UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended ~~September~~March 3031, ~~2010~~2011

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

Commission file number: 333-138009

HUGHES NETWORK SYSTEMS, LLC

(Exact Name of Registrant as Specified in Its Charter)

Delaware

11-3735091

(State or Other Jurisdiction of

Incorporation or Organization)

(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. ¨ 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). ¨ Yes ¨ 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 filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

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

The number of the registrant’s membership interests outstanding as of ~~October~~April 29, ~~2010~~2011 was as follows:


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

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		3228
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		5242
Item 4T.	Controls and Procedures		53
Item 4	Controls and Procedures		43
PART II—OTHER INFORMATION			5444
Item 1.	Legal Proceedings		5444
Item 1A.	Risk Factors		5444
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5444
Item 3.	Defaults Upon Senior Securities		5445
Item 4.	(Removed and Reserved)		5545
Item 5.	Other Information		5545
Item 6.	Exhibits		5545
SIGNATURES			5646

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

HUGHES NETWORK SYSTEMS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	September 30, 2010			December 31, 2009
	March 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	~~112~~44,~~661~~136		$	~~183~~80,~~733~~800
Marketable securities		152,~~000~~679			316,~~126~~675
Receivables, net		~~161~~181,~~872~~415			~~162~~184,~~806~~869
Inventories		5659,~~937~~627			6057,~~244~~819
Prepaid expenses and other		2425,~~412~~303			2024,~~976~~600
Total current assets		~~370~~313,~~882~~160			~~458~~354,~~885~~763
Property, net		~~728~~837,~~360~~255			~~601~~773,~~964~~652
Capitalized software costs, net		4745,~~727~~326			4946,~~776~~092
Intangible assets, net		1110,~~421~~056			1310,~~488~~738
Goodwill		2,661			2,661
Other assets		6468,~~084~~285			6867,~~524~~459
Total assets	$	1,~~225~~276,~~135~~743		$	1,~~195~~255,~~298~~365
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	~~131~~93,~~598~~049		$	117,~~513~~763
Short-term debt		64,~~133~~609			6,~~750~~196
Accrued liabilities and other		~~145~~157,~~374~~375			133,~~926~~383
Total current liabilities		~~283~~255,~~105~~033			~~258~~257,~~189~~342
Long-term debt		~~713~~756,~~135~~380			~~714~~740,~~957~~487
Other long-term liabilities		2026,~~963~~764			1627,~~191~~308
Total liabilities		1,~~017~~038,~~203~~177			~~989~~1,~~337~~025,137
Commitments and contingencies
Equity:
Hughes Network Systems, LLC (“HNS”) equity:
Class A membership interests		~~175~~176,~~934~~248			~~177~~176,~~933~~099
Class B membership interests		-			-
Retained earnings		4466,~~126~~651			3661,~~094~~487
Accumulated other comprehensive loss		(1812,~~158~~783	)		(1315,~~987~~682	)
Total HNS’ equity		~~201~~230,~~902~~116			~~200~~221,~~040~~904
Noncontrolling interest		68,~~030~~450			58,~~921~~324
Total equity		~~207~~238,~~932~~566			~~205~~230,~~961~~228
Total liabilities and equity	$	1,~~225~~276,~~135~~743		$	1,~~195~~255,~~298~~365

See accompanying Notes to the Condensed Consolidated Financial Statements.

HUGHES NETWORK SYSTEMS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2010			2009			2010			2009
	2011			2010
Revenues:
Services revenues	$	~~200~~214,~~709~~250		$	~~175~~186,~~305~~890		$	~~579,754~~		$	~~509,871~~
Hardware sales		6448,~~006~~422			7555,~~164~~253			~~178,437~~			~~235,458~~
Total revenues		~~264~~262,~~715~~672			~~250~~242,~~469~~143			~~758,191~~			~~745,329~~
Operating costs and expenses:
Cost of services		~~125~~132,~~806~~006			~~108~~115,~~894~~650			~~364,662~~			~~326,532~~
Cost of hardware products sold		58,356			73,646			174,824			225,134
Cost of hardware		49,574			60,886
Selling, general and administrative		4855,~~665~~869			4448,~~204~~680			~~144,747~~			~~132,302~~
Loss on impairment		-			-			-			44,400
Research and development		5,154			4,915
Research and development		4,776			5,453			15,046			16,502
Amortization of intangible assets		682			702
Amortization of intangible assets		682			1,385			2,067			4,156
Total operating costs and expenses		243,285			230,833
Total operating costs and expenses		238,285			233,582			701,346			749,026
Operating income (loss)		19,387			11,310
Operating income (loss)		26,430			16,887			56,845			(3,697	)
Other income (expense):
Other income (expense):
Interest expense		(12,500	)		(16,105	)
Interest expense		(14,493	)		(17,727	)		(46,113	)		(47,106	)
Interest income		359			553
Interest income		359			468			1,486			865
Other loss, net		(248	)		-
Other loss, net		-			(1	)		-			(365	)
Income (loss) before income tax expense		6,998			(4,242	)
Income (loss) before income tax expense		12,296			(373	)		12,218			(50,303	)
Income tax expense		(1,770	)		(1,217	)
Income tax expense		(1,551	)		(981	)		(4,331	)		(775	)
Net income (loss)		5,228			(5,459	)
Net income (loss)		10,745			(1,354	)		7,887			(51,078	)
Net income attributable to the noncontrolling interest		(64	)		(103	)
Net (income) loss attributable to the noncontrolling interest		55			(216	)		145			(1,056	)
Net income (loss) attributable to HNS	$	5,164		$	(5,562	)
Net income (loss) attributable to HNS	$	10,800		$	(1,570	)	$	8,032		$	(52,134	)

See accompanying Notes to the Condensed Consolidated Financial Statements.

HUGHES NETWORK SYSTEMS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

(Unaudited)

		0000			0000			0000			0000			0000
	HNS’ Equity
	Class A and BMembershipInterests			RetainedEarnings			AccumulatedOtherComprehensiveLoss			NoncontrollingInterest			Total
Balance at January 1, 2009	$	177,425		$	80,999		$	(27,586	)	$	4,632		$	235,470
Share-based compensation		673												673
Purchase of subsidiary shares from noncontrolling interest		(391	)					(19	)		(345	)		(755	)
Comprehensive income (loss):
Net income (loss)					(52,134	)					1,056			(51,078	)
Foreign currency translation adjustments								5,505			167			5,672
Unrealized gain on hedging instruments								2,639			-			2,639
Reclassification of realized loss on hedging instruments								3,275			-			3,275
Unrealized loss on available-for-sale securities								(2	)		-			(2	)
Balance at September 30, 2009	$	177,707		$	28,865		$	(16,188	)	$	5,510		$	195,894
Balance at January 1, 2010	$	177,933		$	36,094		$	(13,987	)	$	5,921		$	205,961
Share-based compensation		~~674~~224												~~674~~224
Retirement of bonus units		(2,673	)											(2,673	)
Comprehensive income (loss):
Net income (loss)					8(5,~~032~~562	)					~~(145~~103	)		7(5,~~887~~459	)
Foreign currency translation adjustments								~~458~~(1,011	)		~~254~~204			~~712~~(807	)
Unrealized loss on hedging instruments								(82,~~796~~323	)		-			(82,~~796~~323	)
Reclassification of realized loss on hedging instruments								41,~~173~~368			-			41,~~173~~368
Unrealized loss on available-for-sale securities								(6	)		-			(6	)
Unrealized gain on available-for-sale securities								2			-			2
Balance at September 30, 2010	$	175,934		$	44,126		$	(18,158	)	$	6,030		$	207,932
Balance at March 31, 2010	$	178,157		$	30,532		$	(15,951	)	$	6,228		$	198,966
Balance at January 1, 2011	$	176,099		$	61,487		$	(15,682	)	$	8,324		$	230,228
Share-based compensation		149												149
Comprehensive income (loss):
Net income					5,164						64			5,228
Foreign currency translation adjustments								1,627			62			1,689
Unrealized loss on hedging instruments								(189	)		-			(189	)
Reclassification of realized loss on hedging instruments								1,404			-			1,404
Unrealized gain on available-for-sale securities								57			-			57
Balance at March 31, 2011	$	176,248		$	66,651		$	(12,783	)	$	8,450		$	238,566

See accompanying Notes to the Condensed Consolidated Financial Statements.

HUGHES NETWORK SYSTEMS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2010			2009
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	75,~~887~~228		$	(515,~~078~~459	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		9537,~~127~~362			7229,~~788~~969
Amortization of debt issuance costs		~~2,048~~861			~~1,452~~616
Share-based compensation expense		~~674~~149			~~665~~224
Loss on impairment		-			44,400
Other		235			37
Other		34			578
Change in other operating assets and liabilities, net of acquisition:
Receivables, net		14,~~454~~524			483,~~922~~077
Inventories		3(1,~~172~~581	)		(~~745~~2,078	)
Prepaid expenses and other		(1,~~065~~505	)		~~(2,531~~828	)
Accounts payable		14(37,~~024~~629	)		24(19,~~261~~909	)
Accrued liabilities and other		~~(15~~42,~~419~~466	)		~~(15~~7,~~657~~660	)
Net cash provided by operating activities		~~110~~50,~~066~~110			~~123~~14,~~055~~965
Cash flows from investing activities:
Change in restricted cash		49423			~~(72~~88	)
Purchases of marketable securities		~~(37,615~~-	)		(2522,~~080~~615	)
Proceeds from sales of marketable securities		533,~~615~~999			-10,000
Expenditures for property		(~~183~~101,~~531~~259	)		(9363,~~953~~668	)
Expenditures for capitalized software		(92,~~935~~752	)		(103,~~315~~166	)
Proceeds from sale of property		~~404~~80			~~339~~-
Long-term loan receivable		-			(10,000	)
Net cash used in investing activities		(99,509	)		(79,361	)
Other, net		-			(755	)
Net cash used in investing activities		(177,013	)		(139,836	)
Cash flows from financing activities:
Short-term revolver borrowings		~~3,770~~898			-1,999
Repayments of revolver borrowings		(~~4,881~~945	)		-(2,430	)
Net decrease in notes and loans payable		-			(1,315	)
Long-term debt borrowings		16,822			1,220
Long-term debt borrowings		3,334			142,318
Repayments of long-term debt		(2,740	)		(1,721	)
Repayments of long-term debt		(4,864	)		(6,832	)
Debt issuance costs		(1,015	)		(1,742	)
Debt issuance costs		(1,734	)		(4,612	)
Net cash provided by (used in) financing activities		13,020			(2,674	)
Net cash provided by (used in) financing activities		(4,375	)		129,559
Effect of exchange rate changes on cash and cash equivalents		(285	)		1,673
Effect of exchange rate changes on cash and cash equivalents		250			(3,879	)
Net decrease in cash and cash equivalents		(36,664	)		(65,397	)
Net increase (decrease) in cash and cash equivalents		(71,072	)		108,899
Cash and cash equivalents at beginning of the period		80,800			183,733
Cash and cash equivalents at beginning of the period		183,733			100,262
Cash and cash equivalents at end of the period	$	44,136		$	118,336
Cash and cash equivalents at end of the period	$	112,661		$	209,161
Supplemental cash flow information:
Cash paid for interest	$	362,~~141~~485		$	292,~~182~~407
Cash paid for income taxes	$	53,~~919~~426		$	32,~~660~~341
Supplemental non-cash disclosures related to:
Capitalized software and property acquired, not paid	$	5021,~~787~~829		$	25,303

See accompanying Notes to the Condensed Consolidated Financial Statements.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization, ~~Basis of Presentation~~ and ~~Summary~~Description of ~~Significant~~Business ~~Accounting Policies~~

Hughes Network Systems, LLC (“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 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 of the Company in 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 ~~September~~March 3031, ~~2010~~2011, there were 95,000 Class A membership interests outstanding and 3,280 Class B membership interests outstanding.

We are a telecommunications company that provides 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 solutions 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.

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 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~~Internet service to consumer customers, and the Enterprise group, which provides satellite, wireline and wireless communication ~~networks~~network products 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 (“HTS”) and currently represents construction activities of our new satellite named Jupiter. Asand ~~a result of~~ the ~~newly~~ ~~established~~development ~~HTS Satellite segment in 2010, construction activities~~ of ~~Jupiter~~related innetwork ~~2009, which was included in the North America Broad band segment, have been reclassified to the HTS Satellite segment to conform to the current period presentation~~equipment. The Corporate segment includes our corporate offices and assets not specifically related to another business segment.

Note 2: Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally ~~accepted~~ 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

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 significant influence are generally carried at cost. As permitted under Rule 10-01 of Regulation S-X, certain notes and other financial information normally required by GAAP have been condensed or 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~~ flows as of and for the periods presented herein. Our results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 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. As a result of our new segment in~~ 2010~~, the HTS Satellite segment, certain prior period items in these consolidated financial statements have been reclassified to conform to the current period presentation~~.

All intercompany balances and transactions with subsidiaries and other consolidated entities have been eliminated.

Use of Estimates in the Preparation of the Condensed Consolidated Financial Statements

The preparation 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.

New Accounting Pronouncements

Recently Adopted Accounting Guidance

In ~~January~~October ~~2010~~2009, the FASB issued ~~Accounting Standard Update (“~~ASU”) ~~2010~~2009-0613 toamending ~~improve~~ASC ~~disclosures~~605 ~~about fair~~“Revenue ~~value~~Recognition” ~~measurements.~~related ~~ASU~~to ~~2010-6~~revenue arrangements ~~clarifies~~with ~~certain~~multiple ~~existing~~deliverables. ~~disclosures~~Among ~~and~~other ~~requires~~things, ~~new~~ASU ~~disclosure~~2009-13 ~~regarding~~provides ~~significant~~guidance ~~transfers~~for entities in ~~and~~determining ~~out of Level 1 and Level 2 of fair value measurements and~~ the ~~reasons~~accounting for ~~the~~multiple ~~transfer.~~deliverable Inarrangements ~~addition,~~and ~~ASU 2010-06~~establishes ~~clarifies~~a ~~existing~~hierarchy ~~fair~~for ~~value~~determining ~~disclosures about~~ the ~~level~~amount of ~~disaggregation~~revenue ~~and~~to ~~about inputs and valuation techniques used~~ allocate to ~~measure~~the ~~fair~~various ~~value~~deliverables. The ~~amendments~~adoption inof ASU ~~2010~~2009-0613 ~~were~~on ~~effective for fiscal years beginning after December~~January 151, ~~2009,~~ ~~and~~2011 ~~for interim periods within those fiscal periods. The adoption of ASU 2010-06~~ did not have a material impact on our ~~disclosure~~financial ~~about fair value measurements~~statements.

In ~~June~~October 2009 ~~and December 2009~~, the FASB ~~amended~~issued ~~ASC~~ASU ~~810~~2009-14 ~~changing~~to ~~certain~~amend ~~consolidation~~ASC ~~guidance~~605 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~~change ~~were effective for~~ the ~~first~~accounting ~~annual~~model ~~reporting period beginning after November 15, 2009,~~ for ~~interim~~revenue ~~periods~~arrangements ~~within~~ that ~~first~~include ~~annual~~both ~~reporting~~tangible ~~period,~~products and ~~for~~software ~~interim and annual reporting periods thereafter~~elements. The adoption of ~~amendments~~ASU 2009-14 toon ~~consolidation~~January 1, ~~rules~~2011 did not have ~~any~~a material impact on our ~~disclosures relating to our VIE activity and our~~ financial statements.

~~Accounting Guidance~~Note ~~Not~~3: Recent ~~Yet Effective~~ Developments

InOn ~~October~~February 13, ~~2009~~2011, ~~the~~HCI ~~FASB~~entered ~~issued~~into ~~ASU~~an ~~2009-14~~Agreement toand ~~amend~~Plan ~~ASC~~of ~~605~~Merger (the “~~Revenue Recognition.~~Merger Agreement”) ~~The~~with EchoStar ~~amendments~~Corporation, ina ~~this~~Nevada ~~update~~corporation ~~change~~(“EchoStar”), ~~the~~EchoStar ~~accounting~~Satellite ~~model~~Services ~~for~~L.L.C., ~~revenue~~a ~~arrangements~~Colorado ~~that~~limited ~~include~~liability ~~both~~company ~~tangible~~(“Satellite ~~products~~Services”), and ~~software~~Broadband ~~elements.~~Acquisition ~~The~~Corporation, ~~amendments~~a inDelaware ~~ASU~~corporation ~~2009-14~~(“Merger Sub”), ~~will~~pursuant beto ~~effective~~which, ~~for~~subject usto ~~beginning~~the ~~January 1,~~terms ~~2011~~and conditions set forth therein, ~~with~~ ~~early~~Merger ~~adoption~~Sub ~~permitted.~~will Wemerge ~~are~~with ~~currently~~and ~~evaluating~~into the ~~impact~~Company ~~these~~(the ~~amendments~~“Merger”), ~~will~~with ~~have~~HCI oncontinuing ~~our~~as ~~financial~~the ~~statements~~surviving ~~when~~entity ~~they~~and ~~become~~becoming ~~effective~~a wholly owned subsidiary of EchoStar.

InPursuant ~~October~~to ~~2009~~the Merger Agreement, upon the ~~FASB~~closing of the Merger, each of HCI’s issued ~~ASU~~and ~~2009-13~~outstanding ~~amending~~shares of ~~ASC~~common ~~605~~stock ~~related~~(other tothan ~~revenue~~any ~~arrangements~~of our common stock with ~~multiple~~respect ~~deliverables.~~to ~~Among~~which ~~other~~appraisal ~~things,~~rights ~~ASU~~have ~~2009-13~~been ~~provides~~duly ~~guidance~~exercised ~~for~~under ~~entities~~Delaware inlaw) ~~determining~~will automatically be converted into the ~~accounting~~ ~~for~~right ~~multiple~~to ~~deliverable~~receive ~~arrangements~~$60.70 in cash (without interest) and ~~establishes~~cancelled. aVested restricted ~~hierarchy~~stock ~~for~~awards ~~determining~~and restricted stock units will become HCI’s common stock upon the ~~amount~~closing of ~~revenue~~the toMerger ~~allocate~~and are therefore entitled to the ~~various~~right ~~deliverables~~to receive $60.70 Wein ~~are~~cash ~~currently~~(without ~~evaluating~~interest) and will be cancelled. Unvested restricted stock awards and restricted stock units at the ~~impact~~closing ~~ASU~~of ~~2009-13~~the ~~will~~Merger have onthe ~~our~~right ~~financial~~to ~~statements~~receive ~~when it~~$60.70 ~~becomes~~in ~~effective~~cash on(without ~~January 1~~interest) payable at the time such restricted stocks vest, ~~2011.~~and ~~Early~~will ~~adoption~~likewise isbe ~~permitted~~cancelled.

Vested options to acquire HCI’s common stock will continue to be outstanding until the closing of the Merger. Upon the closing of the Merger, vested options will be cancelled, and within 10 days after the closing of the Merger, each vested stock option will receive $60.70 in cash (without interest) minus the exercise price of the stock option per share. Unvested stock options at closing of the Merger will be converted into the right to receive $60.70 in cash (without interest) minus the exercise price of the stock option per share, payable at the time such options vest.

The Merger Agreement also contemplates refinancing certain of our existing debt, including the 2009 and 2006 Senior Notes. The COFACE Guaranteed Facility will continue to remain outstanding following the Merger if the requisite lender consents thereunder are obtained. See Note 10—Debt for details of the 2006 and 2009 Senior Notes and the COFACE Guaranteed Facility.

Each of the boards of directors of HCI and Merger Sub approved the Merger Agreement and deemed it advisable and fair to, and in the best interests of, their respective companies and stockholders to enter into the Merger Agreement and to consummate the Merger and the transactions and agreements contemplated thereby. The board of directors of EchoStar approved the Merger Agreement and deemed it advisable and fair to, and in the best interests of, its stockholders to enter into the Merger Agreement and to consummate the transactions and agreements contemplated thereby.

The Merger is expected to close later this year, subject to certain closing conditions, including among others, receipt of approval by the Federal Communications Commission, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2010.

