UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~WASHINGTON,~~SECURITIES DCAND ~~20549~~EXCHANGE COMMISSION

~~FORM~~WASHINGTON, ~~10-Q~~DC 20549

~~(Mark~~FORM ~~One)~~10-Q

~~x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(dMark One) ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~x ~~the~~QUARTERLY ~~Quarterly~~REPORT ~~Period~~PURSUANT ~~Ended March~~TO ~~31,~~SECTION ~~2010~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

orFor the Quarterly Period Ended June 30, 2010

¨or ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ~~____ to____~~to

Commission file number: 333-138009

~~Hughes~~HUGHES ~~Network~~NETWORK ~~Systems~~SYSTEMS, LLC

(Exact Name of Registrant as Specified in Its Charter)

Delaware	~~11-3735091~~	11-3735091
(State or Other Jurisdiction of Incorporation or Organization)	~~(I.R.S. Employer Identification No.)~~	(I.R.S. Employer Identification No.)

11717 Exploration Lane, Germantown, Maryland 20876

(Address of Principal Executive Offices and Zip Code)

(301) 428-5500

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o ¨ Yes x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o ¨ Yes o ¨ No

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

Large accelerated filer ¨ Accelerated filer ¨ ~~Non-accelerated filerx (Do not check if a smaller reporting company) Smaller reporting company ¨~~

~~Indicate~~Non-accelerated filer x (Do bynot check ~~mark~~if ~~whether the company is~~ a ~~shell~~smaller ~~company~~reporting ~~(as defined in Rule 12b-2 of the Exchange Act~~company). Smaller reporting company ¨ ~~Yes x No~~

~~The~~Indicate ~~number~~by ofcheck mark whether the ~~registrant's~~company ~~membership~~is ~~interests~~a ~~outstanding~~shell company (as defined in Rule 12b-2 of ~~April 30,~~ ~~2010~~the ~~was~~Exchange asAct). ¨ ~~follows:~~Yes x No

~~Class~~The Anumber ~~Membership~~of the ~~Interests: 95~~registrant’s membership interests outstanding as of July 30,~~000~~ 2010 was as follows:

Class A Membership Interests: 95,000 Class B Membership Interests: 3,~~330~~280

		Page
PART I—FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4T.	Controls and Procedures	40
PART II—OTHER INFORMATION		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	(Removed and Reserved)	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
SIGNATURES		44

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4T.	Controls and Procedures	52
PART II—OTHER INFORMATION		53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	(Removed and Reserved)	54
Item 5.	Other Information	54
Item 6.	Exhibits	54
SIGNATURES		55

~~Table~~i ~~of Contents~~

PARTTable I—FINANCIALof INFORMATIONContents

~~Item~~PART 1.I—FINANCIAL ~~Financial~~INFORMATION ~~Statements~~

~~HUGHES~~Item ~~NETWORK~~1. ~~SYSTEMS,~~Financial ~~LLC~~Statements

~~CONDENSED~~HUGHES ~~CONSOLIDATED~~NETWORK ~~BALANCE~~SYSTEMS, ~~SHEETS~~LLC

~~(In~~CONDENSED ~~thousands)~~CONSOLIDATED BALANCE SHEETS

(~~Unaudited~~In thousands)

	March 31,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	118,336		$	183,733
Marketable securities		43,672			31,126
Receivables, net		159,093			162,806
Inventories		61,690			60,244
Prepaid expenses and other		21,543			20,976
Total current assets		404,334			458,885
Property, net		638,399			601,964
Capitalized software costs, net		48,858			49,776
Intangible assets, net		12,786			13,488
Goodwill		2,661			2,661
Other assets		68,177			68,524
Total assets	$	1,175,215		$	1,195,298
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	98,175		$	117,513
Short-term debt		6,506			6,750
Accrued liabilities and other		140,093			133,926
Total current liabilities		244,774			258,189
Long-term debt		714,298			714,957
Other long-term liabilities		17,177			16,191
Total liabilities		976,249			989,337
Commitments and contingencies
Equity:
Hughes Network Systems, LLC ("HNS") equity:
Class A membership interests		178,157			177,933
Class B membership interests		-			-
Retained earnings		30,532			36,094
Accumulated other comprehensive loss		(15,951	)		(13,987	)
Total HNS' equity		192,738			200,040
Noncontrolling interest		6,228			5,921
Total equity		198,966			205,961
Total liabilities and equity	$	1,175,215		$	1,195,298

(Unaudited)

See accompanying Notes to the Condensed Consolidated Financial Statements.


	June 30, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	103,181		$	183,733
Marketable securities		25,020			31,126
Receivables, net		158,852			162,806
Inventories		58,349			60,244
Prepaid expenses and other		22,876			20,976

Total current assets		368,278			458,885
Property, net		665,796			601,964
Capitalized software costs, net		47,896			49,776
Intangible assets, net		12,103			13,488
Goodwill		2,661			2,661
Other assets		65,849			68,524

Total assets	$	1,162,583		$	1,195,298

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	100,068		$	117,513
Short-term debt		6,761			6,750
Accrued liabilities and other		125,328			133,926

Total current liabilities		232,157			258,189
Long-term debt		712,984			714,957
Other long-term liabilities		18,965			16,191

Total liabilities		964,106			989,337

Commitments and contingencies

Equity:
Hughes Network Systems, LLC (“HNS”) equity:
Class A membership interests		178,381			177,933
Class B membership interests		-			-
Retained earnings		33,326			36,094
Accumulated other comprehensive loss		(19,079	)		(13,987	)

Total HNS’ equity		192,628			200,040

Noncontrolling interest		5,849			5,921

Total equity		198,477			205,961

Total liabilities and equity	$	1,162,583		$	1,195,298

1See accompanying Notes to the Condensed Consolidated Financial Statements.

~~Table~~1 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~CONDENSED~~HUGHES ~~CONSOLIDATED~~NETWORK ~~STATEMENTS~~SYSTEMS, OFLLC ~~OPERATIONS~~

~~(In~~CONDENSED ~~thousands)~~CONSOLIDATED STATEMENTS OF OPERATIONS

(~~Unaudited~~In thousands)

	Three Months Ended
	March 31,
	2010			2009
Revenues:
Services revenues	$	186,890		$	161,904
Hardware sales		55,253			77,850
Total revenues		242,143			239,754
Operating costs and expenses:
Cost of services		115,650			106,546
Cost of hardware products sold		60,886			74,205
Selling, general and administrative		48,680			43,797
Research and development		4,915			5,351
Amortization of intangible assets		702			1,385
Total operating costs and expenses		230,833			231,284
Operating income		11,310			8,470
Other income (expense):
Interest expense		(16,105	)		(13,829	)
Interest income		553			227
Loss before income tax (expense) benefit		(4,242	)		(5,132	)
Income tax (expense) benefit		(1,217	)		668
Net loss		(5,459	)		(4,464	)
Net income attributable to the noncontrolling interest		(103	)		(390	)
Net loss attributable to HNS	$	(5,562	)	$	(4,854	)

(Unaudited)

See accompanying Notes to the Condensed Consolidated Financial Statements.


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenues:
Services revenues	$	192,155		$	172,662		$	379,045		$	334,566
Hardware sales		59,178			82,444			114,431			160,294

Total revenues		251,333			255,106			493,476			494,860

Operating costs and expenses:
Cost of services		123,206			111,092			238,856			217,638
Cost of hardware products sold		55,582			77,283			116,468			151,488
Selling, general and administrative		47,402			44,301			96,082			88,098
Loss on impairment		-			44,400			-			44,400
Research and development		5,355			5,698			10,270			11,049
Amortization of intangible assets		683			1,386			1,385			2,771

Total operating costs and expenses		232,228			284,160			463,061			515,444

Operating income (loss)		19,105			(29,054	)		30,415			(20,584	)
Other income (expense):
Interest expense		(15,515	)		(15,550	)		(31,620	)		(29,379	)
Interest income		574			170			1,127			397
Other loss, net		-			(364	)		-			(364	)

Income (loss) before income tax (expense) benefit		4,164			(44,798	)		(78	)		(49,930	)
Income tax (expense) benefit		(1,563	)		(462	)		(2,780	)		206

Net income (loss)		2,601			(45,260	)		(2,858	)		(49,724	)
Net (income) loss attributable to the noncontrolling interest		193			(450	)		90			(840	)

Net income (loss) attributable to HNS	$	2,794		$	(45,710	)	$	(2,768	)	$	(50,564	)

2See accompanying Notes to the Condensed Consolidated Financial Statements.

~~Table~~2 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~CONDENSED~~HUGHES ~~CONSOLIDATED~~NETWORK ~~STATEMENTS~~SYSTEMS, OFLLC ~~CHANGES IN EQUITY~~

~~(In~~CONDENSED ~~thousands)~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(~~Unaudited~~In thousands)

	HNS' Equity
	Class A and B Membership		Retained			Accumulated Other Comprehensive			Noncontrolling
	Interests		Earnings			Loss			Interest		Total
Balance at January 1, 2009	$	177,425	$	80,999		$	(28,583	)	$	5,629	$	235,470
Share-based compensation		220		-			-			-		220
Comprehensive income (loss):
Net income (loss)				(4,854	)					390		(4,464	)
Foreign currency translation adjustments							(1,407	)
Unrealized gain on hedging instruments							5,337
Reclassification of realized loss on hedging instruments							(854	)
Balance at March 31, 2009	$	177,645	$	76,145		$	(25,507	)	$	6,019	$	231,226
Balance at January 1, 2010	$	177,933	$	36,094		$	(13,987	)	$	5,921	$	205,961
Share-based compensation		224		-			-			-		224
Comprehensive income (loss):
Net income (loss)				(5,562	)					103		(5,459	)
Foreign currency translation adjustments							(1,011	)		204		(807	)
Unrealized loss on hedging instruments							(2,323	)				(2,323	)
Reclassification of realized loss on hedging instruments							1,368					1,368
Unrealized gain on available-for-sale securities							2					2
Balance at March 31, 2010	$	178,157	$	30,532		$	(15,951	)	$	6,228	$	198,966

(Unaudited)

See accompanying Notes to the Condensed Consolidated Financial Statements.


	HNS’ Equity
	Class A and B Membership Interests		Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total
Balance at January 1, 2009	$	177,425	$	80,999		$	(27,586	)	$	4,632		$	235,470
Share-based compensation		439											439
Comprehensive income (loss):
Net income (loss)				(50,564	)					840			(49,724	)
Foreign currency translation adjustments							5,052			90			5,142
Unrealized gain on hedging instruments							5,368			-			5,368
Reclassification of realized loss on hedging instruments							1,965			-			1,965

Balance at June 30, 2009	$	177,864	$	30,435		$	(15,201	)	$	5,562		$	198,660

Balance at January 1, 2010	$	177,933	$	36,094		$	(13,987	)	$	5,921		$	205,961
Share-based compensation		448											448
Comprehensive income (loss):
Net loss				(2,768	)					(90	)		(2,858	)
Foreign currency translation adjustments							(2,440	)		18			(2,422	)
Unrealized loss on hedging instruments							(5,434	)		-			(5,434	)
Reclassification of realized loss on hedging instruments							2,783			-			2,783
Unrealized loss on available-for-sale securities							(1	)		-			(1	)

Balance at June 30, 2010	$	178,381	$	33,326		$	(19,079	)	$	5,849		$	198,477

3See accompanying Notes to the Condensed Consolidated Financial Statements.

~~Table~~3 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~CONDENSED~~HUGHES ~~CONSOLIDATED~~NETWORK ~~STATEMENTS~~SYSTEMS, OFLLC ~~CASH FLOWS~~

~~(In~~CONDENSED ~~thousands)~~CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~Unaudited~~In thousands)

	Three Months Ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net loss	$	(5,459	)	$	(4,464	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		29,969			21,860
Amortization of debt issuance costs		616			378
Share-based compensation expense		224			220
Other		37			(9	)
Change in other operating assets and liabilities, net of acquisition:
Receivables, net		3,077			23,683
Inventories		(2,078	)		(1,089	)
Prepaid expenses and other		828			747
Accounts payable		(19,909	)		(4,873	)
Accrued liabilities and other		7,660			(3,025	)
Net cash provided by operating activities		14,965			33,428
Cash flows from investing activities:
Change in restricted cash		88			94
Purchases of marketable securities		(22,615	)		-
Proceeds from sales of marketable securities		10,000			-
Expenditures for property		(63,668	)		(26,625	)
Expenditures for capitalized software		(3,166	)		(4,391	)
Proceeds from sale of property		-			56
Net cash used in investing activities		(79,361	)		(30,866	)
Cash flows from financing activities:
Short-term revolver borrowings		1,999			-
Repayments of revolver borrowings		(2,430	)		-
Net decrease in notes and loans payable		-			(509	)
Long-term debt borrowings		1,220			933
Repayments of long-term debt		(1,721	)		(2,069	)
Debt issuance costs		(1,742	)		-
Net cash used in financing activities		(2,674	)		(1,645	)
Effect of exchange rate changes on cash and cash equivalents		1,673			1,393
Net increase (decrease) in cash and cash equivalents		(65,397	)		2,310
Cash and cash equivalents at beginning of the period		183,733			100,262
Cash and cash equivalents at end of the period	$	118,336		$	102,572
Supplemental cash flow information:
Cash paid for interest	$	2,407		$	2,653
Cash paid for income taxes	$	2,341		$	705
Supplemental non-cash disclosures related to:
Capitalized software and property acquired, not paid	$	25,303

(Unaudited)

See accompanying Notes to the Condensed Consolidated Financial Statements.


	Six Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(2,858	)	$	(49,724	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		61,784			46,079
Amortization of debt issuance costs		1,323			891
Share-based compensation expense		448			439
Loss on impairment		-			44,400
Other		83			363
Change in other operating assets and liabilities, net of acquisition:
Receivables, net		2,028			18,720
Inventories		1,046			(169	)
Prepaid expenses and other		733			4,591
Accounts payable		(18,396	)		5,592
Accrued liabilities and other		(4,120	)		(15,419	)

Net cash provided by operating activities		42,071			55,763

Cash flows from investing activities:
Change in restricted cash		94			51
Purchases of marketable securities		(32,615	)		-
Proceeds from sales of marketable securities		38,615			-
Expenditures for property		(121,302	)		(53,296	)
Expenditures for capitalized software		(6,170	)		(7,762	)
Proceeds from sale of property		264			93

Net cash used in investing activities		(121,114	)		(60,914	)

Cash flows from financing activities:
Short-term revolver borrowings		3,263			-
Repayments of revolver borrowings		(3,745	)		-
Net decrease in notes and loans payable		-			(78	)
Long-term debt borrowings		2,533			141,107
Repayments of long-term debt		(3,927	)		(5,503	)
Debt issuance costs		(1,734	)		(4,500	)

Net cash provided by (used in) financing activities		(3,610	)		131,026

Effect of exchange rate changes on cash and cash equivalents		2,101			(1,741	)

Net increase (decrease) in cash and cash equivalents		(80,552	)		124,134
Cash and cash equivalents at beginning of the period		183,733			100,262

Cash and cash equivalents at end of the period	$	103,181		$	224,396

Supplemental cash flow information:
Cash paid for interest	$	33,551		$	26,588
Cash paid for income taxes	$	4,594		$	2,427
Supplemental non-cash disclosures related to:
Capitalized software and property acquired, not paid	$	23,113

4See accompanying Notes to the Condensed Consolidated Financial Statements.

~~Table~~4 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~NOTES~~HUGHES TONETWORK ~~THE~~SYSTEMS, ~~CONDENSED~~LLC ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note~~NOTES 1:TO ~~Organization,~~THE ~~Basis~~CONDENSED ofCONSOLIDATED ~~Presentation~~FINANCIAL ~~and~~STATEMENTS ~~Summary of Significant Accounting Policies~~

~~Hughes~~Note ~~Network Systems~~1: Organization, ~~LLC~~Basis (“HNS” and, together with its consolidated subsidiaries, the “Company” or “we,” “us,” and “our”) was formed as a Delaware limited liability company on November 12, 2004. The Limited Liability Company Agreement of ~~Hughes~~Presentation Network Systems, LLC, as amended (the “LLC Agreement”) provides for two classes of membership interests. The Class A membership interests, which have voting rights, are purchased by investors in the Company. The Class B membership interests, which do not have voting rights, are available for grant to employees, officers, directors, and ~~consultants~~Summary of ~~the~~Significant ~~Company~~Accounting inPolicies exchange for the performance of services. Hughes Communications, Inc. (“HCI” or “Parent”) is the sole owner of our Class A membership interests and serves as our managing member, as defined in the LLC Agreement. As of March 31, 2010, there were 95,000 Class A membership interests outstanding and 3,330 Class B membership interests outstanding.

WeHughes ~~are~~Network aSystems, ~~telecommunications~~LLC ~~company~~(“HNS” ~~that~~and, ~~provides~~together ~~equipment~~with ~~and~~its ~~services~~consolidated tosubsidiaries, the ~~broadband~~“Company” ~~communications~~or ~~marketplace. We have extensive technical expertise in satellite~~“we,” “us,” ~~wireline~~ and ~~wireless~~“our”) ~~communications~~was ~~which~~formed weas ~~utilize in~~ a ~~number~~Delaware oflimited ~~product~~liability ~~and~~company ~~service~~on ~~offerings.~~November ~~In particular~~12, we2004. ~~offer~~The aLimited ~~spectrum~~Liability ofCompany ~~broadband~~Agreement ~~equipment~~of ~~and~~Hughes ~~services~~Network toSystems, ~~the managed services market~~LLC, ~~which~~as isamended ~~comprised~~(the of“LLC ~~enterprises~~Agreement”) ~~with~~provides afor ~~requirement~~two classes toof ~~connect~~membership ainterests. ~~large~~The ~~number~~Class A ofmembership ~~geographically~~interests, ~~dispersed~~which ~~locations~~have ~~with~~voting ~~reliable~~rights, ~~scalable,~~are ~~and~~purchased ~~cost-effective~~by ~~applications,~~investors ~~such~~in asthe ~~credit~~Company. ~~card~~The ~~verification,~~Class ~~inventory~~B ~~tracking~~membership ~~and control~~interests, ~~and~~which ~~broadcast~~do ~~video.~~not Wehave ~~provide~~voting ~~broadband~~rights, ~~network~~are ~~services~~available ~~and~~for ~~systems~~grant to ~~the~~employees, officers, ~~international~~directors, and ~~domestic~~consultants ~~enterprise~~of ~~markets~~the ~~and~~Company ~~satellite~~in ~~broadband~~exchange ~~Internet~~for ~~access~~the toperformance ~~North~~of ~~American~~services. ~~consumers~~Hughes Communications, ~~which~~Inc. we(“HCI” ~~refer~~or to“Parent”) asis the ~~Consumer~~sole ~~market.~~owner Inof ~~addition,~~our weClass A ~~provide~~membership ~~networking~~interests ~~systems~~and ~~solutions~~serves toas ~~customers~~our managing ~~for mobile satellite~~member, ~~telematics~~as ~~and~~defined ~~wireless~~in ~~backhaul~~the ~~systems~~LLC Agreement. ~~These~~As ~~services~~of ~~are~~June 30, ~~generally~~2010, ~~provided~~there onwere a95,000 ~~contract~~Class A ormembership ~~project~~interests ~~basis~~outstanding and ~~may~~3,280 ~~involve~~Class ~~the~~B ~~use~~membership ofinterests ~~proprietary products engineered by us~~outstanding.

We ~~have~~are ~~five~~a ~~reportable~~telecommunications ~~segments,~~company ~~which~~that weprovides ~~operate~~equipment and ~~manage as strategic business units and organize by products and~~ services. Weto ~~measure and evaluate our reportable segments based on~~ the ~~operating~~broadband ~~earnings~~communications ~~of the respective segments~~marketplace. ~~Our~~We ~~business~~have ~~segments~~extensive technical ~~include:~~expertise ~~(i) the~~in ~~North~~satellite, ~~America~~wireline ~~Broadband~~and ~~segment;~~wireless ~~(ii) the~~communications ~~International~~which ~~Broadband~~we ~~segment;~~utilize ~~(iii) the~~in ~~Telecom~~a ~~Systems~~number ~~segment;~~of ~~(iv)~~product ~~the HTS Satellite segment;~~ and ~~(v) the~~service ~~Corporate segment~~offerings. In ~~The~~particular, ~~North~~we ~~America~~offer ~~Broadband~~a ~~segment~~spectrum ~~consists~~ of ~~the Consumer group, which delivers~~ broadband ~~internet~~equipment ~~service to consumer customers,~~ and ~~the Enterprise group, which provides satellite, wireline and wireless communication networks and~~ services to ~~enterprises.~~the ~~The~~managed ~~International~~services ~~Broadband~~market, ~~segment~~which is ~~consists~~comprised of ~~our~~enterprises ~~international~~with ~~service~~a ~~companies~~requirement ~~and provides managed network services and equipment~~ to ~~enterprise~~connect ~~customers~~a ~~and~~large ~~broadband~~number ~~service providers worldwide. The Telecom Systems segment consists~~ of ~~the~~geographically ~~Mobile~~dispersed ~~Satellite~~locations ~~Systems~~with ~~group~~reliable, ~~the Telematics group~~scalable, and ~~the~~cost-effective ~~Terrestrial~~applications, ~~Microwave~~such ~~group.~~as ~~The~~credit ~~Mobile~~card ~~Satellite~~verification, ~~Systems~~inventory ~~group~~tracking ~~provides~~and ~~turnkey~~control, ~~satellite~~and ~~ground segment systems to mobile system operators~~broadcast video. ~~The~~We ~~Telematics~~provide ~~group~~broadband ~~previously~~network ~~provided~~services ~~development engineering~~ and ~~manufacturing~~systems ~~services~~ to ~~Hughes Telematics, Inc. (“HTI”). However, as a result of~~ the ~~unfavorable~~international ~~impact~~and ofdomestic ~~the~~enterprise ~~economy~~markets ~~on the automobile industry, HTI terminated substantially all of the development engineering~~ and ~~manufacturing~~satellite ~~services~~broadband ~~with~~Internet usaccess into ~~August~~North ~~2009.~~American Weconsumers, ~~expect~~which ~~our~~we ~~future~~refer ~~revenue~~to ~~from~~as the ~~Telematics~~Consumer ~~group to be insignificant~~market. ~~The~~In ~~Terrestrial~~addition, ~~Microwave~~we ~~group~~provide networking ~~provides point-to-multipoint microwave radio network~~ systems ~~that~~solutions ~~are~~to ~~used~~customers for ~~both~~mobile ~~cellular~~satellite, ~~backhaul~~telematics and ~~broadband~~ wireless ~~access~~backhaul systems. ~~The~~These ~~HTS~~services ~~Satellite segment,~~are ~~which~~generally isprovided on a ~~new~~contract ~~segment~~or ~~starting~~project inbasis ~~2010, consists of activities related to the development, construction~~ and ~~launch~~may ~~of high~~involve ~~throughput satellites, including our Jupiter satellite, which is currently under construction and/or~~ the ~~provision~~use of ~~satellite~~proprietary ~~capacity.~~products ~~The~~engineered ~~Corporate~~by ~~segment includes our corporate offices and assets not specifically related to another business segment~~us.

~~Basis~~We have five reportable segments, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on the operating earnings of ~~Presentation~~the respective segments. Our business segments include: (i) the North America Broadband segment; (ii) the International Broadband segment; (iii) the Telecom Systems segment; (iv) the HTS Satellite segment; and (v) the Corporate segment. The North America Broadband segment consists of the Consumer group, which delivers broadband internet service to consumer customers, and the Enterprise group, which provides satellite, wireline and wireless communication networks and services to enterprises. The International Broadband segment consists of our international service companies and provides managed network services and equipment to enterprise customers and broadband service providers worldwide. The Telecom Systems segment consists of the Mobile Satellite Systems group, the Telematics group, and the Terrestrial Microwave group. The Mobile Satellite Systems group provides turnkey satellite ground segment systems to mobile system operators. The Telematics group previously provided development engineering and manufacturing services to Hughes Telematics, Inc. (“HTI”). However, as a result of the unfavorable impact of the economy on the automobile industry, HTI terminated substantially all of the development engineering and manufacturing services with us in August 2009. We expect our future revenue from the Telematics group to be insignificant. The Terrestrial Microwave group provides point-to-multipoint microwave radio network systems that are used for both cellular backhaul and broadband wireless access. The HTS Satellite segment, which is a new segment starting in 2010, consists of activities related to the development, construction and launch of high throughput satellites and currently represents construction activities of our new satellite, Jupiter. The Corporate segment includes our corporate offices and assets not specifically related to another business segment.

