hughes Electronics Corporation, Thomson Consumer Electronics, Inc., EchoStar Communications Corporation, Echostar Satellite Corporation and Echostar Technologies Corporation, alleging infringement of three United States patents 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. Based on beneficial rulings narrowing the scope of the asserted claims, the defendants filed motions for summary judgment, and on July 3, 2002, the court granted summary judgment of non-infringement to the DIRECTV defendants, Hughes Electronics Corporation and DIRECTV System manufacturers under all asserted claims of the three patents in the

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

case. Judgment for all defendants dismissing all claims of infringement and awarding costs to defendants was entered on July 25, 2002. Notices of appeal to the Court of Appeals for the Federal Circuit have been filed, and a hearing will be held in 2003.

On December 5, 2000, Personalized Media Communications, LLC, or PMC, and Pegasus Development Corporation filed suit in the United States District Court for the District of Delaware against DIRECTV, Inc., Hughes Electronics Corporation, Thomson Consumer Electronics and Philips Electronics North American Corp., alleging infringement of seven U.S. patents and seeking unspecified damages and injunctive relief. The case has been narrowed to 24 claims for purposes of discovery, and DIRECTV, Inc. may seek further narrowing prior to trial presently scheduled for the first quarter of 2004. Thomson has named Gemstar-TV Guide International, Inc., Starsight Telecast, Inc. and TVG PMC, Inc. as third-party defendants, and has raised antitrust and patent misuse charges against Gemstar, Pegasus and PMC. The antitrust counts have been transferred to a multi-district proceeding in Atlanta for pre-trial development and have been bifurcated for separate trial. DIRECTV has raised defenses of invalidity and non-infringement, in addition to license, laches and estoppel, and patent misuse. DIRECTV, Inc. intends to vigorously defend the lawsuit and pursue the counterclaims against Pegasus and PMC. DIRECTV, Inc. and Hughes have demanded indemnification by the NRTC, which the NRTC has been providing under protest. (See the separate item above describing the action pending in the United States District Court of the Central District of California with respect to the indemnity issue.)

On November 21, 2001, Broadcast Innovations, LLC filed suit in the United States District Court for the District of Colorado against DIRECTV, Inc., Hughes Electronics Corporation, Thomson multimedia, Inc., Pegasus Satellite Television, Inc., Dotcast, Inc., and EchoStar Communications Corporation, alleging infringement of two United States patents and seeking unspecified damages and injunction. One of the patents relates to conditional access technology, and DIRECTV, Inc. has turned over its defense to NDS Limited, the conditional access provider to the DIRECTV system. The case is in the discovery phase, and defendants will be filing potentially dispositive summary judgment motions. Depending on the outcome of these motions, the case may be tried in late 2003. DIRECTV, Inc. has raised defenses of non-infringement and invalidity, and intends to vigorously defend the lawsuit.

In April 1997, the International Electronics Technology Corp. filed suit in the United States District Court for the Central District of California against DIRECTV, Inc., Hughes Aircraft Co., and Thomson Consumer Electronics, Inc., alleging infringement of one United States 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. Trial has not yet been scheduled. DIRECTV, Inc. has raised defenses of non-infringement and/or invalidity, and intends to vigorously defend the lawsuit.

DIRECTV, Inc., DIRECTV Enterprises, LLC, and DIRECTV Operations, LLC, referred to together below as “DIRECTV Parties” filed a lawsuit against NDS Limited (and related entities), the provider of DIRECTV’s conditional access system. The lawsuit, which was filed under seal in United States District Court in Los Angeles on September 6, 2002, alleges, among other things, breach of contract and misappropriation of trade secrets. The DIRECTV Parties are seeking relief from the court that includes compensatory and other damages, delivery of software technology required by the contract, and a preliminary and permanent injunction that would enjoin NDS from engaging in further breaches of contract and misappropriation of trade secrets. NDS filed a motion to dismiss many of the DIRECTV Parties’ claims and on December 30, 2002, the court granted in part and denied in part NDS’s motion. The DIRECTV Parties are evaluating their options for amending their complaint. On October 21, 2002, NDS filed counterclaims against the DIRECTV Parties and a chip manufacturer, alleging that the DIRECTV Parties and the chip manufacturer misappropriated NDS’s intellectual property and infringed

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DIRECTV HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NDS’s patents in developing new conditional access cards. NDS is seeking injunctive relief as well as an unspecified amount in restitution, disgorgement of profits and punitive damages. The DIRECTV Parties dispute these allegations on the basis that they have a license to use the technology and, believe that the counterclaims are without merit, will seek to dismiss certain of the claims and will vigorously defend the remaining claims made by NDS. On December 23, 2002, NDS filed suit in Germany against the chip manufacturer seeking in part an injunction against their continued work on behalf of the DIRECTV Parties. The DIRECTV Parties are cooperating with the chip manufacturer, who believes the claim is without merit.

In addition to the above items, various legal actions, claims and proceedings and other items arising in the normal course of business are pending against DIRECTV. DIRECTV has established reserves for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or sanctions, that if granted, could require DIRECTV to pay damages or make expenditures in amounts that are not currently estimable. However, DIRECTV’s management and legal counsel believe that the ultimate resolution of the foregoing legal matters will not have a material adverse effect on the accompanying consolidated statements of operations or balance sheets.

Other

DIRECTV uses in-orbit and launch insurance to mitigate the potential financial impact of satellite fleet in-orbit and launch failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites. The insurance generally does not compensate for business interruption or loss of future revenues or customers, however DIRECTV relies on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact of satellite failure on DIRECTV’s ability to provide service. Where insurance costs related to known satellite anomalies are prohibitive, DIRECTV’s insurance policies contain coverage exclusions. The book value of satellites that were insured with coverage exclusions amounted to $188.2 million and the book value of satellites not insured amounted to $13.2 million as of December 31, 2001. In the fourth quarter of 2002, insurance coverage on three satellites expired and was not renewed. As a result, the book value of satellites not insured amounted to $474.7 million at December 31, 2002.

At December 31, 2001, minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for real property and aggregated $148.5 million, payable as follows: $49.8 million in 2002, $37.5 million in 2003, $16.9 million in 2004, $14.3 million in 2005, $11.4 million in 2006 and $18.6 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases, net of sublease rental income, were $24.5 million in 2001, $15.5 million in 2000 and $11.7 million in 1999.

In December 2002, DIRECTV and The National Football League (“NFL”) announced a 5-year agreement that will provide DIRECTV with the exclusive satellite television rights to the NFL SUNDAY TICKET^™ through 2007 and the exclusive multi-channel television rights through 2005. The NFL SUNDAY TICKET^™ allows DIRECTV to distribute up to 14 out-of-market games each week during the NFL season. After considering the new NFL agreement, minimum payments under DIRECTV’s contractual commitments, which include agreements for programming, manufacturer subsidies, telemetry tracking and control services, and satellite construction, are anticipated to be approximately $521.8 million in 2002, $498.1 million in 2003, $375.4 million in 2004, $293.5 million in 2005, $545.3 million in 2006 and $706.1 million thereafter.

F-29