The foregoing description of the Merger Agreement and the transactions and agreements contemplated thereby does not purport to be complete and is subject to and qualified in its entirety by reference to the Merger Agreement.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 2 4: Marketable Securities

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

	Cost Basis		Gross Unrealized ~~Gain~~Loss			Estimated Fair Value
September 30, 2010:
March 31, 2011:
U.S. government bonds and treasury bills	$	5,000	$	1		$	5,001
Money market instruments	$	2,679	$	-		$	2,679
Other debt securities		9,999		-			9,999
Total available-for-sale securities	$	2,679	$	-		$	2,679
Total available-for-sale securities	$	14,999	$	1		$	15,000
December 31, 2010:
December 31, 2009:
Money market instruments	$	3,677	$	(2	)	$	3,675
U.S. government bonds and treasury bills	$	15,105	$	4		$	15,109
Municipal commercial paper		3,000		-			3,000
Other debt securities		16,012		5			16,017
Total available-for-sale securities	$	6,677	$	(2	)	$	6,675
Total available-for-sale securities	$	31,117	$	9		$	31,126
As of March 31, 2011, our investments in money market instruments have A-1+ and P-1 ratings from Standard & Poor’s (“S&P”) and Moody’s, respectively. We also hold marketable equity securities as a long-term investment in Other Assets.
Note 5: Receivables, Net
Receivables, net consisted of the following (in thousands):
			March 31, 2011			December 31, 2010
Trade receivables			$	173,264		$	170,851
Contracts in process				21,891			25,208
Other receivables				3,983			3,963
Total receivables				199,138			200,022
Allowance for doubtful accounts				(17,723	)		(15,153	)
Total receivables, net			$	181,415		$	184,869
Trade receivables included $5.6 million and $5.8 million of amounts due from related parties as of March 31, 2011 and December 31, 2010, respectively. Advances and progress billings offset against contracts in process amounted to $11.3 million and $2.8 million as of March 31, 2011 and December 31, 2010, respectively.
Note 6: Inventories
Inventories consisted of the following (in thousands):
			March 31, 2011			December 31, 2010
Production materials and supplies			$	7,399		$	7,270
Work in process				11,537			12,828
Finished goods				40,691			37,721
Total inventories			$	59,627		$	57,819

Our investments in U.S. government bonds and treasury bills have AAA and Aaa ratings from Standard & Poor’s (“S&P”) and Moody’s, 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

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

	September 30, 2010			December 31, 2009
Trade receivables	$	148,981		$	154,037
Contracts in process		20,234			16,952
Other receivables		3,614			3,902
Total receivables		172,829			174,891
Allowance for doubtful accounts		(10,957	)		(12,085	)
Total receivables, net	$	161,872		$	162,806

Trade receivables included $7.7 million and $8.7 million of amounts due from related parties as of September 30, 2010 and December 31, 2009, respectively. Advances and progress billings offset against contracts in process amounted to $3.0 million and $0.3 million as of September 30, 2010 and December 31, 2009, respectively.

Note 4: Inventories

Inventories consisted of the following (in thousands):

	September 30, 2010		December 31, 2009
Production materials and supplies	$	7,293	$	7,896
Work in process		16,507		15,615
Finished goods		33,137		36,733
Total inventories	$	56,937	$	60,244

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Inventories are carried at the lower of cost 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 57: Property, Net

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

		Estimated Useful Lives (years)		~~September~~March 3031, ~~2010~~2011			December 31, ~~2009~~2010
Land and improvements			10	$	5,~~892~~907		$	5,~~885~~888
Buildings and leasehold improvements			2 - 30		3436,~~340~~563			3235,~~867~~509
Satellite related assets			15		380,394			380,394
Machinery and equipment			1 - 7		~~322~~216,~~074~~096			~~250~~211,~~345~~820
VSAT operating lease hardware			2 - 5		17,220			18,945
Consumer rental equipment			2 - 4		172,438			140,616
Furniture and fixtures			7		1,641			1,557
VSAT operating lease hardware			2 - 5		10,910			13,137
Construction in progress	- Jupiter				196,655			66,555
Furniture and fixtures			7		1,742			1,714
	- Other				14,603			12,888
Construction in progress	- Jupiter				294,494			238,358
Total property					972,819			769,436
	- Other				19,609			15,924
Accumulated depreciation					(244,459	)		(167,472	)
Total property					1,138,153			1,043,360
Total property, net				$	728,360		$	601,964
Accumulated depreciation					(300,898	)		(269,708	)
Total property, net				$	837,255		$	773,652

~~Satellite~~Property ~~related~~and ~~assets~~equipment ~~primarily~~are ~~consist~~carried ofat ~~SPACEWAYTM~~cost ~~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~~depreciated toor ~~depreciate~~amortized ~~its related costs~~ on a straight-line basis over ~~the~~their estimated useful ~~life~~lives. ofA 15significant ~~years.~~component ~~Satellite~~of ~~related~~our ~~assets~~property ~~include the~~and ~~costs~~equipment is associated with ~~the~~our ~~construction~~SPACEWAYTM ~~and~~3 ~~launch~~(“SPACEWAY of3”) ~~the~~ satellite, ~~insurance~~capitalized ~~premiums~~costs ~~for~~associated ~~the~~with ~~satellite~~our ~~launch~~Jupiter satellite and ~~the~~related ~~in-orbit testing period~~assets, ~~interest incurred during~~ and the ~~construction~~consumer ofrental ~~the satellite~~equipment, ~~and~~related ~~other~~to ~~costs~~our ~~directly~~consumer ~~related~~rental ~~to the satellite~~program.

In June 2009, we entered into an agreement with Space Systems/Loral, Inc. (“SS/L”), under which SS/L will manufacture Jupiter, our next-generation and geostationary high throughput satellite. 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 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. Jupiter is scheduled to be launched in the first half of 2012.

WeCapitalized ~~capitalized~~satellite ~~interest~~costs ofare depreciated ~~$3.9~~on ~~million~~a ~~and~~straight-line ~~$8.6~~basis ~~million~~over ~~for~~ the ~~three~~estimated ~~and~~satellite ~~nine~~useful life of 15 years. For the three months ended ~~September~~March 3031, 2011 and 2010, ~~respectively,~~we ~~and~~recorded $06.4 million ~~for each of the three~~ and ~~nine~~$2.0 ~~months ended September 30~~million, ~~2009~~respectively, ~~related~~of tocapitalized ~~the~~interest ~~construction~~related ofto Jupiter.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 6 8: Intangible Assets, Net

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

	Estimated Useful Lives (years)		~~Cost Basis~~		Cost Basis		~~Accumulated Amortization~~		Accumulated Amortization		~~Net Basis~~		Net Basis
September 30, 2010:
March 31, 2011:
Customer relationships	8	8	$	~~9,786~~	$	9,785	$	~~(5,030~~	)$	(5,590	$)	~~4,756~~	$	4,195
Patented technology and trademarks	~~8 -10~~	8 -10		~~15,275~~		15,275		~~(8,610~~	)$	(9,414	)	~~6,665~~		5,861
Total intangible assets, net			$	~~25,061~~	$	25,060	$	~~(13,640~~	)$	(15,004	$)	~~11,421~~	$	10,056
December 31, 2009:
December 31, 2010:
Backlog and customer relationships	~~4 - 8~~	8	$	~~21,612~~	$	9,785	$	~~(16,015~~	)$	(5,310	$)	~~5,597~~	$	4,475
Patented technology and trademarks	~~2 -10~~	8 -10		~~15,745~~		15,275		~~(7,854~~	)	(9,012	)	~~7,891~~		6,263
Total intangible assets, net			$	~~37,357~~	$	25,060	$	~~(23,869~~	)$	(14,322	$)	~~13,488~~	$	10,738
We amortize the recorded values of our intangible assets over their estimated useful lives. For each of the three months ended March 31, 2011 and 2010, we recorded $0.7 million of amortization expense. Estimated future amortization expense as of March 31, 2011 is as follows (in thousands):
													Amount
Remaining nine months ending December 31, 2011													$	2,048
Year ending December 31,
2012														2,730
2013														2,730
2014														1,237
2015														1,237
2016														74
Total estimated future amortization expense													$	10,056
Note 9: Other Assets Other assets consisted of the following (in thousands):
									March 31, 2011				December 31, 2010
Subscriber acquisition costs									$	25,755			$	25,695
Debt issuance costs										17,304				17,150
Other										25,226				24,614
Total other assets									$	68,285			$	67,459

We amortize the recorded values of our intangible assets over their estimated useful lives. As of September 30, 2010, our intangible assets excluded, in the aggregate, $12.3 million of fully amortized intangible assets. For the three months ended September 30, 2010 and 2009, we recorded $0.7 million and $1.4 million, respectively, of amortization expense. For the nine months ended September 30, 2010 and 2009, we recorded $2.1 million and $4.2 million, respectively, of amortization expense. Estimated future amortization expense as of September 30, 2010 is as follows (in thousands):

	Amount
Remaining three months ending December 31, 2010	$	683
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	$	11,421

Note 7: Other Assets

Other assets consisted of the following (in thousands):

	September 30, 2010		December 31, 2009
Subscriber acquisition costs	$	26,328	$	29,884
Debt issuance costs		12,514		12,899
Other		25,242		25,741
Total other assets	$	64,084	$	68,524

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 8 10: Debt

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

	Interest Rates atSeptember 30, 2010		September 30, 2010				December 31, 2009
	Interest Rates atMarch 31, 2011				March 31, 2011				December 31, 2010
VSAT hardware financing	8.00% - 15.00%		$	3,165			$	3,158
Revolving bank borrowings		8.75%				898				967
Revolving bank borrowings	8.75%			438				1,547
VSAT hardware financing		7.27% - 15.00%				2,036				3,109
Capital lease and other	5.50% - 39.60%			2,530				2,045
Capital lease and others		5.50% - 39.60%				1,675				2,120
Total short-term and the current portion of long-term debt			$	~~6,133~~	$	4,609	$	~~6,750~~	$	6,196
As of March 31, 2011, we had an outstanding revolving bank borrowing of $0.9 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 the borrowing. The total amount available for borrowing by our foreign subsidiaries under various revolving lines of credit was $5.1 million and $4.1 million as of March 31, 2011 and December 31, 2010, respectively.
Long-term debt consisted of the following (dollars in thousands):
	Interest Rates atMarch 31, 2011				March 31,2011				December 31,2010
Senior Notes(1)		9.50%			$	590,792			$	590,173
Term Loan Facility		7.62%				115,000				115,000
COFACE Guaranteed Facility		5.13%				43,523				27,403
VSAT hardware financing		7.27% - 15.00%				2,139				3,214
Capital lease and others		5.50% - 6.00%				4,926				4,697
Total long-term debt					$	756,380			$	740,487

As of September 30, 2010, we had outstanding revolving bank borrowings of $0.4 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 $5.7 million as of September 30, 2010.

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

	Interest Rates atSeptember 30, 2010		September 30, 2010		December 31, 2009
Senior Notes(1)		9.50%	$	589,573	$	587,874
Term Loan Facility		7.62%		115,000		115,000
VSAT hardware financing		8.00% - 15.00%		3,841		5,861
Capital lease and other		5.50% - 39.60%		4,721		6,222
Total long-term debt			$	713,135	$	714,957

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

On ~~March~~October 1629, 2010, we entered into a ~~credit~~$115 million loan agreement with JPBNP ~~Morgan~~Paribas ~~Chase Bank, N.A.~~ and ~~Barclays~~Societe ~~Capital~~Generale ~~to amend and restate our senior secured $50 million revolving credit facility~~ (the “~~Revolving~~COFACE ~~Credit~~Guaranteed Facility”)~~. Pursuant~~, towhich ~~the~~is ~~terms~~guaranteed ofby ~~the agreement~~COFACE, ~~among other changes,~~ the ~~maturity~~French ~~date of the Revolving~~ Export Credit ~~Facility~~Agency, ~~was extended~~ to ~~March 16,~~finance ~~2014,~~the ~~subject~~launch torelated ancosts ~~early~~for ~~maturity~~our ~~date~~Jupiter ofsatellite. 91Pursuant ~~days prior~~ to ~~March 16,~~ ~~2014 in~~ the ~~event~~COFACE ~~our~~Guaranteed ~~2009~~Facility, ~~and~~loan ~~2006~~draw-downs, ~~Senior~~which ~~Notes~~began ~~and~~in ~~our~~the ~~Term~~fourth ~~Loan~~quarter ~~Facility~~of ~~(as~~2010, ~~defined~~will ~~below)~~occur ~~are~~over ~~not~~the ~~(i) repaid~~construction inperiod ~~full~~for orthe ~~(ii) refinanced~~Jupiter ~~with~~launch vehicle ~~new~~up ~~debt~~to ~~(or~~the ~~amended)~~time ~~with maturities~~ of nothe ~~earlier~~launch, ~~than~~which 91is ~~days~~estimated ~~after March 16,~~to ~~2014. The~~be ~~terms~~in of the ~~Revolving~~first ~~Credit~~half ~~Facility~~of ~~were~~2012. ~~amended~~The toCOFACE ~~be:~~Guaranteed ~~(i) in~~Facility ~~respect~~has ofa ~~the~~fixed interest rate, atof ~~our option~~5.13%, ~~the~~payable ~~Alternative~~semi-annually ~~Borrowing~~in ~~Rate~~arrears ~~(as~~starting ~~defined~~six inmonths ~~the~~after ~~Revolving~~each ~~Credit~~borrowing, ~~Facility)~~and ~~plus~~requires ~~2.00%~~that principal orrepayments ~~the~~be ~~Adjusted London~~paid ~~Interbank~~in ~~Offered~~17 ~~Rate~~consecutive ~~(“LIBOR”)~~equal ~~(as~~semi-annual ~~defined~~installments instarting the ~~Revolving~~earlier ~~Credit~~of ~~Facility) plus 3.00% and~~ (iii) insix ~~respect~~months ofafter the ~~participation~~in-orbit ~~fee~~delivery ~~for outstanding letters~~ of ~~credit~~Jupiter, ~~3.00% per~~or ~~annum~~(ii) December 1, ~~in each case subject to downward adjustment based on our leverage ratio~~2012. ~~For~~ ~~the~~The ~~nine~~agreement ~~months~~also ~~ended~~contains ~~September 30,~~covenants ~~2010~~ and conditions ~~2009,~~which ~~there~~are ~~was~~customary nofor ~~borrowing~~financings ~~under~~of ~~the~~this ~~Revolving Credit Facility~~type. As of ~~September~~March 3031, 2011 and December 31, 2010, the ~~Revolving~~COFACE ~~Credit~~Guaranteed Facility had ~~total~~an ~~outstanding letters~~available ofborrowing ~~credit~~capacity of $471.95 million and ~~an available borrowing capacity of~~ $4587.16 million, respectively.

InOn ~~May~~March ~~2009~~16, we2010, ~~along~~we entered into a credit agreement with JP Morgan Chase Bank, N.A. and Barclays Capital to amend and restate our ~~subsidiary,~~senior ~~HNS~~secured ~~Finance~~$50 ~~Corp~~million revolving credit facility (the “Revolving Credit Facility”)., Pursuant asto ~~co-issuer~~the terms of the agreement, ~~completed~~among aother ~~private~~changes, ~~debt~~the ~~offering~~maturity date of ~~$150.0~~the ~~million~~Revolving ofCredit ~~9.50%~~Facility ~~senior~~was ~~notes~~extended ~~maturing~~to onMarch 16, 2014, ~~April~~subject to an early maturity date of 91 days prior to March 1516, 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 ~~Interest~~terms onof the ~~2009~~Revolving ~~Senior~~Credit ~~Notes~~Facility iswere ~~accrued~~amended ~~from April~~to be: (i) 15in respect of the interest rate, ~~2009~~at ~~and~~our isoption, ~~paid~~the ~~semi-annually~~Alternative Borrowing Rate (as defined in the ~~arrears~~Revolving onCredit ~~April 15~~Facility) plus 2.00% or the Adjusted London Interbank Offered Rate (“LIBOR”) (as defined in the Revolving Credit Facility) plus 3.00% and ~~October~~(ii) 15in respect of ~~each~~the ~~year,~~participation ~~beginning~~fee onfor ~~October~~outstanding letters of credit, 3.00% 15per annum, ~~2009.~~in each case subject to downward adjustment based on our leverage ratio. As of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, wethe ~~recorded~~Revolving Credit Facility had no outstanding borrowing, $64.56 million and $34.04 million, respectively, of ~~accrued~~outstanding ~~interest~~letters ~~payable~~and ~~related~~an toavailable ~~the~~borrowing ~~2009~~capacity ~~Senior~~of ~~Notes~~$45.4 million and $45.6 million, respectively.

In February 2007, 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 September 30, 2010 and December 31, 2009, interest accrued based on the Swap Agreement and the Term Loan Facility was $0.8 million.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In ~~April 2006~~May 2009, we, along with our subsidiary, HNS Finance Corp., as co-issuer, ~~issued~~completed a private debt offering of $~~450~~150.0 million of 9.50% senior notes maturing on April 15, 2014 (the “~~2006~~2009 Senior Notes”). The terms and covenants with respect to the 2009 Senior Notes are substantially identical to those of the 2006 Senior Notes (as defined below). Interest on the ~~2006~~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 ~~September~~ March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, we recorded $~~19.~~6.5 million and $83.90 million, respectively, of accrued interest payable related to the ~~2006~~2009 Senior Notes.

~~Although~~In ~~the~~February ~~terms and covenants with respect to the 2009 Senior Notes are substantially identical to the 2006 Senior Notes~~2007, ~~the~~we ~~2009~~borrowed ~~Senior~~$115 ~~Notes~~million ~~were~~from ~~issued under~~ a ~~separate~~syndicate ~~indenture and do not vote together with the 2006 Senior Notes. Each~~ of ~~the~~banks ~~indentures governing the 2006 Senior Notes and the 2009 Senior Notes~~ (~~collectively,~~ the “~~Senior~~Term ~~Notes~~Loan Facility”), ~~the~~which ~~agreement~~matures ~~governing~~on ~~the~~April 15, ~~amended~~2014. ~~Revolving~~The ~~Credit~~interest ~~Facility~~on ~~and~~ the ~~agreement governing the~~ Term Loan Facility ~~require~~is uspaid toquarterly ~~comply~~at Adjusted ~~with~~LIBOR ~~certain affirmative and negative covenants:~~ (~~i) in the case of the indentures, for so long~~ as ~~any~~defined ~~Senior Notes are outstanding; (ii)~~ in the ~~case~~Term ofLoan ~~the amended Revolving Credit~~ Facility,) soplus ~~long as the amended Revolving Credit Facility is in effect; and (iii)~~2.50% inper ~~the~~annum. ~~case~~To ofmitigate the ~~Term~~variable ~~Loan~~interest ~~Facility,~~rate ~~for~~risk soassociated ~~long~~with as the Term Loan Facility remains outstanding. Negative 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; prepay, ~~redeem~~we orentered ~~repurchase debt; make loans and investments; enter~~ into ~~agreements~~a ~~that~~swap ~~restrict~~agreement ~~distributions~~to ~~from~~swap ~~our~~the ~~subsidiaries;~~Adjusted ~~sell~~LIBOR ~~assets~~for ~~and~~a ~~capital~~fixed ~~stock of our subsidiaries; enter into certain transactions with affiliates; consolidate~~interest orrate ~~merge with or into, or sell substantially all~~ of ~~our~~5.12% per ~~assets~~annum ~~to,~~(the ~~another~~“Swap ~~person; and enter into new lines of business~~Agreement”). InAs ~~addition~~a ~~to these negative covenants~~result, the ~~amended Revolving Credit Facility, the indentures governing the Senior Notes and/or the agreement governing the~~ Term Loan Facility ~~contain~~has ~~affirmative~~a ~~covenants~~fixed ~~that~~interest ~~require~~rate usof ~~to: (i)~~7.62% ~~preserve~~per ~~our~~annum. ~~businesses~~As ~~and~~of ~~properties; (ii)~~March ~~maintain~~31, ~~insurance~~2011 ~~over our assets; (iii) pay~~ and ~~discharge all material taxes when due; and (iv)~~December ~~furnish~~31, ~~the lenders’ administrative agent our financial statements for each fiscal quarter and fiscal year~~2010, ~~certificates~~interest ~~from~~accrued abased ~~financial~~on ~~officer certifying that no Event of Default or Default has occurred during~~ the ~~fiscal~~Swap ~~period~~Agreement ~~being reported, litigation~~ and ~~other~~the ~~notices,~~Term ~~compliance~~Loan ~~with~~Facility ~~laws,~~was ~~maintenance of records and other such customary covenants~~$0.7 ~~Management believes that we were in compliance with all of our debt covenants as of September 30, 2010~~million.