~~The~~Basis ~~accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally accepted accounting principles in the United States~~ of ~~America~~Presentation (“GAAP”) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (“SEC”). They include the assets, liabilities, results of operations and cash flows of the Company, including its domestic and foreign subsidiaries that are more than 50% owned or for which the Company is deemed to be the primary beneficiary as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “ASC”) 810 “Consolidation.” Entities in which the Company holds at least 20% ownership or in which there are other indicators of significant influence are generally accounted for by the equity method, whereby the Company records its proportionate share of the entities’ results of operations. Entities in which the Company holds less than 20% ownership and does not have the ability to exercise

5The accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (“SEC”). They include the assets, liabilities, results of operations and cash flows of the Company, including its domestic and foreign subsidiaries that are more than 50% owned or for which the Company is deemed to be the primary beneficiary as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “ASC”) 810 “Consolidation.” Entities in which the Company holds at least 20% ownership or in which there are other indicators of significant influence are generally accounted for by the equity method, whereby the Company records its proportionate share of the entities’ results of operations. Entities in which the Company holds less than 20% ownership and does not have the ability to exercise

~~Table~~5 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~NOTES~~HUGHES TONETWORK ~~THE~~SYSTEMS, ~~CONDENSED~~LLC ~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~significant~~NOTES ~~influence~~TO ~~are~~THE ~~generally~~CONDENSED ~~carried~~CONSOLIDATED atFINANCIAL ~~cost.~~STATEMENTS As(CONTINUED) permitted under Rule 10-01 of Regulation S-X, certain notes and other financial information normally required by GAAP have been condensed or omitted. Management believes the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. Our results of operations for the three months ended March 31, 2010 may not be indicative of our future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

~~All~~ significant ~~intercompany~~influence ~~balances~~are ~~and~~generally ~~transactions~~carried ~~with~~at ~~subsidiaries~~cost. As permitted under Rule 10-01 of Regulation S-X, certain notes and other ~~consolidated~~financial ~~entities~~information normally required by GAAP have been ~~eliminated~~condensed or omitted. Management believes the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. Our results of operations for the three and six months ended June 30, 2010 may not be indicative of our future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

~~Use~~All ofintercompany ~~Estimates~~balances inand ~~the~~transactions ~~Preparation~~with ofsubsidiaries ~~the~~and ~~Condensed~~other ~~Consolidated~~consolidated ~~Financial~~entities ~~Statements~~have been eliminated.

~~The~~Use ~~preparation~~ of ~~our~~Estimates ~~condensed consolidated financial statements~~ in ~~accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and~~ the ~~reported~~Preparation ~~amounts~~ of ~~revenues and expenses. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under~~ the ~~circumstances.~~Condensed ~~Due~~Consolidated toFinancial ~~the~~Statements ~~inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates.~~

~~New~~The ~~Accounting~~preparation ~~Pronouncements~~of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates.

~~Recently~~New ~~Adopted~~ Accounting ~~Guidance~~Pronouncements

InRecently ~~January~~Adopted ~~2010, the FASB issued~~ Accounting ~~Standard~~Guidance Update (“ASU”) 2010-06 to improve disclosures about fair value measurements. ASU 2010-6 clarifies certain existing disclosures and requires new disclosure regarding significant transfers in and out of Level 1 and Level 2 of fair value measurements and the reasons for the transfer. In addition, ASU 2010-06 clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendments in ASU 2010-06 were effective for fiscal years beginning after December 15, 2009, and for interim periods within those fiscal periods. The adoption of ASU 2010-06 did not have a material impact on our fair value measurements.

In ~~June~~January ~~2009 and December 2009~~2010, the FASB ~~amended~~issued ~~ASC~~Accounting ~~810~~Standard ~~changing~~Update ~~certain~~(“ASU”) ~~consolidation~~2010-06 ~~guidance~~to ~~and~~improve ~~requiring~~disclosures ~~improved~~about ~~financial~~fair ~~reporting~~value measurements. byASU ~~enterprises~~2010-6 ~~involved~~clarifies ~~with~~certain ~~variable~~existing ~~interest~~disclosures ~~entities~~and ~~(“VIE”).~~requires ~~The~~new ~~amendments~~disclosure ~~provide~~regarding ~~guidance~~significant transfers in ~~determining~~and ~~when~~out aof ~~reporting~~Level ~~entity~~1 ~~should~~and ~~include~~Level 2 of fair value measurements and the ~~assets,~~reasons ~~liabilities~~for the transfer. In addition, ~~noncontrolling~~ASU ~~interest~~2010-06 clarifies ~~and~~existing ~~results~~fair ofvalue ~~activities~~disclosures about the level of adisaggregation ~~VIE~~and inabout ~~its~~inputs ~~consolidated~~and ~~financial~~valuation ~~statements~~techniques used to measure fair value. The amendments toin ~~ASC~~ASU ~~810~~2010-06 were effective for ~~the~~fiscal ~~first~~years ~~annual reporting period~~ beginning after ~~November~~December 15, 2009, and for interim periods within ~~that~~those ~~first~~fiscal ~~annual reporting period, and for interim and annual reporting~~ periods ~~thereafter~~. The adoption of ~~amendments~~ASU to2010-06 ~~consolidation rules~~ did not have ~~any~~a material impact on our ~~disclosures~~disclosure ~~relating~~about tofair ~~our~~value ~~VIE activity and our financial statements~~measurements.

~~Accounting~~In ~~Guidance~~June ~~Not~~2009 ~~Yet~~and ~~Effective~~December 2009, the FASB amended ASC 810 changing certain consolidation guidance and requiring improved financial reporting by enterprises involved with variable interest entities (“VIE”). The amendments provide guidance in determining when a reporting entity should include the assets, liabilities, noncontrolling interest and results of activities of a VIE in its consolidated financial statements. The amendments to ASC 810 were effective for the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The adoption of amendments to consolidation rules did not have any impact on our disclosures relating to our VIE activity and our financial statements.

InAccounting ~~October~~Guidance ~~2009,~~Not ~~the~~Yet ~~FASB~~Effective issued ASU 2009-14 to amend ASC 605 “Revenue Recognition.” The amendments in this update change the accounting model for revenue arrangements that include both tangible products and software elements. The amendments in ASU 2009-14 will be effective for us beginning January 1, 2011, with early adoption permitted. We are currently evaluating the impact these amendments will have on our financial statements when they become effective.

In October 2009, the FASB issued ASU 2009-1314 ~~amending~~to amend ASC 605 ~~related~~“Revenue ~~to revenue arrangements with multiple deliverables~~Recognition.” ~~Among~~The ~~other~~amendments ~~things,~~in ~~ASU~~this ~~2009-13~~update ~~provides~~change ~~guidance~~the accounting model for ~~entities~~revenue inarrangements ~~determining~~that ~~the~~include ~~selling~~both ~~price~~tangible ofproducts ~~a deliverable~~ and ~~clarifies~~software ~~that~~elements. ~~the~~The ~~allocation~~amendments ofin ~~revenue~~ASU is2009-14 ~~based~~will onbe ~~entity-specific~~effective ~~assumptions~~for ~~rather~~us ~~than~~beginning ~~assumptions~~January 1, of2011, awith ~~marketplace~~early ~~participant~~adoption permitted. We are currently evaluating the impact ~~ASU~~these ~~2009-13~~amendments will have on our financial statements when itthey ~~becomes~~become effective ~~on January 1, 2011~~. ~~Early adoption is permitted.~~

6In October 2009, the FASB issued ASU 2009-13 amending ASC 605 related to revenue arrangements with multiple deliverables. Among other things, ASU 2009-13 provides guidance for entities in determining the accounting for multiple deliverable arrangements and establishes a hierarchy for determining the amount of revenue to allocate to the various deliverables. We are currently evaluating the impact ASU 2009-13 will have on our financial statements when it becomes effective on January 1, 2011. Early adoption is permitted.

~~Table~~6 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~NOTES~~HUGHES TONETWORK ~~THE~~SYSTEMS, ~~CONDENSED~~LLC ~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Note~~NOTES 2:TO ~~Marketable~~THE ~~Securities~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The~~Note ~~amortized~~2: Marketable ~~cost~~Securities ~~basis and estimated fair value of available-for-sale marketable securities are summarized as follows (in thousands):~~

	Cost		Gross Unrealized		Estimated
	Basis		Gain		Fair Value
March 31, 2010:
Municipal commercial paper	$	12,615	$	-	$	12,615
U.S. government bonds and treasury bills		15,045		11		15,056
Other debt securities		15,999		2		16,001
Total available-for-sale securities	$	43,659	$	13	$	43,672
December 31, 2009:
U.S. government bonds and treasury bills	$	15,105	$	4	$	15,109
Other debt securities		16,012		5		16,017
Total available-for-sale securities	$	31,117	$	9	$	31,126

The amortized cost basis and estimated fair value of available-for-sale marketable securities are summarized as follows (in thousands):

Our investments in municipal commercial papers have A-1+ and P-1 ratings from S&P and Moody’s, respectively, and our investments in U.S. government bonds and treasury bills have AAA and Aaa ratings from S&P and Moody’s, respectively. The investments in Other debt securities have A-1+ and P-1/Aa3 ratings from S&P and Moody’s, respectively.


	Cost Basis		Gross Unrealized Gains		Estimated Fair Value
June 30, 2010:
U.S. government bonds and treasury bills	$	15,023	$	7	$	15,030
Other debt securities		9,990		-		9,990

Total available-for-sale securities	$	25,013	$	7	$	25,020

December 31, 2009:
U.S. government bonds and treasury bills	$	15,105	$	4	$	15,109
Other debt securities		16,012		5		16,017

Total available-for-sale securities	$	31,117	$	9	$	31,126

~~Note~~Our 3:investments ~~Receivables~~in U.S. government bonds and treasury bills have AAA and Aaa ratings from Standard & Poor’s (“S&P”) and Moody’s, ~~Net~~respectively. The investments in Other debt securities have A-1/A-1+ and P-1 ratings from S&P and Moody’s, respectively.

Note 3: Receivables, ~~net~~Net ~~consisted of the following (in thousands):~~

	March 31,			December 31,
	2010			2009
Trade receivables	$	152,323		$	154,037
Contracts in process		15,929			16,952
Other receivables		3,428			3,902
Total receivables		171,680			174,891
Allowance for doubtful accounts		(12,587	)		(12,085	)
Total receivables, net	$	159,093		$	162,806

Receivables, net consisted of the following (in thousands):

Trade receivables included $8.9 million and $8.7 million of amounts due from related parties as of March 31, 2010 and December 31, 2009, respectively. Advances and progress billings offset against contracts in process amounted to $3.6 million and $0.3 million as of March 31, 2010 and December 31, 2009, respectively.


	June 30, 2010			December 31, 2009
Trade receivables	$	143,232		$	154,037
Contracts in process		23,810			16,952
Other receivables		3,220			3,902

Total receivables		170,262			174,891
Allowance for doubtful accounts		(11,410	)		(12,085	)

Total receivables, net	$	158,852		$	162,806

Trade receivables included $7.9 million and $8.7 million of amounts due from related parties as of June 30, 2010 and December 31, 2009, respectively. Advances and progress billings offset against contracts in process amounted to $1.3 million and $0.3 million as of June 30, 2010 and December 31, 2009, respectively.

~~Table~~Note of4: Inventories ~~Contents~~

~~HUGHES~~Inventories ~~NETWORK~~consisted ~~SYSTEMS,~~of ~~LLC~~the following (in thousands):

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


	June 30, 2010		December 31, 2009
Production materials and supplies	$	7,502	$	7,896
Work in process		18,291		15,615
Finished goods		32,556		36,733

Total inventories	$	58,349	$	60,244

~~Note~~7 ~~4: Inventories~~

InventoriesTable consisted of the following (in thousands):Contents

	March 31,		December 31,
	2010		2009
Production materials and supplies	$	8,547	$	7,896
Work in process		19,064		15,615
Finished goods		34,079		36,733
Total inventories	$	61,690	$	60,244

HUGHES NETWORK SYSTEMS, LLC

~~Inventories~~NOTES ~~are~~TO ~~carried~~THE atCONDENSED ~~the~~CONSOLIDATED ~~lower~~FINANCIAL ofSTATEMENTS ~~cost~~(CONTINUED) or market, principally using standard costs adjusted to reflect actual cost, based on variance analyses performed throughout the year. Inventories are adjusted to net realizable value using management’s best estimates of future use. In making its assessment of future use or recovery, management considers the aging and composition of inventory balances, the effects of technological and/or design changes, forecasted future product demand based on firm or near-firm customer orders and alternative means of disposition of excess or obsolete items.

~~Note~~Inventories 5:are ~~Property~~carried at the lower of cost or market, ~~Net~~principally using standard costs adjusted to reflect actual cost, based on variance analyses performed throughout the year. Inventories are adjusted to net realizable value using management’s best estimates of future use. In making its assessment of future use or recovery, management considers the aging and composition of inventory balances, the effects of technological and/or design changes, forecasted future product demand based on firm or near-firm customer orders and alternative means of disposition of excess or obsolete items.

Note 5: Property, ~~net~~Net ~~consisted of the following (dollars in thousands):~~

		Estimated Useful Lives	March 31,			December 31,
		(years)	2010			2009
Land and improvements		10	$	5,891		$	5,885
Buildings and leasehold improvements		2 - 30		33,532			32,867
Satellite related assets		15		380,394			380,394
Machinery and equipment		1 - 7		277,186			250,345
VSAT operating lease hardware		2 - 5		19,035			18,945
Furniture and fixtures		7		1,579			1,557
Construction in progress	—Jupiter			98,302			66,555
	—Other			14,857			12,888
Total property				830,776			769,436
Accumulated depreciation				(192,377	)		(167,472	)
Total property, net			$	638,399		$	601,964

Property, net consisted of the following (dollars in thousands):

Satellite related assets primarily consist of SPACEWAYTM 3 (“SPACEWAY 3”), a next generation broadband satellite system with a unique architecture for broadband data communications. In April 2008, we placed SPACEWAY 3 into service and began to depreciate its related costs on a straight-line basis over the estimated useful life of 15 years. Satellite related assets include the costs associated with the construction and launch of the satellite, insurance premiums for the satellite launch and the in-orbit testing period, interest incurred during the construction of the satellite, and other costs directly related to the satellite.


		Estimated Useful Lives (years)	June 30, 2010			December 31, 2009
Land and improvements		10	$	5,885		$	5,885
Buildings and leasehold improvements		2 - 30		33,524			32,867
Satellite related assets		15		380,394			380,394
Machinery and equipment		1 - 7		297,550			250,345
VSAT operating lease hardware		2 - 5		16,918			18,945
Furniture and fixtures		7		1,587			1,557
Construction in progress	- Jupiter			130,242			66,555
	- Other			16,388			12,888

Total property				882,488			769,436
Accumulated depreciation				(216,692	)		(167,472	)

Total property, net			$	665,796		$	601,964

8Satellite related assets primarily consist of SPACEWAYTM 3 (“SPACEWAY 3”), a broadband satellite system with a unique architecture for broadband data communications. In April 2008, we placed SPACEWAY 3 into service and began to depreciate its related costs on a straight-line basis over the estimated useful life of 15 years. Satellite related assets include the costs associated with the construction and launch of the satellite, insurance premiums for the satellite launch and the in-orbit testing period, interest incurred during the construction of the satellite, and other costs directly related to the satellite.

~~Table~~In June 2009, we entered into an agreement with Space Systems/Loral, Inc. (“SS/L”) under which SS/L will manufacture our next-generation, high throughput geostationary satellite (“Jupiter”). Jupiter will employ a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for the HughesNet service in North America. The construction of ~~Contents~~Jupiter began in July 2009 and we began to capitalize all direct costs associated with the construction and the launch of the satellite, including interest incurred during the construction of the satellite. We anticipate launching Jupiter in the first half of 2012.

~~HUGHES~~For ~~NETWORK~~the ~~SYSTEMS~~three and six months ended June 30, 2010, ~~LLC~~we capitalized $2.7 million and $4.7 million, respectively, of interest related to the construction of Jupiter. There was no capitalized interest expense for the three and six months ended June 30, 2009.

~~NOTES~~8 ~~TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

InTable June 2009, we entered into an agreement with Space Systems/Loral, Inc. (“SS/L”), under which SS/L will manufacture a next-generation, high throughput geostationary satellite (“Jupiter”). Jupiter will employ a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for the HughesNet service in North America. In July 2009, we began the construction of the satellite and capitalized costs associated with the construction of the satellite, including interest incurred and other direct costs related to the satellite. We anticipate launching Jupiter in the first half of 2012.Contents

~~For~~HUGHES ~~the~~NETWORK ~~three months ended March 31~~SYSTEMS, ~~2010,~~LLC ~~we capitalized $2.0 million of interest related to the construction of Jupiter.~~

~~Note~~NOTES 6:TO ~~Intangible~~THE ~~Assets,~~CONDENSED ~~Net~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 6: Intangible ~~assets~~Assets, ~~net~~Net ~~consisted of the following (dollars in thousands):~~

	Estimated Useful Lives (years)	Cost Basis		Accumulated Amortization			Net Basis
March 31, 2010:
Backlog and customer relationships	4 - 8	$	21,612	$	(16,296	)	$	5,316
Patented technology and trademarks	2 - 10		15,745		(8,275	)		7,470
Total intangible assets, net		$	37,357	$	(24,571	)	$	12,786
December 31, 2009:
Backlog and customer relationships	4 - 8	$	21,612	$	(16,015	)	$	5,597
Patented technology and trademarks	2 - 10		15,745		(7,854	)		7,891
Total intangible assets, net		$	37,357	$	(23,869	)	$	13,488

Intangible assets, net consisted of the following (dollars in thousands):

We amortize the recorded values of our intangible assets over their estimated useful lives. As of March 31, 2010, our intangible assets included $11.8 million of fully depreciated intangible assets. For the three months ended March 31, 2010 and 2009, we recorded $0.7 million and $1.4 million of amortization expense, respectively. Estimated future amortization expense at March 31, 2010 is as follows (in thousands):


	Estimated Useful Lives (years)	Cost Basis		Accumulated Amortization			Net Basis
June 30, 2010:
Backlog and customer relationships	8	$	9,786	$	(4,750	)	$	5,036
Patented technology and trademarks	8 -10		15,275		(8,208	)		7,067

Total intangible assets, net		$	25,061	$	(12,958	)	$	12,103

December 31, 2009:
Backlog and customer relationships	4 - 8	$	21,612	$	(16,015	)	$	5,597
Patented technology and trademarks	2 -10		15,745		(7,854	)		7,891

Total intangible assets, net		$	37,357	$	(23,869	)	$	13,488

	Amount
Remaining nine months ending December 31, 2010	$	2,048
Year ending December 31,
2011		2,730
2012		2,730
2013		2,730
2014		1,237
2015		1,237
Thereafter		74
Total estimated future amortization expense	$	12,786

We amortize the recorded values of our intangible assets over their estimated useful lives. As of June 30, 2010, we retired $12.3 million of our intangible assets as they were fully amortized. We recorded amortization expense of $0.7 million and $1.4 million for the three months ended June 30, 2010 and 2009, respectively, and $1.4 million and $2.8 million for the six months ended June 30, 2010 and 2009, respectively. Estimated future amortization expense as of June 30, 2010 is as follows (in thousands):


	Amount
Remaining six months ending December 31, 2010	$	1,365
Year ending December 31,
2011		2,730
2012		2,730
2013		2,730
2014		1,237
2015		1,237
Thereafter		74

Total estimated future amortization expense	$	12,103

~~Table~~Note of7: Other ~~Contents~~Assets

~~HUGHES~~Other ~~NETWORK~~assets ~~SYSTEMS,~~consisted ~~LLC~~of the following (in thousands):

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


	June 30, 2010		December 31, 2009
Subscriber acquisition costs	$	27,356	$	29,884
Debt issuance costs		13,240		12,899
Other		25,253		25,741

Total other assets	$	65,849	$	68,524

~~Note~~9 ~~7: Other Assets~~

OtherTable assets consisted of the following (in thousands):Contents

	March 31,		December 31,
	2010		2009
Subscriber acquisition costs	$	28,513	$	29,884
Debt issuance costs		13,956		12,899
Other		25,708		25,741
Total other assets	$	68,177	$	68,524

HUGHES NETWORK SYSTEMS, LLC

~~Note~~NOTES 8:TO ~~Debt~~THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Short-term~~Note ~~and current portion of long-term debt consisted of the following (dollars in thousands)~~8: Debt

	Interest Rates at		March 31,		December 31,
	March 31, 2010		2010		2009
VSAT hardware financing		8.00% - 15.00%	$	3,188	$	3,158
Revolving bank borrowings		8.75%		1,103		1,547
Capital lease and other		6.00% - 39.60%		2,215		2,045
Total short-term and the current portion of long-term debt			$	6,506	$	6,750

Short-term and current portion of long-term debt consisted of the following (dollars in thousands):

As of March 31, 2010, we had an outstanding revolving bank borrowing of $1.1 million, which had a variable interest rate of 8.75%. The borrowing was obtained by our Indian subsidiary under its revolving line of credit with a local bank. There is no requirement for compensating balances for these borrowings. The total amount available for borrowing by our foreign subsidiaries under various revolving lines of credit was $4.7 million as of March 31, 2010.


	Interest Rates at June 30, 2010	June 30, 2010		December 31, 2009
VSAT hardware financing	8.00% - 15.00%	$	3,161	$	3,158
Revolving bank borrowings	8.25% - 8.75%		1,066		1,547
Capital lease and other	6.00% - 39.60%		2,534		2,045

Total short-term and the current portion of long-term debt		$	6,761	$	6,750

~~Long-term~~As ~~debt~~of ~~consisted~~June 30, 2010, we had outstanding revolving bank borrowings of ~~the~~$1.1 ~~following~~million, ~~(dollars~~which had a weighted average variable interest rate of 8.75%. The borrowings were obtained by our subsidiaries in ~~thousands):~~India and Europe under revolving lines of credit with several local banks. There is no requirement for compensating balances for these borrowings. The total amount available for borrowing by our foreign subsidiaries under various revolving lines of credit was $4.8 million as of June 30, 2010.

	Interest Rates at		March 31,		December 31,
	March 31, 2010		2010		2009
Senior Notes(1)		9.50%	$	588,424	$	587,874
Term Loan Facility		7.62%		115,000		115,000
VSAT hardware financing		8.00% - 15.00%		5,152		5,861
Capital lease and other		6.00% - 39.60%		5,722		6,222
Total long-term debt			$	714,298	$	714,957
(1) Includes 2006 Senior Notes and 2009 Senior Notes.

Long-term debt consisted of the following (dollars in thousands):

On March 16, 2010, we entered into a credit agreement with JP Morgan Chase Bank, N.A. and Barclays Capital to amend and restate our senior secured $50 million revolving credit facility (the “Revolving Credit Facility”). Pursuant to the terms of the agreement, among other changes, the maturity date of the Revolving Credit Facility was extended to March 16, 2014, subject to an early maturity date of 91 days prior to March 16, 2014 in the event our 2009 and 2006 Senior Notes and our Term Loan Facility (as defined below) are not (i) repaid in full or (ii) refinanced with new debt (or amended) with maturities of no earlier than 91 days after March 16, 2014. The terms of the Revolving Credit Facility was amended to be: (i) in respect of the interest rate, at our option, the ABR (as defined in the Revolving Credit Facility) plus 2.00% or the Adjusted LIBOR (as defined in the Revolving Credit Facility) plus 3.00% and (ii) in respect of the participation fee for outstanding letters of credit, 3.00% per annum, in each case subject to downward adjustment based on our leverage ratio. For the three months ended March 31, 2010 and 2009, there were no borrowings under the Revolving Credit Facility. As of March 31, 2010, the Revolving Credit Facility had total outstanding letters of credit of $2.1 million and an available borrowing capacity of $47.9 million.


	Interest Rates at June 30, 2010	June 30, 2010		December 31, 2009
Senior Notes⁽¹⁾	9.50%	$	588,990	$	587,874
Term Loan Facility	7.62%		115,000		115,000
VSAT hardware financing	8.00% - 15.00%		4,453		5,861
Capital lease and other	6.00% - 39.60%		4,541		6,222

Total long-term debt		$	712,984	$	714,957


⁽¹⁾Includes 2006 Senior Notes and 2009 Senior Notes.

10On March 16, 2010, we entered into a credit agreement with JP Morgan Chase Bank, N.A. and Barclays Capital to amend and restate our senior secured $50 million revolving credit facility (the “Revolving Credit Facility”). Pursuant to the terms of the agreement, among other changes, the maturity date of the Revolving Credit Facility was extended to March 16, 2014, subject to an early maturity date of 91 days prior to March 16, 2014 in the event our 2009 and 2006 Senior Notes and our Term Loan Facility (as defined below) are not (i) repaid in full or (ii) refinanced with new debt (or amended) with maturities of no earlier than 91 days after March 16, 2014. The terms of the Revolving Credit Facility were amended to be: (i) in respect of the interest rate, at our option, the Alternative Borrowing Rate (as defined in the Revolving Credit Facility) plus 2.00% or the Adjusted London Interbank Offered Rate (“LIBOR”) (as defined in the Revolving Credit Facility) plus 3.00% and (ii) in respect of the participation fee for outstanding letters of credit, 3.00% per annum, in each case subject to downward adjustment based on our leverage ratio. For the six months ended June 30, 2010 and 2009, there were no borrowings under the Revolving Credit Facility. As of June 30, 2010, the Revolving Credit Facility had total outstanding letters of credit of $5.3 million and an available borrowing capacity of $44.7 million.

~~Table~~In May 2009, we, along with our subsidiary, HNS Finance Corp., as co-issuer, completed a private debt offering of ~~Contents~~$150.0 million of 9.50% senior notes maturing on April 15, 2014 (the “2009 Senior Notes”). Interest on the 2009 Senior Notes is accrued from April 15, 2009 and is paid semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2009. As of June 30, 2010 and December 31, 2009, we recorded $3.0 million of accrued interest payable related to the 2009 Senior Notes.

~~HUGHES~~In ~~NETWORK~~February ~~SYSTEMS~~2007, ~~LLC~~we borrowed $115 million from a syndicate of banks (the “Term Loan Facility”), which matures on April 15, 2014. The interest on the Term Loan Facility is paid quarterly at Adjusted LIBOR (as defined in the Term Loan Facility) plus 2.50% per annum. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into a swap agreement to swap the Adjusted LIBOR for a fixed interest rate of 5.12% per annum (the “Swap Agreement”). As a result, the Term Loan Facility has a fixed interest rate of 7.62% per annum. As of June 30, 2010 and December 31, 2009, interest accrued based on the Swap Agreement and the Term Loan Facility was $0.8 million.

~~NOTES~~10 ~~TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

InTable May 2009, we, along with our subsidiary, HNS Finance Corp., as Co-Issuer, completed a private debt offering of $150.0 million of 9.50% senior notes maturing on April 15, 2014 (the “2009 Senior Notes”). Interest on the 2009 Senior Notes is accrued from April 15, 2009 and is paid semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2009. As of March 31, 2010 and December 31, 2009, we recorded $6.5 million and $3.0 million, respectively, of accrued interest payable related to the 2009 Senior Notes.Contents

InHUGHES ~~February~~NETWORK ~~2007~~SYSTEMS, weLLC borrowed $115 million from a syndicate of banks (the “Term Loan Facility”), which matures on April 15, 2014. The interest on the Term Loan Facility is paid quarterly at Adjusted LIBOR (as defined in the Term Loan Facility) plus 2.50% per annum. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into a swap agreement to swap the Adjusted LIBOR for a fixed interest rate of 5.12% per annum (the “Swap Agreement”). As a result, the Term Loan Facility has a fixed interest rate of 7.62% per annum. As of March 31, 2010 and December 31, 2009, interest accrued based on the Swap Agreement and the Term Loan Facility was $0.8 million.

InNOTES ~~April~~TO ~~2006,~~THE weCONDENSED ~~issued~~CONSOLIDATED ~~$450~~FINANCIAL ~~million~~STATEMENTS ~~of 9.50% senior notes maturing on April 15, 2014~~ (~~the “2006 Senior Notes”~~CONTINUED). Interest on the 2006 Senior Notes is paid semi-annually in arrears on April 15 and October 15. As of March 31, 2010 and December 31, 2009, we recorded $19.6 million and $8.9 million, respectively, of accrued interest payable related to the 2006 Senior Notes.

~~Although~~In ~~the~~April ~~terms and covenants with respect to the 2009 Senior Notes are substantially identical to the~~ 2006 ~~Senior Notes~~, ~~the~~we ~~2009 Senior Notes were~~ issued ~~under~~$450 amillion ~~separate~~of ~~indenture~~9.50% ~~and~~senior donotes ~~not~~maturing ~~vote~~on ~~together~~April 15, 2014 ~~with~~ (the “2006 Senior Notes”). ~~Each~~Interest ofon the ~~indentures governing the~~ 2006 Senior Notes ~~and~~is ~~the~~paid ~~2009~~semi-annually Senior Notes (collectively, the “Senior Notes”), the agreement governing the amended Revolving Credit Facility and the agreement governing the Term Loan Facility require us to comply with certain affirmative and negative covenants: (i) in ~~the~~arrears ~~case~~on ~~of the indentures, for so long as any Senior Notes are outstanding; (ii)~~April in15 ~~the case of the amended Revolving Credit Facility, so long as the amended Revolving Credit Facility is in effect;~~ and ~~(iii)~~October ~~in the case of the Term Loan Facility, for so long as the Term Loan Facility remains outstanding~~15. ~~Negative~~As ~~covenants contained in these agreements include limitations on our ability and/or certain~~ of our subsidiaries’ ability to incur additional indebtedness; issue redeemable stock and subsidiary preferred stock; incur liens; pay dividends or distributions or redeem or repurchase capital stock; prepayJune 30, ~~redeem~~2010 ~~or repurchase debt; make loans~~ and investments; enter into agreements that restrict distributions from our subsidiaries; sell assets and capital stock of our subsidiaries; enter into certain transactions with affiliates; consolidate or merge with or intoDecember 31, ~~or sell substantially all of our assets to~~2009, ~~another~~we ~~person;~~recorded ~~and~~$8.9 ~~enter~~million ~~into new lines~~ of ~~business.~~accrued Ininterest payable ~~addition~~related to ~~these negative covenants,~~ the ~~amended~~2006 ~~Revolving Credit Facility, the indentures governing the~~ Senior Notes and/or the agreement governing the Term Loan Facility contain affirmative covenants that require us to: (i) preserve our businesses and properties; (ii) maintain insurance over our assets; (iii) pay and discharge all material taxes when due; and (iv) furnish the lenders’ administrative agent our financial statements for each fiscal quarter and fiscal year, certificates from a financial officer certifying that no Event of Default or Default has occurred during the fiscal period being reported, litigation and other notices, compliance with laws, maintenance of records and other such customary covenants. ~~Management believes that we were in compliance with all of our debt covenants as of March 31, 2010.~~

InAlthough ~~July~~the terms and covenants with respect to the 2009 Senior Notes are substantially identical to the 2006 Senior Notes, wethe ~~entered~~2009 ~~into~~Senior Notes were issued under a ~~capital~~separate ~~lease~~indenture and do not vote together with 95the ~~West~~2006 ~~Co.,~~Senior ~~Inc~~Notes. Each of the indentures governing the 2006 Senior Notes and the 2009 Senior Notes (~~“95~~collectively, ~~West~~the ~~Co.~~“Senior Notes”), the agreement governing the amended Revolving Credit Facility and ~~its~~the ~~parent,~~agreement ~~Miraxis~~governing ~~License~~the ~~Holdings,~~Term ~~LLC~~Loan Facility require us to comply with certain affirmative and negative covenants: (~~“MLH”~~i) in the case of the indentures, ~~which~~for so long as any Senior Notes are ~~our~~outstanding; ~~related~~(ii) in ~~parties~~the case of the amended Revolving Credit Facility, so long as ~~discussed~~the inamended ~~Note~~Revolving ~~14—Transactions~~Credit ~~with~~Facility ~~Related~~is ~~Parties.~~in ~~Pursuant~~effect; toand (iii) in the ~~capital~~case ~~lease~~of ~~agreement~~the Term Loan Facility, for 95so ~~West~~long Coas the Term Loan Facility remains outstanding. Negative covenants contained in these agreements include limitations on our ability and/or ~~MLH~~certain ~~agreed~~of our subsidiaries’ ability to ~~provide~~incur aadditional ~~series~~indebtedness; ofissue ~~coordination~~redeemable ~~agreements~~stock and ~~allowing~~subsidiary uspreferred tostock; ~~operate~~incur ~~SPACEWAY~~liens; 3pay atdividends ~~the~~or ~~95°~~distributions ~~west~~or ~~longitude~~redeem ~~orbital~~or ~~slot~~repurchase ~~where~~capital 95stock; ~~West~~prepay, ~~Co.~~redeem or repurchase debt; make loans and ~~MLH~~investments; ~~have~~enter ~~higher~~into ~~priority~~agreements ~~rights.~~that Asrestrict distributions from our subsidiaries; sell assets and capital stock of ~~March 31,~~our ~~2010~~subsidiaries; enter into certain transactions with affiliates; consolidate or merge with or into, ~~the~~or ~~remaining~~sell ~~debt~~substantially ~~balance~~all ~~under~~of ~~the~~our ~~capital~~assets ~~lease~~to, ~~was~~another $5person; and enter into new lines of business.3 ~~million~~In addition to these negative covenants, ~~which~~the ~~was~~amended ~~included~~Revolving inCredit ~~“Capital~~Facility, ~~lease~~the indentures governing the Senior Notes and/or ~~other”~~the inagreement governing the ~~short-term~~Term Loan Facility contain affirmative covenants that require us to: (i) preserve our businesses and ~~long-term~~properties; ~~debt~~(ii) maintain ~~tables~~insurance ~~above.~~over ~~The~~our ~~remaining~~assets; ~~payments~~(iii) pay ~~under~~and ~~the~~discharge ~~capital~~all ~~lease~~material ~~are~~taxes ~~subject~~when todue; ~~conditions~~and in(iv) furnish the ~~agreement~~lenders’ ~~including~~administrative agent our ~~ability~~financial tostatements ~~operate~~for ~~SPACEWAY~~each 3,fiscal quarter and fiscal ~~are~~year, ascertificates ~~follows:~~from ~~$0.75~~a ~~million~~financial ~~for~~officer certifying that no Event of Default or Default has occurred during the ~~year~~fiscal ~~ending~~period ~~December 31~~being reported, ~~2010~~litigation and $1other notices, compliance with laws, maintenance of records and other such customary covenants.0 ~~million~~Management ~~for~~believes ~~each~~that we were in compliance with all of ~~the~~our ~~years~~debt ~~ending~~covenants ~~December~~as of June 3130, ~~2011 through 2016~~2010.

In July 2006, we entered into a capital lease with 95 West Co., Inc. (“95 West Co.”) and its parent, Miraxis License Holdings, LLC (“MLH”), which are our related parties as discussed in Note 14—Transactions with Related Parties. Pursuant to the capital lease agreement, 95 West Co. and MLH agreed to provide a series of coordination agreements allowing us to operate SPACEWAY 3 at the 95° west longitude orbital slot where 95 West Co. and MLH have higher priority rights. As of June 30, 2010, the remaining debt balance under the capital lease was $4.9: ~~Financial~~million, ~~Instruments~~which was included in “Capital lease and other” in the short-term and long-term debt tables above. The remaining payments under the capital lease are subject to conditions in the agreement including our ability to operate SPACEWAY 3 and are $1.0 million for each of the years ending December 31, 2011 through 2016.

~~Interest~~Note ~~Rate~~9: Financial ~~Swap~~Instruments

~~The~~Interest ~~interest~~Rate ~~on the Term Loan Facility was at Adjusted LIBOR plus 2.50% per annum. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into the~~ Swap ~~Agreement to swap the Adjusted LIBOR for a fixed interest rate of 5.12% per annum. As a result, the Term Loan Facility has a fixed interest rate of 7.62% per annum.~~

11The interest on the Term Loan Facility was at Adjusted LIBOR plus 2.50% per annum. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into the Swap Agreement to swap the Adjusted LIBOR for a fixed interest rate of 5.12% per annum. As a result, the Term Loan Facility has a fixed interest rate of 7.62% per annum. We account for the Swap Agreement as a cash flow hedge in accordance with ASC 815-30 “Derivatives and Hedging —Cash Flow Hedges.” Accordingly, we recorded a net unrealized loss of $1.7 million and $2.7 million for the three and six months ended June 30, 2010, respectively, and a net unrealized gain of $2.8 million and $7.3 million, respectively, for the comparable periods in 2009 in accumulated other comprehensive loss associated with the fair market valuation of the interest rate swap. The remaining net interest payments based on the Swap Agreement and the Term Loan Facility are paid quarterly and estimated to be approximately $4.4 million for the six months ending December 31, 2010, $8.8 million for each of the years ending December 31, 2011 through 2013 and $3.3 million for the year ending December 31, 2014. For the three months ended June 30, 2010 and 2009, we recorded $2.2 million and $2.3 million, respectively, of interest expense on the Term Loan Facility. For the six months ended June 30, 2010 and 2009, we recorded $4.4 million and $4.5 million, respectively, of interest expense on the Term Loan Facility.

~~Table~~11 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~NOTES~~HUGHES TONETWORK ~~THE~~SYSTEMS, ~~CONDENSED~~LLC ~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

WeNOTES ~~account~~TO ~~for~~THE ~~the~~CONDENSED ~~Swap~~CONSOLIDATED ~~Agreement~~FINANCIAL asSTATEMENTS a(CONTINUED) cash flow hedge in accordance with ASC 815-30 “Derivatives and Hedging —Cash Flow Hedges.” Accordingly, we recorded a net unrealized loss of $1.0 million and a net unrealized gain of $4.5 million for the three months ended March 31, 2010 and 2009, respectively, in accumulated other comprehensive loss associated with the fair market valuation of the interest rate swap. The net interest payments based on the Swap Agreement and the Term Loan Facility are paid quarterly and estimated to be approximately $8.8 million for each of the years ending December 31, 2010 through 2013 and $3.3 million for the year ending December 31, 2014. For each of the three months ended March 31, 2010 and 2009, we recorded $2.2 million interest expense on the Term Loan Facility.

Note 10: Fair Value

Under ASC 820 “Fair Value Measurements and Disclosures,” fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date, and the principal market is defined as the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability. If there is no principal market, the most advantageous market is used. This is the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be paid to transfer the liability. ASC 820 clarifies that fair value should be based on assumptions market participants would make in pricing the asset or liability. Where available, fair value is based on observable quoted market prices or derived from observable market data. Where observable prices or inputs are not available, valuation models are used (i.e. Black-Scholes, a barrier option model or a binomial model). ASC 820 established the following three levels used to classify the inputs used in measuring fair value measurements:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on the assumptions market participants would use in pricing the asset or liability based on the best available information.

In determining fair value, we use various valuation approaches, including market, income and/or cost approaches. Other valuation techniques involve significant management judgment. As of ~~March~~June 3130, 2010, the carrying values of cash and cash equivalents, receivables, net, accounts payable, and debt, except for the Senior Notes as described below, approximated their respective fair values.

Our Senior Notes were categorized as Level 1 of the fair value hierarchy as we utilized pricing for recent market transactions for identical notes.

Our Term Loan Facility originally had a variable interest rate based on observable interest rates plus 2.50% per annum. To mitigate the variable interest rate risk, we entered into the Swap Agreement to swap the Adjusted LIBOR for a fixed interest rate of 5.12% per annum. As a result, the Term Loan Facility has a fixed interest rate of 7.62% per annum. We adjust the value of the interest rate swap on a quarterly basis. The fair value of the interest rate swap was categorized as Level 2 of the fair value hierarchy.

12Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):

Table of Contents


			June 30, 2010
	Level	Included In	Carrying Value			Fair Value
Marketable securities	1	Marketable securities	$	25,020		$	25,020
2006 Senior Notes	1	Long-term debt	$	450,000		$	456,750
2009 Senior Notes	1	Long-term debt	$	138,990	⁽¹⁾	$	151,718
Interest rate swap on the Term Loan Facility	2	Other long-term liabilities	$	13,173		$	13,173

~~HUGHES~~(1) ~~NETWORK~~Amount ~~SYSTEMS~~represents the face value of $150.0 million, ~~LLC~~net the remaining original issue discount of $11.0 million.

~~NOTES~~Note TO11: Income ~~THE~~Taxes ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Assets~~We are a limited liability company and ~~liabilities~~have ~~measured~~elected atto ~~fair~~be ~~value~~treated onas a ~~recurring~~partnership ~~basis~~for ~~are~~income ~~summarized~~tax ~~below~~purposes. ~~(dollars~~As such, our U.S. federal and state income taxes (in ~~thousands~~the states which tax limited liability companies as partnerships): are the direct responsibility of our members. Our Parent holds 100% of our Class A membership interests; and therefore, our activity is

				March 31, 2010
	Level		Included In	Carrying Value		Fair Value
Marketable securities		1	Marketable securities	$	43,672	$	43,672
2006 Senior Notes		1	Long-term debt	$	450,000	$	462,375
2009 Senior Notes		1	Long-term debt	$	150,000	$	154,163
Interest rate swap on the Term Loan Facility		2	Other long-term liabilities	$	11,477	$	11,477

NoteTable 11:of Income TaxesContents

WeHUGHES ~~are~~NETWORK ~~a limited liability company and have elected to be treated as a partnership for income tax purposes. As such~~SYSTEMS, ~~our~~LLC U.S. federal and state income taxes (in the states which tax limited liability companies as partnerships) are the direct responsibility of our members. Our Parent holds 100% of our Class A membership interests; and therefore, our activity is reported on our Parent’s income tax returns. Under the terms of the Contribution and Membership Interest Purchase Agreement dated December 3, 2004, as amended, among the Company, SkyTerra Communications, Inc., the DIRECTV Group, Inc. (“DIRECTV”) and DTV Network Systems, Inc. (“DTV Networks”), DIRECTV retained the domestic tax benefits of the Company occurring prior to April 23, 2005 and has responsibility for all of the pre-closing domestic and foreign income tax liabilities of DTV Networks. We have recorded a liability in the balance sheet for the estimated amount we may be required to pay to DIRECTV resulting from prepaid taxes exceeding tax liabilities as of April 22, 2005.

~~For~~NOTES ~~the~~TO ~~three~~THE ~~months~~CONDENSED ~~ended~~CONSOLIDATED ~~March~~FINANCIAL ~~31,~~STATEMENTS ~~2010~~(CONTINUED) and 2009, we recorded a net income tax expense of $1.2 million and a net income tax benefit of $0.7 million, respectively. Our income tax expense represents taxes associated with our foreign subsidiaries and state taxes in the states that recognize limited liability companies as taxable corporations.

~~Certain~~ reported ofon our ~~subsidiaries~~Parent’s ~~are~~income ~~expected~~tax toreturns. ~~utilize~~Under athe ~~portion~~terms of ~~their~~the ~~net~~Contribution ~~operating~~and ~~loss~~Membership ~~carry-forwards~~Interest ~~during~~Purchase ~~2010.~~Agreement ~~These~~dated ~~subsidiaries~~December 3, ~~have~~2004, ~~not~~as ~~met~~amended, among the ~~more-likely-than-not~~Company, LightSquared, ~~criteria~~Inc. of(formerly ~~ASC~~SkyTerra ~~740~~Communications, ~~“Income~~Inc.), ~~Taxes~~the DIRECTV Group, Inc. (“DIRECTV”) and ~~therefore~~DTV ~~maintain~~Network aSystems, ~~full~~Inc. ~~valuation~~(“DTV ~~allowance~~Networks”), onDIRECTV ~~their~~retained ~~deferred~~the domestic tax ~~assets~~benefits as of ~~March~~the Company occurring prior to April 3123, ~~2010.~~2005 ~~Any~~and ~~benefit~~has ~~realized~~responsibility ~~from~~for all of the ~~reversal~~pre-closing domestic and foreign income tax liabilities of ~~valuation~~DTV ~~allowance~~Networks. ~~will~~We behave recorded as a ~~reduction~~liability in the balance sheet for the estimated amount we may be required to ~~income~~pay to DIRECTV resulting from prepaid taxes exceeding tax ~~expense~~liabilities as of April 22, 2005.

Our income tax expense represents taxes associated with our foreign subsidiaries and state taxes in the states that recognize limited liability companies as taxable corporations. For the three and six months ended ~~March 31~~June 30, 2010, we ~~did~~recorded ~~not~~$1.6 ~~identify~~million ~~any~~and ~~significant~~$2.8 ~~uncertain~~million, respectively, of income tax ~~positions~~expense. WeFor dothe ~~not~~three ~~believe~~and ~~that~~six ~~the~~months ~~unrecognized~~ended June 30, 2009, we recorded a net income tax ~~benefits~~expense ~~will~~of ~~significantly~~$0.5 ~~increase~~million orand ~~decrease~~a ~~within~~net ~~the~~income ~~next~~tax ~~twelve~~benefit ~~months~~of $0.2 ~~Following~~million, respectively. The net income tax benefit is attributable to our Indian subsidiary as a ~~description~~result of ~~the~~being engaged in telecommunications infrastructure development. Indian tax ~~years~~law ~~that~~provides ~~remain~~for ~~subject~~a todeduction ~~examination~~of by100% ~~major~~of ~~tax~~profits ~~jurisdictions:~~and gains derived from qualifying infrastructure businesses for ten consecutive assessment years.

United States - Federal		2007 and forward
United States - Various States		2005 and forward
United Kingdom		2005 and forward
Germany		2004 and forward
Italy		2005 and forward
India		1995 and forward
Mexico		2000 and forward
Brazil		2003 and forward

Certain of our subsidiaries are expected to utilize a portion of their net operating loss carry-forwards during 2010. Several of these subsidiaries have not met the more-likely-than-not criteria of ASC 740 “Income Taxes” and therefore maintain a full valuation allowance on their deferred tax assets as of June 30, 2010. Any benefit realized from the reversal of valuation allowance will be recorded as a reduction to income tax expense.

13For the six months ended June 30, 2010, we did not identify any significant uncertain tax positions. We do not believe that the unrecognized tax benefits will significantly increase or decrease within the next twelve months. Following is a description of the tax years that remain subject to examination by major tax jurisdictions:

Table of Contents


United States - Federal		2007 and forward
United States - Various States		2005 and forward
United Kingdom		2005 and forward
Germany		2004 and forward
Italy		2005 and forward
India		1995 and forward
Mexico		2000 and forward
Brazil		2003 and forward

~~HUGHES~~13 ~~NETWORK SYSTEMS, LLC~~

NOTESTable TOof THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Contents

~~Note~~HUGHES ~~12:~~NETWORK ~~Employee~~SYSTEMS, ~~Share-Based~~LLC ~~Payments~~

~~HCI’s~~NOTES ~~2006~~TO ~~Equity~~THE ~~and~~CONDENSED ~~Incentive~~CONSOLIDATED ~~Plan~~FINANCIAL STATEMENTS (CONTINUED)

InNote ~~January~~12: Employee ~~2006, HCI’s Board of Directors approved the HCI 2006 Equity and Incentive Plan (the “Plan”). The Plan provides for the grant of equity~~Share-~~based~~Based ~~awards,~~Payments including restricted common stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards, as well as cash bonuses and long-term cash awards to directors, officers, employees, advisors and consultants of HCI and its subsidiaries who are selected by HCI’s Compensation Committee for participation in the Plan. We recorded compensation expense related to the restricted stock awards, issued to our employees, and restricted stock units, issued only to our international employees, after adjustment for forfeitures, of $0.6 million for each of the three months ended March 31, 2010 and 2009. As of March 31, 2010, we had $2.2 million of unrecognized compensation expense related to the restricted stock awards and restricted stock units, which will be recognized over a weighted average life of 1.14 years.