In ~~July~~April 2006, we ~~entered~~issued ~~into~~$450 amillion ~~capital~~of ~~lease~~9.50% ~~with~~senior 95notes ~~West~~maturing ~~Co.~~on April 15, ~~Inc.~~2014 (the “952006 ~~West~~Senior ~~Co.~~Notes”). ~~and~~Interest ~~its~~on ~~parent,~~the ~~Miraxis~~2006 ~~License~~Senior ~~Holdings, LLC~~Notes ~~(“MLH”),~~is ~~which~~paid ~~are~~semi-annually ~~our related parties as discussed~~ in ~~Note~~arrears ~~14—Transactions~~on ~~with~~April 15 ~~Related~~and ~~Parties~~October 15. ~~Pursuant~~As toof ~~the capital lease agreement~~March 31, 952011 ~~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 SeptemberDecember 3031, 2010, ~~the~~we ~~remaining~~recorded ~~debt~~$19.6 ~~balance~~million ~~under the capital lease was~~ and $48.9 million, ~~which~~respectively, ~~was~~of ~~included~~accrued ~~in “Capital~~interest ~~lease~~payable ~~and~~related ~~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~~2006 ~~including~~Senior ~~our ability to operate SPACEWAY 3 and are $1~~Notes.0 ~~million for each of the years ending December 31, 2011 through 2016.~~

~~Note~~Although 9the terms and covenants with respect to the 2009 Senior Notes are substantially identical to the 2006 Senior Notes, the 2009 Senior Notes were issued under a separate indenture and do not vote together with the 2006 Senior Notes. Each of the indentures governing the 2006 Senior Notes and the 2009 Senior Notes (collectively, the “Senior Notes”), the agreement governing the amended Revolving Credit Facility, the agreement governing the COFACE Guaranteed Facility and the agreement governing the Term Loan Facility require us to comply with certain affirmative and negative covenants: ~~Financial~~ ~~Instruments~~(i) in the case of the indentures, for so long as any Senior Notes are outstanding; (ii) in the case of the amended Revolving Credit Facility, so long as the amended Revolving Credit Facility is in effect; (iii) in the case of the COFACE Guaranteed Facility, for so long as the COFACE Guaranteed Facility remains outstanding; and (iv) in the case of the Term Loan Facility, for so long as the Term Loan Facility remains outstanding. Negative 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; prepay, redeem 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 into, or sell substantially all of our assets to, another person; and enter into new lines of business. In addition to these negative covenants, the amended Revolving Credit Facility, the indentures governing the Senior Notes, the COFACE Guaranteed Facility 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 (as defined in the respective agreements) 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, 2011.

~~Interest~~Prior ~~Rate~~to ~~Swap~~September 2005, we leased certain VSAT hardware under an operating lease with customers which were funded by two financial institutions at the inception of the operating lease for the future operating lease revenues. As part of the agreement, the financial institution received title to the equipment and obtained the residual rights to the equipment after the operating lease with the customer expires and assumed the credit risk associated with non-payment by the customers. However, we retained a continuing obligation to the financing institution to indemnify it from losses it may incur (up to the original value of the hardware) from non-performance of our system (a “Non-Performance Event”). Accordingly, we recognized a liability to the financial institution for the funded amount. We have not provided a reserve for a Non-Performance Event because we believe that the possibility of an occurrence of a Non-Performance Event due to a service outage is remote, given the ability to quickly re-establish customer service at relatively nominal costs.

~~The interest~~In onJuly ~~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~~2006, we entered into ~~the Swap Agreement to swap the Adjusted LIBOR for~~ a ~~fixed interest~~capital ~~rate~~lease ofwith ~~5.12% per~~95 ~~annum.~~West ~~As a result~~Co., ~~the Term Loan Facility has a fixed interest rate of 7~~Inc.~~62% per~~ ~~annum. We account for the Swap Agreement as a cash flow hedge in accordance with ASC 815-30~~ (“~~Derivatives~~95 ~~and~~West ~~Hedging —Cash Flow Hedges~~Co.”) ~~Accordingly,~~and inits ~~connection with the fair market valuation of the interest rate swap~~parent, weMiraxis ~~recorded~~License ~~a net unrealized loss of $2.0 million and $4.6 million for the three and nine months ended September 30~~Holdings, ~~2010, respectively,~~LLC ~~in “Accumulated other comprehensive loss”~~ (“~~AOCL~~MLH”)~~. For the three and nine months ended September 30~~, ~~2009,~~which weare ~~recognized~~our ~~$1.4 million~~related ofparties ~~net~~as ~~unrealized loss and $5.9 million of net unrealized gain,~~discussed ~~respectively,~~ in ~~AOCL~~Note ~~associated~~15—Transactions with ~~the~~Related ~~fair market valuation of the interest rate swap~~Parties. ~~The~~Pursuant remaining net interest payments based on the Swap Agreement and the Term Loan Facility are paid quarterly and estimated to be approximately $2.2 million for the three 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 September 30, 2010 and 2009, we recorded $2.3 million of interest expense on the Term Loan Facility. For the nine months ended September 30, 2010 and 2009, we recorded $6.7 million and $6.8 million, respectively, of interest expense on the Term Loan Facility.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Note~~ to ~~10:~~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 ~~Fair~~West ~~Value~~Co. and MLH have higher priority rights. As of March 31, 2011, 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 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.

Note 11: Financial Instruments

Interest Rate Swap

The 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 gain of $1.2 million and a net unrealized loss of $1.0 million for the three months ended March 31, 2011 and 2010, respectively, in AOCL 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, 2011 through 2013 and $3.3 million for the year ending December 31, 2014. For each of the three months ended March 31, 2011 and 2010, we recorded $2.2 million of interest expense on the Term Loan Facility.

Note 12: 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 ~~September~~March 3031, ~~2010~~2011, the carrying values of cash and cash equivalents, receivables, net, accounts payable, and short-term debt, ~~except~~approximated ~~for~~their ~~the~~respective ~~Senior~~fair ~~Notes~~values asbecause ~~described~~of ~~below, approximated~~ their ~~respective~~short-term ~~fair values~~maturities.

Our Senior Notes were categorized as Level 1 of the fair value hierarchy as we utilized pricing for recent market transactions for identical notes ~~because of their short-term maturities~~.

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.

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

			September 30, 2010
	Level	Included In	Carrying Value			Fair Value
Marketable securities	1	Marketable securities	$	15,000		$	15,000
2006 Senior Notes	1	Long-term debt	$	450,000		$	468,000
2009 Senior Notes	1	Long-term debt	$	139,573	(1)	$	155,250
Interest rate swap on the Term Loan Facility	2	Other long-term liabilities	$	15,145		$	15,145

(1) Amount represents the face value of $150.0 million, net the remaining original issue discount of $10.4 million.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Note~~Our Term Loan Facility originally had a variable interest rate based on observable ~~11: Income~~interest ~~Taxes~~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.

WeAssets ~~are a limited liability company~~ and ~~have~~liabilities ~~elected~~measured toat befair ~~treated~~value ason a ~~partnership~~ ~~for~~recurring ~~income~~basis ~~tax purposes. As such, our U.S. federal and state income taxes (in the states which tax limited liability companies as partnerships)~~ are ~~the~~summarized ~~direct~~below 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, LightSquared, Inc. (~~formerly~~dollars ~~SkyTerra~~in ~~Communications, Inc.~~thousands),: 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.

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 nine months ended September 30, 2010, we recorded $1.6 million and $4.3 million, respectively, of net income tax expense. For the three and nine months ended September 30, 2009, we recorded a net income tax expense of $1.0 million and $0.8 million, respectively. The net income tax expense was partially offset by an income tax benefit attributable to our Indian subsidiary as a result of 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.


			March 31, 2011
	Level	Included In	Carrying Value			Fair Value
Marketable securities	2	Marketable securities	$	2,679		$	2,679
2006 Senior Notes	1	Long-term debt	$	450,000		$	465,750
2009 Senior Notes	1	Long-term debt	$	140,792	⁽¹⁾	$	157,500
Term Loan Facility	2	Long-term debt	$	115,000		$	114,425
COFACE Guaranteed Facility	2	Long-term debt	$	43,523		$	44,379
Interest rate swap on the Term Loan Facility	2	Other long-term liabilities	$	11,686		$	11,686
Capital lease and others	2	Long-term debt	$	4,926		$	4,987
VSAT hardware financing	2	Long-term debt	$	2,139		$	2,029

~~Certain~~(1) ofAmount ~~our~~represents ~~subsidiaries~~the ~~are~~face ~~expected~~value ~~to utilize a portion~~ of ~~their net operating loss carry-forwards during 2010~~$150.0 ~~Several~~million, ofnet ~~these subsidiaries have not met~~ the ~~more-likely-than-not~~remaining ~~criteria~~original ofissue ~~ASC~~discount ~~740 “Income Taxes” and therefore maintain a full valuation allowance on their deferred tax assets as~~ of ~~September 30, 2010~~$9.2 ~~Any benefit realized from the reversal of valuation allowance will be recorded as a reduction to income tax expense~~million.

~~For~~Note ~~the~~13: ~~nine~~Income ~~months~~Taxes ended September 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:

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

We are a limited liability company and are treated as a partnership for income tax purposes. As such, 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.

~~Note~~For the three months ended March 31, 2011 and 2010, we recorded a net income tax expense of $1.8 million and $1.2 million, ~~12: Employee~~respectively. ~~Share-Based~~Our ~~Payments~~income tax expense represents taxes associated with our foreign subsidiaries and with states that impose income taxes on limited liability companies.

~~HCI’s~~As ~~2006~~of ~~Equity~~March 31, 2011, our German and ~~Incentive~~United ~~Plan~~Kingdom (“U.K.”) subsidiaries have approximately $38.5 million and $56.2 million of net operating loss (“NOL”) carryforwards, respectively. As the U.K. subsidiary is treated as a disregarded entity for U.S. income tax purposes, its net income or loss is reported on our partnership income tax return and subsequently allocated to the members. The NOL carryforwards are available to reduce future U.K. taxable income and do not expire. The NOL carryforwards of the German subsidiary are available to reduce future German taxable income and do not expire.

InCertain ~~January 2006, HCI’s Board~~ of ~~Directors~~our ~~approved~~subsidiaries ~~the~~have ~~HCI~~not ~~2006~~met ~~Equity and Incentive Plan (~~the ~~“Plan”). The Plan provides for the grant of equity~~more-~~based awards, including restricted common stock, restricted stock units, stock options, stock appreciation rights and other equity~~likely-~~based awards, as well as cash bonuses and long~~than-~~term~~not ~~cash~~criteria ~~awards to directors, officers, employees, advisors and consultants~~ of ~~HCI~~ASC ~~and~~740 ~~its~~“Income ~~subsidiaries~~Taxes” ~~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~~therefore ~~stock~~maintain ~~units,~~a ~~issued~~full ~~only~~valuation toallowance ~~our~~on ~~international~~their ~~employees,~~deferred ~~after~~tax ~~adjustment~~assets ~~for~~as ~~forfeitures,~~ of ~~$0.6 million and $0.7 million for the three months ended September~~ March 3031, ~~2010 and 2009, respectively, and $1~~2011.8 ~~million~~Any ~~and~~benefit ~~$1.9~~realized ~~million for~~from the ~~nine~~reversal ~~months ended September 30, 2010 and 2009, respectively. As~~ of ~~September 30,~~valuation ~~2010,~~allowance ~~we had $0.9 million of unrecognized compensation expense related to the restricted stock awards and restricted stock units, which~~ will be ~~recognized~~ ~~over~~recorded ~~the~~as ~~remaining~~a ~~weighted~~reduction ~~average~~to ~~life~~income oftax 1expense.04 ~~years.~~

For the three months ended March 31, 2011, we did not identify any significant uncertain tax positions. We do not believe that the unrecognized tax benefits will significantly fluctuate within the next twelve months. Following is a description of the tax years that remain subject to examination by major tax jurisdictions:

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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


United States - Federal		2007 and forward
United States - Various States		2006 and forward
United Kingdom		2005 and forward
Germany		2004 and forward
Italy		2006 and forward
India		1995 and forward
Mexico		2000 and forward
Brazil		2004 and forward

Note 14: Employee Share-Based Payments

HCI 2006 Equity and Incentive Plan

In January 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 $0.3 million and $0.6 million for the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011, we had $0.9 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 2.12 years.

Summaries of non-vested restricted stock awards and restricted stock units are as follows:

Restricted Stock Awards

	Shares			Weighted-AverageGrant-~~Date~~DateFair ~~Fair~~ Value
Non-vested at December 31, 2009		72,360		$	47.58
Non-vested at December 31, 2010		18,326		$	49.85
Forfeited		(2,625	)	$	46.50
Vested		(2,175	)	$	49.27
Vested		(50,409	)	$	46.81
Non-vested at March 31, 2011		16,151		$	49.93
Non-vested at September 30, 2010		19,326		$	49.72

Restricted Stock Units

	Shares			Weighted-AverageGrant-~~Date~~DateFair ~~Fair~~ Value
Non-vested at December 31, 2009		8,675		$	28.73
Non-vested at December 31, 2010		23,500		$	26.68
Vested		(12,~~500~~000	)	$	468.6482
Non-vested at September 30, 2010		7,175		$	24.99
Non-vested at March 31, 2011		21,500		$	28.34

Stock Option Program

OnOur ~~April 24, 2008, HCI’s~~ Compensation Committee ~~made~~makes stock option awards under the Plan (the “Stock Option Program”), which ~~consisted~~consists of the issuance of non-qualified stock options to employees of ~~HCI~~the ~~and~~Company and its subsidiaries. The grant and exercise price of the stock options is the closing price of ~~HCI~~the Company’s common stock on the date of the grant. Any options forfeited or cancelled before exercise will be deposited back into the ~~Option~~ ~~Pool~~option ~~and~~pool and will become available for award under the Stock Option Program. Each grant has a 10 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.

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.

As a result of 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 NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The~~ the ~~key~~Stock ~~assumptions~~Option ~~for~~Program. Each grant has a 10 year life and vests 50% on the ~~option~~second ~~awards~~anniversary ~~for~~of the ~~nine~~grant ~~months~~date ~~ended~~and ~~September 30,~~25% on each of the third and fourth anniversaries of the grant date. The fair ~~2010~~value ~~are~~of aseach ~~follows:~~option award was estimated on the date of grant using a Black-Scholes option valuation model.

								Nine Months EndedSeptember 30, 2010
Volatility range								45.33% - 45.90%
Weighted-average volatility								45.74%
Expected term								5 years
Risk-free interest rate range								1.41% - 2.59%
Weighted-average risk-free interest rate								2.29%
A summary of option activity under the Stock Option Program is presented below:

The key assumptions for the option awards for the three months ended March 31, 2011 are as follows:

	Option Shares			Weighted-Average Exercise Price			WeightedAverageRemaining Contractual Life		AggregateIntrinsicValue(1)
						Three Months EndedMarch 31, 2011
Outstanding at December 31, 2009		648,050		$	16.77			9.37	$	6,326
Volatility						45.4%
Granted		7,000		$	26.99
Weighted-average volatility						45.4%
Forfeited or expired		(13,850	)	$	15.54
Expected term						5 years
Outstanding at September 30, 2010		641,200		$	16.90			8.63	$	6,837
Risk-free interest rate						2.02%
Vested and expected to vest at September 30, 2010		577,080		$	16.90			8.63	$	6,153
Dividend yield						-
Exercisable at September 30, 2010		-		$	-
Discount for post-vesting restrictions						-
(1) In thousands.
A summary of option activity under the Stock Option Program is presented below:

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 September 30, 2010 and 2009, respectively, and $3.0 million and $2.6 million for the nine months ended September 30, 2010 and 2009, respectively. As of September 30, 2010, we had $7.2 million of unrecognized compensation expense for non-vested stock options, which will be recognized over the remaining weighted average period of 2.61 years.



	Option Shares			Weighted- Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2010		1,196,950		$	22.56		9.04	$	21,412
Granted		5,000		$	61.59		9.85		-
Forfeited or expired		(3,250	)	$	20.17

Outstanding at March 31, 2011		1,198,700		$	22.73		8.80	$	44,289

Vested and expected to vest at March 31, 2011		1,137,578		$	22.74		8.80	$	42,024

Exercisable at March 31, 2011		1,250		$	17.03		7.71	$	53

The compensation expense related to stock option awards is recognized on a straight-line basis over the four-year vesting period beginning on the date of grant. We recorded $1.4 million and $1.0 million of compensation expense for the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011, we had $11.3 million of unrecognized compensation expense for non-vested stock options, which will be recognized over a weighted average period of 2.88 years.

Bonus Unit Plan

In July 2005, we adopted an incentive bonus unit plan (the “Bonus Unit Plan”), pursuant to which bonus units were granted to certain employees of the Company. The bonus units provide for time vesting over five years and are subject to a participant’s continued employment with the Company. Pursuant to 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 based 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 $0.21 million ~~for~~and ~~each~~$0.2 ofmillion for the three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, ~~and~~respectively, ~~$0.6~~related ~~million~~to ~~for~~the ~~each~~Bonus ofUnit ~~the~~Plan. ~~nine~~As ~~months~~of ~~ended~~March 31, ~~September~~2011 and December 3031, 2010, we had 290,000 and ~~2009~~300,000, ~~related~~respectively, toof ~~the~~outstanding ~~Bonus~~bonus ~~Unit~~units, ~~Plan.~~which Onwill vest on July 15, ~~2010,~~2011. If the ~~2.1 million~~total ~~vested~~outstanding bonus units ~~vested~~ were ~~exchanged~~to ~~for~~convert ~~approximately~~into ~~207~~HCI’s common stock as of March 31,~~000~~ ~~shares~~2011, ~~(net~~they ofcould ~~income~~be ~~tax~~exchanged ~~withholding)~~for approximately 33,900 shares of HCI’s common stock, ~~pursuant~~net toof applicable tax withholding. For the ~~Bonus~~three ~~Unit~~months ~~Plan.~~ended ~~The~~March 31, ~~remaining~~2011, ~~300~~10,000 bonus units ~~will~~were ~~vest on July 15, 2011~~forfeited.

Class B Membership Interests

Class B 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

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

interests are subject to certain vesting requirements, with 50% 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 ~~following~~number of shares of HCI’s common stock to be issued upon such exchange is based upon the fair market ~~table~~value ~~summarizes~~of ~~changes~~such invested ~~bonus~~Class ~~units~~B ~~under~~membership interest tendered for exchange divided by the ~~Bonus~~average ~~Unit~~closing ~~Plan:~~trading price of HCI’s common stock for the 20 business days immediately preceding the date of such exchange. On September 25, 2009, HCI registered 75,000 shares of its common stock with the SEC on a Registration Statement on Form S-8 to be issued, from time to time, upon the exchange of the Class B membership interests.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
Non-vested beginning balance		2,439,500			2,500,000		2,453,250			2,500,000
Converted to HCI common shares		(2,139,500	)		-		(2,139,500	)		-
Forfeited		-			-		(13,750	)		-
Non-vested ending balance		300,000			2,500,000		300,000			2,500,000
Class B Membership Interests

Pursuant to ASC 718 “Compensation—Stock Compensation,” the Company determined that the Class B 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, 2011 and 2010. As of March 31, 2011, we had 3,280 outstanding Class B membership interests, which were fully vested. If the total outstanding Class B membership interests were to convert into HCI’s common stock as of March 31, 2011, they could be exchanged for approximately 693,100 shares of HCI’s common stock.