~~Summaries of non-vested restricted stock awards, excluding awards issued to~~ HCI’s ~~directors,~~2006 Equity and ~~restricted~~Incentive ~~stock~~Plan ~~units are as follows:~~

~~Restricted~~In ~~Stock~~January ~~Awards~~2006, HCI’s Board of Directors approved the HCI 2006 Equity and Incentive Plan (the “Plan”). The Plan provides for the grant of equity-based awards, including restricted common stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards, as well as cash bonuses and long-term cash awards to directors, officers, employees, advisors and consultants of HCI and its subsidiaries who are selected by HCI’s Compensation Committee for participation in the Plan. We recorded compensation expense related to the restricted stock awards, issued to our employees, and restricted stock units, issued only to our international employees, after adjustment for forfeitures, of $0.6 million for each of the three months ended June 30, 2010 and 2009 and $1.2 million for each of the six months ended June 30, 2010 and 2009. As of June 30, 2010, we had $1.5 million of unrecognized compensation expense related to the restricted stock awards and restricted stock units, which will be recognized over the remaining weighted average life of 1.02 years.

	Shares			Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2009		72,360		$	47.58
Forfeited		(500	)	$	45.02
Vested		(4,175	)	$	49.41
Non-vested at March 31, 2010		67,685		$	47.48

Summaries of non-vested restricted stock awards, excluding awards issued to HCI’s directors, and restricted stock units are as follows:

Restricted Stock ~~Units~~Awards

As of December 31, 2009 and March 31, 2010, we had 8,675 non-vested restricted stock units with a weighted-average grant-date fair value of $28.73.


	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2009	72,360		$	47.58
Forfeited	(2,000	)	$	46.97
Vested	(4,550	)	$	49.39

Non-vested at June 30, 2010	65,810		$	47.47

Restricted Stock ~~Option~~Units ~~Program~~

OnAs ~~April~~of June 2430, ~~2008,~~2010 ~~HCI’s~~and ~~Compensation~~December 31, ~~Committee~~2009, ~~made~~we ~~stock~~had ~~option awards under the Plan (the “Stock Option Program”)~~8,675 ~~which consisted of the issuance of~~ non-~~qualified~~vested ~~stock~~restricted ~~options to employees of HCI and its subsidiaries. The grant and exercise price of the~~ stock ~~options~~units iswith the closing price of HCI’s common stock on the date of the grant. Any options forfeited or cancelled before exercise will be deposited back into the Option Pool and will become available for award under the Stock Option Program. Each grant has a 10weighted-average ~~year life and vests 50% on the second anniversary of the~~ grant -date ~~and 25% on each of the third and fourth anniversaries of the grant date. The~~ fair value of ~~each option award was estimated on the date of grant using a Black-Scholes option valuation model~~$28.73.

~~On March 19, 2009, HCI offered eligible participants in the~~ Stock Option Program the opportunity to exchange (the “Exchange Offer”) all or a portion of their eligible outstanding stock options for new stock options, on a one-for-one basis, through an exchange offer, which expired on April 16, 2009. Each new option (the “New Options”) has an exercise price of $14.47, which was the closing price of our common stock on April 15, 2009, and a new vesting schedule to reflect the new grant date of April 16, 2009.

AsOn aApril 24, ~~result~~2008, ofHCI’s ~~the~~Compensation ~~Exchange~~Committee ~~Offer,~~made ~~which~~stock ~~was~~option ~~completed~~awards onunder ~~April 16,~~the ~~2009,~~Plan ~~546~~(the “Stock Option Program”),~~900~~ which ~~outstanding~~consisted of the issuance of non-qualified stock options ~~(representing~~to ~~100%~~employees ~~participation)~~of ~~were~~HCI ~~exchanged,~~and its subsidiaries. The grant and exercise price of the ~~estimated~~stock ~~fair~~options ~~value~~is the closing price of ~~the~~HCI’s ~~New~~common ~~Options~~stock on the date of $2the grant.3 ~~million~~Any ~~was~~options forfeited ~~computed~~or ~~using~~cancelled abefore ~~Black-Scholes~~exercise ~~option~~will ~~valuation~~be ~~model~~deposited ~~based~~back oninto the ~~new~~Option ~~grant~~Pool ~~date~~and will become available for award under the Stock Option Program. ~~The~~Each ~~compensation~~grant ~~expense~~has ~~related~~a to10 year life and vests 50% on the ~~New~~second ~~Options~~anniversary isof ~~recognized~~the grant date and 25% on each aof ~~straight-line~~the ~~basis~~third ~~over~~and fourth anniversaries of the ~~four-year~~grant ~~vesting~~date. ~~period~~The ~~beginning~~fair value of each option award was estimated on the date of grant using a Black-Scholes option valuation model.

On March 19, 2009, HCI offered eligible participants in the Stock Option Program the opportunity to exchange (the “Exchange Offer”) all or a portion of their eligible outstanding stock options for new stock options, on a one-for-one basis, through an exchange offer, which expired on April 16, 2009. Each new option (the “New Options”) has an exercise price of $14.47, which was the closing price of HCI’s common stock on April 15, 2009, and a new vesting schedule to reflect the new grant date of April 16, 2009.

~~Table~~As a result of ~~Contents~~the Exchange Offer, which was completed on April 16, 2009, 546,900 outstanding stock options (representing 100% participation) were exchanged, and the estimated fair value of the New Options of $2.3 million was computed using a Black-Scholes option valuation model based on the new grant date. The compensation expense related to the New Options is recognized on a straight-line basis over the four-year vesting period beginning on the date of grant.

~~HUGHES~~14 ~~NETWORK SYSTEMS, LLC~~

NOTESTable TOof THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Contents

AHUGHES ~~summary~~NETWORK ofSYSTEMS, ~~option~~LLC ~~activity under the Stock Option Program is presented below:~~

	Option Shares			Weighted-Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value(1)
Outstanding at December 31, 2009		648,050		$	16.77	9.37	$	6,326
Forfeited or expired		(4,650	)	$	14.47
Outstanding at March 31, 2010		643,400		$	16.78	9.12	$	7,263
Vested and expected to vest at March 31, 2010		579,060		$	16.78	9.12	$	6,537
Exercisable at March 31, 2010		-		$	-
(1) In thousands.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The ~~compensation~~key ~~expense~~assumptions ~~related~~for tothe ~~stock~~ option awards ~~is recognized on a straight-line basis over the four-year vesting period beginning on the date of grant. We recorded $1.0 million and $0.8 million of compensation expense~~ for the ~~three~~six months ended ~~March 31~~June 30, 2010 are ~~and~~as ~~2009,~~follows: ~~respectively. As of March 31, 2010, we had $9.1 million of unrecognized compensation expense for non-vested stock options, which will be recognized over a weighted average period of 3.1 years.~~

Bonus Unit Plan


		Six Months Ended June 30, 2010
Volatility		45.90%
Expected term		5 years
Risk-free interest rate		2.59%

InA ~~July~~summary ~~2005, we adopted an incentive bonus unit plan (the “Bonus Unit Plan”), pursuant to which bonus units were granted to certain employees~~ of ~~the~~option activity ~~Company.~~under ~~The bonus units provide for time vesting over five years and are subject to a participant’s continued employment with~~ the ~~Company.~~Stock ~~Pursuant~~Option toProgram the Bonus Unit Plan, if participants in the Bonus Unit Plan are employed by the Company at the time of the predetermined exchange dates, they are entitled to exchange their vested bonus units for shares of HCI’s common stock. The number of HCI’s common stock shares to be issued upon each exchange is ~~calculated~~presented ~~based~~below: upon the fair market value of the vested bonus unit divided by the average closing trading price of HCI’s common stock for the 20 business days immediately preceding the date of the exchange. We recognized compensation expense of $0.2 million for each of the three months ended March 31, 2010 and 2009 related to the Bonus Unit Plan.

The following table summarizes changes in bonus units under the Bonus Unit Plan:


	Option Shares		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2009	648,050		$	16.77	9.37	$	6,326
Granted	5,000		$	27.96	9.76	$	-
Forfeited or expired	(10,050	)	$	15.21

Outstanding at June 30, 2010	643,000		$	16.88	8.88	$	5,299

Vested and expected to vest at June 30, 2010	578,700		$	16.88	8.88	$	4,769

Exercisable at June 30, 2010	-		$	-


(1) In thousands.

	Three Months Ended
	March 31,
	2010			2009
Non-vested, beginning balance		2,453,250			2,500,000
Forfeited		(13,750	)		-
Non-vested balance at March 31,		2,439,500			2,500,000

The compensation expense related to stock option awards to our employees is recognized on a straight-line basis over the four-year vesting period beginning on the date of grant. We recorded compensation expense of $1.0 million and $0.9 million for the three months ended June 30, 2010 and 2009, respectively, and $2.0 million and $1.7 million for the six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010, we had $8.2 million of unrecognized compensation expense for non-vested stock options, which will be recognized over the remaining weighted average period of 2.86 years.

~~Class~~Bonus BUnit ~~Membership~~Plan ~~Interests~~

~~Class~~In BJuly ~~membership~~2005, ~~interests~~we inadopted ~~the~~an ~~Company~~incentive ~~were~~bonus ~~issued~~unit toplan ~~certain~~(the ~~members~~“Bonus ofUnit ~~our senior management~~Plan”), ~~two~~pursuant ofto ~~our~~which ~~former~~bonus ~~senior~~units ~~management~~were ~~and~~granted ato certain ~~member~~employees of ~~our~~the ~~Board~~Company. ofThe ~~Managers~~bonus ~~and~~units ~~HCI’s~~provide ~~Board~~for oftime ~~Directors.~~vesting ~~The~~over ~~Class~~five Byears ~~membership~~and ~~interests~~ are subject to ~~certain~~a ~~vesting~~participant’s ~~requirements,~~continued employment with ~~50% of~~ the ~~Class~~Company. BPursuant ~~membership interests subject~~ to ~~time vesting over five years and~~ the ~~other~~Bonus ~~50%~~Unit ~~vesting~~Plan, ~~based~~if ~~upon~~participants ~~certain~~in ~~performance~~the ~~criteria.~~Bonus ~~The~~Unit ~~Class~~Plan Bare employed ~~membership~~by ~~interests~~the ~~subject~~Company toat the ~~performance~~time ~~criteria~~of ~~vested~~the onpredetermined ~~April 23~~exchange dates, ~~2010.~~they Atare ~~the~~entitled ~~holders’~~to ~~election,~~exchange their vested ~~Class~~bonus Bunits ~~membership~~for ~~interests~~shares ~~may~~of beHCI’s ~~exchanged for our~~ common stock. The number of ~~shares~~HCI’s ~~of our~~ common stock shares to be issued upon ~~such~~each exchange is calculated based upon the fair market value of ~~such~~the vested ~~Class~~bonus Bunit ~~membership interest tendered for exchange~~ divided by the average closing trading price of ~~our~~HCI’s common stock for the 20 business days immediately preceding the date of ~~such~~the exchange. OnWe ~~September~~recognized compensation expense of $0.2 million for each of the three months ended June 2530, 2010 and 2009, ~~HCI~~and ~~registered~~$0.4 ~~75,000~~million ~~shares~~for each of ~~its~~the ~~common~~six ~~stock~~months ~~with~~ended ~~the~~June 30, ~~SEC~~2010 onand ~~Form~~2009 ~~S-8~~related to bethe ~~issued~~Bonus Unit Plan. As of July 15, ~~from~~2010, ~~time~~approximately to2.1 million bonus ~~time~~units vested and were exchanged for approximately 207,000 ~~upon~~shares ~~the~~(net ~~exchange~~of income tax withholding) of HCI’s common stock pursuant to the ~~Class~~Bonus BUnit ~~membership~~Plan. ~~interests~~The remaining 300,000 bonus units will vest on July 15, 2011.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Pursuant~~The tofollowing ~~ASC~~table ~~718~~summarizes ~~“Compensation—Stock~~changes ~~Compensation,”~~in ~~the~~bonus ~~Company~~units ~~determined~~under ~~that~~ the ~~Class~~Bonus BUnit membership interests had nominal value at the date of grant, and, accordingly, minimal compensation expense was recorded for each of the three months ended March 31, 2010 and 2009. There were no Class B membership interests issued or forfeited during the three months ended March 31, 2010. As of March 31, 2010, there were 3,330 outstanding Class B membership interests.Plan:

Note 13: Long-Term Cash Incentive Retention Program


	Three Months Ended June 30,		Six Months Ended June 30,
	2010	2009	2010		2009
Non-vested at December 31, 2009	2,439,500	2,500,000	2,453,250		2,500,000
Forfeited	-	-	(13,750	)	-

Non-vested at June 30, 2010	2,439,500	2,500,000	2,439,500		2,500,000

InClass ~~2005,~~B ~~the~~Membership ~~Company~~Interests established a one-time employee retention program (“Retention Program”), which was designed to retain certain employees chosen by HNS’ senior management. As a result of HNS successfully attaining 100% of its earnings goal for 2008, as defined in the Retention Program, the Company paid an aggregate of $14.7 million to eligible participants under the Retention Program in 2009.

~~Note~~Class ~~14:~~B ~~Transactions~~membership interests in the Company were issued to certain members of our senior management, two of our former senior management and a member of our Board of Managers and HCI’s Board of Directors. The Class B membership interests are subject to certain vesting requirements, with ~~Related~~50% ~~Parties~~of the Class B membership interests subject to time vesting over five years and the other 50% vesting based upon certain performance criteria. At the holders’ election, vested Class B membership interests may be exchanged for HCI’s common stock. The number of shares of HCI’s common stock to be issued upon such exchange is based upon the fair market value of such vested Class B membership interest tendered for exchange divided by the average closing trading price of HCI’s common stock for the 20 business days immediately preceding the date of such exchange. As of June 30, 2010, 3,247 of the 3,280 outstanding Class B membership interests were vested. If the total outstanding Class B membership interests were to convert into HCI’s common stock as of June 30, 2010, they could be exchanged for approximately 565,000 shares of HCI’s common stock. On September 25, 2009, HCI registered 75,000 shares of its common stock with the SEC on Form S-8 to be issued, from time to time, upon the exchange of the Class B membership interests.

InPursuant ~~the~~to ~~ordinary~~ASC ~~course~~718 of“Compensation—Stock ~~our operations~~Compensation,” wethe ~~enter~~Company ~~into~~determined ~~transactions~~that ~~with~~the ~~related~~Class ~~parties~~B tomembership interests ~~purchase~~had ~~and/or~~nominal ~~sell~~value ~~telecommunications~~at ~~services,~~the ~~equipment~~date of grant, and, ~~inventory.~~accordingly, ~~Related~~minimal ~~parties~~compensation ~~include~~expense ~~all~~was ~~entities~~recorded ~~that~~for ~~are~~each ~~controlled~~of bythe ~~Apollo~~three ~~Management~~and six months ended June 30, ~~L.P.~~2010 and ~~its~~2009. ~~affiliates~~A ~~(collectively~~summary ~~“Apollo”),~~of ~~our~~Class ~~Parent’s~~B ~~controlling~~membership ~~stockholder.~~interests activities is as follows:

Hughes Telematics, Inc.


	Three Months Ended June 30,			Six Months Ended June 30,
	2010		2009	2010		2009
Outstanding beginning balance	3,330		3,656	3,330		3,656
Converted to HCI common shares	(50	)	-	(50	)	-

Outstanding ending balance	3,280		3,656	3,280		3,656

InNote July 2006, we granted a limited license to HTI allowing HTI to use the HUGHES trademark. The license is limited in that HTI may use the HUGHES trademark only in connection with its business of automotive telematics and only in combination with the TELEMATICS name. As partial consideration for the license, the agreement provides that we will be HTI’s preferred engineering services provider. The license is royalty13: Long-~~free,~~Term ~~except~~Cash ~~that~~Incentive ~~HTI~~Retention Program ~~has agreed to pay a royalty to us in the event HTI no longer has a commercial or affiliated relationship with us.~~

In ~~October 2007~~2005, wethe ~~entered~~Company ~~into~~established ana ~~agreement~~one-time ~~with~~employee ~~HTI~~retention ~~and~~program a(“Retention ~~customer of HTI~~Program”), ~~whereby~~which wewas designed ~~agreed~~ to ~~assume~~retain ~~the~~certain ~~rights~~employees ~~and~~chosen ~~performance~~by ~~obligations of HTI in the event that HTI fails to perform~~ its ~~obligations~~senior ~~due~~management. toAs a ~~fundamental~~result ~~cause~~of ~~such~~the asCompany ~~bankruptcy~~successfully orattaining ~~the~~100% ~~cessation~~ of its ~~telematics~~earnings ~~business.~~goal Infor ~~connection with that agreement~~2008, ~~the~~as ~~Company~~defined ~~and HTI have entered into a letter agreement pursuant to which HTI has agreed to take certain actions to enable us to assume HTI’s obligations~~ in the ~~event~~Retention ~~that such action is required. However~~Program, ~~as a result of~~ the ~~Merger,~~Company aspaid ~~defined~~an ~~and~~aggregate ~~described~~of ~~below,~~$14.7 ~~our~~million ~~obligations~~ to eligible ~~HTI~~participants ~~and~~under ~~its~~the ~~customer~~Retention ~~expired~~Program ~~when HTI became a public company~~ in ~~March~~ 2009, ~~with~~of anwhich ~~initial~~$13.2 ~~market~~million ~~capitalization~~was ~~value~~accrued ~~greater~~as ~~than~~of ~~$300.0~~December 31, ~~million~~2008.

InNote 14: Transactions ~~January 2008, we entered into an agreement~~ with ~~HTI~~Related ~~for~~Parties the development of an automotive telematics system for HTI, comprising the telematics system hub and the Telematics Control Unit (“TCU”), which will serve as the user appliance in the telematics system. The agreement also provided that, subject to certain specified performance conditions, we will serve as the exclusive manufacturer and supplier of TCU’s for HTI.

In ~~March~~the ~~2009,~~ordinary ~~HCI~~course ~~exchanged $13.0 million~~ of ~~HTI~~our ~~receivables~~operations, ~~for~~we ~~HTI~~enter ~~convertible~~into transactions ~~preferred stock (“HTI Preferred Stock”) as part of a $50.0 million private placement of HTI Preferred Stock. In connection~~ with ~~the~~related ~~merger~~parties ofto ~~HTI~~purchase ~~with~~and/or ~~Polaris~~sell ~~Acquisition~~telecommunications ~~Corp. (the “Merger”)~~services, ~~which occurred on March 31~~equipment, ~~2009, HTI became a publicly traded company~~ and ~~HCI’s~~inventory. ~~HTI~~Related ~~Preferred~~parties ~~Stock~~include ~~was~~all ~~converted~~entities ~~into~~that ~~HTI common stock (“HTI Shares”). There~~ are ~~certain~~related ~~restrictions and/or earn-out provisions applicable~~ to ~~the~~Apollo ~~HTI~~Management, ~~Shares pursuant to the Merger agreement~~L.P. Ifand ~~the~~its ~~full~~affiliates ~~earn-out~~(collectively ~~is achieved~~“Apollo”), our ~~HCI~~Parent’s ~~investment~~controlling ~~could represent approximately 3~~stockholder.8% ~~of HTI’s outstanding common stock.~~

In16 August 2009, HTI terminated substantially all of the development engineering and manufacturing services with us as a result of the bankruptcy filing of one of HTI’s customers. On December 18, 2009, the Company entered into a promissory note with HTI (“Promissory Note”) for $8.3 million of account receivables that HTI owed to the Company. The Promissory Note has a maturity date of December 31, 2010 and an interest rate of 12% per annum.

16Table of Contents

~~Table~~HUGHES ofNETWORK ~~Contents~~SYSTEMS, LLC

~~HUGHES~~NOTES ~~NETWORK~~TO ~~SYSTEMS,~~THE ~~LLC~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~NOTES~~Hughes TOTelematics, ~~THE~~Inc. ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

In July 2006, we granted a limited license to HTI isallowing ~~controlled~~HTI byto anuse ~~affiliate~~the ofHUGHES ~~Apollo~~trademark. ~~Jeffrey~~The A.license ~~Leddy,~~is alimited ~~member~~in ofthat ~~our~~HTI ~~Board~~may ofuse the ~~Managers~~HUGHES ~~and~~trademark ~~HCI’s~~only ~~Board~~in connection with its business of ~~Directors,~~automotive istelematics and only in combination with the ~~CEO~~TELEMATICS ~~and~~name. aAs ~~director~~partial ofconsideration ~~HTI~~for ~~and~~the ~~owns~~license, ~~less~~the ~~than~~agreement 1%provides ofthat we will be HTI’s ~~equity~~preferred asengineering services ofprovider. ~~March 31,~~The ~~2010.~~license Inis ~~addition~~royalty-free, ~~Andrew~~except ~~Africk~~that ~~and~~HTI ~~Aaron~~has ~~Stone,~~agreed ~~members~~to ofpay ~~our~~a ~~Board~~royalty ofto ~~Managers~~us ~~and~~in ~~HCI’s~~the ~~Board~~event ofHTI ~~Directors,~~no ~~are~~longer ~~directors~~has ofa ~~HTI~~commercial ~~and~~or ~~partners~~affiliated ofrelationship ~~Apollo~~with us.

~~Hughes~~In ~~Systique~~October ~~Corporation~~2007, ~~(“Hughes~~we ~~Systique”)~~entered into an agreement with HTI and a customer of HTI, whereby we agreed to assume the rights and performance obligations of HTI in the event that HTI fails to perform its obligations due to a fundamental cause such as bankruptcy or the cessation of its telematics business. In connection with that agreement, the Company and HTI have entered into a letter agreement pursuant to which HTI has agreed to take certain actions to enable us to assume HTI’s obligations in the event that such action is required. However, as a result of the Merger, as defined and described below, our obligations to HTI and its customer expired when HTI became a public company in March 2009 with an initial market capitalization value greater than $300.0 million.

WeIn ~~have~~January ~~contracted~~2008, ~~with~~we ~~Hughes~~entered ~~Systique,~~into an ~~entity~~agreement ~~consolidated~~ with ~~our~~HTI ~~Parent,~~ for ~~software~~the development ~~services.~~of ~~The~~an ~~founders~~automotive oftelematics ~~Hughes~~system ~~Systique~~for ~~include~~HTI, ~~Pradman~~comprising ~~Kaul,~~the telematics ~~our~~system hub and ~~HCI’s~~the ~~Chief~~Telematics ~~Executive~~Control ~~Officer~~Unit (“~~CEO~~TCU”) ~~and President~~, ~~and~~which ~~certain~~will ~~former~~serve ~~employees~~as of the ~~Company,~~user ~~including~~appliance ~~Pradeep~~in ~~Kaul, who is~~ the ~~CEO~~telematics ~~and President of Hughes Systique, our former Executive Vice President and the brother of our CEO and President~~system. ~~HCI~~The ~~acquired~~agreement analso ~~equity~~provided ~~investment in Hughes Systique Series A Preferred shares of $3.0 million and $1.5 million in October 2005 and January 2008~~that, ~~respectively.~~subject Asto ofcertain ~~March 31,~~specified ~~2010,~~performance ~~on an undiluted basis~~conditions, ~~HCI~~we ~~owned~~will ~~approximately~~serve ~~45.23%~~as ~~of Hughes Systique’s outstanding shares, and our CEO and President and his brother, in~~ the exclusive ~~aggregate,~~manufacturer ~~owned approximately 25.61% of Hughes Systique’s outstanding shares. In addition, our CEO~~ and ~~President~~supplier ~~and Jeffrey A. Leddy, a member~~ of ~~our Board of Managers and HCI~~TCU’s ~~Board~~for ~~of Directors, serve on the board of directors of Hughes Systique~~HTI.