~~Class~~Note B15: ~~membership~~Transactions 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 ~~50%~~Related ofParties 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 September 30, 2010, 3,259 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 September 30, 2010, they could be exchanged for approximately 584,000 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. Pursuant to ASC 718 “Compensation—Stock Compensation,” the Company determined that the Class B membership interests had nominal value at the date of grant, and, accordingly, minimal compensation expense was recorded for each of the three and nine months ended September 30, 2010 and 2009. A summary of Class B membership interests activities is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010			2009
Outstanding beginning balance		3,280		3,656		3,330			3,656
Converted to HCI common shares		-		-		(50	)		-
Outstanding ending balance		3,280		3,656		3,280			3,656

In the ordinary course of our operations, we enter into transactions with related parties to purchase and/or sell telecommunications services, equipment, and inventory. Related parties include all entities that are controlled by Apollo Management, L.P. and its affiliates (collectively “Apollo”), our Parent’s controlling stockholder.

~~Note~~Hughes ~~13: Long-Term~~Telematics, ~~Cash~~Inc. ~~Incentive Retention Program~~

InHTI ~~2005,~~is ~~the~~controlled ~~Company~~by ~~established~~an aaffiliate ~~one-time~~of ~~employee~~Apollo. Jeffrey ~~retention~~A. ~~program (“Retention Program”)~~Leddy, ~~which~~a ~~was~~member ~~designed~~of toour ~~retain certain~~Board ~~employees~~of ~~chosen~~Managers byand ~~its~~HCI’s ~~senior~~Board ~~management.~~of AsDirectors, ais ~~result~~the ofChief ~~the~~Executive ~~Company~~Officer ~~successfully~~and ~~attaining~~a ~~100%~~director of ~~its~~HTI ~~earnings~~and ~~goal~~owns ~~for~~less ~~2008,~~than as1.5% ~~defined~~of inHTI’s ~~the~~equity ~~Retention~~as ~~Program~~of March 31, ~~the~~2011. ~~Company~~In ~~paid~~addition, anAndrew ~~aggregate~~Africk ofand ~~$14.7 million to eligible participants~~Aaron ~~under~~Stone, ~~the~~members ~~Retention~~of ~~Program~~our inBoard ~~2009,~~ of ~~which~~Managers ~~$13.2~~and ~~million~~HCI’s ~~was~~Board ~~accrued as~~ of ~~December 31~~Directors, ~~2008.~~are ~~The~~directors ~~Company~~of ~~has~~HTI noand ~~further~~partners ~~obligation~~of ~~associated with the Retention Program~~Apollo.

~~Note~~In July ~~14: Transactions~~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 ~~Related~~its ~~Parties~~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 royalty-free, except that HTI has agreed to pay a royalty to us in the event HTI no longer has a commercial or affiliated relationship with us.

In ~~the~~October 2007, we entered into an agreement with HTI and a ~~ordinary~~customer ~~course~~of HTI, whereby we agreed to assume the rights and performance obligations of ~~our~~HTI ~~operations~~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, wethe ~~enter~~Company and HTI have entered into ~~transactions~~a ~~with~~letter ~~related~~agreement ~~parties~~pursuant to ~~purchase~~which ~~and/or~~HTI ~~sell~~has ~~telecommunications~~agreed ~~services~~to take certain actions to enable us to assume HTI’s obligations in the event that such action is required. However, ~~equipment~~as a result of the merger between HTI and Polaris Acquisition Corp in 2009, our obligations to HTI and ~~inventory~~its customer expired. ~~Related~~In ~~parties~~January ~~include~~2008, ~~all~~we ~~entities~~entered ~~that~~into ~~are~~an ~~related~~agreement towith ~~Apollo~~HTI ~~Management~~for the development of an automotive telematics system for HTI, ~~L.P.~~comprising the telematics system hub and ~~its~~ ~~affiliates~~the ~~(collectively~~Telematics Control Unit (“~~Apollo~~TCU”), ~~our~~which ~~Parent’s~~will ~~controlling~~serve ~~stockholder~~as the user appliance in the telematics system.

In March 2009, HCI made an equity investment in HTI, which represented approximately 3.8% of HTI’s outstanding common stock as of March 31, 2011 before giving effect to the “earn-out” of the Escrowed shares. If the full earn-out targets are achieved, HCI’s investment could represent approximately 3.5% of HTI’s outstanding common stock. In addition to the risk and valuation fluctuations associated with the “earn-out” targets, the carrying value of the investment in HTI may be subject to fair value adjustments in future reporting periods.

In 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 (the “Promissory Note”) for $8.3 million of account receivables that HTI owed to the Company. The Promissory Note has an amended maturity date of December 31, 2011 and

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Hughes~~ an ~~Telematics~~interest rate of 12% per annum. As of March 31, ~~Inc~~2011 and December 31, 2010, the remaining Promissory Note had a balance of $5.5 million and $5.6 million, respectively.

In 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 royalty-free, except that HTI 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, we 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. In January 2008, we entered into an agreement with HTI for 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.

In March 2009, 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 approximately 3.3 million shares of HTI common stock (“HTI Shares”), of which 1.3 million shares and 2.0 million shares are referred to as Non-escrowed shares and Escrowed shares, respectively. The Escrowed shares are subject to certain restrictions and/or earn-out provisions 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.

In 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. As of September 30, 2010, the remaining Promissory Note, including accrued interest, had a balance of $7.5 million.

HTI is controlled by an affiliate of Apollo. Jeffrey A. Leddy, 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 September 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.

Hughes Systique Corporation (“Hughes Systique”)

We have contracted with Hughes Systique, 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 ~~September~~ March 3031, ~~2010~~2011, 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.

Hughes Communications, Inc.

We 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.

1795 West Co., Inc.

~~Table~~In July 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 ~~Contents~~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, 2011, 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 10—Debt.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Agreement with 95 West Co., Inc.

In July 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 September 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.

Smart & Final, Inc.

As of ~~September~~March 3031, ~~2010~~2011, Apollo ~~owned,~~has ~~directly~~controlled ~~or indirectly, 95%~~ of Smart & Final, Inc. (“Smart & Final”). Therefore, Smart & Final is indirectly our related party.We provide broadband products and services to Smart & Final.

CKE Restaurants, Inc.

On July 12, 2010, an affiliate of Apollo acquired CKE Restaurants, Inc. (“CKE”). As a result, CKE indirectly became our related party as of that date. We provide broadband products and services to CKE.

Other

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.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Related Party Transactions

Sales and purchase transactions with related parties are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2010		2009		2010		2009
	2011		2010
Sales:
HTI	$	-	$	~~7,567~~301	$	~~501~~	$	~~22,295~~
Others		~~208~~244		~~129~~123		~~453~~		~~395~~
Total sales	$	~~208~~244	$	~~7,696~~424	$	~~954~~	$	~~22,690~~
Purchases:
Hughes Systique	$	2,~~514~~400	$	2,~~688~~455	$	~~7,544~~	$	~~7,569~~
HCI		2,~~295~~454		2,~~212~~483		~~7,253~~		~~6,721~~
Total purchases	$	4,~~809~~854	$	4,~~900~~938	$	~~14,797~~	$	~~14,290~~
Assets and liabilities resulting from transactions with related parties are as follows (in thousands):
	March 31,2011		December 31,2010
Due from related parties:
HTI	$	5,527	$	5,632
Others		89		159
Total due from related parties	$	5,616	$	5,791
Due to related parties:
Hughes Systique	$	1,145	$	4,141
HCI		6,551		2,005
Total due to related parties	$	7,696	$	6,146

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

	September 30,2010		December 31,2009
Due from related parties:
HTI	$	7,459	$	8,652
Others		226		52
Total due from related parties	$	7,685	$	8,704
Due to related parties:
Hughes Systique	$	1,768	$	1,643
HCI		1,270		2,610
Total due to related parties	$	3,038	$	4,253

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 15: Segment Data

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

	NorthAmericaBroadband			InternationalBroadband			TelecomSystems			HTSSatellite			Corporate		Consolidated~~(2)~~
As of or For the Three Months Ended September 30, 2010
As of or For the Three Months Ended March 31, 2011
Revenues	$	~~190~~193,~~544~~706		$	51,~~778~~672		$	2216,~~393~~692		$	-602		$	-	$	~~264~~262,~~715~~672
Operating income (loss)	$	21,~~100~~745		$	~~2,658~~(738	)	$	~~3,663~~(316	)	$	(~~991~~1,304	)	$	-	$	2619,~~430~~387
Depreciation and amortization	$	2832,~~500~~792		$	3,~~794~~750		$	~~1,049~~820		$	-		$	-	$	3337,~~343~~362
Assets	$	~~622~~635,~~031~~871		$	~~177~~187,~~019~~843		$	4145,~~133~~790		$	~~202~~308,~~674~~731		$	~~182~~98,~~278~~508	$	1,~~225~~276,~~135~~743
Capital expenditures	$	20,845		$	1,599		$	58		$	41,852		$	1,640	$	65,994
Capital expenditures(1)	$	39,200		$	1,556		$	10		$	60,405		$	2,840	$	104,011
As of or For the Three Months Ended September 30, 2009
As of or For the Three Months Ended March 31, 2010
Revenues	$	~~174~~173,~~123~~995		$	4743,~~521~~456		$	2824,~~825~~692		$	-		$	-	$	~~250~~242,~~469~~143
Operating income	$	10,629		$	3,616		$	2,642		$	-		$	-	$	16,887
Operating income (loss)	$	9,616		$	(1,156	)	$	3,708		$	(858	)	$	-	$	11,310
Depreciation and amortization	$	2225,~~179~~519		$	3,~~419~~426		$	1,~~111~~024		$	-		$	-	$	2629,~~709~~969
Assets	$	~~641~~636,~~015~~622		$	~~184~~168,~~348~~771		$	4845,~~178~~877		$	4199,~~418~~515		$	~~286~~224,~~813~~430	$	1,~~201~~175,~~772~~215
Capital expenditures	$	22,329		$	1,923		$	233		$	16,282		$	2,443	$	43,210
Capital expenditures(1)	$	26,138		$	4,187		$	153		$	32,767		$	3,589	$	66,834
As of or For the Nine Months Ended September 30, 2010
Revenues	$	542,563		$	143,087		$	72,541		$	-		$	-	$	758,191
Operating income (loss)	$	43,537		$	4,051		$	12,034		$	(2,777	)	$	-	$	56,845
Depreciation and amortization	$	81,160		$	10,851		$	3,116		$	-		$	-	$	95,127
Assets	$	622,031		$	177,019		$	41,133		$	202,674		$	182,278	$	1,225,135
Capital expenditures	$	67,202		$	8,270		$	261		$	110,248		$	7,485	$	193,466
As of or For the Nine Months Ended September 30, 2009
Revenues	$	514,973		$	142,925		$	87,431		$	-		$	-	$	745,329
Operating income (loss)(1)	$	(24,391	)	$	9,952		$	10,742		$	-		$	-	$	(3,697	)
Depreciation and amortization	$	60,601		$	9,135		$	3,052		$	-		$	-	$	72,788
Assets	$	641,015		$	184,348		$	48,178		$	41,418		$	286,813	$	1,201,772
Capital expenditures	$	68,660		$	11,836		$	1,051		$	16,282		$	6,439	$	104,268

(1) ~~Operating~~Capital ~~loss~~expenditures ~~for~~on ~~North~~an ~~America~~accrual ~~Broadband~~basis ~~includes~~were: (i) $4498.49 million ofand ~~impairment~~$65.2 ~~loss~~million ~~related~~for tothe ~~our~~three ~~prepaid~~months ~~deposit~~ended toMarch ~~Sea~~31, ~~Launch~~2011 and 2010, ~~which~~respectively. ~~was~~Note ~~impaired~~17: Comprehensive Income (Loss) Comprehensive income (loss) is as follows (in ~~2009.~~thousands)(1):

(2) Capital expenditures on an accrual basis were: (i) $93.7 million and $67.5 million for the three months ended September 30, 2010 and 2009, respectively, and (ii) $217.3 million and $127.8 million for the nine months ended September 30, 2010 and 2009, respectively.


	Three Months Ended March 31,
	2011			2010
Net income (loss)	$	5,228		$	(5,459	)

Other comprehensive income (loss):
Foreign currency translation adjustments		1,689			(807	)
Unrealized loss on hedging instruments		(189	)		(2,323	)
Reclassification of realized loss on hedging instruments		1,404			1,368
Unrealized gain on available-for-sale securities		57			2

Total other comprehensive income (loss)		2,961			(1,760	)

Comprehensive income (loss)		8,189			(7,219	)
Comprehensive income attributable to the noncontrolling interest		(126	)		(307	)

Comprehensive income (loss) attributable to HNS	$	8,063		$	(7,526	)

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 16: Comprehensive Income (Loss)

Comprehensive income (loss) is as follows (in thousands)(1):

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2010			2009			2010			2009
Net income (loss)	$	10,745		$	(1,354	)	$	7,887		$	(51,078	)
Other comprehensive income (loss):
Foreign currency translation adjustments		3,134			530			712			5,672
Unrealized gain (loss) on hedging instruments		(3,362	)		(2,729	)		(8,796	)		2,639
Reclassification of realized loss on hedging instruments		1,390			1,310			4,173			3,275
Unrealized loss on available-for-sale securities		(5	)		(2	)		(6	)		(2	)
Total other comprehensive income (loss)		1,157			(891	)		(3,917	)		11,584
Comprehensive income (loss)		11,902			(2,245	)		3,970			(39,494	)
Comprehensive income attributable to the noncontrolling interest		(181	)		(293	)		(109	)		(1,223	)
Comprehensive income (loss) attributable to HNS	$	11,721		$	(2,538	)	$	3,861		$	(40,717	)

(1)	There is no tax impact for items included in the table since the Company has a full valuation allowance against its net deferred income taxes for all reporting periods.

Note 17: Net Income (loss) Attributable to HNS and Transfer from Noncontrolling Interest

	Nine Months EndedSeptember 30,
	2010		2009
	(In thousands)
Net income (loss) attributable to HNS	$	8,032	$	(52,134	)
Transfers from the noncontrolling interest:
Decrease in HNS paid-in capital for purchase of subsidiary shares		-		(391	)
Change from net income (loss) attributable to HNS and transfers from the noncontrolling interest	$	8,032	$	(52,525	)

Note 18: Commitments and Contingencies

Litigation

We are periodically involved in litigation in the 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.

In19 October 2008, Hughes Telecommunicaçoes do Brasil Ltda. (“HTB”), a wholly-owned subsidiary of ours, received a tax assessment of approximately $7.2 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.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~In March 2009, an~~ ~~arbitration~~compensation. ~~panel~~We ~~ruled~~do innot ~~our~~believe ~~favor~~that inthere ~~our~~are ~~arbitration~~any ~~against~~such ~~Sea~~pending ~~Launch~~or ~~Limited~~threatened ~~Partnership~~legal ~~and Sea Launch Company~~proceedings, ~~LLC~~including ~~(collectively,~~ordinary ~~“Sea~~litigation ~~Launch”)~~incidental ~~entitling us~~ to ~~a full refund of $44.4 million (~~the ~~“Deposit”)~~conduct ~~in payments made to Sea Launch in connection with launch services for SPACEWAY 3, in addition to interest~~ of ~~10% per~~our ~~annum~~business onand the ~~$44.4~~ownership ~~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~~properties ~~and other factors~~that, weif ~~concluded~~adversely ~~that the value of the previously-recorded Deposit was impaired and recorded an impairment loss of $44.4 million. On May 27~~determined, ~~2010,~~would wehave ~~entered into~~ a ~~settlement~~material ~~agreement~~adverse ~~with~~effect ~~Sea~~on 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~~business, ~~2015,~~financial ~~and scheduled to occur by December 31~~condition, ~~2017. In~~results ~~addition, subject to the terms and conditions~~ of ~~the~~operations ~~Settlement Agreement, one~~ or ~~both Credits may be transferred to third parties~~liquidity. The bankruptcy court has approved the Settlement Agreement, and its terms have been incorporated into the court's order approving Sea Launch's plan of reorganization. The Settlement Agreement became effective on October 27, 2010.

OnIn ~~May 18,~~October ~~2009~~2008, ~~the~~Hughes ~~Company and~~Telecommunicaçoes ~~HCI~~do ~~received~~Brasil ~~notice~~Ltda. of(“HTB”), a ~~complaint~~wholly-owned ~~filed~~subsidiary inof ~~the~~ours, ~~U.S.~~received ~~District~~a ~~Court~~tax ~~for~~assessment ~~the Northern District~~ of ~~California~~approximately by$8.0 ~~two~~million ~~California~~from ~~subscribers~~the toState ~~the~~of ~~HughesNet~~São Paulo ~~service~~Treasury Department. The ~~plaintiffs~~tax ~~complain~~assessment ~~about~~alleges ~~the~~that ~~speed~~HTB offailed ~~the~~to ~~HughesNet~~pay ~~service,~~certain ~~the~~import ~~Fair~~taxes ~~Access Policy,~~to ~~early~~the ~~termination~~State ~~fees~~of ~~and~~São ~~certain~~Paulo. ~~terms~~We ~~and~~do ~~conditions~~not ofbelieve the ~~HughesNet~~assessment ~~subscriber~~is ~~agreement.~~valid ~~The~~and ~~plaintiffs~~plan ~~seek~~ to ~~pursue~~dispute ~~their~~the ~~claims~~State asof aSão ~~class~~Paulo’s ~~action~~claims onand ~~behalf~~to defend ofvigorously ~~other~~against ~~California~~these ~~subscribers~~allegations. OnRecent ~~June 4,~~decrees ~~2009, the Company~~ and ~~HCI received~~legislative ~~notice~~actions ~~of a similar complaint filed~~ by ~~another HughesNet subscriber in~~ the ~~Superior~~State ~~Court~~ of ~~San~~São ~~Diego~~Paulo ~~County,~~will ~~California.~~alleviate ~~The~~approximately ~~plaintiff~~$5.1 inmillion ~~this~~of ~~case~~the ~~also~~tax ~~seeks~~assessment toover ~~pursue~~time ~~his~~with ~~claims~~no asimpact ato ~~class~~the ~~action on behalf of other California subscribers~~Company. ~~Both~~Therefore, ~~cases~~we have ~~been~~not recorded ~~consolidated into~~ a ~~single~~liability. ~~case~~It inis the ~~U.S.~~opinion ~~District~~of ~~Court~~management ~~for~~that ~~the~~such ~~Northern~~litigation ~~District~~is ofnot ~~California.~~expected Weto ~~believe~~have ~~that~~a ~~the~~material ~~allegations~~adverse ineffect ~~both~~on ~~complaints~~our ~~are~~financial ~~not~~position, ~~meritorious~~results ~~and~~of weoperations ~~intend~~or tocash ~~vigorously defend these matters~~flows.

On ~~December~~May 18, 2009, the Company and HCI received notice of a complaint filed in the ~~Cook~~U.S. ~~County,~~District ~~Illinois, Circuit~~ Court for the Northern District of California by atwo ~~former~~California ~~subscriber~~subscribers to the HughesNet service. The ~~complaint~~plaintiffs ~~seeks~~complain aabout ~~declaration~~the ~~allowing~~speed of the ~~former~~HughesNet service, the Fair Access Policy, early termination fees and certain terms and conditions of the HughesNet subscriber agreement. The plaintiffs seek to ~~file~~pursue their claims as a class ~~arbitration~~action ~~challenging~~on ~~early~~behalf ~~termination~~of ~~fees~~other ~~under~~California subscribers. On June 4, 2009, the Company and HCI received notice of a similar complaint filed by another HughesNet subscriber ~~agreement~~in the Superior Court of San Diego County, California. WeThe ~~believe~~plaintiff ~~that~~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 ~~allegations~~Northern inDistrict of California. In January 2011, the Company agreed to settle this ~~complaint~~consolidated ~~are~~case ~~not~~on ~~meritorious~~a nationwide basis, subject to court approval. As a result, the Company accrued $1.9 million for estimated settlement costs, plaintiffs’ attorney fees and weother ~~intend~~related expenses as of December 31, 2010. In the event that the settlement is not effectuated, the Company would revert to its previous position of vigorously ~~defend~~defending ~~this~~these ~~matter~~matters as it believes that the allegations in these complaints are not meritorious.

On December 18, 2009, 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. While the Company remains a defendant, HCI was dismissed from this case in September 2010. The Company’s motion to dismiss, filed in September 2010, is pending, and the Company will continue to vigorously defend the case.

Some or all of HCI, its directors, EchoStar, EchoStar Satellite Services, L.L.C. (“EchoStar LLC”), Broadband Acquisition Corporation (“Merger Sub”), and Apollo Global Management, LLC (“AGM”) have been named as defendants in five shareholder class action lawsuits in connection with the proposed transaction in which EchoStar will acquire all of the outstanding equity of HCI. On February 18, 2011, the Gottlieb Family Foundation filed its class action complaint in the Circuit Court for Montgomery County, Maryland. On February 23, 2011, Plymouth County Retirement System filed its shareholder class action complaint, which has since been voluntarily dismissed by the plaintiffs, in the Court of Chancery of the State of Delaware. On February 24, 2011, Edward Ostensoe filed his shareholder class action complaint in the Circuit Court for Montgomery County, Maryland. On February 28, 2011, Nina J. Shah Rohrbasser Irr. Trust filed its shareholder class action complaint in the Court of Chancery of the State of Delaware. On March 8, 2011, entities affiliated with ALJ Capital Management, LLC filed their shareholder class action complaint in the Court of Chancery of the State of Delaware. Each complaint alleges, among other things, that the directors of HCI breached their fiduciary duties in agreeing to the transaction and that some or all of HCI, EchoStar, EchoStar LLC, Merger Sub and AGM aided and abetted such breaches by the directors of HCI. In each case, the plaintiffs seek to enjoin the proposed transaction and/or damages, costs, and attorney fees. On April 28, 2011, HCI, its directors, and AGM entered into a Memorandum of Understanding with the plaintiffs in the Maryland actions that contains the essential terms of a settlement agreed to in principle between the parties (the “Settlement”). The Settlement remains subject to the approval of the court or courts, and contemplates the dismissal with prejudice of all four actions. HCI believes that the allegations in all of these complaints are not meritorious and if necessary, will vigorously contest these actions.

No other material legal proceedings have commenced or been terminated during the period covered by this report.

Commitments

In June 2009, we entered into an agreement with SS/L, ~~for~~under ~~the~~which ~~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~~obligated to ~~operate~~pay ~~in Canada. In April 2010, we entered into~~ an ~~agreement~~aggregate ~~with Arianespace for the launch~~ of Jupiter in the first half of 2012. Pursuant to the agreement, the Ariane 5 will launch Jupiter into geosynchronous transfer orbit from Guiana Space Centre in Kourou, French Guiana. As of September 30, 2010, our remaining obligation for the construction and launch of Jupiter was approximately $259.9 million.

We20 are contingently liable under standby letters of credit and bonds in the aggregate amount of $23.2 million that were undrawn as of September 30, 2010. Of this amount, $4.9 million was issued under the Revolving Credit Facility; $1.6 million was secured by restricted cash; $1.0 million related to insurance bonds; and $15.7 million was issued under credit arrangements available to our Indian and Brazilian subsidiaries. Certain letters of credit issued by our foreign subsidiaries are secured by certain assets. As of September 30, 2010, these obligations were scheduled to expire as follows: $6.6 million in 2010; $12.7 million in 2011; $0.8 million in 2012; and $3.1 million in 2013 and thereafter.

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Note~~ ~~19: Subsequent~~approximately ~~Event~~$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, 2011, the remaining obligation for the construction and the launch of Jupiter was $164.9 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.

OnWe ~~October~~are contingently liable under standby letters of credit and bonds in the aggregate amount of $18.9 million that were undrawn as of March 2931, ~~2010~~2011. Of this amount, ~~the~~$4.6 ~~Company~~million ~~entered~~was ~~into~~issued aunder the Revolving Credit Facility; $~~115~~0.6 million ~~loan agreement~~was ~~with~~secured ~~BNP~~by ~~Paribas~~restricted ~~and~~cash; ~~Societe~~$1.1 ~~Generale~~million related to ~~finance~~insurance ~~the~~bonds; ~~launch~~and ~~related~~$12.6 ~~costs~~million ~~for~~was ~~Jupiter,~~issued ~~our~~under ~~next~~credit ~~generation,~~arrangements ~~high-throughput,~~available to ~~Ka-band~~our ~~satellite~~foreign subsidiaries. ~~The~~Certain ~~loan~~letters ~~will~~of becredit ~~guaranteed~~issued by ~~COFACE,~~our ~~the~~foreign ~~French~~subsidiaries ~~Export~~are ~~Credit~~secured ~~Agency~~by their assets. ~~Arianespace~~As ~~has~~of ~~been contracted~~March 31, by2011, ~~the~~these ~~Company~~obligations towere ~~launch~~scheduled ~~Jupiter,~~to ~~the~~expire ~~estimated~~as ~~launch~~follows: ~~date~~$7.7 ~~being~~million in ~~the~~2011; ~~first~~$8.3 ~~half~~million ofin 2012; $0.5 million in 2013; $0.3 million in 2014; and $2.1 million thereafter.

~~Loan~~Note ~~draw-downs, which~~19: Supplemental ~~will~~Guarantor begin in the fourth quarter, will occur over the construction period for the launch vehicle up to the time of the launch. Terms of the loan include a fixed interest rate of 5.13% per annum, payable semi-annually in arrears, and a ~~repayment~~Non-Guarantor ~~period~~Financial ofInformation ~~8.5 years after the launch. The agreement also contains covenants and conditions which are customary for financings of this type.~~

Note 20: Supplemental Guarantor and Non-Guarantor Financial Information

Certain 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.

The following represents the supplemental condensed financial 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.

2321

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Balance Sheet as of ~~September~~March 3031, ~~2010~~2011

(In thousands)

(Unaudited)

Parent

GuarantorSubsidiaries

Non-GuarantorSubsidiaries

Eliminations

Total

Assets

Cash and cash equivalents

~~103~~33,~~266~~091

~~166~~144

910,~~229~~901

~~112~~44,~~661~~136

Marketable securities

152,~~000~~679

Receivables, net

~~121~~138,~~801~~217

2872

5258,~~404~~899

(1215,~~361~~773

)

~~161~~181,~~872~~415

Inventories

4247,~~999~~337

1312,~~938~~290

5659,~~937~~627

Prepaid expenses and other

98,~~665~~862

7271

1416,~~675~~407

-(37

)

2425,~~412~~303

Total current assets

~~292~~230,~~731~~186

~~266~~287

9098,~~246~~497

(1215,~~361~~810

)

~~370~~313,~~882~~160

Property, net

~~668~~776,~~261~~370

3233,~~354~~497

27,~~745~~388

~~728~~837,~~360~~255

Investment in subsidiaries

~~114~~118,~~778~~600

(~~114~~118,~~778~~600

)

Other assets

9799,~~050~~729

~~595~~135

2827,~~248~~424

-(960

)

~~125~~126,~~893~~328

Total assets

1,~~172~~224,~~820~~885

33,~~215~~919

~~146~~153,~~239~~309

(~~127~~135,~~139~~370

)

1,~~225~~276,~~135~~743

Liabilities and equity

Accounts payable

~~115~~77,~~717~~347

92123

2831,~~150~~352

(1215,~~361~~773

)

~~131~~93,~~598~~049

Short-term debt

21,~~271~~304

3,~~862~~305

64,~~133~~609

Accrued liabilities and other

~~121~~135,~~883~~690

2321,~~491~~685

~~145~~157,~~374~~375

Total current liabilities

~~239~~214,~~871~~341

92123

5556,~~503~~342

(1215,~~361~~773

)

~~283~~255,~~105~~033

Long-term debt

~~710~~753,~~084~~664

32,~~051~~716

~~713~~756,~~135~~380

Other long-term liabilities

2026,~~963~~764

-997

-(997

)

2026,~~963~~764

Total HNS’ equity

~~201~~230,~~902~~116

2725,~~093~~346

8793,~~685~~254

(~~114~~118,~~778~~600

)

~~201~~230,~~902~~116

Noncontrolling interest

68,~~030~~450

Total liabilities and equity

1,~~172~~224,~~820~~885

33,~~215~~919

~~146~~153,~~239~~309

(~~127~~135,~~139~~370

)

1,~~225~~276,~~135~~743

2422

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Balance Sheet as of December 31, ~~2009~~2010

(In thousands)

(Unaudited)

Parent

GuarantorSubsidiaries

Non-GuarantorSubsidiaries

Eliminations

Total

Assets

Cash and cash equivalents

~~173~~67,~~991~~707

~~1,091~~256

812,~~651~~837

~~183~~80,~~733~~800

Marketable securities

316,~~126~~675

Receivables, net

~~115~~141,~~948~~422

~~628~~38

6057,~~862~~367

(1413,~~632~~958

)

~~162~~184,~~806~~869

Inventories

4745,~~437~~388

~~138~~-

12,~~669~~431

6057,~~244~~819

Prepaid expenses and other

79,~~421~~172

~~234~~70

1315,~~321~~358

2024,~~976~~600

Total current assets

~~375~~270,~~923~~364

~~2,091~~364

9597,~~503~~993

(1413,~~632~~958

)

~~458~~354,~~885~~763

Property, net

~~542~~713,~~642~~007

32,~~792~~948

2627,~~530~~697

~~601~~773,~~964~~652

Investment in subsidiaries

~~115~~118,~~136~~080

(~~115~~118,~~136~~080

)

Other assets

~~102~~98,~~045~~967

31,~~221~~405

2926,~~183~~578

~~134~~126,~~449~~950

Total assets

1,~~135~~200,~~746~~418

3834,~~104~~717

~~151~~152,~~216~~268

(~~129~~132,~~768)~~038

)

1,~~195~~255,~~298~~365

Liabilities and equity

Accounts payable

97101,~~114~~684

~~2,272~~199

3229,~~759~~838

(1413,~~632~~958

)

117,~~513~~763

Short-term debt

2,~~054~~284

43,~~696~~912

6,~~750~~196

Accrued liabilities and other

~~110~~109,~~088~~561

~~714~~-

23,~~124~~822

133,~~926~~383

Total current liabilities

~~209~~213,~~256~~529

~~2,986~~199

6057,~~579~~572

(1413,~~632~~958

)

~~258~~257,~~189~~342

Long-term debt

~~710~~737,~~259~~677

42,~~698~~810

~~714~~740,~~957~~487

Other long-term liabilities

1627,~~191~~308

Total HNS’ equity

~~200~~221,~~040~~904

2926,~~197~~194

8591,~~939~~886

(~~115~~118,~~136~~080

)

~~200~~221,~~040~~904

Noncontrolling interest

58,~~921~~324

Total liabilities and equity

1,~~135~~200,~~746~~418

3834,~~104~~717

~~151~~152,~~216~~268

(~~129~~132,~~768~~038

)

1,~~195~~255,~~298~~365

2523

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of Operations for the Three Months Ended ~~September~~ March 3031, ~~2010~~2011

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Revenues	$	~~232~~229,~~620~~340		$	~~277~~362		$	3638,~~136~~534		$	(45,~~318~~564	)	$	~~264~~262,~~715~~672
Operating costs and expenses:
Costs of revenues		~~161~~156,~~150~~842			-			2529,~~271~~536			(24,~~259~~798	)		~~184~~181,~~162~~580
Selling, general and administrative		4047,~~838~~753			~~726~~835			98,~~160~~047			(~~2,059~~766	)		4855,~~665~~869
Research and development		45,~~776~~154			-			-			-			45,~~776~~154
Amortization of intangible assets		682			-			-			-			682
Total operating costs and expenses		~~207~~210,~~446~~431			~~726~~835			3437,~~431~~583			(45,~~318~~564	)		~~238~~243,285
Operating income (loss)		2518,~~174~~909			(~~449~~473	)		~~1,705~~951			-			2619,~~430~~387
Other income (expense):
Interest expense		(1412,~~098~~324	)		-			(~~371~~196	)		~~(24~~20	)		(1412,~~493~~500	)
Interest and other income, net		~~249~~(28	)		-			86159			24(20	)		~~359~~111
Equity in losses of subsidiaries		(~~308~~1,111	)		-			-			~~308~~1,111			-
Income (loss) before income tax expense		115,~~017~~446			(~~449~~473	)		~~1,420~~914			~~308~~1,111			126,~~296~~998
Income tax expense		(~~217~~282	)		-			(1,~~334~~488	)		-			(1,~~551~~770	)
Net income (loss)		105,~~800~~164			(~~449~~473	)		86(574	)		~~308~~1,111			105,~~745~~228
Net (income) loss attributable to the noncontrolling interest		-			(~~481~~375	)		~~536~~311			-			55(64	)
Net income (loss) attributable to HNS	$	105,~~800~~164		$	(~~930~~848	)	$	~~622~~(263	)	$	~~308~~1,111		$	105,~~800~~164

2624

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of Operations for the Three Months Ended ~~September~~ March 3031, ~~2009~~2010

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Revenues	$	~~216~~212,~~258~~471		$	~~3,918~~988		$	3432,~~568~~635		$	(43,~~275~~951	)	$	~~250~~242,~~469~~143
Operating costs and expenses:
Costs of revenues		~~158~~155,~~179~~328			~~2,237~~306			2524,~~744~~492			(3,~~620~~590	)		~~182~~176,~~540~~536
Selling, general and administrative		3741,~~667~~086			1,~~286~~372			56,~~906~~583			(~~655~~361	)		4448,~~204~~680
Research and development		4,~~792~~460			~~661~~455			-			-			54,~~453~~915
Amortization of intangible assets		~~1,103~~534			~~282~~168			-			-			~~1,385~~702
Total operating costs and expenses		201,~~741~~408			42,~~466~~301			31,~~650~~075			(43,~~275~~951	)		~~233~~230,~~582~~833
Operating income (loss)		1411,~~517~~063			(~~548~~1,313	)		21,~~918~~560			-			1611,~~887~~310
Other income (expense):
Interest expense		(1715,~~418~~793	)		-			(~~309~~320	)		-8			(1716,~~727~~105	)
Interest and other income, net		397			-			70			-			467
Interest and other income (loss), net		(359	)		870			50			(8	)		553
Equity in earnings of subsidiaries		1,181			-			-			(1,181	)		-
Equity in losses of subsidiaries		(246	)		-			-			246			-
Income (loss) before income tax expense		(15,~~323~~335	)		(~~548~~443	)		21,~~679~~290			~~(1,181~~246	)		(~~373~~4,242	)
Income tax expense		(~~247~~227	)		-(3	)		(~~734~~987	)		-			(~~981~~1,217	)
Net income (loss)		(15,~~570~~562	)		(~~548~~446	)		~~1,945~~303			~~(1,181~~246	)		(15,~~354~~459	)
Net (income) loss attributable to the noncontrolling interest		-			(~~302~~141	)		8638			-			(~~216~~103	)
Net income (loss) attributable to HNS	$	(15,~~570~~562	)	$	(~~850~~587	)	$	~~2,031~~341		$	~~(1,181~~246	)	$	(15,~~570~~562	)

2725

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of ~~Operations~~Cash Flows for the ~~Nine~~Three Months Ended ~~September~~ March 3031, ~~2010~~2011

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Revenues	$	667,416		$	1,637		$	101,818		$	(12,680	)	$	758,191
Cash flows from operating activities:
Operating costs and expenses:
Net income (loss)	$	5,164		$	(473	)	$	(574	)	$	1,111		$	5,228
Costs of revenues		474,269			306			74,646			(9,735	)		539,486
Adjustments to reconcile net income (loss) to net cash flows from operating activities		44,127			1,384			482			(1,111	)		44,882
Selling, general and administrative		122,391			2,915			22,386			(2,945	)		144,747
Net cash provided by (used in) operating activities		49,291			911			(92	)		-			50,110
Research and development		14,591			455			-			-			15,046
Cash flows from investing activities:
Amortization of intangible assets		1,899			168			-			-			2,067
Change in restricted cash		-			-			423			-			423
Total operating costs and expenses		613,150			3,844			97,032			(12,680	)		701,346
Proceeds from sales of marketable securities		3,999			-			-			-			3,999
Operating income (loss)		54,266			(2,207	)		4,786			-			56,845
Expenditures for property		(98,898	)		(1,023	)		(1,338	)		-			(101,259	)
Other income (expense):
Expenditures for capitalized software		(2,752	)		-			-			-			(2,752	)
Interest expense		(45,139	)		-			(1,076	)		102			(46,113	)
Proceeds from sale of property		-			-			80			-			80
Interest and other income, net		369			870			349			(102	)		1,486
Net cash used in investing activities		(97,651	)		(1,023	)		(835	)		-			(99,509	)
Equity in losses of subsidiaries		(816	)		-			-			816			-
Cash flows from financing activities:
Income (loss) before income tax expense		8,680			(1,337	)		4,059			816			12,218
Short-term revolver borrowings		-			-			898			-			898
Income tax expense		(648	)		(3	)		(3,680	)		-			(4,331	)
Repayments of revolver borrowings		-			-			(945	)		-			(945	)
Net income (loss)		8,032			(1,340	)		379			816			7,887
Long-term debt borrowings		16,490			-			332			-			16,822
Net (income) loss attributable to the noncontrolling interest		-			(764	)		909			-			145
Repayments of long-term debt		(1,731	)		-			(1,009	)		-			(2,740	)
Net income (loss) attributable to HNS	$	8,032		$	(2,104	)	$	1,288		$	816		$	8,032
Debt issuance costs		(1,015	)					-			-			(1,015	)
Net cash provided by (used in) financing activities		13,744			-			(724	)		-			13,020
Effect of exchange rate changes on cash and cash equivalents		-			-			(285	)		-			(285	)
Net decrease in cash and cash equivalents		(34,616	)		(112	)		(1,936	)		-			(36,664	)
Cash and cash equivalents at beginning of the period		67,707			256			12,837			-			80,800
Cash and cash equivalents at end of the period	$	33,091		$	144		$	10,901		$	-		$	44,136

2826

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of ~~Operations~~Cash Flows for the ~~Nine~~Three Months Ended ~~September~~ March 3031, ~~2009~~2010

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Revenues	$	649,308		$	7,945		$	103,823		$	(15,747	)	$	745,329
Cash flows from operating activities:
Operating costs and expenses:
Net income (loss)	$	(5,562	)	$	(446	)	$	303		$	246		$	(5,459	)
Costs of revenues		484,072			4,405			76,677			(13,488	)		551,666
Adjustments to reconcile net income (loss) to net cash flows from operating activities		18,845			218			1,607			(246	)		20,424
Selling, general and administrative		112,105			3,844			18,612			(2,259	)		132,302
Net cash provided by (used in) operating activities		13,283			(228	)		1,910			-			14,965
Loss on impairment		44,400			-			-			-			44,400
Cash flows from investing activities:
Research and development		14,414			2,088			-			-			16,502
Change in restricted cash		(1	)		-			89			-			88
Amortization of intangible assets		3,311			845			-			-			4,156
Purchases of marketable securities		(22,615	)		-			-			-			(22,615	)
Total operating costs and expenses		658,302			11,182			95,289			(15,747	)		749,026
Proceeds from sales of marketable securities		10,000			-			-			-			10,000
Operating income (loss)		(8,994	)		(3,237	)		8,534			-			(3,697	)
Expenditures for property		(59,409	)		(642	)		(3,617	)		-			(63,668	)
Other income (expense):
Expenditures for capitalized software		(3,166	)		-			-			-			(3,166	)
Interest expense		(46,389	)		-			(717	)		-			(47,106	)
Net cash used in investing activities		(75,191	)		(642	)		(3,528	)		-			(79,361	)
Interest and other income, net		294			-			206			-			500
Cash flows from financing activities:
Equity in earnings of subsidiaries		3,582			-			-			(3,582	)		-
Short-term revolver borrowings		-			-			1,999			-			1,999
Income (loss) before income tax expense		(51,507	)		(3,237	)		8,023			(3,582	)		(50,303	)
Repayments of revolver borrowings		-			-			(2,430	)		-			(2,430	)
Income tax expense		(627	)		-			(148	)		-			(775	)
Long-term debt borrowings		550			-			670			-			1,220
Net income (loss)		(52,134	)		(3,237	)		7,875			(3,582	)		(51,078	)
Repayments of long-term debt		(443	)		-			(1,278	)		-			(1,721	)
Net (income) loss attributable to the noncontrolling interest		-			(1,440	)		384			-			(1,056	)
Debt issuance costs		(1,742	)		-			-			-			(1,742	)
Net income (loss) attributable to HNS	$	(52,134	)	$	(4,677	)	$	8,259		$	(3,582	)	$	(52,134	)
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