~~Hughes~~In ~~Communications~~March 2009, ~~Inc~~HCI exchanged $13.0 million of HTI receivables for HTI convertible preferred stock (“HTI Preferred Stock”) as part of a $50.0 million private placement of HTI Preferred Stock. In connection with the merger of HTI with Polaris Acquisition Corp. (the “Merger”), which occurred on March 31, 2009, HTI became a publicly traded company and HCI’s HTI Preferred Stock was converted into HTI common stock (“HTI Shares”). There are certain restrictions and/or earn-out provisions applicable to the HTI Shares pursuant to the Merger agreement. If the full earn-out is achieved, HCI’s investment could represent approximately 3.8% of HTI’s outstanding common stock.

WeIn ~~have~~August a2009, ~~management~~HTI ~~and~~terminated ~~advisory~~substantially ~~services~~all ~~agreement~~of ~~with~~the ~~HCI,~~development ~~our~~engineering ~~Parent,~~and ~~pursuant~~manufacturing toservices ~~which~~with ~~HCI~~us ~~agrees~~as toa ~~provide~~result ~~us,~~of ~~through~~the bankruptcy ~~its~~filing ~~officers~~of ~~and~~one ~~employees,~~of ~~general~~HTI’s ~~support~~customers. On December 18, ~~advisory~~2009, ~~and~~the ~~consulting~~Company ~~services~~entered ininto ~~relation~~a topromissory ~~our~~note ~~business.~~with ~~Pursuant~~HTI to(“Promissory ~~the~~Note”) ~~agreement, we reimburse HCI~~ for ~~its~~$8.3 ~~out~~million of ~~pocket~~account ~~costs~~receivables ~~and~~that ~~expenses~~HTI ~~incurred~~owed into ~~connection with~~ the ~~services,~~Company. ~~including~~The anPromissory ~~amount~~Note has ~~equal~~a tomaturity ~~98%~~date of ~~the~~December 31, ~~compensation~~2010 ofand ~~certain~~an ~~HCI~~interest ~~executives~~rate ~~plus~~of ~~a 2~~12% per ~~service fee~~annum.

~~Agreement~~HTI ~~with~~is 95controlled ~~West~~by Coan affiliate of Apollo. Jeffrey A. Leddy, ~~Inc~~a member of our Board of Managers and HCI’s Board of Directors, is the CEO and a director of HTI and owns less than 2% of HTI’s equity as of June 30, 2010. In addition, Andrew Africk and Aaron Stone, members of our Board of Managers and HCI’s Board of Directors, are directors of HTI and partners of Apollo.

InHughes ~~July~~Systique Corporation 2006, we entered into an agreement with 95 West Co. and its parent, MLH, pursuant to which 95 West Co. and MLH agreed to provide a series of coordination agreements which allow us to operate SPACEWAY 3 at an orbital position where such parties have higher-priority rights. Jeffrey A. Leddy, a member of our Board of Managers and HCI’s Board of Directors, is the managing director of 95 West Co. and MLH and also owns a small interest in each. Andrew Africk, another member of our Board of Managers and HCI’s Board of Directors, is also a director of MLH. As part of the agreement, we agreed to pay $9.3 million, in annual installments of $0.3 million in 2006, $0.75 million in each year between 2007 and 2010 and $1.0 million in each year between 2011 and 2016 for the use of the orbital position, subject to conditions in the agreement including our ability to operate SPACEWAY 3. As of March 31, 2010, the remaining debt balance under the capital lease was $5.3 million, which was included in (“~~Capital~~Hughes ~~lease and other~~Systique”) ~~in the short-term and long-term debt tables included in Note 8—Debt.~~

~~Smart~~We &have ~~Final~~contracted with Hughes Systique, ~~Inc~~an entity consolidated with our Parent, for software development services. The founders of Hughes Systique include Pradman Kaul, our and HCI’s Chief Executive Officer (“CEO”) and President, and certain former employees of the Company, including Pradeep Kaul, who is the CEO and President of Hughes Systique, our former Executive Vice President and the brother of our CEO and President. HCI acquired an equity investment in Hughes Systique Series A Preferred shares of $3.0 million and $1.5 million in October 2005 and January 2008, respectively. As of June 30, 2010, on an undiluted basis, HCI owned approximately 45.23% of Hughes Systique’s outstanding shares, and our CEO and President and his brother, in the aggregate, owned approximately 25.61% of Hughes Systique’s outstanding shares. In addition, our CEO and President and Jeffrey A. Leddy, a member of our Board of Managers and HCI’s Board of Directors, serve on the board of directors of Hughes Systique.

AsHughes ~~of March 31~~Communications, ~~2010, Apollo owned, directly or indirectly, 95% of Smart & Final,~~ Inc. ~~(“Smart & Final”). We provide broadband products and services to Smart & Final.~~

17We have a management and advisory services agreement with HCI, our Parent, pursuant to which HCI agrees to provide us, through its officers and employees, general support, advisory, and consulting services in relation to our business. Pursuant to the agreement, we reimburse HCI for its out of pocket costs and expenses incurred in connection with the services, including an amount equal to 98% of the compensation of certain HCI executives plus a 2% service fee.

~~Table~~17 ~~of Contents~~

HUGHESTable NETWORKof SYSTEMS, LLCContents

~~NOTES~~HUGHES TONETWORK ~~THE~~SYSTEMS, ~~CONDENSED~~LLC ~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Other~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Certain~~Agreement ~~members~~with of95 ~~our~~West ~~Board of Managers and officers serve on the boards of directors of some of our affiliates~~Co. ~~In some cases~~, ~~such members and officers have received stock-based compensation from such affiliates for their service~~Inc. In those cases, the amount of stock-based compensation received by the directors and officers is comparable to stock-based compensation awarded to other non-executive members of the affiliates’ boards of directors.

~~Related~~In ~~Party~~July ~~Transactions~~2006, we entered into an agreement with 95 West Co. and its parent, MLH, pursuant to which 95 West Co. and MLH agreed to provide a series of coordination agreements which allow us to operate SPACEWAY 3 at an orbital position where such parties have higher-priority rights. Jeffrey A. Leddy, a member of our Board of Managers and HCI’s Board of Directors, is the managing director of 95 West Co. and MLH and also owns a small interest in each. Andrew Africk, another member of our Board of Managers and HCI’s Board of Directors, is also a director of MLH. As part of the agreement, we agreed to pay $9.3 million, in annual installments of $0.3 million in 2006, $0.75 million in each year between 2007 and 2010 and $1.0 million in each year between 2011 and 2016 for the use of the orbital position, subject to conditions in the agreement including our ability to operate SPACEWAY 3. As of June 30, 2010, the remaining debt balance under the capital lease was $4.9 million, which was included in “Capital lease and other” in the short-term and long-term debt tables included in Note 8—Debt.

~~Sales~~Smart & ~~and~~Final, ~~purchase~~Inc. ~~transactions with related parties are as follows (in thousands):~~

	Three Months Ended
	March 31,
	2010		2009
Sales:
HTI	$	301	$	7,068
Smart & Final		123		152
Total sales	$	424	$	7,220
Purchases:
HCI	$	2,483	$	2,195
Hughes Systique		2,455		2,244
Total purchases	$	4,938	$	4,439

As of June 30, 2010, Apollo owned, directly or indirectly, 95% of Smart & Final, Inc. (“Smart & Final”). We provide broadband products and services to Smart & Final.

~~Assets~~Other ~~and liabilities resulting from transactions with related parties are as follows (in thousands):~~

	March 31,		December 31,
	2010		2009
Due from related parties:
HTI	$	8,862	$	8,652
Smart & Final		51		52
Total due from related parties	$	8,913	$	8,704
Due to related parties:
HCI	$	4,478	$	2,610
Hughes Systique		1,669		1,643
Total due to related parties	$	6,147	$	4,253

Certain members of our Board of Managers and officers serve on the boards of directors of some of our affiliates. In some cases, such members and officers have received stock-based compensation from such affiliates for their service. In those cases, the amount of stock-based compensation received by the directors and officers is comparable to stock-based compensation awarded to other non-executive members of the affiliates’ boards of directors.

18Related Party Transactions

~~Table~~Sales ofand ~~Contents~~purchase transactions with related parties are as follows (in thousands):

HUGHES NETWORK SYSTEMS, LLC


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Sales:
HTI	$	200	$	7,660	$	501	$	14,728
Smart & Final		122		114		245		266

Total sales	$	322	$	7,774	$	746	$	14,994

Purchases:
Hughes Systique	$	2,575	$	2,637	$	5,030	$	4,881
HCI		2,475		2,314		4,958		4,509

Total purchases	$	5,050	$	4,951	$	9,988	$	9,390

~~NOTES~~18 ~~TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

NoteTable 15:of Segment DataContents

~~Set~~HUGHES ~~forth~~NETWORK ~~below~~SYSTEMS, isLLC ~~selected financial information for our operating segments (in thousands). There were no intersegment transactions.~~

	North America Broadband		International Broadband			Telecom Systems		HTS Satellite(1)			Corporate		Consolidated
As of or For the Three Months Ended March 31, 2010
Revenues	$	173,995	$	43,456		$	24,692	$	-		$	-	$	242,143
Operating income (loss)	$	9,616	$	(1,156	)	$	3,708	$	(858	)	$	-	$	11,310
Depreciation and amortization	$	25,519	$	3,426		$	1,024	$	-		$	-	$	29,969
Assets	$	636,622	$	168,771		$	45,877	$	99,515		$	224,430	$	1,175,215
Capital expenditures	$	26,138	$	4,187		$	153	$	32,767		$	3,589	$	66,834
As of or For the Three Months Ended March 31, 2009
Revenues	$	165,608	$	44,884		$	29,262	$	-		$	-	$	239,754
Operating income	$	1,750	$	1,231		$	5,489	$	-		$	-	$	8,470
Depreciation and amortization	$	18,185	$	2,708		$	967	$	-		$	-	$	21,860
Assets	$	641,150	$	174,992		$	59,684	$	-		$	186,520	$	1,062,346
Capital expenditures	$	24,844	$	3,324		$	457	$	-		$	2,391	$	31,016
(1) There were no activities for the three months ended March 31, 2009.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Note~~Assets ~~16:~~and ~~Comprehensive~~liabilities ~~Loss~~resulting from transactions with related parties are as follows (in thousands):

Comprehensive loss is as follows (in thousands):


	June 30, 2010		December 31, 2009
Due from related parties:
HTI	$	7,844	$	8,652
Smart & Final		50		52

Total due from related parties	$	7,894	$	8,704

Due to related parties:
Hughes Systique	$	1,767	$	1,643
HCI		1,678		2,610

Total due to related parties	$	3,445	$	4,253

	Three Months Ended
	March 31,
	2010			2009
Net loss	$	(5,459	)	$	(4,464	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(807	)		(1,407	)
Unrealized gain (loss) on hedging instruments		(2,323	)		5,337
Reclassification of realized (gain) loss on hedging instruments		1,368			(854	)
Unrealized gain on available-for-sale securities		2			-
Total other comprehensive income (loss)		(1,760	)		3,076
Comprehensive loss		(7,219	)		(1,388	)
Comprehensive income attributable to the noncontrolling interest		(307	)		(390	)
Comprehensive loss attributable to HNS	$	(7,526	)	$	(1,778	)

NoteTable 17:of Commitments and ContingenciesContents

~~Litigation~~HUGHES NETWORK SYSTEMS, LLC

WeNOTES ~~are~~TO ~~periodically~~THE ~~involved~~CONDENSED inCONSOLIDATED ~~litigation~~FINANCIAL inSTATEMENTS ~~the~~(CONTINUED) ordinary course of our business involving claims regarding intellectual property infringement, product liability, property damage, personal injury, contracts, employment and worker’s compensation. We do not believe that there are any such pending or threatened legal proceedings, including ordinary litigation incidental to the conduct of our business and the ownership of our properties that, if adversely determined, would have a material adverse effect on our business, financial condition, results of operations or liquidity.

19Note 15: Segment Data

~~Table~~Set offorth ~~Contents~~below is selected financial information for our operating segments (in thousands). There were no intersegment transactions.

HUGHES NETWORK SYSTEMS, LLC


	North America Broadband			International Broadband		Telecom Systems		HTS Satellite⁽¹⁾			Corporate		Consolidated
As of or For the Three Months Ended June 30, 2010
Revenues	$	178,024		$	47,853	$	25,456	$	-		$	-	$	251,333
Operating income (loss)	$	12,821		$	2,549	$	4,663	$	(928	)	$	-	$	19,105
Depreciation and amortization	$	27,141		$	3,631	$	1,043	$	-		$	-	$	31,815
Assets	$	623,819		$	172,296	$	45,976	$	133,284		$	187,208	$	1,162,583
Capital expenditures	$	20,219		$	2,484	$	50	$	35,629		$	2,256	$	60,638
As of or For the Three Months Ended June 30, 2009
Revenues	$	175,242		$	50,520	$	29,344	$	-		$	-	$	255,106
Operating income (loss)⁽²⁾	$	(36,770	)	$	5,105	$	2,611	$	-		$	-	$	(29,054	)
Depreciation and amortization	$	20,237		$	3,008	$	974	$	-		$	-	$	24,219
Assets	$	642,672		$	177,772	$	61,678	$	-		$	279,959	$	1,162,081
Capital expenditures	$	21,487		$	6,589	$	361	$	-		$	1,605	$	30,042
As of or For the Six Months Ended June 30, 2010
Revenues	$	352,019		$	91,309	$	50,148	$	-		$	-	$	493,476
Operating income (loss)	$	22,437		$	1,393	$	8,371	$	(1,786	)	$	-	$	30,415
Depreciation and amortization	$	52,660		$	7,057	$	2,067	$	-		$	-	$	61,784
Assets	$	623,819		$	172,296	$	45,976	$	133,284		$	187,208	$	1,162,583
Capital expenditures	$	46,357		$	6,671	$	203	$	68,396		$	5,845	$	127,472
As of or For the Six Months Ended June 30, 2009
Revenues	$	340,850		$	95,404	$	58,606	$	-		$	-	$	494,860
Operating income (loss)⁽²⁾	$	(35,020	)	$	6,336	$	8,100	$	-		$	-	$	(20,584	)
Depreciation and amortization	$	38,422		$	5,716	$	1,941	$	-		$	-	$	46,079
Assets	$	642,672		$	177,772	$	61,678	$	-		$	279,959	$	1,162,081
Capital expenditures	$	46,331		$	9,913	$	818	$	-		$	3,996	$	61,058

~~NOTES~~(1) TOThere ~~THE~~were ~~CONDENSED~~no ~~CONSOLIDATED~~activities ~~FINANCIAL~~for ~~STATEMENTS~~the ~~(CONTINUED)~~three and six months ended June 30, 2009.

~~In October 2008, Hughes Telecommunicaçoes do Brasil Ltda.~~ (~~“HTB”~~2), aOperating ~~wholly-owned~~loss ~~subsidiary~~for ofNorth ~~ours,~~America ~~received~~Broadband aincludes ~~tax assessment of approximately~~ $644.4 million ~~from the State~~ of ~~São~~impairment ~~Paulo~~loss ~~Treasury~~related ~~Department. The tax assessment alleges that HTB failed~~ to ~~pay~~our ~~certain~~prepaid ~~import~~deposit ~~taxes~~ to ~~the~~Sea ~~State of São Paulo. We do not believe the assessment is valid and plan to dispute the State of São Paulo’s claims and to defend vigorously against these allegations. Therefore~~Launch, wewhich ~~have~~was ~~not~~impaired ~~recorded~~in ~~a liability~~2009. ~~It is the opinion of management that such litigation is not expected to have a material adverse effect on our financial position, results of operations or cash flows.~~

In20 March 2009, an arbitration panel ruled in the Company’s favor in its arbitration against Sea Launch Limited Partnership and Sea Launch Company, LLC (collectively, “Sea Launch”) entitling the Company to a full refund of $44.4 million (the “Deposit”) in payments made to Sea Launch in connection with launch services for SPACEWAY 3, in addition to interest of 10% per annum on the $44.4 million from July 10, 2007 until payment on the Deposit is received in full. As a result of Sea Launch filing a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code, our efforts to pursue collection of the arbitral award have been stayed under the bankruptcy laws. We are pursuing the collection of our arbitral award as part of Sea Launch’s bankruptcy process and in accordance with its timetable. Based upon information made available in the bankruptcy proceedings and other factors, the Company concluded that the value of the previously-recorded Deposit was impaired and recorded an impairment loss of $44.4 million in June 2009.

OnTable May 18, 2009, the Company and HCI received notice of a complaint filed in the U.S. District Court for the Northern District of California by two California subscribers to the HughesNet service. The plaintiffs complain about the speed of the HughesNet service, the Fair Access Policy, early termination fees and certain terms and conditions of the HughesNet subscriber agreement. The plaintiffs seek to pursue their claims as a class action on behalf of other California subscribers. On June 4, 2009, the Company and HCI received notice of a similar complaint filed by another HughesNet subscriber in the Superior Court of San Diego County, California. The plaintiff in this case also seeks to pursue his claims as a class action on behalf of other California subscribers. Both cases have been consolidated into a single case in the U.S. District Court for the Northern District of California. Based on our investigation, we believe that the allegations in both complaints are not meritorious and we intend to vigorously defend these matters.Contents

OnHUGHES ~~December 18,~~NETWORK ~~2009~~SYSTEMS, ~~the~~LLC Company and HCI received notice of a complaint filed in the Cook County, Illinois, Circuit Court by a former subscriber to the HughesNet service. The complaint seeks a declaration allowing the former subscriber to file a class arbitration challenging early termination fees under the subscriber agreement. Based on our investigation, we believe that the allegations in this complaint are not meritorious and we intend to vigorously defend this matter.

~~Commitments~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

InNote ~~June~~16: Comprehensive ~~2009,~~Loss we entered into an agreement with SS/L, under which we are obligated to pay an aggregate of approximately $252.0 million for the construction of our Jupiter satellite and have agreed to make installment payments to SS/L upon the completion of each milestone set forth in the agreement. As of March 31, 2010, the remaining obligation for the construction of Jupiter was $184.1 million. We anticipate launching Jupiter in the first half of 2012. In connection with the construction of Jupiter, we have entered into a contract with Barrett Xplore Inc. (“Barrett”), whereby Barrett has agreed to lease user beams and purchase gateways and terminals for the Jupiter satellite that are designed to operate in Canada.

WeComprehensive ~~are~~loss ~~contingently~~is ~~liable under standby letters of credit and bonds in the aggregate amount of $16.4 million that were undrawn~~ as of March 31, 2010. Of this amount, $2.1 million was issued under the Revolving Credit Facility; $1.6 million was secured by restricted cash; $1.0 million related to insurance bonds; and $11.7 million was issued under credit arrangements available to our Indian and Brazilian subsidiaries. Certain letters of credit issued by our Indian subsidiaries are secured by their assets. As of March 31, 2010, these obligations were scheduled to expire as follows: ~~$5.3 million~~ (in ~~2010;~~thousands): ~~$8.5 million in 2011; $0.3 million in 2012; and $2.3 million in 2013 and thereafter.~~

Note 18: Subsequent Event


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net income (loss)	$	2,601		$	(45,260	)	$	(2,858	)	$	(49,724	)

Other comprehensive income (loss):
Foreign currency translation adjustments		(1,615	)		6,549			(2,422	)		5,142
Unrealized gain (loss) on hedging instruments		(3,111	)		31			(5,434	)		5,368
Reclassification of realized loss on hedging instruments		1,415			2,819			2,783			1,965
Unrealized loss on available-for-sale securities		(3	)		-			(1	)		-

Total other comprehensive income (loss)		(3,314	)		9,399			(5,074	)		12,475

Comprehensive loss		(713	)		(35,861	)		(7,932	)		(37,249	)
Comprehensive (income) loss attributable to the noncontrolling interest		379			(540	)		72			(930	)

Comprehensive loss attributable to HNS	$	(334	)	$	(36,401	)	$	(7,860	)	$	(38,179	)

OnNote ~~April~~17: Commitments ~~30,~~and ~~2010,~~Contingencies we entered into an agreement with Arianespace for the launch of our Jupiter satellite in the first half of 2012. Pursuant to the agreement, the Ariane 5 heavy launcher will be utilized to launch Jupiter to a geosynchronous transfer orbit from Europe’s Spaceport in Kourou, French Guiana.

20Litigation

~~Table~~We are periodically involved in litigation in the ordinary course of ~~Contents~~our business involving claims regarding intellectual property infringement, product liability, property damage, personal injury, contracts, employment and worker’s compensation. We do not believe that there are any such pending or threatened legal proceedings, including ordinary litigation incidental to the conduct of our business and the ownership of our properties that, if adversely determined, would have a material adverse effect on our business, financial condition, results of operations or liquidity.

~~HUGHES~~In ~~NETWORK~~October ~~SYSTEMS~~2008, ~~LLC~~Hughes Telecommunicaçoes do Brasil Ltda. (“HTB”), a wholly-owned subsidiary of ours, received a tax assessment of approximately $6.3 million from the State of São Paulo Treasury Department. The tax assessment alleges that HTB failed to pay certain import taxes to the State of São Paulo. We do not believe the assessment is valid and plan to dispute the State of São Paulo’s claims and to defend vigorously against these allegations. Therefore, we have not recorded a liability. It is the opinion of management that such litigation is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

~~NOTES~~In TOMarch ~~THE~~2009, ~~CONDENSED~~an ~~CONSOLIDATED~~arbitration ~~FINANCIAL~~panel ~~STATEMENTS~~ruled in our favor in our arbitration against Sea Launch Limited Partnership and Sea Launch Company, LLC (~~CONTINUED~~collectively, “Sea Launch”) entitling us to a full refund of $44.4 million (the “Deposit”) in payments made to Sea Launch in connection with launch services for SPACEWAY 3, in addition to interest of 10% per annum on the $44.4 million from July 10, 2007 until payment on the Deposit is received in full. As a result of Sea Launch filing a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code, our efforts to pursue collection of the arbitral award were stayed under the bankruptcy laws. In June 2009, based upon information made available in the bankruptcy proceedings and other factors, we concluded that the value of the previously-recorded Deposit was impaired and recorded an impairment loss of $44.4 million. On May 27, 2010, we entered into a settlement agreement with Sea Launch to resolve the claim that we filed in the Sea Launch bankruptcy (the “Settlement Agreement”). The Settlement Agreement provides that Sea Launch will irrevocably issue to us two credits, each in the amount of $22.2 million (the “Credits”), in satisfaction and discharge of our bankruptcy claim. The Credits may be used by us to defray the cost of up to two launches contracted by December 31, 2015, and scheduled to occur by December 31, 2017. In addition, subject to the terms and conditions of the Settlement Agreement, one or both Credits may be transferred to third parties. The bankruptcy court has approved the

~~Note~~21 ~~19: Supplemental Guarantor and Non-Guarantor Financial Information~~

CertainTable of the Company’s wholly-owned subsidiaries (HNS Real Estate LLC, Hughes Network Systems International Service Company, HNS India VSAT, Inc., HNS Shanghai, Inc. and Helius (together, the “Guarantor Subsidiaries”)) have fully and unconditionally guaranteed, on a joint and several basis, payment of the Senior Notes. In lieu of providing separate unaudited financial statements of the Co-Issuer and the Guarantor Subsidiaries, condensed financial statements prepared in accordance with Rule 3-10 of Regulation S-X are presented below. The column marked “Parent” represents our results of operations, with the subsidiaries accounted for using the equity method. The column marked “Guarantor Subsidiaries” includes the results of the guarantor subsidiaries along with the results of the Co-Issuer, a finance subsidiary which is 100% owned by the Company and which had no assets, operations, revenues or cash flows for the periods presented. The column marked “Non-Guarantor Subsidiaries” includes the results of non-guarantor subsidiaries of the Company. Eliminations necessary to arrive at the information for the Company on a consolidated basis for the periods presented are included in the column so labeled. Separate financial statements and other disclosures concerning the Co-Issuer and the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.Contents

~~The~~HUGHES ~~following~~NETWORK ~~represents the supplemental condensed financial statements of the Company~~SYSTEMS, ~~the~~LLC ~~Guarantor Subsidiaries and the Non-guarantor Subsidiaries. These condensed financial statements should be read in conjunction with our condensed consolidated financial statements and notes thereto.~~

Condensed Consolidated Balance Sheet as of March 31, 2010
(In thousands)
(Unaudited)
			Guarantor		Non-Guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Total
Assets
Cash and cash equivalents	$	110,448	$	221	$	7,667	$	-		$	118,336
Marketable securities		43,672		-		-		-			43,672
Receivables, net		117,495		77		51,998		(10,477	)		159,093
Inventories		49,309		-		12,381		-			61,690
Prepaid expenses and other		7,856		36		13,651		-			21,543
Total current assets		328,780		334		85,697		(10,477	)		404,334
Property, net		577,570		32,857		27,972		-			638,399
Investment in subsidiaries		113,879		-		-		(113,879	)		-
Other assets		101,817		1,810		28,855		-			132,482
Total assets	$	1,122,046	$	35,001	$	142,524	$	(124,356	)	$	1,175,215
Liabilities and equity
Accounts payable	$	81,473	$	163	$	27,016	$	(10,477	)	$	98,175
Short-term debt		1,992		-		4,514		-			6,506
Accrued liabilities and other		118,238		-		21,855		-			140,093
Total current liabilities		201,703		163		53,385		(10,477	)		244,774
Long-term debt		710,428		-		3,870		-			714,298
Other long-term liabilities		17,177		-		-		-			17,177
Total HNS' equity		192,738		28,610		85,269		(113,879	)		192,738
Noncontrolling interest		-		6,228		-		-			6,228
Total liabilities and equity	$	1,122,046	$	35,001	$	142,524	$	(124,356	)	$	1,175,215

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21 Settlement Agreement, and its terms have been incorporated into the court's order approving Sea Launch's plan of reorganization. The Settlement Agreement will become effective upon the effectiveness of the plan of reorganization, which is expected to occur later in 2010.

~~Table~~On May 18, 2009, the Company and HCI received notice of ~~Contents~~a complaint filed in the U.S. District Court for the Northern District of California by two California subscribers to the HughesNet service. The plaintiffs complain about the speed of the HughesNet service, the Fair Access Policy, early termination fees and certain terms and conditions of the HughesNet subscriber agreement. The plaintiffs seek to pursue their claims as a class action on behalf of other California subscribers. On June 4, 2009, the Company and HCI received notice of a similar complaint filed by another HughesNet subscriber in the Superior Court of San Diego County, California. The plaintiff in this case also seeks to pursue his claims as a class action on behalf of other California subscribers. Both cases have been consolidated into a single case in the U.S. District Court for the Northern District of California. We believe that the allegations in both complaints are not meritorious and we intend to vigorously defend these matters.

~~HUGHES~~On ~~NETWORK~~December 18, ~~SYSTEMS~~2009, ~~LLC~~the Company and HCI received notice of a complaint filed in the Cook County, Illinois, Circuit Court by a former subscriber to the HughesNet service. The complaint seeks a declaration allowing the former subscriber to file a class arbitration challenging early termination fees under the subscriber agreement. We believe that the allegations in this complaint are not meritorious and we intend to vigorously defend this matter.

~~NOTES~~Commitments ~~TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Condensed Consolidated Balance Sheet as of December 31, 2009
(In thousands)
(Unaudited)
			Guarantor		Non-Guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Total
Assets
Cash and cash equivalents	$	173,991	$	1,091	$	8,651	$	-		$	183,733
Marketable securities		31,126		-		-		-			31,126
Receivables, net		115,948		628		60,862		(14,632	)		162,806
Inventories		47,437		138		12,669		-			60,244
Prepaid expenses and other		7,421		234		13,321		-			20,976
Total current assets		375,923		2,091		95,503		(14,632	)		458,885
Property, net		542,642		32,792		26,530		-			601,964
Investment in subsidiaries		115,136		-		-		(115,136	)		-
Other assets		102,045		3,221		29,183		-			134,449
Total assets	$	1,135,746	$	38,104	$	151,216	$	(129,768	)	$	1,195,298
Liabilities and equity
Accounts payable	$	97,114	$	2,272	$	32,759	$	(14,632	)	$	117,513
Short-term debt		2,054		-		4,696		-			6,750
Accrued liabilities and other		110,088		714		23,124		-			133,926
Total current liabilities		209,256		2,986		60,579		(14,632	)		258,189
Long-term debt		710,259		-		4,698		-			714,957
Other long-term liabilities		16,191		-		-		-			16,191
Total HNS' equity		200,040		29,197		85,939		(115,136	)		200,040
Noncontrolling interest		-		5,921		-		-			5,921
Total liabilities and equity	$	1,135,746	$	38,104	$	151,216	$	(129,768	)	$	1,195,298

In June 2009, we entered into an agreement with SS/L for the construction of Jupiter and have agreed to make installment payments to SS/L upon the completion of each milestone as set forth in the agreement. In connection with the construction of Jupiter, we entered into a contract with Barrett Xplore Inc. (“Barrett”), whereby Barrett agreed to lease user beams and purchase gateways and terminals for the Jupiter satellite that are designed to operate in Canada. In April 2010, we entered into an agreement with Arianespace for the launch of Jupiter in the first half of 2012. Pursuant to the agreement, the Ariane 5 heavy launcher will launch Jupiter into geosynchronous transfer orbit from Guiana Space Centre in Kourou, French Guiana. As of June 30, 2010, our obligation for the construction and launch of Jupiter was approximately $274.8 million.

22We are contingently liable under standby letters of credit and bonds in the aggregate amount of $23.5 million that were undrawn as of June 30, 2010. Of this amount, $5.3 million was issued under the Revolving Credit Facility; $1.6 million was secured by restricted cash; $1.0 million related to insurance bonds; and $15.6 million was issued under credit arrangements available to our Indian and Brazilian subsidiaries. Certain letters of credit issued by our Indian subsidiaries are secured by their assets. As of June 30, 2010, these obligations were scheduled to expire as follows: $8.1 million in 2010; $11.9 million in 2011; $0.7 million in 2012; and $2.8 million in 2013 and thereafter.

~~Table~~Note of18: Supplemental ~~Contents~~Guarantor and Non-Guarantor Financial Information

~~HUGHES~~Certain ~~NETWORK~~of ~~SYSTEMS,~~the Company’s wholly-owned subsidiaries (HNS Real Estate LLC, Hughes Network Systems International Service Company, HNS India VSAT, Inc., HNS Shanghai, Inc. and Helius (together, the “Guarantor Subsidiaries”)) have fully and unconditionally guaranteed, on a joint and several basis, payment of the Senior Notes. In lieu of providing separate unaudited financial statements of the Co-Issuer and the Guarantor Subsidiaries, condensed financial statements prepared in accordance with Rule 3-10 of Regulation S-X are presented below. The column marked “Parent” represents our results of operations, with the subsidiaries accounted for using the equity method. The column marked “Guarantor Subsidiaries” includes the results of the guarantor subsidiaries along with the results of the Co-Issuer, a finance subsidiary which is 100% owned by the Company and which had no assets, operations, revenues or cash flows for the periods presented. The column marked “Non-Guarantor Subsidiaries” includes the results of non-guarantor subsidiaries of the Company. Eliminations necessary to arrive at the information for the Company on a consolidated basis for the periods presented are included in the column so labeled. Separate financial statements and other disclosures concerning the Co-Issuer and the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.

~~NOTES~~The TOfollowing ~~THE~~represents ~~CONDENSED~~the ~~CONSOLIDATED~~supplemental ~~FINANCIAL~~condensed ~~STATEMENTS~~financial ~~(CONTINUED)~~statements of the Company, the Guarantor Subsidiaries and the Non-guarantor Subsidiaries. These condensed financial statements should be read in conjunction with our condensed consolidated financial statements and notes thereto.

Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2010
(In thousands)
(Unaudited)
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	212,471		$	988		$	32,635		$	(3,951	)	$	242,143
Operating costs and expenses:
Costs of revenues		155,328			306			24,492			(3,590	)		176,536
Selling, general and administrative		41,086			1,372			6,583			(361	)		48,680
Research and development		4,460			455			-			-			4,915
Amortization of intangible assets		534			168			-			-			702
Total operating costs and expenses		201,408			2,301			31,075			(3,951	)		230,833
Operating income (loss)		11,063			(1,313	)		1,560			-			11,310
Other income (expense):
Interest expense		(15,793	)		-			(320	)		8			(16,105	)
Interest and other income (loss), net		(359	)		870			50			(8	)		553
Equity in losses of subsidiaries		(246	)		-			-			246			-
Income (loss) before income tax expense		(5,335	)		(443	)		1,290			246			(4,242	)
Income tax expense		(227	)		(3	)		(987	)		-			(1,217	)
Net income (loss)		(5,562	)		(446	)		303			246			(5,459	)
Net (income) loss attributable to the noncontrolling interest		-			(141	)		38			-			(103	)
Net income (loss) attributable to HNS	$	(5,562	)	$	(587	)	$	341		$	246		$	(5,562	)

23Table of Contents

~~Table~~HUGHES ofNETWORK ~~Contents~~SYSTEMS, LLC

~~HUGHES~~NOTES ~~NETWORK~~TO ~~SYSTEMS,~~THE ~~LLC~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~NOTES~~Condensed TOConsolidated ~~THE~~Balance ~~CONDENSED~~Sheet ~~CONSOLIDATED~~as ~~FINANCIAL~~of ~~STATEMENTS~~June 30, ~~(CONTINUED)~~2010

Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2009
(In thousands)
(Unaudited)
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	209,815		$	1,832		$	33,802		$	(5,695	)	$	239,754
Operating costs and expenses:
Costs of revenues		159,383			665			25,524			(4,821	)		180,751
Selling, general and administrative		36,779			1,353			6,539			(874	)		43,797
Research and development		4,656			695			-			-			5,351
Amortization of intangible assets		1,103			282			-			-			1,385
Total operating costs and expenses		201,921			2,995			32,063			(5,695	)		231,284
Operating income (loss)		7,894			(1,163	)		1,739			-			8,470
Other income (expense):
Interest expense		(13,653	)		-			(176	)		-			(13,829	)
Interest and other income, net		147			-			80			-			227
Equity in earnings of subsidiaries		932			-			-			(932	)		-
Income (loss) before income tax (expense) benefit		(4,680	)		(1,163	)		1,643			(932	)		(5,132	)
Income tax (expense) benefit		(174	)		-			842			-			668
Net income (loss)		(4,854	)		(1,163	)		2,485			(932	)		(4,464	)
Net (income) loss attributable to the noncontrolling interest		-			(529	)		139			-			(390	)
Net income (loss) attributable to HNS	$	(4,854	)	$	(1,692	)	$	2,624		$	(932	)	$	(4,854	)

(In thousands)

24(Unaudited)

Table of Contents


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Cash and cash equivalents	$	93,402	$	210	$	9,569	$	-		$	103,181
Marketable securities		25,020		-		-		-			25,020
Receivables, net		121,410		52		47,484		(10,094	)		158,852
Inventories		44,977		-		13,372		-			58,349
Prepaid expenses and other		7,343		75		15,458		-			22,876

Total current assets		292,152		337		85,883		(10,094	)		368,278
Property, net		606,181		32,410		27,205		-			665,796
Investment in subsidiaries		112,188		-		-		(112,188	)		-
Other assets		98,169		1,289		29,051		-			128,509

Total assets	$	1,108,690	$	34,036	$	142,139	$	(122,282	)	$	1,162,583

Liabilities and equity
Accounts payable	$	80,498	$	164	$	29,500	$	(10,094	)	$	100,068
Short-term debt		2,246		-		4,515		-			6,761
Accrued liabilities and other		104,453		-		20,875		-			125,328

Total current liabilities		187,197		164		54,890		(10,094	)		232,157
Long-term debt		709,900		-		3,084		-			712,984
Other long-term liabilities		18,965		-		-		-			18,965
Total HNS’ equity		192,628		28,023		84,165		(112,188	)		192,628
Noncontrolling interest		-		5,849		-		-			5,849

Total liabilities and equity	$	1,108,690	$	34,036	$	142,139	$	(122,282	)	$	1,162,583

~~HUGHES~~23 ~~NETWORK SYSTEMS, LLC~~

NOTESTable TOof THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Contents

Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2010
(In thousands)
(Unaudited)
				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	(5,562	)	$	(446	)	$	303		$	246		$	(5,459	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities		18,845			218			1,607			(246	)		20,424
Net cash provided by (used in) operating activities		13,283			(228	)		1,910			-			14,965
Cash flows from investing activities:
Change in restricted cash		(1	)		-			89			-			88
Purchases of marketable securities		(22,615	)		-			-			-			(22,615	)
Proceeds from sales of marketable securities		10,000			-			-			-			10,000
Expenditures for property		(59,409	)		(642	)		(3,617	)		-			(63,668	)
Expenditures for capitalized software		(3,166	)		-			-			-			(3,166	)
Net cash used in investing activities		(75,191	)		(642	)		(3,528	)		-			(79,361	)
Cash flows from financing activities:
Short-term revolver borrowings		-			-			1,999			-			1,999
Repayments of revolver borrowings		-			-			(2,430	)		-			(2,430	)
Long-term debt borrowings		550			-			670			-			1,220
Repayments of long-term debt		(443	)		-			(1,278	)		-			(1,721	)
Debt issuance costs		(1,742	)		-			-			-			(1,742	)
Net cash used in financing activities		(1,635	)		-			(1,039	)		-			(2,674	)
Effect of exchange rate changes on cash and cash equivalents		-			-			1,673			-			1,673
Net decrease in cash and cash equivalents		(63,543	)		(870	)		(984	)		-			(65,397	)
Cash and cash equivalents at beginning of the period		173,991			1,091			8,651			-			183,733
Cash and cash equivalents at end of the period	$	110,448		$	221		$	7,667		$	-		$	118,336

HUGHES NETWORK SYSTEMS, LLC

25NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Table~~Condensed Consolidated Balance Sheet as of ~~Contents~~December 31, 2009

~~HUGHES~~(In ~~NETWORK~~thousands) ~~SYSTEMS, LLC~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ (~~CONTINUED~~Unaudited)

Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2009
	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
(In thousands)
Assets
(Unaudited)
Cash and cash equivalents	$	173,991		$	1,091		$	8,651		$	-		$	183,733
				Guarantor			Non-Guarantor
Marketable securities		31,126			-			-			-			31,126
	Parent			Subsidiaries			Subsidiaries			Eliminations			Total
Receivables, net		115,948			628			60,862			(14,632	)		162,806
Cash flows from operating activities:
Inventories		47,437			138			12,669			-			60,244
Net income (loss)	$	(4,854	)	$	(1,163	)	$	2,485		$	(932	)	$	(4,464	)
Prepaid expenses and other		7,421			234			13,321			-			20,976
Adjustments to reconcile net income (loss) to net cash flows from operating activities		45,235			550			(8,825	)		932			37,892
Total current assets		375,923			2,091			95,503			(14,632	)		458,885
Net cash provided by (used in) operating activities		40,381			(613	)		(6,340	)		-			33,428
Property, net		542,642			32,792			26,530			-			601,964
Cash flows from investing activities:
Investment in subsidiaries		115,136			-			-			(115,136	)		-
Change in restricted cash		(1	)		-			95			-			94
Other assets		102,045			3,221			29,183			-			134,449
Expenditures for property		(24,052	)		(220	)		(2,353	)		-			(26,625	)
Total assets	$	1,135,746		$	38,104		$	151,216		$	(129,768	)	$	1,195,298
Expenditures for capitalized software		(4,391	)		-			-			-			(4,391	)
Liabilities and equity
Proceeds from sale of property		-			6			50			-			56
Accounts payable	$	97,114		$	2,272		$	32,759		$	(14,632	)	$	117,513
Net cash used in investing activities		(28,444	)		(214	)		(2,208	)		-			(30,866	)
Short-term debt		2,054			-			4,696			-			6,750
Cash flows from financing activities:
Accrued liabilities and other		110,088			714			23,124			-			133,926
Net decrease in notes and loans payable		-			-			(509	)		-			(509	)
Total current liabilities		209,256			2,986			60,579			(14,632	)		258,189
Long-term debt borrowings		87			-			846			-			933
Long-term debt		710,259			-			4,698			-			714,957
Repayments of long-term debt		(1,480	)		-			(589	)		-			(2,069	)
Other long-term liabilities		16,191			-			-			-			16,191
Net cash used in financing activities		(1,393	)		-			(252	)		-			(1,645	)
Total HNS’ equity		200,040			29,197			85,939			(115,136	)		200,040
Effect of exchange rate changes on cash and cash equivalents		-			-			1,393			-			1,393
Noncontrolling interest		-			5,921			-			-			5,921
Net increase (decrease) in cash and cash equivalents		10,544			(827	)		(7,407	)		-			2,310
Total liabilities and equity	$	1,135,746		$	38,104		$	151,216		$	(129,768	)	$	1,195,298
Cash and cash equivalents at beginning of the period		75,956			2,013			22,293			-			100,262
Cash and cash equivalents at end of the period	$	86,500		$	1,186		$	14,886		$	-		$	102,572

2624

~~Item~~HUGHES 2.NETWORK ~~Management’s~~SYSTEMS, ~~Discussion~~LLC ~~and Analysis of Financial Condition and Results of Operations~~

~~The~~NOTES ~~following~~TO ~~discussion~~THE ~~and~~CONDENSED ~~analysis~~CONSOLIDATED ofFINANCIAL ~~the~~STATEMENTS ~~Company’s~~(CONTINUED) financial condition and results of operations are based upon financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America and should each be read together with our condensed consolidated financial statements and the notes to those condensed consolidated financial statements included elsewhere in this report. This report contains forward-looking statements that involve risks and uncertainties, including statements regarding our capital needs, business strategy, expectations and intentions within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events. We urge you to consider statements that use the terms “believe,” “do not believe,” “anticipate,” “expect,” “plan,” “may,” “estimate,” “strive,” “intend,” “will,” “should,” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and because our business is subject to numerous risks, and uncertainties, our actual results could differ materially from those anticipated in the forward-looking statements, including those set forth below under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” “Special Note Regarding Forward-Looking Statements” and contained elsewhere in this report. All forward-looking statements speak only as of the date of this report. Actual results will most likely differ from those reflected in these forward-looking statements and the differences could be substantial. We disclaim any obligation to update these forward-looking statements or disclose any difference, except as may be required by securities laws, between our actual results and those reflected in these statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.

~~Overview~~Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2010

~~Hughes Network Systems, LLC, a Delaware limited liability company,~~ (~~“HNS”~~In ~~and, together with its consolidated subsidiaries, the “Company” or “we,” “us,” and “our”~~thousands) is a telecommunications company. The Company is a wholly-owned subsidiary of Hughes Communications, Inc. (“HCI” or “Parent”). We provide equipment and services to the broadband communications marketplace. We have extensive technical expertise in satellite, wireline and wireless communications which we utilize in a number of product and service offerings. In particular, we offer a spectrum of broadband equipment and services to the managed services market, which is comprised of enterprises with a requirement to connect a large number of geographically dispersed locations with reliable, scalable, and cost-effective applications, such as credit card verification, inventory tracking and control, and broadcast video. We provide broadband network services and systems to the international and domestic enterprise markets and satellite broadband Internet access to North American consumers, which we refer to as the Consumer market. In addition, we provide networking systems to customers for mobile satellite, telematics and wireless backhaul systems. These services are generally provided on a contract or project basis and may involve the use of proprietary products engineered by us.

~~Strategic~~(Unaudited) ~~Initiatives and Their Impact on Our Results of Operations~~

For the three months ended March 31, 2010 and 2009, net loss attributable to HNS was $5.6 million and $4.9 million, respectively. The increase in our net loss for the three months ended March 31, 2010 was attributed to three main factors. First, our selling, general and administrative expenses increased by $4.9 million, mainly associated with our North America operations as we increased our effort in promoting our consumer business. Second, we recognized $3.6 million of interest expense on our $150 million senior notes maturing on April 15, 2014 (the “2009 Senior Notes”), which were issued in May 2009. Third, our tax expense increased by $1.9 million resulting from state income taxes and income earned from our foreign subsidiaries. The increase in the net loss was partially offset by higher profit margin of $6.6 million for the three months ended March 31, 2010.


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues	$	222,325		$	372		$	33,047		$	(4,411	)	$	251,333

Operating costs and expenses:
Costs of revenues		157,791			-			24,883			(3,886	)		178,788
Selling, general and administrative		40,467			817			6,643			(525	)		47,402
Research and development		5,355			-			-			-			5,355
Amortization of intangible assets		683			-			-			-			683

Total operating costs and expenses		204,296			817			31,526			(4,411	)		232,228

Operating income (loss)		18,029			(445	)		1,521			-			19,105
Other income (expense):
Interest expense		(15,248	)		-			(385	)		118			(15,515	)
Interest and other income (loss), net		479			-			213			(118	)		574
Equity in losses of subsidiaries		(262	)		-			-			262			-

Income (loss) before income tax expense		2,998			(445	)		1,349			262			4,164
Income tax expense		(204	)		-			(1,359	)		-			(1,563	)

Net income (loss)		2,794			(445	)		(10	)		262			2,601
Net (income) loss attributable to the noncontrolling interest		-			(142	)		335			-			193

Net income (loss) attributable to HNS	$	2,794		$	(587	)	$	325		$	262		$	2,794

~~Technology—We~~25 incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products and services. Through the usage of advanced spectrally efficient modulation and coding methodologies, such as DVB-S2, and proprietary software web acceleration and compression techniques, we continue to improve the efficiency of our networks. In addition, we invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. We also continue to invest in next generation technologies that can be applied to our future products and services.

27Table of Contents

~~Table~~HUGHES ofNETWORK ~~Contents~~SYSTEMS, LLC

~~Acquisitions,~~NOTES ~~Strategic~~TO ~~Alliances~~THE ~~and~~CONDENSED ~~Divestitures—We~~CONSOLIDATED ~~continue~~FINANCIAL toSTATEMENTS ~~focus~~(CONTINUED) on expanding the identified markets for our products, services and network solutions in our North America Broadband, International Broadband and Telecom Systems segments. Consistent with our strategy to grow and improve our financial position, we also review our competitive position on an ongoing basis and, from time to time, consider various acquisitions, strategic alliances and divestitures which we believe would be beneficial to our business. We, from time to time, consider various alternatives related to the ownership structure of a new satellite, capacity features and other factors that would promote long term growth while meeting the needs of our customers.

InCondensed ~~June~~Consolidated ~~2009,~~Statement we entered into an agreement with Space Systems/Loral (“SS/L”), Inc. to manufacture a next-generation, high throughput geostationary satellite (“Jupiter”). Jupiter will employ a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for the HughesNet service in North America. We are obligated to pay an aggregate of ~~approximately~~Operations ~~$252.0 million~~ for the ~~construction~~Three ofMonths Jupiter and have agreed to make installment payments to SS/L upon the completion of each milestone set forth in the agreement. We anticipate launching Jupiter in the first half of 2012. In connection with the construction of JupiterEnded June 30, we2009 have entered into a contract with Barrett Xplore Inc. (“Barrett”), whereby Barrett has agreed to lease user beams and purchase gateways and terminals for the Jupiter satellite that are designed to operate in Canada.

~~Key~~(In ~~Business~~thousands) ~~Metrics~~

~~Business Segments—We divide our operations into five distinct segments—~~(iUnaudited) ~~the~~ North America Broadband segment; (ii) the International Broadband segment; (iii) the Telecom Systems segment; (iv) the HTS Satellite segment; and (v) the Corporate segment. Within the North America Broadband segment, sales are attributed to the Consumer group, which delivers broadband internet service to consumer customers, and the Enterprise group, which provides satellite, wireline and wireless communication networks and services to enterprises. The International Broadband segment consists of our international service companies and provides managed network services and equipment to enterprise customers and broadband service providers worldwide. The Telecom Systems segment consists of the Mobile Satellite Systems group, the Telematics group, and the Terrestrial Microwave group. The Mobile Satellite Systems group provides turnkey satellite ground segment systems to mobile system operators. The Telematics group previously provided development engineering and manufacturing services to Hughes Telematics, Inc. (“HTI”). However, as a result of the unfavorable impact of the economy on the automobile industry, HTI terminated substantially all of the development engineering and manufacturing services with us in August 2009. We expect our future revenue from the Telematics group to be insignificant. The Terrestrial Microwave group provides point-to-multipoint microwave radio network systems that are used for both cellular backhaul and broadband wireless access. The HTS Satellite segment, which is a new segment starting in 2010, consists of activities related to the development, construction and launch of high throughput satellites, including our Jupiter satellite, which is currently under construction and/or the provision of satellite capacity. The Corporate segment includes our corporate offices and assets not specifically related to another business segment. Due to the complementary nature and common architecture of our services and products across our business segments, we are able to leverage our expertise and resources within our various operating units to yield significant cost efficiencies.