2927

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	8,032		$	(1,340	)	$	379		$	816		$	7,887
Adjustments to reconcile net income (loss) to net cash flows from operating activities		92,496			1,452			9,047			(816	)		102,179
Net cash provided by (used in) operating activities		100,528			112			9,426			-			110,066
Cash flows from investing activities:
Change in restricted cash		-			-			49			-			49
Purchases of marketable securities		(37,615	)		-			-			-			(37,615	)
Proceeds from sales of marketable securities		53,615			-			-			-			53,615
Expenditures for property		(175,640	)		(1,037	)		(6,854	)		-			(183,531	)
Expenditures for capitalized software		(9,935	)		-			-			-			(9,935	)
Proceeds from sale of property		13			-			391			-			404
Net cash used in investing activities		(169,562	)		(1,037	)		(6,414	)		-			(177,013	)
Cash flows from financing activities:
Short-term revolver borrowings		-			-			3,770			-			3,770
Repayments of revolver borrowings		-			-			(4,881	)		-			(4,881	)
Long-term debt borrowings		1,699			-			1,635			-			3,334
Repayments of long-term debt		(1,656	)		-			(3,208	)		-			(4,864	)
Debt issuance costs		(1,734	)		-			-			-			(1,734	)
Net cash used in financing activities		(1,691	)		-			(2,684	)		-			(4,375	)
Effect of exchange rate changes on cash and cash equivalents		-			-			250			-			250
Net increase (decrease) in cash and cash equivalents		(70,725	)		(925	)		578			-			(71,072	)
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	$	103,266		$	166		$	9,229		$	-		$	112,661

HUGHES NETWORK SYSTEMS, LLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2009

(In thousands)

(Unaudited)

	Parent			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	(52,134	)	$	(3,237	)	$	7,875		$	(3,582	)	$	(51,078	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities		167,647			6,491			(3,587	)		3,582			174,133
Net cash provided by operating activities		115,513			3,254			4,288			-			123,055
Cash flows from investing activities:
Change in restricted cash		(1	)		-			(71	)		-			(72	)
Purchases of marketable securities		(25,080	)		-			-			-			(25,080	)
Expenditures for property		(80,308	)		(4,183	)		(9,462	)		-			(93,953	)
Expenditures for capitalized software		(10,315	)		-			-			-			(10,315	)
Proceeds from sale of property		22			-			317			-			339
Long-term loan receivable		(10,000	)		-			-			-			(10,000	)
Other, net		(410	)		-			(345	)		-			(755	)
Net cash used in investing activities		(126,092	)		(4,183	)		(9,561	)		-			(139,836	)
Cash flows from financing activities:
Net decrease in notes and loans payable		-			-			(1,315	)		-			(1,315	)
Long-term debt borrowings		137,490			-			4,828			-			142,318
Repayments of long-term debt		(4,461	)		-			(2,371	)		-			(6,832	)
Debt issuance costs		(4,612	)		-			-			-			(4,612	)
Net cash provided by financing activities		128,417			-			1,142			-			129,559
Effect of exchange rate changes on cash and cash equivalents		-			-			(3,879	)		-			(3,879	)
Net increase (decrease) in cash and cash equivalents		117,838			(929	)		(8,010	)		-			108,899
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	$	193,794		$	1,084		$	14,283		$	-		$	209,161

Item 2.

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

The following discussion and analysis 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 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

Hughes Network Systems, LLC, a Delaware limited liability company, (“HNS” and, together with its consolidated subsidiaries, the “Company” or “we,” “us,” and “our”) 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 Initiatives and Their Impact on Our Results of Operations

For the three months ended ~~September~~March 3031, ~~2010~~2011, we generated a net income attributable to ~~HNS~~our equity holders of $105.82 million compared to a net loss attributable to ~~HNS~~our equity holders of $15.6 million for the same period in ~~2009~~2010. ~~For~~The ~~the~~increase ~~nine~~during ~~months~~the ~~ended~~current ~~September 30,~~quarter ~~2010,~~was wemainly ~~generated~~due ato ~~net~~higher ~~income~~gross ~~attributable~~margin ~~to HNS~~ of $815.05 million, ~~compared~~or to23.6%, as a ~~net~~result ~~loss attributable to HNS~~ of ~~$52.1~~ ~~million~~growth ~~for the same period~~ in ~~2009. The changes in~~ our ~~net~~services ~~income were significantly impacted by the $44.4 million impairment loss recognized in 2009~~businesses, ~~related to our prepaid deposit (the “Deposit”) paid to Sea Launch Company, LLC~~ ~~(“Sea~~primarily ~~Launch”).~~in ~~In addition,~~ our ~~gross~~North ~~margin~~American ~~for the three and nine months ended September 30~~businesses, ~~2010 improved by $12.6 million~~ and ~~$25.0~~the ~~million,~~reduction ~~respectively,~~of ~~compared~~costs toassociated ~~the~~with ~~same~~leased ~~periods~~satellite ~~in 2009~~capacity. The increase in our ~~net~~gross ~~income attributable~~margin ~~to HNS~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 was partially offset by ~~the~~higher ~~increase in our~~ selling, general and administrative expenses. asSee we“Selling, ~~increased~~General ~~our~~and ~~efforts~~Administrative inExpense” ~~promoting~~for ~~our~~a ~~products~~more ~~and~~detailed ~~services~~explanation inof ~~our~~the ~~North American businesses~~fluctuation.

Technology—We 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.

32Acquisitions, Strategic Alliances and Divestitures—We continue to focus on expanding the identified markets for our products, services and network solutions in our North America Broadband, International Broadband and Telecom Systems

~~Acquisitions,~~ Strategic Alliances and Divestitures—We continue to focus 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 development, construction and ownership structure of asatellite ~~new~~assets ~~satellite~~and related ground infrastructure, capacity features and other factors that would promote long -term growth on a global basis, while meeting the needs of our customers.

InOn ~~June~~February 13, ~~2009~~2011, weour Parent, HCI, entered into an ~~agreement~~Agreement ~~with~~and ~~Space~~Plan ~~Systems/Loral,~~of ~~Inc.~~Merger (the “~~SS/L~~Merger Agreement”) ~~under~~with ~~which~~EchoStar ~~SS/L will manufacture our next-generation~~Corporation, ~~geostationary~~a ~~high~~Nevada ~~throughput~~corporation ~~satellite~~ (“~~HTS~~EchoStar”), ~~named~~EchoStar Satellite ~~Jupiter~~Services L.L.C., ~~Jupiter~~a ~~will~~Colorado ~~employ~~limited aliability ~~multi-spot beam~~company, ~~bent pipe Ka-band architecture~~ and ~~will~~Broadband ~~provide~~Acquisition ~~additional capacity for the HughesNet service in North America. In connection with the construction of Jupiter~~Corporation, ~~we entered into~~ a ~~contract~~Delaware ~~with~~corporation ~~Barrett Xplore Inc.~~ (“~~Barrett~~Merger Sub”), ~~whereby~~pursuant ~~Barrett agreed~~ to ~~lease~~which, ~~user~~subject ~~beams~~to ~~and~~the ~~purchase~~terms ~~gateways~~ and ~~terminals~~conditions ~~for~~set ~~the~~forth ~~Jupiter~~therein, ~~satellite~~Merger ~~that~~Sub ~~are~~will merge ~~designed~~with toand ~~operate~~into inHCI ~~Canada.~~(the In“Merger”), ~~connection~~ with ~~the~~HCI ~~lease~~continuing ~~agreement~~as ~~with~~the ~~Barrett,~~surviving ~~our~~entity ~~revenue~~and ~~backlog~~becoming ~~associated~~a ~~with~~wholly ~~our~~owned ~~Jupiter~~subsidiary ~~satellite~~of ~~is $245~~EchoStar.0 ~~million,~~The ~~which~~Merger is expected to beclose ~~realized~~later ~~over~~this ~~15 years once Jupiter is launched and placed into service. In April 2010~~year, wesubject ~~entered into an agreement with Arianespace for the launch of Jupiter in the first half of 2012. Pursuant~~ to ~~the~~certain ~~agreement~~closing conditions, ~~the~~including ~~Ariane 5 will launch Jupiter into geosynchronous transfer orbit from Guiana Space Centre in~~among ~~Kourou~~others, ~~French~~receipt ~~Guiana. As~~ of ~~September 30,~~approval ~~2010,~~by ~~our remaining obligation for~~ the ~~construction~~Federal ~~and~~Communications ~~launch of Jupiter was approximately $259~~Commission.9 ~~million.~~

AsSales aand ~~result~~Distribution—In ofJune ~~our~~2009, ~~efforts~~we entered tointo ~~expand~~an ~~the~~agreement ~~identified~~with ~~markets~~Space ~~for~~Systems/Loral, ~~our~~Inc. ~~products~~(“SS/L”), ~~services~~under ~~and~~which ~~network~~SS/L ~~solutions~~will inmanufacture our ~~North~~next-generation, ~~America~~geostationary ~~Broadband~~high ~~segment,~~throughput insatellite ~~August~~(“HTS”) ~~2010,~~named weJupiter. ~~were~~Jupiter ~~awarded~~will ~~$58.7~~employ ~~million~~a asmulti-spot ~~the~~beam, bent ~~only~~pipe ~~national~~Ka-band ~~provider~~architecture ofand ~~high-speed~~will ~~satellite~~provide ~~broadband~~additional ~~service~~capacity ~~under~~for the ~~broadband~~HughesNet ~~programs~~service ~~established~~in ~~pursuant~~North toAmerica. ~~the~~The ~~American~~Company ~~Recovery~~anticipates ~~and~~launching ~~Reinvestment~~Jupiter ~~Act~~in ofthe ~~2009.~~first ~~This~~half ~~award~~of is2012. ~~part~~We ofentered ~~the~~into ~~government’s~~a ~~investments~~contract inwith ~~broadband~~Barrett ~~projects~~Xplore Inc. to(“Barrett”), ~~expand~~whereby ~~access~~Barrett agreed to ~~broadband~~lease ~~service~~user beams and ~~create~~purchase ~~jobs~~gateways and ~~economic~~Ka-band ~~opportunity~~terminals infor ~~rural,~~the ~~underserved~~Jupiter ~~communities~~satellite ~~nationwide.~~that Weare ~~began~~designed to ~~offer~~operate ~~services~~in toCanada ~~customers~~(the ~~under~~“Barrett ~~this program in October 2010~~Agreement”).

In August 2010, we were awarded $58.7 million from the U.S. Government as the only national provider of high-speed satellite broadband service under the broadband stimulus program, established pursuant to the American Recovery and Reinvestment Act of 2009. This award is part of the U.S. Government’s investments in broadband projects to expand access to broadband service and create jobs and economic opportunity in rural, underserved communities nationwide. We began to offer services to customers under this program in October 2010.

Key Business Metrics

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~~Internet service to consumer customers, and the Enterprise group, which provides satellite, wireline and wireless communication ~~networks~~network products 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 and the development of related network equipment. 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.

3329

~~Services—Our~~Average ~~services~~ revenue isper ~~varied~~unit in(“ARPU”)—ARPU ~~nature~~is ~~and~~calculated ~~includes~~by ~~equipment~~dividing ~~rental~~the total ~~from~~service ~~our~~revenues ~~consumer~~from ~~rental~~the ~~program,~~Consumer ~~total turnkey~~group ~~communications~~for ~~services,~~the ~~terminal~~reporting ~~relocation,~~period ~~maintenance~~by ~~and~~the ~~changes,~~sum ~~transponder~~of ~~capacity~~the ~~and~~total ~~multicast~~number orof ~~broadcast~~subscribers ~~services.~~in ~~Our~~our ~~services~~Consumer ~~are~~group ~~offered~~at onthe aend ~~contractual~~of ~~basis,~~each ~~which~~month ~~vary~~ in ~~length based on~~ the ~~particular~~reporting ~~end market~~period. ~~Typically,~~ ~~our~~Our ~~large~~ARPU ~~enterprise~~calculation ~~customers~~may ~~enter~~not ~~into~~be aconsistent ~~three-~~with toother companies’ ~~five-year~~calculation ~~contract,~~in ~~and~~the ~~our~~same ~~consumer~~or ~~customers~~similar ~~enter~~businesses ~~into~~as awe ~~24-month~~are ~~contract.~~not Weaware ~~bill~~of ~~and~~any ~~recognize~~uniform ~~service~~standards ~~revenues~~for oncalculating ~~a monthly per site basis~~ARPU. ~~For enterprise customers who receive services from our network operations, our services include the following:~~

Churn rate—Churn rate represents the average of the monthly churn rates for the months included in the reporting period. Monthly churn rate is calculated by dividing the number of subscribers that churn in the month by the number of those subscribers at the end of the month in our Consumer group and our small/medium enterprise and wholesale business customers. Our churn rate calculations 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 churn rate.

Services— Our services revenue is varied in nature and includes equipment rental from our consumer rental program, 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. Our services include the following:


Service Type	Description
Broadband connectivity	• •	Provides basic 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
Broadband connectivity	• •

Managed network services	• •	Provides 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
Managed network services	• •

ISP services and hosted application	•	Provides internet connectivity and hosted customer-owned and managed applications on our network facilities

	•	Provides 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	•	Provides customized, industry-specific enterprise solutions that can be applied to multiple businesses in a given industry

Our services to enterprise customers are negotiated on a contract-by-contract basis with price varying based on numerous factors, including number of sites, 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 and support of 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~~ under which payments are made over a fixed term. Our consumer customers also have the option to purchase the equipment up -front with a 24-month service contract. Hardware revenues of the North American Enterprise group and International Broadband ~~segment~~ 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.

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 these projects vary from year to year by customer and do not follow a pattern that can be reasonably predicted.

3430

~~Market~~ who ~~trends~~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 ~~impacting~~centers. ~~our~~In ~~revenues—The~~addition, ~~following~~local ~~table~~exchange ~~presents~~carriers use our ~~revenues~~equipment byfor ~~end~~broadband ~~market~~access ~~for~~traffic ~~the~~from ~~three~~corporations bypassing local phone companies. The size and ~~nine~~scope ~~months~~of ~~ended~~these ~~September 30,~~projects ~~2010~~vary from year to year by customer and ~~2009~~do ~~(dollars~~not infollow ~~thousands):~~a pattern that can be reasonably predicted.

~~Three~~Revenue ~~Months~~Backlog—We ~~Ended~~benefit ~~September~~from strong visibility of our future revenues. At March 3031, 2011 and December 31, 2010, ~~Compared~~our total revenue backlog, which we define as our expected future revenue under customer contracts that are non-cancelable and excluding agreements with our consumer customers, was approximately $1,071.7 million and $1,062.2 million, respectively. Included in our revenue backlog as of March 31, 2011 are future revenues of $253.7 million associated with our Jupiter satellite. Of the $253.7 million, $245.0 million is associated with the Barrett Agreement for satellite capacity, which revenue is expected to ~~Three~~be ~~Months~~realized ~~Ended~~ratably ~~September 30~~over 15 years once the satellite is launched and placed into service and $8.7 million is related to gateway developments for Barrett. Associated with the Barrett Agreement for satellite capacity, ~~2009~~we have collected $5.0 million of non-refundable reservation fee.

	Three Months Ended September 30,				Variance
	2010		2009		Amount			%
Revenues:
Services revenues	$	200,709	$	175,305	$	25,404			14.5	%
Hardware sales		64,006		75,164		(11,158	)		(14.8	)%
Total revenues	$	264,715	$	250,469	$	14,246			5.7	%
Revenues by end market:
North America Broadband segment:
Consumer	$	122,166	$	107,085	$	15,081			14.1	%
Enterprise		68,378		67,038		1,340			2.0	%
Total North America Broadband segment		190,544		174,123		16,421			9.4	%
International Broadband segment		51,778		47,521		4,257			9.0	%
Telecom Systems segment:
Mobile Satellite Systems		20,070		17,309		2,761			16.0	%
Telematics		-		8,709		(8,709	)		(100.0	)%
Terrestrial Microwave		2,323		2,807		(484	)		(17.2	)%
Total Telecom Systems segment		22,393		28,825		(6,432	)		(22.3	)%
Total revenues	$	264,715	$	250,469	$	14,246			5.7	%

The amounts included in backlog represent the full contract value for the duration of the contract and does not include termination fees. We do not assume that a contract will be renewed beyond its stated expiration date. In certain cases of breach for non-payment or customer bankruptcy, we may not be able to recover the full value of certain contracts or termination fees.

~~The~~Generally, following ~~table~~the ~~presents~~successful launch of a satellite, if the satellite is operating nominally, our ~~churn~~customers ~~rate~~may only terminate their service agreements for satellite capacity by paying us all, ~~average~~or ~~revenue~~substantially ~~per~~all, ~~unit~~of ~~(“ARPU”)~~the payments that would have otherwise become due over the term of the service agreement. In the case of our satellite under construction, ~~average~~Jupiter, we would ~~monthly~~not ~~gross~~be ~~subscriber~~obligated ~~additions~~to return the customer prepayments made under service agreements for the satellite if the launch was to fail. Also, if the launch of Jupiter was significantly delayed, our customers could exercise their right of termination under their service agreements. See Part II — Item 1A. Risk Factors and ~~subscribers:~~Special Note Regarding Forward-Looking Statements for a discussion of the potential risks to our revenue and backlog. Although we have signed contracts with our consumer customers for 24 months, we do not include these contractual commitments in our backlog.

	As of or For theThree Months EndedSeptember 30,						Variance
	2010			2009			Amount			%
Churn rate(1)		2.22	%		2.30	%		(0.08	)%		(3.5)%
ARPU(2)	$	75		$	71		$	4			5.6%
Average monthly gross subscriber additions(1)		16,500			16,800			(300	)		(1.8)%
Subscribers(1)		558,200			490,000			68,200			13.9%

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.

~~(1)~~Cost ~~Relates~~of toHardware— ~~our~~We ~~Consumer~~outsource ~~group~~a ~~and~~significant portion of the manufacturing of our ~~small/medium~~hardware ~~enterprise~~for our North America and International ~~wholesale~~Broadband ~~business~~and ~~customers~~Telecom ~~who~~Systems ~~receive~~segments ~~subscription~~to ~~services~~third-party contract manufacturers. ~~The~~Our ~~small/medium~~cost ~~enterprise~~of hardware relates primarily to direct materials and ~~wholesale~~subsystems ~~business~~(e.g., ~~customers~~antennas), salaries and related employment costs for those employees who are directly ~~part~~associated with the procurement and manufacture of our ~~Enterprise~~products ~~group~~and other items of indirect overhead incurred in the procurement and production process. ~~The~~Cost ~~Consumer~~of hardware also includes certain engineering and ~~Enterprise~~hardware ~~groups~~costs ~~are~~related ~~part~~to the design of ~~our~~a ~~North~~particular ~~America~~product ~~Broadband~~for ~~segment~~specific customer programs. ~~The~~As ~~trend~~we ofhave ~~this~~developed ~~metric~~new ~~has~~product ~~been~~offerings, ~~substantially~~we ~~similar~~have ~~for~~reduced ~~the~~product ~~Consumer~~costs ~~group~~due ~~and~~to ~~the~~higher ~~small/medium~~levels ~~enterprise~~of ~~and~~component ~~wholesale~~integration, ~~business~~design ~~customers~~improvements and volume increases.

Subscriber acquisition costs (2“SAC”) ~~Relates~~are ~~only~~associated towith our Consumer group, ~~which~~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 ~~part~~deferred and amortized over the shorter of ~~our~~the ~~North~~initial ~~America~~contract ~~Broadband~~period ~~segment~~or the useful life of the hardware as a component of cost of hardware 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.

~~North~~31 ~~America Broadband Segment~~

Revenue from our Consumer group for the three months ended September 30, 2010 increased by 14.1% to $122.2 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.