Revenues—We generate revenues from the sale and financing of hardware and the provision of services. In our North America and International Broadband segments, we generate revenues from services and hardware. In our Telecom Systems segment, we generate revenues primarily from the development and sale of hardware. Some of our enterprise customers purchase equipment separately and operate their own networks. These customers include large enterprises, incumbent local exchange carriers, governmental agencies and resellers. Contracts for our services vary in length depending on the customers’ requirements.


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues	$	223,235		$	2,195		$	35,453		$	(5,777	)	$	255,106

Operating costs and expenses:
Costs of revenues		166,510			1,503			25,409			(5,047	)		188,375
Selling, general and administrative		37,659			1,205			6,167			(730	)		44,301
Loss on impairment		44,400			-			-			-			44,400
Research and development		4,966			732			-			-			5,698
Amortization of intangible assets		1,105			281			-			-			1,386

Total operating costs and expenses		254,640			3,721			31,576			(5,777	)		284,160

Operating income (loss)		(31,405	)		(1,526	)		3,877			-			(29,054	)
Other income (expense):
Interest expense		(15,318	)		-			(232	)		-			(15,550	)
Interest and other income (loss), net		(250	)		-			56			-			(194	)
Equity in earnings of subsidiaries		1,469			-			-			(1,469	)		-

Income (loss) before income tax expense		(45,504	)		(1,526	)		3,701			(1,469	)		(44,798	)
Income tax expense		(206	)		-			(256	)		-			(462	)

Net income (loss)		(45,710	)		(1,526	)		3,445			(1,469	)		(45,260	)
Net (income) loss attributable to the noncontrolling interest		-			(609	)		159			-			(450	)

Net income (loss) attributable to HNS	$	(45,710	)	$	(2,135	)	$	3,604		$	(1,469	)	$	(45,710	)

~~Services—Our~~26 services revenue is varied in nature and includes total turnkey communications services, terminal relocation, maintenance and changes, transponder capacity and multicast or broadcast services. Our services are offered on a contractual basis, which vary in length based on the particular end market. Typically, our large enterprise customers enter into a three- to five-year contract, and our consumer customers enter into a 24-month contract. We bill and recognize service revenues on a monthly per site basis. For enterprise customers who receive services from our network operations, our services include the following:

28Table of Contents

~~Table~~HUGHES ofNETWORK ~~Contents~~SYSTEMS, LLC

~~Service~~NOTES ~~Type~~TO ~~Description~~THE ~~Broadband~~CONDENSED ~~connectivity~~CONSOLIDATED •FINANCIAL ~~Provide~~STATEMENTS ~~basic~~(CONTINUED) transport, intranet connectivity services and internet service provider services • Applications include high-speed internet access, IP VPN, multicast file delivery and streaming, point-of-sale credit transactions, enterprise back-office communications, and satellite backup for frame relay service and other terrestrial networks Managed network services • Provide one-stop turnkey suite of bundled services that include wireline and wireless satellite networks • Includes network design program management, installation management, network and application engineering services, proactive network management, network operations, field maintenance and customer care ISP services and hosted applications • Provide internet connectivity and hosted customer-owned and managed applications on our network facilities • Provide the customer application services developed by us or in conjunction with our service partners • Includes internet access, e-mail services, web hosting and online payments Digital media services • Digital content management and delivery including video, online learning and digital signage applications Customized business solutions • Provide customized, industry-specific enterprise solutions that can be applied to multiple businesses in a given industry

~~Our~~Condensed ~~services~~Consolidated toStatement ~~enterprise customers are negotiated on a contract-by-contract basis with price varying based on numerous factors, including number~~ of ~~sites,~~Operations ~~complexity of system and scope of services provided. We have the ability to integrate these service offerings to provide comprehensive solutions~~ for ~~our customers. We also provide managed services to our customers who operate their own dedicated network facilities and charge them a management fee for~~ the ~~operation~~Six ~~and~~Months ~~support~~Ended ofJune 30, 2010 ~~their networks.~~

Hardware—We offer our enterprise customers the option to purchase their equipment up front or to finance the sale through a third-party leasing company as part of their service agreement under which payments are made over a fixed term. Our consumer customers have the option to purchase the equipment up front or, beginning in September 2008, to rent the equipment with a 24-month service contract. Hardware revenues of the North American Enterprise group and International Broadband segment are derived from: (~~i) network~~In ~~operating centers; (ii~~thousands) ~~radio~~ frequency terminals (earth stations); (iii) VSAT components including indoor units, outdoor units, and antennas; (iv) voice, video and data appliances; (v) routers and DSL modems; and (vi) system integration services to integrate all of the above into a system.

We(Unaudited) also provide specialized equipment to our Mobile Satellite Systems and Terrestrial Microwave customers. Through large multi-year contracts, we develop and supply turnkey networking and terminal systems for various operators who offer mobile satellite-based services. We also supply microwave-based networking equipment to mobile operators for back-hauling their data from cellular telephone sites to their switching centers. In addition, local exchange carriers use our equipment for broadband access traffic from corporations bypassing local phone companies. The size and scope of these projects vary from year to year by customer and do not follow a pattern that can be reasonably predicted.


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues	$	434,796		$	1,360		$	65,682		$	(8,362	)	$	493,476

Operating costs and expenses:
Costs of revenues		313,119			306			49,375			(7,476	)		355,324
Selling, general and administrative		81,553			2,189			13,226			(886	)		96,082
Research and development		9,815			455			-			-			10,270
Amortization of intangible assets		1,217			168			-			-			1,385

Total operating costs and expenses		405,704			3,118			62,601			(8,362	)		463,061

Operating income (loss)		29,092			(1,758	)		3,081			-			30,415
Other income (expense):
Interest expense		(31,041	)		-			(705	)		126			(31,620	)
Interest and other income (loss), net		120			870			263			(126	)		1,127
Equity in losses of subsidiaries		(508	)		-			-			508			-

Income (loss) before income tax expense		(2,337	)		(888	)		2,639			508			(78	)
Income tax expense		(431	)		(3	)		(2,346	)		-			(2,780	)

Net income (loss)		(2,768	)		(891	)		293			508			(2,858	)
Net (income) loss attributable to the noncontrolling interest		-			(283	)		373			-			90

Net income (loss) attributable to HNS	$	(2,768	)	$	(1,174	)	$	666		$	508		$	(2,768	)

~~Table~~27 ~~of Contents~~

MarketTable trendsof impacting our revenues—The following table presents our revenues by end market for the three months ended March 31, 2010 and 2009 (dollars in thousands):Contents

	Three Months Ended
	March 31,				Variance
	2010		2009		Amount			%
Revenues:
Services revenues	$	186,890	$	161,904	$	24,986			15.4%
Hardware sales		55,253		77,850		(22,597	)		(29.0)%
Total revenues	$	242,143	$	239,754	$	2,389			1.0%
Revenues by end market:
North America Broadband segment:
Consumer	$	113,354	$	98,729	$	14,625			14.8%
Enterprise		60,641		66,879		(6,238	)		(9.3)%
Total North America Broadband segment		173,995		165,608		8,387			5.1%
International Broadband segment		43,456		44,884		(1,428	)		(3.2)%
Telecom Systems segment:
Mobile Satellite Systems		19,405		18,466		939			5.1%
Telematics		301		7,069		(6,768	)		(95.7)%
Terrestrial Microwave		4,986		3,727		1,259			33.8%
Total Telecom Systems segment		24,692		29,262		(4,570	)		(15.6)%
Total revenues	$	242,143	$	239,754	$	2,389			1.0%

HUGHES NETWORK SYSTEMS, LLC

~~The~~NOTES ~~following~~TO ~~table~~THE ~~presents~~CONDENSED ~~our~~CONSOLIDATED ~~churn~~FINANCIAL ~~rate,~~STATEMENTS ~~average revenue per unit~~ (~~“ARPU”~~CONTINUED), ~~average monthly gross subscriber additions, and subscribers as of or for the three months ended March 31, 2010 and 2009:~~

	As of or For the
	Three Months Ended March 31,				Variance
	2010		2009		Amount		%
Churn rate		1.98%		2.29%		(0.31)%		(13.5)%
ARPU	$	72	$	68	$	4		5.9%
Average monthly gross subscriber additions		19,200		17,700		1,500		8.5%
Subscribers		530,800		455,100		75,700		16.6%

Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2009

~~North~~(In ~~America~~thousands) ~~Broadband Segment~~

Revenue from our Consumer group for the three months ended March 31, 2010 increased by 14.8% to $113.4 million compared to the same period in 2009. The growth in our Consumer group has been driven primarily by three factors: (iUnaudited) ~~the~~ substantial growth in the number of subscribers arising from increased consumer awareness of our products and services in geographic areas that have historically been underserved by DSL and cable; (ii) value-added services and mix of plans resulting in an increase in average monthly revenue per subscriber; and (iii) improvements in customer retention as noted by the reduction in the churn rate.

As of March 31, 2010 and 2009, we achieved a total subscription base of 530,800 and 455,100, respectively, which included 30,100 and 18,900, respectively, subscribers in our small/medium enterprise and wholesale businesses. ARPU is used to measure average monthly consumer subscription service revenues on a per subscriber basis. For the three months ended March 31, 2010, ARPU was $72 compared to $68 for the same period in 2009.


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues	$	433,050		$	4,027		$	69,255		$	(11,472	)	$	494,860

Operating costs and expenses:
Costs of revenues		325,893			2,168			50,933			(9,868	)		369,126
Selling, general and administrative		74,438			2,558			12,706			(1,604	)		88,098
Loss on impairment		44,400			-			-			-			44,400
Research and development		9,622			1,427			-			-			11,049
Amortization of intangible assets		2,208			563			-			-			2,771

Total operating costs and expenses		456,561			6,716			63,639			(11,472	)		515,444

Operating income (loss)		(23,511	)		(2,689	)		5,616			-			(20,584	)
Other income (expense):
Interest expense		(28,971	)		-			(408	)		-			(29,379	)
Interest and other income (loss), net		(103	)		-			136			-			33
Equity in earnings of subsidiaries		2,401			-			-			(2,401	)		-

Income (loss) before income tax (expense) benefit		(50,184	)		(2,689	)		5,344			(2,401	)		(49,930	)
Income tax (expense) benefit		(380	)		-			586			-			206

Net income (loss)		(50,564	)		(2,689	)		5,930			(2,401	)		(49,724	)
Net (income) loss attributable to the noncontrolling interest		-			(1,138	)		298			-			(840	)

Net income (loss) attributable to HNS	$	(50,564	)	$	(3,827	)	$	6,228		$	(2,401	)	$	(50,564	)

~~Revenue~~28 from our North American Enterprise group for the three months ended March 31, 2010 decreased by 9.3% to $60.6 million compared to the same period in 2009. The decrease was primarily due to lower hardware sales resulting from the adverse overall market and economy, as well as changes in the product mix where the emphasis on managed services has led to lower upfront hardware revenue. Enterprise service revenue is generally characterized by long term contracts, and our enterprise backlog continues to increase as a result of new orders for enterprise services.

30Table of Contents

~~Table~~HUGHES ofNETWORK ~~Contents~~SYSTEMS, LLC

~~International~~NOTES ~~Broadband~~TO ~~Segment~~THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Revenue~~Condensed ~~from~~Consolidated ~~our~~Statement ~~International~~of ~~Broadband~~Cash ~~segment~~Flows for the ~~three~~Six ~~months~~Months ~~ended~~Ended ~~March 31~~June 30, 2010 decreased slightly to $43.5 million compared to the same period in 2009, primarily due to delays in customer buying decisions impacting new hardware orders. This decrease was offset by the continued growth of our expanding array of solutions and global services to enterprises and government organizations in Brazil and the Africa/Middle East region, and $4.2 million resulting from the favorable impact of currency exchange due to the depreciation of U.S. dollars.

~~Telecom~~(In ~~Systems~~thousands) ~~Segment~~

~~Revenue~~(Unaudited) from our Telecom Systems segment for the three months ended March 31, 2010 decreased by 15.6% to $24.7 million compared to the same period in 2009. The decrease in revenue was primarily due to the reduction in revenue from our Telematics group.

Cost of Services— Our cost of services primarily consists of transponder capacity leases, hub infrastructure, customer care, wireline and wireless capacity, depreciation expense related to network infrastructure and capitalized hardware and software, and the salaries and related employment costs for those employees who manage our network operations and other project areas. These costs are dependent on the number of customers served and have increased relative to our growth. We continue to execute a number of cost containment and efficiency initiatives that were implemented in previous years. In addition, the migration to a single upgraded platform for ongoing consumer customers from our North America Broadband segment has enabled us to leverage our satellite bandwidth and network operation facilities to achieve further cost efficiencies. The costs associated with transponder capacity leases for the Consumer group are expected to decline as more customers are added to the SPACEWAY network.


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	(2,768	)	$	(891	)	$	293		$	508		$	(2,858	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities		39,232			652			5,553			(508	)		44,929

Net cash provided by (used in) operating activities		36,464			(239	)		5,846			-			42,071

Cash flows from investing activities:
Change in restricted cash		(1	)		-			95			-			94
Purchases of marketable securities		(32,615	)		-			-			-			(32,615	)
Proceeds from sales of marketable securities		38,615			-			-			-			38,615
Expenditures for property		(115,001	)		(642	)		(5,659	)		-			(121,302	)
Expenditures for capitalized software		(6,170	)		-			-			-			(6,170	)
Proceeds from sale of property		20			-			244			-			264

Net cash used in investing activities		(115,152	)		(642	)		(5,320	)		-			(121,114	)

Cash flows from financing activities:
Short-term revolver borrowings		-			-			3,263			-			3,263
Repayments of revolver borrowings		-			-			(3,745	)		-			(3,745	)
Long-term debt borrowings		1,116			-			1,417			-			2,533
Repayments of long-term debt		(1,283	)		-			(2,644	)		-			(3,927	)
Debt issuance costs		(1,734	)		-			-			-			(1,734	)

Net cash used in financing activities		(1,901	)		-			(1,709	)		-			(3,610	)

Effect of exchange rate changes on cash and cash equivalents		-			-			2,101			-			2,101

Net increase (decrease) in cash and cash equivalents		(80,589	)		(881	)		918			-			(80,552	)
Cash and cash equivalents at beginning of the period		173,991			1,091			8,651			-			183,733

Cash and cash equivalents at end of the period	$	93,402		$	210		$	9,569		$	-		$	103,181

~~Cost~~29 of Hardware Products Sold—We outsource a significant portion of the manufacturing of our hardware for our North America and International Broadband and Telecom Systems segments to third-party contract manufacturers. Our cost of hardware products sold relates primarily to direct materials and subsystems (e.g., antennas), salaries and related employment costs for those employees who are directly associated with the procurement and manufacture of our products and other items of indirect overhead incurred in the procurement and production process. Cost of hardware products sold also includes certain engineering and hardware costs related to the design of a particular product for specific customer programs. In addition, certain software development costs are capitalized in accordance with Accounting Standards Codification 985-20 “Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,” and amortized to cost of hardware products sold over their estimated useful lives, not to exceed five years. As we have developed new product offerings, we have reduced product costs due to higher levels of component integration, design improvements and volume increases.

SubscriberTable acquisition costs (“SAC”) are associated with our Consumer group and are comprised of three elements: (i) the subsidy for the cost of hardware and related installation; (ii) certain sales and marketing expense; and (iii) dealer and customer service representative commissions on new installations/activations. The subsidy for cost of hardware and related cost of installation is deferred and amortized over the initial contract period or the useful life of the hardware as a component of cost of hardware products sold for hardware related sales or cost of services for activities related to the consumer rental program. The portion of SAC related to sales and marketing is expensed as incurred. Dealer and customer service representative commissions are deferred and amortized over the initial contract period as a component of sales and marketing expense.Contents

~~Selling,~~HUGHES ~~General~~NETWORK ~~and Administrative (“SG&A”)—Selling expenses primarily consist of the salaries~~SYSTEMS, ~~commissions,~~LLC related benefit costs of our direct sales force and marketing staff, advertising, channel compensations on new activations which are deferred and amortized over the initial consumer contract period, travel, allocation of facilities, and other directly related overhead costs for our domestic and international businesses. General and administrative expenses include bad debt expense and salaries and related employee benefits for employees associated with common supporting functions, such as accounting and finance, risk management, legal, information technology, administration, human resources, and senior management. Selling, general, and administrative costs also include facilities costs, third-party service providers’ costs (such as outside tax and legal counsel, and insurance providers), bank fees related to credit card processing charges and depreciation of fixed assets.

31NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Table~~Condensed Consolidated Statement of ~~Contents~~Cash Flows for the Six Months Ended June 30, 2009

~~Research and Development~~ (~~“R&D”~~In thousands)~~—R&D~~ expenses primarily consist of the salaries of certain members of our engineering staff plus an applied overhead charge. R&D expenses also include engineering support for existing platforms and development efforts to build new products and software applications, subcontractors, material purchases and other direct costs in support of product development.

~~Results~~(Unaudited) ~~of Operations~~

Revenues


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	(50,564	)	$	(2,689	)	$	5,930		$	(2,401	)	$	(49,724	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities		102,917			2,731			(2,562	)		2,401			105,487

Net cash provided by operating activities		52,353			42			3,368			-			55,763

Cash flows from investing activities:
Change in restricted cash		(1	)		-			52			-			51
Expenditures for property		(43,933	)		(1,142	)		(8,221	)		-			(53,296	)
Expenditures for capitalized software		(7,762	)		-			-			-			(7,762	)
Proceeds from sale of property		18			6			69			-			93

Net cash used in investing activities		(51,678	)		(1,136	)		(8,100	)		-			(60,914	)

Cash flows from financing activities:
Net decrease in notes and loans payable		-			-			(78	)		-			(78	)
Long-term debt borrowings		137,338			-			3,769			-			141,107
Repayments of long-term debt		(4,294	)		-			(1,209	)		-			(5,503	)
Debt issuance costs		(4,500	)		-			-			-			(4,500	)

Net cash provided by financing activities		128,544			-			2,482			-			131,026

Effect of exchange rate changes on cash and cash equivalents		-			-			(1,741	)		-			(1,741	)

Net increase (decrease) in cash and cash equivalents		129,219			(1,094	)		(3,991	)		-			124,134
Cash and cash equivalents at beginning of the period		75,956			2,013			22,293			-			100,262

Cash and cash equivalents at end of the period	$	205,175		$	919		$	18,302		$	-		$	224,396

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Services revenues	$	186,890	$	161,904	$	24,986			15.4%
Hardware sales		55,253		77,850		(22,597	)		(29.0)%
Total revenues	$	242,143	$	239,754	$	2,389			1.0%
% of revenue to total revenues:
Services revenues		77.2%		67.5%
Hardware sales		22.8%		32.5%

ServicesTable Revenuesof Contents

~~The~~Item increase in services revenues was attributable to our North America Broadband segment. Revenues from our Consumer group increased by $18.8 million to $106.0 million for the three months ended March 31, 2010 compared to $87.2 ~~million for the same period in 2009 resulting primarily from the increase in our consumer subscriber base~~. ~~The~~Management’s ~~increase~~Discussion inand ~~the~~Analysis ~~Consumer group was partly due to a larger percentage~~ of ~~our~~Financial ~~customers~~Condition ~~utilizing the consumer rental program, for which we recognized $7.1 million~~ and ~~$1.9~~Results ~~million~~ of ~~services revenues for the three months ended March 31, 2010 and 2009, respectively.~~Operations

InThe ~~addition,~~following ~~revenue~~discussion ~~from~~and ~~our~~analysis ~~North~~of the Company’s financial condition and results of operations are based upon financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America ~~Enterprise~~and ~~group~~should ~~increased~~each bybe ~~$6.4~~read ~~million~~together with our condensed consolidated financial statements and the notes to ~~$47~~those condensed consolidated financial statements included elsewhere in this report.6 ~~million~~This ~~for~~report contains forward-looking statements that involve risks and uncertainties, including statements regarding our capital needs, business strategy, expectations and intentions within the ~~three~~meaning ~~months~~of ~~ended~~Section 27A ~~March~~of 31the Securities Act of 1933, ~~2010~~as ~~compared~~amended, toand ~~$41.2~~Section ~~million~~21E ~~for~~of the ~~same~~Securities ~~period~~Exchange inAct ~~2009~~of 1934, as amended, which represent our expectations or beliefs concerning future events. ~~The~~We ~~increase~~urge ~~reflected~~you to consider statements that use the ~~growth~~terms in“believe,” “do not believe,” “anticipate,” “expect,” “plan,” “may,” “estimate,” “strive,” “intend,” “will,” “should,” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements reflect our ~~managed~~current ~~services~~views with respect to future events and because our business is subject to numerous risks, ~~new~~and ~~contracts~~uncertainties, ~~awarded~~our inactual ~~prior~~results ~~periods~~could ~~that~~differ ~~provided~~materially ~~incremental~~from ~~service~~those ~~revenue~~anticipated in the ~~first~~forward-looking ~~quarter~~statements, including those set forth below under this “Item 2. Management’s Discussion and Analysis of ~~2010~~Financial Condition and Results of Operations” “Special Note Regarding Forward-Looking Statements” and contained elsewhere in this report. All forward-looking statements speak only as of the ~~growth~~date of this report. Actual results will most likely differ from those reflected in these forward-looking statements and the differences could be substantial. We disclaim any obligation to update these forward-looking statements or disclose any difference, except as may be required by securities laws, between our ~~small/medium~~actual results and ~~wholesale~~those ~~subscriber~~reflected ~~base~~in these statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.

~~Furthermore,~~Overview services revenue from our International Broadband segment increased by $5.8 million to $31.9 million for the three months ended March 31, 2010 from $26.1 million for the same period in 2009, primarily due to the continued growth of our expanding array of solutions and global services to enterprises and government organizations in Brazil and the Africa/Middle East region. Also, contributing to the increase was $3.8 million as a result of the favorable impact of currency exchange due to the depreciation of U.S. dollars.

~~Partially~~Hughes ~~offsetting~~Network Systems, LLC, a Delaware limited liability company, (“HNS” and, together with its consolidated subsidiaries, the “Company” ~~increase~~or ~~was~~“we,” “us,” and “our”) is a ~~decrease~~telecommunications incompany. ~~revenue~~The ~~from~~Company ~~our~~is ~~Telecom~~a ~~Systems~~wholly-owned ~~segment~~subsidiary of $6Hughes Communications, Inc.0 ~~million~~(“HCI” toor $1“Parent”).4 ~~million~~We ~~for~~provide equipment and services to the ~~three~~broadband ~~months~~communications ~~ended~~marketplace. ~~March~~We have extensive technical expertise in satellite, wireline and wireless communications which we utilize in a number of product and service offerings. 31In particular, ~~2010~~we ~~compared~~offer a spectrum of broadband equipment and services to $7the managed services market, which is comprised of enterprises with a requirement to connect a large number of geographically dispersed locations with reliable, scalable, and cost-effective applications, such as credit card verification, inventory tracking and control, and broadcast video.4 ~~million~~We ~~for~~provide broadband network services and systems to the ~~same~~international ~~period~~and indomestic ~~2009~~enterprise markets and satellite broadband Internet access to North American consumers, ~~mainly~~which we refer to as athe ~~result~~Consumer ofmarket. In addition, we provide networking systems to customers for mobile satellite, telematics and wireless backhaul systems. These services are generally provided on a ~~significant~~contract ~~reduction~~or inproject ~~revenues~~basis ~~from~~and may involve the ~~Telematics~~use ~~group~~of proprietary products engineered by us.