~~As of September 30~~Selling, ~~2010~~General and ~~2009,~~Administrative we(“SG&A”)—Selling ~~achieved~~expenses primarily aconsist ~~total subscription base~~ of ~~558,200~~the ~~and 490~~salaries,~~000,~~ ~~respectively~~commissions, ~~which~~related ~~included~~benefit ~~34,400~~costs ~~and~~of ~~25,800, respectively, subscribers in~~ our ~~small/medium~~direct ~~enterprise~~sales force and ~~wholesale~~marketing ~~businesses.~~staff, ~~Our ARPU~~advertising, ~~which~~channel ~~is used~~compensations ~~to measure average monthly consumer subscription service revenues~~ on anew ~~per~~activations ~~subscriber~~which ~~basis,~~are ~~was~~deferred ~~$75~~ and ~~$71~~amortized ~~for~~over the ~~three~~initial ~~months~~consumer ~~ended~~contract ~~September 30~~period, travel, ~~2010~~allocation ~~and~~of ~~2009~~facilities, ~~respectively.~~and ~~ARPU~~other isdirectly ~~calculated~~related byoverhead ~~dividing~~costs ~~the total service revenues from the Consumer group~~ for ~~the reporting period by the sum of the total number of subscribers in~~ our ~~Consumer~~domestic ~~group~~and atinternational ~~the~~businesses. ~~end~~General ofand ~~each~~administrative ~~month~~expenses ininclude ~~the~~bad ~~reporting~~debt ~~period.~~expense ~~Churn~~and ~~rate~~salaries ~~represents~~and ~~the~~related ~~average~~employee ofbenefits ~~the monthly churn rates~~ for ~~the months~~employees ~~included~~associated inwith ~~the~~common ~~reporting~~supporting ~~period.~~functions, ~~Monthly~~such ~~churn~~as ~~rate~~accounting isand ~~calculated~~finance, byrisk ~~dividing~~management, ~~the~~legal, ~~number~~information oftechnology, ~~subscribers~~administration, athuman ~~the~~resources, ~~end~~and ofsenior ~~the~~management. ~~month~~Selling, bygeneral, ~~the~~and ~~number~~administrative ofcosts ~~churns~~also ~~for~~include ~~the~~facilities costs, ~~month~~third-party ~~for~~service ~~the~~providers’ ~~subscribers~~costs in(such ~~our~~as ~~Consumer~~outside ~~group~~tax and ~~our~~legal ~~small/medium~~counsel, ~~enterprise~~ and ~~wholesale~~ ~~business~~insurance ~~customers.~~providers), ~~Our~~bank ~~ARPU~~fees ~~and~~related ~~churn~~to ~~rate~~credit ~~calculations~~card ~~may~~processing ~~not~~charges beand ~~consistent~~depreciation ~~with other companies’ calculation in the same or similar businesses as we are not aware~~ of ~~any~~fixed ~~uniform standards for calculating ARPU~~assets.

~~Revenue~~Research ~~from~~and ~~our~~Development ~~North~~(“R&D”)—The ~~American~~Company’s ~~Enterprise~~R&D ~~group~~programs ~~for~~are ~~the~~important ~~three~~to ~~months~~support ~~ended~~future ~~September 30,~~growth ~~2010 increased~~ by reducing ~~2.0%~~costs ~~to $68.4 million~~and ~~compared~~providing tonew ~~the~~technology ~~same~~and ~~period~~innovations into ~~2009~~its customers. ~~The~~R&D ~~increase~~expenses ~~was~~ primarily ~~due~~consist toof the ~~realization~~salaries of ~~service~~certain ~~revenues~~members ~~from~~of our ~~contracts~~engineering ~~booked~~staff inplus ~~prior~~an ~~periods~~applied overhead charge. ~~Enterprise~~R&D ~~service~~expenses ~~revenue~~also isinclude ~~generally~~engineering support ~~characterized~~for byexisting ~~long~~platforms ~~term~~and ~~contracts~~development efforts to build new products and software applications, subcontractors, material purchases and other direct costs in support of product development.

~~International~~Market ~~Broadband~~Trends ~~Segment~~Impacting Our Revenues

~~Revenue~~The ~~from~~following table presents our ~~International~~revenues ~~Broadband~~by ~~segment~~end market for the three months ended ~~September~~March 3031, ~~2010~~2011 ~~increased~~and by2010 ~~9.0%~~(dollars ~~to $51.8 million compared to the same period~~ in ~~2009,~~thousands): primarily due to an increase in hardware orders and higher service revenues from our Brazil and global service operations. Also contributing to the increase was $0.8 million resulting from the favorable impact of currency exchange due to the depreciation of the U.S. dollar.

Telecom Systems Segment

		Variancexxx		Variancexxx		Variancexxx			Variancexxx
	Three Months Ended March 31,				Variance
	2011		2010		Amount			%
Revenues:
Services revenues	$	214,250	$	186,890	$	27,360			14.6%
Hardware revenues		48,422		55,253		(6,831	)		(12.4)%

Total revenues	$	262,672	$	242,143	$	20,529			8.5%

Revenues by end market:
North America Broadband segment:
Consumer	$	130,814	$	113,354	$	17,460			15.4%
Enterprise		62,892		60,641		2,251			3.7%

Total North America Broadband segment		193,706		173,995		19,711			11.3%

International Broadband segment		51,672		43,456		8,216			18.9%

Telecom Systems segment:
Mobile Satellite Systems		15,610		19,706		(4,096	)		(20.8)%
Terrestrial Microwave		1,082		4,986		(3,904	)		(78.3)%

Total Telecom Systems segment		16,692		24,692		(8,000	)		(32.4)%

HTS Satellite segment		602		-		602			*

Total revenues	$	262,672	$	242,143	$	20,529			8.5%

~~Revenue~~* ~~from~~Percentage ~~our~~not ~~Telecom Systems segment for the three months ended September 30, 2010 decreased by 22~~meaningful.3% to $22.4 million compared to the same period in 2009. The decrease was mainly attributable to our Telematics group as there was no revenue earned for the three months ended September 30, 2010 compared to $8.7 million for the same period in 2009. The decrease in revenue was partially offset by the increase in revenue from our Mobile Satellite Systems group.

~~Nine~~32 ~~Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009~~

	Nine Months Ended September 30,				Variance
	2010		2009		Amount			%
Revenues:
Services revenues	$	579,754	$	509,871	$	69,883			13.7%
Hardware sales		178,437		235,458		(57,021	)		(24.2)%
Total revenues	$	758,191	$	745,329	$	12,862			1.7%
Revenues by end market:
North America Broadband segment:
Consumer	$	353,098	$	310,020	$	43,078			13.9%
Enterprise		189,465		204,953		(15,488	)		(7.6)%
Total North America Broadband segment		542,563		514,973		27,590			5.4%
International Broadband segment		143,087		142,925		162			0.1%
Telecom Systems segment:
Mobile Satellite Systems		60,103		55,144		4,959			9.0%
Telematics		501		23,437		(22,936	)		(97.9)%
Terrestrial Microwave		11,937		8,850		3,087			34.9%
Total Telecom Systems segment		72,541		87,431		(14,890	)		(17.0)%
Total revenues	$	758,191	$	745,329	$	12,862			1.7%

The following table presents our churn rate, average revenue per unit (“ARPU”), average monthly gross subscriber additions, and subscribers:

	As of or For theNine Months Ended September 30,						Variance
		Variancexxx			Variancexxx			Variancexxx			Variancexxx
	2010			2009			Amount			%
	As of or For theThree Months EndedMarch 31,						Variance
Churn rate(1)		2.07	%		2.29	%		(0.22)	%		(9.6)%
	2011			2010			Amount			%
ARPU(2)	$	73		$	70		$	3			4.3%
Churn rate(1)		2.30%			1.98%			0.32%			16.2%
Average monthly gross subscriber additions(1)		17,100			17,000			100			0.6%
ARPU(2)	$	75		$	72		$	3			4.2%
Subscribers(1)		558,200			490,000			68,200			13.9%
Average monthly gross subscriber additions(1)		25,600			19,200			6,400			33.3%
Subscribers(1)		613,400			530,800			82,600			15.6%

(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 our Enterprise group. The Consumer and Enterprise groups are part of our North America Broadband segment. The trend of this metric has been substantially similar for the Consumer group and the small/medium enterprise and wholesale business customers.

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

North America Broadband Segment

Revenue from our ~~Consumer~~North American Enterprise group for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 increased by 133.97% to $~~353~~62.1 9 million compared to the same period in ~~2009~~2010. The ~~growth~~increase inwas ~~our~~a ~~Consumer~~result ~~group~~of ~~has been driven primarily by three factors: (i) the substantial~~ growth in ~~the number of subscribers arising from increased consumer awareness of~~ our ~~products~~managed ~~and~~ services asbusiness. aEnterprise ~~result~~service ofrevenue ~~the~~is ~~expansion of our use of direct mail campaigns and television~~generally ~~commercials~~characterized ~~targeting geographic areas that have historically been underserved~~ by ~~DSL and cable services; (ii) value~~long-~~added~~term ~~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~~contracts.

AsRevenue offrom ~~September~~our Consumer group for the three months ended March 3031, 2011 increased by 15.4% to $130.8 million compared to the same period in 2010. ~~and~~The ~~2009,~~growth wein ~~achieved~~our Consumer group has been driven primarily by three factors: (i) the growth in the number of subscribers arising from increased consumer awareness of our products and services as a ~~total~~result ~~subscription~~of ~~base~~the expansion of ~~558,200~~our use of direct mail campaigns and ~~490,000,~~television ~~respectively,~~commercials ~~which~~targeting ~~included~~geographic 34areas that have historically been underserved by DSL and cable services; (ii) value-added services,~~400~~ such as express repair and ~~25,800,~~web ~~respectively~~premium content services, ~~subscribers~~and inthe election by our ~~small/medium~~customers ~~enterprise~~to utilize the consumer rental program and ~~wholesale~~to ~~businesses.~~subscribe ~~Our~~to ~~ARPU~~higher ~~was~~level ~~$73~~service ~~and~~plans ~~$70~~resulting ~~for~~in ~~the~~an ~~nine~~increase ~~months~~in ~~ended~~ARPU; ~~September~~and (iii) ~~30,~~the ~~2010~~Recovery ~~and~~Act ~~2009,~~service offerings ~~respectively~~largely funded by the U.S. Government’s broadband stimulus grant.

~~Revenue~~As ~~from~~of ~~our~~March 31, ~~North~~2011 ~~American~~and ~~Enterprise~~2010, ~~group~~we achieved ~~for~~a ~~the~~total ~~nine~~subscriber ~~months~~base ~~ended~~of ~~September 30~~613,400 ~~2010~~and ~~decreased~~530,800 byrespectively, ~~7.6%~~which ~~to $189.5 million~~included ~~compared~~37,100 toand ~~the~~30,100, ~~same~~respectively, ~~period~~subscribers in ~~2009~~our small/medium enterprise and wholesale businesses. ~~The~~Our ~~decrease~~ARPU, ~~was~~which ~~primarily~~is ~~due~~used to ~~delays~~measure inaverage ~~customer~~monthly ~~buying~~consumer subscription ~~decisions~~service ~~impacted~~revenues ~~new~~on ~~hardware~~a ~~orders.~~per ~~Enterprise~~subscriber ~~service~~basis, ~~revenue~~was is$75 ~~generally~~and ~~characterized~~$72 byfor ~~long~~the ~~term~~three ~~contracts~~months ended March 31, 2011 and 2010, respectively.

International Broadband Segment

Revenue from our International ~~Broadband~~Enterprise ~~segment~~group for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 ~~slightly~~ increased by 018.19% to $~~143~~51.17 million compared to the same period in ~~2009~~2010, primarily due toan increase in product shipments to enterprise customers globally and the continued growth of our expanding array of solutions and global services to enterprises and government organizations in Brazil, India and the Africa/Middle East region,. ~~and~~Also ~~$7.0~~contributing ~~million~~to the ~~resulting~~increase ~~from~~was the favorable impact of currency exchange ~~due~~of to $1.8 million as a result of the depreciation of the U.S. dollar. ~~The increase was partially offset by delays in customer buying decisions which impacted new hardware orders.~~

Telecom Systems Segment

Revenue from our Telecom Systems segment for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 decreased by 17 32.04% to $7216.57 million compared to the same period in ~~2009.~~2010, ~~The~~primarily ~~decrease~~as ~~was~~a ~~due~~result toof a(i) several ~~reduction~~contracts inprogressing ~~revenue~~ from ~~our~~their ~~Telematics~~design ~~group~~and ofdevelopment ~~$22.9~~phases ~~million~~and tointo ~~$0.5~~the ~~million~~final ~~compared~~acceptance toand ~~the same~~warranty ~~period~~support inphases ~~2009.~~and (ii) completion ~~The~~of ~~decrease~~a inone-time ~~revenue~~contract ~~was~~during ~~partially~~the ~~offset~~first byquarter ~~the~~of ~~increase~~2010. These indecreases ~~revenue~~were ~~from~~partially ~~our~~offset ~~Mobile~~by ~~Satellite~~revenue ~~Systems~~increases ~~and~~on ~~Terrestrial~~existing ~~Microwave groups~~contracts.

~~Revenue~~33 Backlog—We benefit from strong visibility of our future revenues. At September 30, 2010 and December 31, 2009, our total backlog, which we define as our expected future revenue under customer contracts that are non-cancelable and excludes agreements with our consumer customers, was approximately $1,036.9 million and $834.0 million,

~~respectively.~~HTS WeSatellite ~~expect~~Segment to realize future revenue from our backlog as follows: $93.9 million in 2010, $259.3 million in 2011, $194.7 million in 2012, $119.7 million in 2013, and $369.3 million thereafter. Backlog also includes future revenues associated with the Jupiter satellite, which is currently under construction, including $245.0 million associated with the lease agreement with Barrett for satellite capacity, which is expected to be realized over 15 years once the satellite is launched and placed into service in the first half of 2012. Of the $245.0 million in backlog, the Company has collected $5.0 million related to a non-refundable reservation fee.

~~The~~Pursuant ~~amounts~~to ~~included in backlog represent~~ the ~~full~~Barrett ~~contract~~Agreement, ~~value~~we ~~for~~develop ~~the duration of the contract~~ and ~~does~~deliver ~~not~~gateways ~~include~~for ~~termination~~Barrett’s ~~fees. We~~service dobusiness ~~not~~in ~~assume~~Canada ~~that~~which ~~a contract~~ will beutilize Jupiter ~~renewed beyond its stated expiration date~~capacity. InFor ~~certain~~the ~~cases~~three ofmonths ~~breach~~ended ~~for~~March 31, ~~non-payment or customer bankruptcy~~2011, we ~~may~~recognized ~~not~~$0.6 bemillion ~~able~~of tohardware ~~recover~~revenues for the ~~full~~HTS ~~value~~Satellite ~~of certain contracts or termination fees~~segment.

Generally, following the successful launch of a satellite, if the satellite is operating nominally, our customers may only terminate their service agreements for satellite capacity by paying us all, or substantially all, of the payments that would have otherwise become due over the term of the service agreement. In the case of our satellite under construction, Jupiter, we would not be obligated to return the customer prepayments made under service agreements for the satellite if the launch was to fail. Also, if the launch of Jupiter was significantly delayed, our customer could exercise a right of termination under its service agreement.

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.

Cost 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. As we have developed new product offerings, we have reduced product costs due to higher levels of component integration, design improvements and volume increases.

Subscriber 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 shorter of 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.

Selling, General and Administrative (“SG&A”)—Selling expenses primarily consist of the salaries, commissions, 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.

Research and Development (“R&D”)—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 of Operations

Three Months Ended ~~September~~March 3031, ~~2010~~2011 Compared to Three Months Ended ~~September~~March 3031, ~~2009~~2010

Revenues

	Three Months Ended September 30,				Variance
	Three Months EndedMarch 31,				Variance
(Dollars in thousands)	~~2010~~2011		~~2009~~2010		Amount			%
Services revenues	$	~~200~~214,~~709~~250	$	~~175~~186,~~305~~890	$	2527,~~404~~360			14.56%
Hardware sales		64,006		75,164		(11,158	)		(14.8)%
Hardware revenues		48,422		55,253		(6,831	)		(12.4)%
Total revenues	$	~~264~~262,~~715~~672	$	~~250~~242,~~469~~143	$	1420,~~246~~529			58.75%
% of revenue to total revenues:
Services revenues		7581.86%		7077.02%
Hardware sales		24.2%		30.0%
Hardware revenues		18.4%		22.8%

Services Revenues

The increase in services revenues was attributable to our North America Broadband segment. Revenues from our Consumer group increased by $1821.69 million to $~~116~~127.89 million for the three months ended ~~September~~ March 3031, ~~2010~~2011 compared to $98106.20 million for the same period in ~~2009~~2010, resulting primarily from the increase in our consumer subscriber base. The increase in the Consumer group was partly due to athe ~~larger~~enrollment ~~percentage~~ of ~~our~~ customers ~~utilizing~~ under the ~~consumer~~Recovery ~~rental~~Act program largely funded by the U.S. Government’s broadband stimulus grant, for which we recognized $107.10 million ~~and $4.9 million~~ of services revenues for the three months ended ~~September~~March 3031, ~~2010 and 2009, respectively~~2011.

~~Services~~In addition, revenue from our North America Enterprise group increased by $71.98 million to $4849.34 million for the three months ~~ended~~ ~~September~~ended March 3031, ~~2010~~2011 compared to $4047.46 million for the same period in ~~2009~~2010. The increase reflected the growth in our managed services business, new contracts awarded in prior periods that provided incremental ~~services~~service revenue in ~~the~~2011 ~~first quarter of 2010~~ and the growth in our small/medium and wholesale subscriber base.

Services revenue from our International Broadband segment increased by $34.20 million to $3435.39 million for the three months ended ~~September~~March 3031, ~~2010~~2011 ~~from~~compared to $31.19 million for the same period in ~~2009~~2010, primarily due to ~~higher~~the ~~service~~continued ~~revenues~~growth ~~from~~of our ~~Brazil~~expanding array of solutions and global ~~service~~services ~~operations~~to enterprises and angovernment organizations in Brazil, India, and the Africa/Middle East region. Also, contributing to the increase ofin international service revenue was $01.6 million ~~resulting~~as ~~from~~a result of the favorable impact of currency exchange due to the depreciation of the U.S. dollar.

The increase in services revenue was partially offset by a ~~decrease~~reduction ~~in revenue~~ of $40.3 million in revenues from our Telecom Systems segment to $1.31 million for the three months ended ~~September~~March 3031, ~~2010~~2011 compared to $51.64 million for the same period in ~~2009, mainly as a result of a significant reduction in revenues from the Telematics group~~2010.

Hardware ~~Sales~~Revenues

Hardware ~~sales~~revenues from our North America Broadband segment decreased by $103.19 million to $2516.5 million for the three months ended ~~September~~March 3031, 2011 compared to $20.4 million for the same period in 2010. Despite the growth in the subscriber base, hardware revenues in the Consumer group decreased by $4.4 million to $3.0 million for the three months ended March 31, 2011 compared to $357.64 million for the same period in ~~2009~~2010. The decrease was due to an increase in customers utilizing (i) the consumer rental program, which accounts for rental revenues as services revenues, instead of the

~~Despite~~34 ~~the growth in the subscriber base, hardware sales in the Consumer group decreased by $3.5 million to $5.4~~

~~million~~previously ~~for~~offered ~~the~~financed ~~three~~purchase ~~months ended September 30~~plan, ~~2010~~which ~~compared~~revenues towere ~~$8.9~~accounted ~~million~~ for ~~the~~as ~~same~~hardware ~~period~~revenues inand ~~2009.~~(ii) the ~~The~~Recovery ~~decrease~~Act ~~was~~program ~~due~~which tois anlargely ~~increase~~funded inby ~~customers~~the ~~utilizing~~U.S. ~~(i) the~~Government ~~consumer~~stimulus ~~rental~~grant ~~program,~~and ~~which~~is ~~revenues are~~ accounted for as ~~services~~service ~~revenues,~~revenue. ~~instead~~Partially ofoffsetting the ~~previously~~decrease ~~offered~~in ~~financed~~hardware ~~purchase~~revenues ~~plan,~~was ~~which~~an ~~revenues~~increase ~~were~~of ~~accounted~~$0.5 ~~for~~million asin hardware sales ~~and~~from ~~(ii) the~~our ~~consumer~~North ~~rebate~~America ~~programs~~Enterprise ~~which~~group ~~reduced~~to ~~hardware~~$13.5 million for the three months ended ~~revenues~~March 31, 2011 compared to $13.0 million for the same period in 2010.