~~Hardware~~Strategic ~~Sales~~Initiatives and Their Impact on Our Results of Operations

~~Hardware~~We ~~sales~~generated ~~decreased~~a ~~mainly~~net ~~due~~income attributable to HNS of $2.8 million and a ~~revenue~~net ~~decrease~~loss attributable to HNS of $1645.87 million for the three months ended June 30, 2010 and 2009, respectively, and a net loss attributable to HNS of $2.8 million ~~from~~and $50.6 million for the six months ended June 30, 2010 and 2009, respectively. The changes in our ~~North~~net ~~America~~income ~~Broadband~~were ~~segment~~significantly impacted toby the $2044.4 million impairment loss recognized in 2009, related to our prepaid deposit (the “Deposit”) paid to Sea Launch Company, LLC (“Sea Launch”). In addition, our gross margin for the three ~~months~~and ~~ended~~six ~~March~~months 31ended June 30, 2010 ~~compared~~improved toby $375.28 million ~~for~~and $12.4 million, respectively, compared to the same ~~period~~periods in 2009. The increase in our net income attributable to HNS for the three and six months ended June 30, 2010 was partially offset by the increase in our selling, general and administrative expenses as we increased our efforts in promoting our products and services.

~~Despite~~Technology—We ~~the~~incorporate ~~growth~~advances in ~~the~~technology ~~subscriber~~to ~~base,~~reduce ~~hardware~~costs ~~sales~~and into increase the ~~Consumer~~functionality ~~group~~and ~~decreased~~reliability byof ~~$4.1 million~~our products toand $7services.4 ~~million~~Through ~~for~~ the ~~three~~usage ~~months~~of ~~ended~~advanced ~~March~~spectrally ~~31,~~efficient ~~2010~~modulation ~~compared~~and tocoding ~~$11.5~~methodologies, ~~million~~such ~~for~~as ~~the~~DVB-S2, ~~same~~and ~~period~~proprietary insoftware ~~2009.~~web ~~The~~acceleration ~~decrease~~and ~~was~~compression ~~due~~techniques, towe ancontinue ~~increase~~to inimprove ~~(i)~~ the ~~utilization~~efficiency of ~~the~~our networks. ~~consumer~~In ~~rebate~~addition, ~~program~~we ~~which~~invest ~~reduced~~in ~~hardware~~technologies ~~revenues~~to ~~and~~enhance ~~(ii)~~our ~~customers~~system ~~utilizing~~and ~~the~~network ~~consumer~~management ~~rental program~~capabilities, ~~which~~specifically ~~revenues~~our ~~are~~managed ~~accounted~~services for asenterprises. ~~services~~We ~~revenues,~~also ~~instead~~continue ofto ~~the~~invest ~~previously~~in ~~offered~~next ~~deferred~~generation ~~purchase~~technologies ~~plan,~~that ~~which~~can ~~revenues~~be ~~were~~applied ~~accounted~~to ~~for~~our future asproducts ~~hardware~~and ~~sales~~services.

32Acquisitions, Strategic Alliances and Divestitures—We continue to focus on expanding the identified markets for our

~~Table~~31 ~~of Contents~~

HardwareTable revenue from our North America Enterprise group also decreased by $12.7 million to $13.0 million for the three months ended March 31, 2010 compared to $25.7 million for the same period in 2009. The decrease was due to a lower volume of shipments as customers delayed their buying decisions as well as the changes in the product mix where the emphasis on managed services has led to lower upfront hardware revenue and an increase in recurring service revenue.Contents

~~In addition~~ products, ~~hardware~~services ~~sales~~and ~~from~~network solutions in our North America Broadband, International Broadband ~~segment~~and ~~decreased~~Telecom bySystems 7segments.2 ~~million~~Consistent towith ~~$11.6~~our ~~million~~strategy ~~for~~to ~~the~~grow ~~three~~and ~~months~~improve ~~ended~~our ~~March 31~~financial position, ~~2010~~we ~~compared~~also toreview ~~$18.8~~our ~~million~~competitive ~~for~~position ~~the~~on ~~same~~an ~~period~~ongoing inbasis ~~2009.~~and, ~~The~~from ~~decrease~~time ~~was primarily due~~ to ~~the~~time, ~~completion~~consider ofvarious ~~the~~acquisitions, ~~rollout~~strategic ofalliances ~~terminal~~and ~~shipments~~divestitures onwhich awe ~~multi-year~~believe ~~contract~~would ~~for~~be abeneficial ~~large~~to ~~lottery~~our ~~operator~~business. inWe, ~~the~~from ~~United~~time ~~Kingdom~~to ~~and~~time, aconsider various ~~decrease~~alternatives inrelated ~~shipment volume~~ to ~~our~~the ~~enterprise~~ownership ~~customers~~structure asof ~~delays~~a ~~in customer buying decisions impacting~~ new ~~hardware~~satellite, ~~orders.~~capacity ~~These~~features ~~decreases~~and ~~were~~other ~~slightly~~factors ~~offset~~that bywould apromote ~~$0.4~~long ~~million~~term ~~favorable~~growth ~~impact~~while ofmeeting ~~currency exchange due to~~ the ~~depreciation~~needs of ~~U.S.~~our ~~dollars~~customers.

~~Hardware~~In ~~sales~~June ~~from~~2009, ~~our~~we ~~Telecom~~entered ~~Systems~~into ~~segment~~an ~~increased~~agreement bywith $1Space Systems/Loral, Inc.4 ~~million~~(“SS/L”) tounder ~~$23~~which SS/L will manufacture our next-generation, high throughput geostationary satellite (“Jupiter”).3 ~~million~~Jupiter will employ a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for the ~~three~~HughesNet ~~months~~service ~~ended~~in ~~March~~North 31America. In connection with the construction of Jupiter, ~~2010~~we ~~compared~~entered tointo ~~$21~~a contract with Barrett Xplore Inc.9 ~~million~~(“Barrett”), whereby Barrett agreed to lease user beams and purchase gateways and terminals for the ~~same~~Jupiter ~~period~~satellite that are designed to operate in ~~2009~~Canada. In April 2010, ~~partly~~we ~~due~~entered tointo an agreement with Arianespace for the ~~change~~launch of Jupiter in the ~~mix~~first half of ~~customer~~2012. ~~programs~~Pursuant to the agreement, the Ariane 5 heavy launcher will launch Jupiter into geosynchronous transfer orbit from Guiana Space Centre in Kourou, French Guiana. As of June 30, 2010, our obligation for the ~~Mobile~~construction ~~Satellite~~and ~~group~~launch of Jupiter was approximately $274.8 million.

~~Cost~~Key ofBusiness ~~Revenues~~Metrics

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Cost of services	$	115,650	$	106,546	$	9,104			8.5%
Cost of hardware products sold		60,886		74,205		(13,319	)		(17.9)%
Total cost of revenues	$	176,536	$	180,751	$	(4,215	)		(2.3)%

Business Segments—We divide our operations into five distinct segments—(i) the North America Broadband segment; (ii) the International Broadband segment; (iii) the Telecom Systems segment; (iv) the HTS Satellite segment; and (v) the Corporate segment. Within the North America Broadband segment, sales are attributed to the Consumer group, which delivers broadband internet service to consumer customers, and the Enterprise group, which provides satellite, wireline and wireless communication networks and services to enterprises. The International Broadband segment consists of our international service companies and provides managed network services and equipment to enterprise customers and broadband service providers worldwide. The Telecom Systems segment consists of the Mobile Satellite Systems group, the Telematics group, and the Terrestrial Microwave group. The Mobile Satellite Systems group provides turnkey satellite ground segment systems to mobile system operators. The Telematics group previously provided development engineering and manufacturing services to Hughes Telematics, Inc. (“HTI”). However, as a result of the unfavorable impact of the economy on the automobile industry, HTI terminated substantially all of the development engineering and manufacturing services with us in August 2009. We expect our future revenue from the Telematics group to be insignificant. The Terrestrial Microwave group provides point-to-multipoint microwave radio network systems that are used for both cellular backhaul and broadband wireless access. The HTS Satellite segment, which is a new segment starting in 2010, consists of activities related to the development, construction and launch of high throughput satellites and currently represents construction activities of Jupiter. The Corporate segment includes our corporate offices and assets not specifically related to another business segment. Due to the complementary nature and common architecture of our services and products across our business segments, we are able to leverage our expertise and resources within our various operating units to yield significant cost efficiencies.

~~Cost~~Revenues—We generate revenues from the sale and financing of ~~Services~~hardware and the provision of services. In our North America and International Broadband segments, we generate revenues from services and hardware. In our Telecom Systems segment, we generate revenues primarily from the development and sale of hardware. Some of our enterprise customers purchase equipment separately and operate their own networks. These customers include large enterprises, incumbent local exchange carriers, governmental agencies and resellers. Contracts for our services vary in length depending on the customers’ requirements.

~~The~~32 increase in cost of services reflects the growth in our consumer subscriber base and our managed services businesses in the North America Broadband segment. Support costs for the growth included customer service, wireline and wireless costs, field services, network operations and depreciation expense, which increased by $11.8 million for the three months ended March 31, 2010 compared to the same period in 2009. The increases were partially offset by lower transponder capacity lease expense. We expect transponder capacity lease expense for the Consumer group to continue to decrease as more customers are placed on the SPACEWAY network.

InTable addition, cost of services from our International Broadband segment increased by $4.8 million, primarily due to an increase in the number of enterprise and global service sites in service across Brazil and the Africa/Middle East region. The increase in cost of services was partially offset by a decrease of $4.7 million in cost of services from the Telematics group.Contents

~~Cost~~Services—Our ofservices ~~Hardware~~revenue ~~Products~~is ~~Sold~~varied in nature and includes total turnkey communications services, terminal relocation, maintenance and changes, transponder capacity and multicast or broadcast services. Our services are offered on a contractual basis, which vary in length based on the particular end market. Typically, our large enterprise customers enter into a three- to five-year contract, and our consumer customers enter into a 24-month contract. We bill and recognize service revenues on a monthly per site basis. For enterprise customers who receive services from our network operations, our services include the following:

~~Cost~~Service ofType ~~hardware~~Description ~~products~~Broadbandconnectivity ~~sold~~• ~~decreased~~Provides inbasic ~~conjunction~~transport, ~~with~~intranet ~~the~~connectivity ~~reduction~~services inand ~~hardware~~internet ~~sales.~~service ~~The~~provider ~~decrease~~services ~~was~~• ~~mainly~~Applications ~~attributable~~include tohigh-speed ainternet ~~decrease~~access, inIP ~~cost~~VPN, multicast file delivery and streaming, point-of-sale ~~hardware~~credit ~~products~~transactions, ~~sold~~enterprise ~~from~~back-office ~~our~~communications, ~~North~~and ~~America~~satellite ~~Broadband~~backup ~~segment~~for frame relay service and other terrestrial networks Managed networkservices • Provides one-stop turnkey suite of ~~$10.5~~bundled ~~million~~services tothat ~~$35.1~~include ~~million~~wireline ~~for~~and ~~the~~wireless ~~three~~satellite ~~months~~networks ~~ended~~• ~~March 31~~Includes network design program management, ~~2010~~installation ~~compared~~management, tonetwork ~~$45.6~~and ~~million~~application ~~for~~engineering ~~the~~services, ~~same~~proactive ~~period~~network inmanagement, ~~2009.~~network ~~Partially~~operations, ~~offsetting~~field ~~the~~maintenance ~~decrease~~and incustomer ~~the~~care ~~North~~ISP ~~America~~services ~~Broadband~~andhosted ~~segment~~application ~~was~~• anProvides ~~increase~~internet inconnectivity ~~(i)~~and ~~the~~hosted ~~upfront~~customer-owned ~~recognition~~and ofmanaged ~~hardware~~applications ~~costs,~~on ~~which~~our ~~were~~network ~~previously~~facilities ~~amortized,~~• asProvides athe ~~resulted~~customer ofapplication aservices ~~change~~developed by us or in ~~the~~conjunction ~~consumer~~with ~~distribution~~our ~~process~~service ~~and~~partners ~~(ii)~~• ~~repair~~Includes ~~center~~internet ~~costs~~access, ~~which~~e-mail ~~was~~services, ~~primarily~~web ~~driven~~hosting byand ~~the~~online ~~expansion~~payments ofDigital ~~the~~mediaservices ~~hardware~~• ~~refurbishment~~Digital ~~effort~~content ~~related~~management toand ~~the~~delivery ~~reuse~~including ofvideo, ~~equipment~~online ~~returned~~learning ~~due~~and todigital ~~churn~~signage applications Customized businesssolutions • Provides customized, ~~warranty~~industry-specific ~~and~~enterprise ~~other~~solutions ~~factors.~~that can be applied to multiple businesses in a given industry

InOur ~~addition,~~services ~~cost~~to ofenterprise ~~hardware~~customers ~~products~~are ~~sold~~negotiated ~~from~~on ~~our~~a ~~International~~contract-by-contract ~~Broadband~~basis ~~segment~~with ~~decreased~~price byvarying ~~$4.6~~based ~~million~~on tonumerous $8factors, including number of sites, complexity of system and scope of services provided.2 ~~million~~We ~~for~~have the ~~three~~ability ~~months~~to ~~ended~~integrate ~~March~~these ~~31,~~service ~~2010~~offerings ~~compared~~ to ~~$12.8~~provide ~~million~~comprehensive solutions for ~~the~~our ~~same~~customers. ~~period~~We inalso ~~2009,~~provide ~~primarily~~managed ~~due~~services to our customers who operate their own dedicated network facilities and charge them a ~~decrease~~management infee ~~hardware~~for ~~sales~~the operation and support of their networks.

33Hardware—We offer our enterprise customers the option to purchase their equipment up front or to finance the sale through a third-party leasing company as part of their service agreement under which payments are made over a fixed term. Our consumer customers have the option to purchase the equipment up front or, beginning in September 2008, to rent the equipment with a 24-month service contract. Hardware revenues of the North American Enterprise group and International Broadband segment are derived from: (i) network operating centers; (ii) radio frequency terminals (earth stations); (iii) VSAT components including indoor units, outdoor units, and antennas; (iv) voice, video and data appliances; (v) routers and DSL modems; and (vi) system integration services to integrate all of the above into a system.

~~Table~~We also provide specialized equipment to our Mobile Satellite Systems and Terrestrial Microwave customers. Through large multi-year contracts, we develop and supply turnkey networking and terminal systems for various operators who offer mobile satellite-based services. We also supply microwave-based networking equipment to mobile operators for back-hauling their data from cellular telephone sites to their switching centers. In addition, local exchange carriers use our equipment for broadband access traffic from corporations bypassing local phone companies. The size and scope of ~~Contents~~these projects vary from year to year by customer and do not follow a pattern that can be reasonably predicted.

~~The~~33 decrease in cost of hardware products sold was partially offset by the increase of $1.8 million in costs from our Telecom Systems segment resulting mostly from the change in the mix of customer programs in the Mobile Satellite group.

Selling,Table Generalof and Administrative ExpenseContents

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Selling, general and administrative expense	$	48,680	$	43,797	$	4,883		11.1%
% of revenue		20.1%		18.3%

Market trends impacting our revenues—The following table presents our revenues by end market for the three and six months ended June 30, 2010 and 2009 (dollars in thousands):

~~SG&A~~Three ~~expense~~Months ~~increased mainly due to higher: (i) marketing costs of $3.5 million~~Ended June 30, ~~primarily in our North America operations as we increased targeted spending for our consumer business and (ii) bad debt expense and bank fees for the three months ended March 31,~~ 2010 ~~compared~~Compared to ~~the~~Three ~~same~~Months ~~period~~Ended inJune 30, 2009. ~~From time to time, we modify our marketing strategy to attract new customers, which may impact our SG&A expense.~~

Research and Development


	Three Months Ended June 30,				Variance
	2010		2009		Amount			%
Revenues:
Services revenues	$	192,155	$	172,662	$	19,493		11.3%
Hardware sales		59,178		82,444		(23,266	)	(28.2)%

Total revenues	$	251,333	$	255,106	$	(3,773	)	(1.5)%

Revenues by end market:
North America Broadband segment:
Consumer	$	117,578	$	104,206	$	13,372		12.8%
Enterprise		60,446		71,036		(10,590	)	(14.9)%

Total North America Broadband segment		178,024		175,242		2,782		1.6%

International Broadband segment		47,853		50,520		(2,667	)	(5.3)%

Telecom Systems segment:
Mobile Satellite Systems		20,628		19,369		1,259		6.5%
Telematics		200		7,659		(7,459	)	(97.4)%
Terrestrial Microwave		4,628		2,316		2,312		99.8%

Total Telecom Systems segment		25,456		29,344		(3,888	)	(13.2)%

Total revenues	$	251,333	$	255,106	$	(3,773	)	(1.5)%

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Research and development	$	4,915	$	5,351	$	(436)		(8.1)%
% of revenue		2.0%		2.2%

The following table presents our churn rate, average revenue per unit (“ARPU”), average monthly gross subscriber additions, and subscribers as of or for the three months ended June 30, 2010 and 2009:

R&D decreased due to a reduction in development activities in our North America Broadband segment. This reduction was partially offset by a $0.8 million increase in development activities related to the construction of our Jupiter satellite.


	As of or For the Three Months Ended June 30,				Variance
	2010		2009		Amount		%
Churn rate⁽¹⁾		2.01%		2.27%		(0.26)%	(11.5)%
ARPU⁽²⁾	$	73	$	70	$	3	4.3%
Average monthly gross subscriber additions⁽¹⁾		15,800		16,600		(800)	(4.8)%
Subscribers⁽¹⁾		545,500		473,100		72,400	15.3%

~~Amortization~~(1) Relates to our Consumer group and our small/medium enterprise and wholesale business customers who receive subscription services. The small/medium enterprise and wholesale business customers are part of ~~Intangible~~our ~~Assets~~Enterprise group. The Consumer and Enterprise groups are part of our North America Broadband segment. The trend of the metric has been substantially similar for the Consumer group and the small/medium enterprise and wholesale business customers.

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Amortization of intangible assets	$	702	$	1,385	$	(683	)		(49.3)%
% of revenue		0.3%		0.6%

(2)	Relates only to our Consumer group, which is part of our North America Broadband segment.

~~Amortization~~North ofAmerica ~~intangible~~Broadband ~~assets~~Segment ~~decreased primarily due to the impact of certain fully depreciated intangible assets.~~

~~Operating~~Revenue ~~Income~~from our Consumer group for the three months ended June 30, 2010 increased by 12.8% to $117.6 million compared to the same period in 2009. The growth in our Consumer group has been driven primarily by three factors: (i) the substantial growth in the number of subscribers arising from increased consumer awareness of our products and services as a result of the expansion of our use of direct mail campaigns and television commercials targeting geographic areas that have historically been underserved by DSL and cable services; (ii) value-added services, such as express repair and web premium content services, and the election by our customers to utilize the consumer rental program and to subscribe to higher level service plans resulting in an increase in ARPU; and (iii) improvements in customer retention as shown by the reduction in the churn rate.

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Operating income	$	11,310	$	8,470	$	2,840		33.5%
% of revenue		4.7%		3.5%

TheTable increase in operating income was attributable to higher profit margin of $6.6 million as a result of higher revenues and lower cost of revenues for the months ended March 31, 2010 compared to the same period in 2009. The increase was partially offset by higher selling, general and administrative expenses of $4.9 million, mainly associated with our North America operations, as we increased our effort in promoting our consumer business.Contents

34As of June 30, 2010 and 2009, we achieved a total subscription base of 545,500 and 473,100, respectively, which included 32,100 and 22,500, respectively, subscribers in our small/medium enterprise and wholesale businesses. Our ARPU, which is used to measure average monthly consumer subscription service revenues on a per subscriber basis, was $73 and $70 for the three months ended June 30, 2010 and 2009, respectively. ARPU is calculated by dividing the total service revenues from the Consumer group for the reporting period by the sum of the total number of subscribers in our Consumer group at the end of each month in the reporting period. Our ARPU calculation may not be consistent with other companies’ calculation in the same or similar businesses as we are not aware of any uniform standards for calculating ARPU.

~~Table~~Revenue offrom ~~Contents~~our North American Enterprise group for the three months ended June 30, 2010 decreased by 14.9% to $60.4 million compared to the same period in 2009. The decrease was primarily due to delays in customer buying decisions impacting new hardware orders. Enterprise service revenue is generally characterized by long term contracts.

~~Interest~~International ~~Expense~~Broadband Segment

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Interest expense	$	16,105	$	13,829	$	2,276		16.5%

Revenue from our International Broadband segment for the three months ended June 30, 2010 decreased by 5.3% to $47.9 million compared to the same period in 2009, primarily due to delays in customer buying decisions impacting new hardware orders. The decrease was partially offset by $1.9 million resulting from the favorable impact of currency exchange due to the depreciation of the U.S. dollar.

~~Interest~~Telecom ~~expense~~Systems ~~primarily~~Segment relates to interest on the 2006 Senior Notes, the 2009 Senior Notes and the Term Loan Facility less capitalized interest associated with the construction of our satellites. The increase in interest expense was primarily due to the recognition of interest, accretion of the original issue discount and amortization of the debt issuance cost of the 2009 Senior Notes, which was partially offset by $2.0 million of capitalized interest associated with the construction of the Jupiter satellite for the three months ended March 31, 2010.

~~Interest~~Revenue ~~Income~~from our Telecom Systems segment for the three months ended June 30, 2010 decreased by 13.2% to $25.5 million compared to the same period in 2009. The decrease was due to the reduction of $7.5 million in revenue from our Telematics group, which was partially offset by the increase in revenue from our Terrestrial Microwave group.

	Three Months Ended
	March 31,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Interest income	$	553	$	227	$	326		143.6%

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

The increase in interest income was primarily due to interest earned on certain notes and deferred trade receivables.


	Six Months Ended June 30,				Variance
	2010		2009		Amount			%
Revenues:
Services revenues	$	379,045	$	334,566	$	44,479		13.3%
Hardware sales		114,431		160,294		(45,863	)	(28.6)%

Total revenues	$	493,476	$	494,860	$	(1,384	)	(0.3)%

Revenues by end market:
North America Broadband segment:
Consumer	$	230,932	$	202,935	$	27,997		13.8%
Enterprise		121,087		137,915		(16,828	)	(12.2)%

Total North America Broadband segment		352,019		340,850		11,169		3.3%

International Broadband segment		91,309		95,404		(4,095	)	(4.3)%

Telecom Systems segment:
Mobile Satellite Systems		40,033		37,835		2,198		5.8%
Telematics		501		14,728		(14,227	)	(96.6)%
Terrestrial Microwave		9,614		6,043		3,571		59.1%

Total Telecom Systems segment		50,148		58,606		(8,458	)	(14.4)%

Total revenues	$	493,476	$	494,860	$	(1,384	)	(0.3)%

~~Income~~35 ~~Tax (Expense) Benefit~~

	Three Months Ended
	March 31,					Variance
(Dollars in thousands)	2010			2009		Amount			%
Income tax (expense) benefit	$	(1,217	)	$	668	$	(1,885	)		(282.2)%

~~Changes~~The infollowing ~~income~~table ~~tax~~presents ~~(expense)~~our ~~benefit~~churn ~~are~~rate, ~~generally~~ARPU, ~~attributable~~average tomonthly ~~state~~gross ~~income~~subscriber additions, ~~taxes~~ and ~~income~~subscribers ~~earned~~as ~~from~~of ~~our~~or ~~foreign subsidiaries. Our income tax expense was partially offset by $0.2 million~~ for the ~~three~~six months ended ~~March 31~~June 30, 2010 ~~compared~~and ~~to an offset of $1.2 million for the same period in~~ 2009: of income tax benefit generated by our Indian subsidiary as a result of it being engaged in telecommunications infrastructure development. Indian tax law provides for a deduction of 100% of profits and gains derived from qualifying infrastructure businesses for ten consecutive assessment years. This benefit is available to us through the tax assessment year of 2015/2016.

Liquidity and Capital Resources


	As of or For the Six Months Ended June 30,				Variance
	2010		2009		Amount		%
Churn rate⁽¹⁾		2.00%		2.28%		(0.28)%	(12.3)%
ARPU⁽²⁾	$	73	$	69	$	4	5.8%
Average monthly gross subscriber additions⁽¹⁾	<

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