Hardware ~~revenue~~revenues from our ~~North~~International ~~America~~Broadband segment ~~Enterprise~~increased ~~group also decreased~~ by $64.62 million to $2015.18 million for the three months ended ~~September~~March 3031, ~~2010~~2011 compared to $2611.76 million for the same period in ~~2009~~2010. The ~~decrease~~increase was primarily due to aan ~~lower~~increase ~~volume~~in of shipments asto enterprise customers ~~delayed~~globally ~~their~~and the ~~buying~~commencement ~~decisions~~of asactivities ~~well~~on asa ~~the~~large ~~changes~~developmental contract for a high-throughput satellite system for a customer in the ~~product~~United ~~mix where~~Arab ~~the~~Emirates. ~~emphasis~~Also oncontributing ~~managed~~to ~~services~~the ~~has~~increase ~~led~~was toa ~~lower~~$0.2 ~~upfront~~million ~~hardware~~favorable ~~revenue~~impact ~~and~~of ancurrency ~~increase~~exchange indue ~~recurring~~to ~~service~~the depreciation ~~revenue~~of the U.S. dollar.

InHardware ~~addition,~~revenues ~~hardware sales~~ from our ~~International~~Telecom ~~Broadband~~Systems segment ~~increased~~decreased by $17.18 million to $1715.5 million for the three months ended ~~September~~March 3031, ~~2010~~2011 compared to $1623.43 million for the same period in ~~2009.~~2010, ~~The~~as ~~increase~~a ~~was~~result ~~primarily~~of ~~due~~(i) several tocontracts anprogressing ~~increase~~from intheir ~~shipment~~design ~~volume~~and todevelopment ~~our~~phases ~~enterprise~~and ~~customers~~into inthe ~~India~~final acceptance and anwarranty support ~~increase~~phases and (ii) completion of ~~$0.2~~a ~~million~~one-time ~~resulting~~contract ~~from~~existing during the ~~favorable impact~~first quarter of ~~currency~~2010. These ~~exchange~~decreases ~~due~~were topartially ~~the~~offset ~~depreciation~~by ofrevenue ~~the~~increases ~~U.S.~~on ~~dollar~~existing contracts.

Hardware sales from our Telecom Systems segment decreased by $2.2 million to $21.0 million for the three months ended September 30, 2010 compared to $23.2 million for the same period in 2009, primarily due to the decrease in hardware revenue from the Telematics group.

Cost of Revenues

	Three Months Ended September 30,				Variance
	Three Months EndedMarch 31,				Variance
(Dollars in thousands)	~~2010~~2011		~~2009~~2010		Amount			%
Cost of services	$	~~125~~132,~~806~~006	$	~~108~~115,~~894~~650	$	16,~~912~~356			1514.51%
Cost of hardware products sold		58,356		73,646		(15,290	)		(20.8)%
Cost of hardware		49,574		60,886		(11,312	)		(18.6)%
Total cost of revenues	$	~~184~~181,~~162~~580	$	~~182~~176,~~540~~536	$	15,~~622~~044			02.9%

Cost of Services

Cost of services increased in conjunction with the increase in services revenues, mainly due to 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 $11.01 million for the three months ended ~~September~~March 3031, ~~2010~~ 2011 compared to the same period in ~~2009~~2010. 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.

In addition, cost of services from our International Broadband segment increased by $32.2 million, primarily due to an increase in the number of enterprise and global service sites in service across Brazil and global service operations. The increase in cost of services was partially offset by a decrease of $3.2 million from the Telecom Systems segment to $1.2 million for the three months ended September 30, ~~2010 compared to $4.4 million for the same period in 2009~~India, ~~mainly~~and ~~related to~~ the ~~Telematics~~Africa/Middle ~~group~~East region.

Cost of Hardware ~~Products Sold~~

Cost of hardware ~~products sold~~ decreased in conjunction with the reduction in hardware ~~sales~~revenues. ~~The~~Cost ~~decrease was mainly attributable to a decrease in cost~~ of hardware ~~products sold~~ from our North America Broadband segment ofdecreased by $1110.86 million to $3124.65 million for the three months ended ~~September~~ March 3031, ~~2010~~2011 compared to $4335.41 million for the same period in ~~2009~~2010. Of the $10.6 million reduction, $8.8 million was attributable to the Consumer group despite the growth in the consumer subscriber base. Cost of hardware from the Consumer group decreased as a result of: (i) more customers utilizing the consumer rental program, for which hardware costs are accounted for as a component of services cost, instead of the previously offered deferred purchase plan, which cost was accounted for as hardware costs and (ii) lower hardware unit cost as a result of improved manufacturing efficiency.

~~Despite~~Cost ~~the growth in the consumer subscriber base, the cost~~ of hardware ~~products~~from ~~sold~~our inInternational ~~the~~Broadband ~~Consumer~~segment ~~group~~increased ~~decreased~~ by $74.5 2 million to $1112.14 million for the three months ended ~~September~~ March 3031, ~~2010~~2011 compared to $188.62 million for the same period in 2010, primarily due to the increase in hardware revenues.

40Cost of hardware from our Telecom Systems segment decreased by $5.5 million to $12.2 million for the three months ended March 31, 2011 compared to $17.6 million for the same period in 2010, primarily related to the reduction in hardware revenues from the Mobile Satellite Systems and the Terrestrial Microwave groups.

same period in 2009. The decrease was due to (i) an increase in the number of customers utilizing the consumer rental program, for which hardware cost is accounted for as a component of services cost, instead of the previously offered financed purchase plan, which cost was accounted for as hardware cost, and (ii) a decrease in hardware unit cost as a result of improved manufacturing efficiency.

In addition, cost of hardware products sold from our Telecom Systems segment decreased by $4.0 million to $15.0 million for the three months ended September 30, 2010 compared to $19.0 million for the same period in 2009, mainly related to the Telematics group.

Cost of hardware products sold from our International Broadband segment remained flat at $11.8 million for the three months ended September 30, 2010 compared to $11.3 million for the same period in 2009.

Selling, General and Administrative Expense

Three Months Ended September 30,

Variance

Three Months EndedMarch 31,

Variance

(Dollars in thousands)

~~2010~~2011

~~2009~~2010

Amount

Selling, general and administrative expense

4855,~~665~~869

4448,~~204~~680

47,~~461~~189

1014.18%

% of revenue

1821.43%

1720.61%

SG&A expense increased mainly due to higher costs of: (i) $32.34 million inassociated with our ~~North American~~efforts ~~operations~~in aspromoting weour ~~increased~~consumer ~~targeted~~and ~~marketing~~enterprise ~~spending~~businesses for our ~~consumer~~North ~~and~~American ~~enterprise~~operations; ~~businesses and~~ (ii) $12.9 million atof ~~our~~bad ~~international~~debt ~~subsidiaries.~~provisions ~~These~~associated ~~increases~~with ~~were~~our ~~partially~~domestic ~~offset~~businesses; byand ~~lower costs of~~ (iii) $01.71 million ~~across~~at ~~the other~~our ~~operating~~international ~~segments of the company~~subsidiaries.

Research and Development

Three Months Ended September 30,

Variance

Three Months EndedMarch 31,

Variance

(Dollars in thousands)

~~2010~~2011

~~2009~~2010

Amount

Research and development

45,~~776~~154

54,~~453~~915

~~(677)~~239

~~(12.~~4).9%

% of revenue

12.80%

2.20%

R&D ~~decreased~~increased mainly due to ~~a reduction in development activities of $2.0 million from our North America Broadband segment. This decrease was partially offset by~~ the increase in ~~R&D~~research and development activities of $1.0 .6 million and $0.3 million related to the construction of Jupiter and our Mobile Satellite Systems group, respectively. The increase was partially offset by a reduction in development activities mainly from our North America and International Broadband segments.

Amortization of Intangible Assets

	Three Months Ended September 30,				Variance
	Three Months EndedMarch 31,				Variance
(Dollars in thousands)	~~2010~~2011		~~2009~~2010		Amount		%
Amortization of intangible assets	$	682	$	~~1,385~~702	$	(~~703~~20)		(502.8)%
% of revenue		0.3%		0.63%

Amortization of intangible assets decreased primarily due to the impact of intangible assets reaching the end of their estimated life.

Operating Income

Three Months Ended September 30,

Variance

Three Months EndedMarch 31,

Variance

(Dollars in thousands)

~~2010~~2011

~~2009~~2010

Amount

Operating income

2619,~~430~~387

1611,~~887~~310

98,~~543~~077

5671.54%

% of revenue

107.04%

64.7%

~~Our operating income was $26.4 million for the three months ended September 30, 2010 compared to $16.9 million for the same period in 2009.~~ The increase in operating income during the current quarter was ~~significantly~~mainly impacted by higher gross margin of $1215.65 million for the three months ended ~~September~~March 3031, ~~2010~~2011 compared to the same period in ~~2009~~2010, as a result of growth in our services businesses, primarily in our North American businesses, and the reduction of costs associated with leased satellite capacity. ~~The increase in our operating income for the three months ended September 30, 2010 was partially offset by higher SG&A expenses as we increased our efforts in promoting our products and services.~~

~~Interest~~36 ~~Expense~~

	Three Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Interest expense	$	14,493	$	17,727	$	(3,234)		(18.2)%

Interest and Other Loss, Net

	Three Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Interest income	$	359	$	468	$	(109)		(23.3)%
Other loss, net		-		(1)		1		100.0%
Total interest and other loss, net	$	359	$	467	$	(108)		(23.1)%

The decrease in interest and other loss, net was primarily due to a reduction of interest earned on certain notes.

Income Tax Expense

	Three Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Income tax expense	$	1,551	$	981	$	570		58.1%

Our income tax expense is generally attributable to state income taxes and income earned from certain of our foreign subsidiaries. For the three months ended September 30, 2010 and 2009, our income tax expense was partially offset by $0.1 million and $0.6 million, respectively, of income tax benefit generated by our Indian subsidiary as a result of its engagement 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.

~~Nine~~The ~~Months~~increase ~~Ended September 30,~~in ~~2010~~our ~~Compared~~gross tomargin ~~Nine~~was ~~Months~~partially ~~Ended~~offset ~~September 30~~by higher SG&A expenses. See “Selling, General ~~2009~~and Administrative Expense” for a more detailed explanation of the fluctuation.

Revenues

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Services revenues	$	579,754	$	509,871	$	69,883			13.7%
Hardware sales		178,437		235,458		(57,021	)		(24.2)%
Total revenues	$	758,191	$	745,329	$	12,862			1.7%
% of revenue to total revenues:
Services revenues		76.5%		68.4%
Hardware sales		23.5%		31.6%

Services Revenues

The increase in services revenues was attributable to our North America Broadband segment. Revenues from our Consumer group increased by $54.7 million to $334.3 million for the nine months ended September 30, 2010 compared to $279.6 million for the same period in 2009 resulting primarily from the increase in our consumer subscriber base. The increase in the Consumer group was partly due to a larger percentage of our customers utilizing the consumer rental program, for which we recognized $26.2 million and $10.0 million of services revenues for the nine months ended September 30, 2010 and 2009, respectively.

In addition, revenue from our North America Enterprise group increased by $21.3 million to $143.1 million for the nine months ended September 30, 2010 compared to $121.8 million for the same period in 2009. The increase reflected the growth in our managed services business, new contracts awarded in prior periods that provided incremental service revenue in the first quarter of 2010 and the growth in our small/medium and wholesale subscriber base.

Furthermore, services revenue from our International Broadband segment increased by $10.7 million to $98.4 million for the nine months ended September 30, 2010 from $87.7 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 $6.2 million as a result of the favorable impact of currency exchange due to the depreciation of the U.S. dollar.

Partially offsetting the increase in services revenue was a decrease in revenue from our Telecom Systems segment of $16.8 million to $4.0 million for the nine months ended September 30, 2010 compared to $20.8 million for the same period in 2009, mainly as a result of a significant reduction in revenues from the Telematics group.

Hardware Sales

Hardware sales from our North America Broadband segment decreased by $48.4 million to $65.2 million for the nine months ended September 30, 2010 compared to $113.6 million for the same period in 2009.

Despite the growth in the subscriber base, hardware sales in the Consumer group decreased by $11.7 million to $18.8 million for the nine months ended September 30, 2010 compared to $30.5 million for the same period in 2009. The decrease was due to an increase in customers utilizing (i) the consumer rental program, which revenues are accounted for as services revenues, instead of the previously offered financed purchase plan, which revenues were accounted for as hardware sales and (ii) the consumer rebate programs which reduced hardware revenues.

Hardware revenue from our North America Enterprise group also decreased by $36.7 million to $46.4 million for the

nine months ended September 30, 2010 compared to $83.1 million for the same period in 2009. The decrease was due to a lower volume of shipments as enterprise 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.

In addition, hardware sales from our International Broadband segment decreased by $10.5 million to $44.7 million for the nine months ended September 30, 2010 compared to $55.2 million for the same period in 2009. The decrease was primarily due to the completion of the rollout of terminal shipments in 2009 on a multi-year contract for a large lottery operator in the United Kingdom and a decrease in shipment volume to our international enterprise customers as delays in customer buying decisions which impacted new hardware orders. These decreases were slightly offset by a $0.8 million favorable impact of currency exchange due to the depreciation of the U.S. dollar.

Hardware sales from our Telecom Systems segment increased by $1.8 million to $68.5 million for the nine months ended September 30, 2010 compared to $66.7 million for the same period in 2009, mainly due to the increase in hardware revenue from the Mobile Satellite Systems group.

Cost of Revenues

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Cost of services	$	364,662	$	326,532	$	38,130			11.7%
Cost of hardware products sold		174,824		225,134		(50,310	)		(22.3)%
Total cost of revenues	$	539,486	$	551,666	$	(12,180	)		(2.2)%

Cost of Services

Cost of services increased in conjunction with the increase in services revenues, mainly due to 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 $34.5 million for the nine months ended September 30, 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.

In addition, cost of services from our International Broadband segment increased by $11.3 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 was partially offset by a decrease of $12.6 million in cost of services from the Telecom Systems segment to $3.2 million for the nine months ended September 30, 2010 compared to $15.8 million for the same period in 2009, mainly related to the Telematics group.

Cost of Hardware Products Sold

Cost of hardware products sold decreased in conjunction with the reduction in hardware sales. The decrease was mainly attributable to a decrease in cost of hardware products sold from our North America Broadband segment of $39.7 million to $95.8 million for the nine months ended September 30, 2010 compared to $135.5 million for the same period in 2009.

Despite the growth in the consumer subscriber base, the cost of hardware products sold in the Consumer group decreased by $17.1 million to $40.6 million for the nine months ended September 30, 2010 compared to $57.7 million for the same period in 2009. The decrease was due to (i) an increase in the number of customers utilizing the consumer rental program, for which hardware cost is accounted for as a component of services cost, instead of the previously offered deferred purchase plan, which cost was accounted for as hardware cost and (ii) a decrease in hardware unit cost as a result of improved manufacturing efficiency.

In addition, cost of hardware products sold from our International Broadband segment decreased by $8.7 million to $29.2 million for the nine months ended September 30, 2010 compared to $37.9 million for the same period in 2009, primarily due to a decrease in hardware sales.

Furthermore, cost of hardware products sold from our Telecom Systems segment decreased by $1.9 million, primarily related to the reduction in hardware cost from the Telematics group.

Selling, General and Administrative Expense

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Selling, general and administrative expense	$	144,747	$	132,302	$	12,445		9.4%
% of revenue		19.1%		17.8%

SG&A expense increased mainly due to higher costs of: (i) $10.3 million in our North America operations as we increased targeted marketing spending for our consumer and enterprises businesses and (ii) $3.4 million at our international subsidiaries for the nine months ended September 30, 2010 compared to the same period in 2009. These increases were partially offset by lower costs of $1.3 million across the other operating segments of the company.

Loss on Impairment

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Loss on impaiment	$	-	$	44,400	$	(44,400	)		(100.0)%
% of revenue		0.0%		6.0%

There was no impairment loss recognized in 2010. In 2009, we recognized $44.4 million of impairment loss, related to the Deposit paid to Sea Launch.

Research and Development

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Research and development	$	15,046	$	16,502	$	(1,456	)		(8.8)%
% of revenue		2.0%		2.2%

R&D decreased due to a reduction in development activities of $5.3 million from our North America Broadband segment. This decrease was partially offset by the increase in R&D activities of $2.7 million and $0.9 million related to the construction of Jupiter and our Mobile Satellite Systems group, respectively.

Amortization of Intangible Assets

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount			%
Amortization of intangible assets	$	2,067	$	4,156	$	(2,089	)		(50.3)%
% of revenue		0.3%		0.6%

Amortization of intangible assets decreased primarily due to the impact of intangible assets reaching the end of their estimated life.

Operating Income (loss)

	Nine Months Ended September 30,				Variance
(Dollars in thousands)	2010		2009		Amount		%
Operating income (loss)	$	56,845	$	(3,697)	$	60,542		1637.6%
% of revenue		7.5%		(0.5)%

For the nine months ended September 30, 2010, we generated $56.8 million of operating income compared to an operating loss of $3.7 million for the same period in 2009. The change in operating income (loss) was significantly impacted by the recognition of $44.4 million in impairment loss, which was related to the Deposit paid to Sea Launch, in 2009. In addition, our gross margin was higher by $25.0 million for the nine months ended September 30, 2010 compared to the same period in 2009, as a result of growth in our services businesses, primarily in our North American businesses, and the reduction of costs associated with leased satellite capacity. The increase in our operating income for the nine months ended September 30, 2010 was partially offset by higher SG&A expenses as we increased our efforts in promoting our products and services.

Interest Expense

Nine Months Ended September 30,

Variance

Three Months EndedMarch 31,

Variance

(Dollars in thousands)

~~2010~~2011

~~2009~~2010

Amount

Interest expense

4612,~~113~~500

4716,~~106~~105

(~~993~~3,605)

)

(222.14)%

Interest expense primarily relates to interest on the $450 million of 9.50% senior notes maturing on April 15, 2014 (the “2006 Senior Notes”), $150.0 million of 9.50% senior notes maturing on April 15, 2014 (the “2009 Senior Notes”), the ~~and~~$115 million term loan maturing on April 15, 2014 (the “Term Loan Facility”) and the $115 million COFACE Guaranteed Facility less capitalized interest associated with the construction of our satellite. The decrease in interest expense was ~~primarily~~ due to $84.24 million of increased capitalized interest associated with the construction of Jupiter infor ~~2010.~~the ~~The~~three ~~decrease~~months ~~was~~ended March 31, 2011, partially offset by ~~higher interest expense of~~ $60.67 million ~~recognized~~of oninterest ~~the~~and ~~2009~~fees ~~Senior~~associated ~~Notes~~with ~~for~~ the ~~nine~~COFACE ~~months in 2010 compared to five~~Guaranteed ~~months in 2009 as the 2009 Senior Notes were issued in May 2009~~Facility.

Interest and Other ~~Loss~~Income, Net

	Nine Months Ended September 30,						Variance
	Three Months EndedMarch 31,						Variance
(Dollars in thousands)	~~2010~~2011			~~2009~~2010			Amount			%
Interest income	$	~~1,486~~359		$	~~865~~553		$	~~621~~(194	)		71(35.81)%
Other loss, net		-(248	)		~~(365~~-	)		~~365~~(248	)		~~100.0%~~*
Total interest and other loss, net	$	1,486		$	500		$	986			197.2%
Total interest and other income, net	$	111		$	553		$	(442	)		(79.9)%

46* Percentage not meaningful.

~~Table~~The decrease in interest and other income, net was primarily due to lower interest earned on third-party receivables and extinguishment of ~~Contents~~certain lease financing arrangement for the three months ended March 31, 2011. There was no extinguishment of a lease financing arrangement in the comparable period in 2010.

The increase in interest and other loss, net was primarily due to an increase of interest earned on certain notes and the extinguishment of certain lease financings in 2009.

Income Tax Expense

Nine Months Ended September 30,

Variance

Three Months EndedMarch 31,

Variance

(Dollars in thousands)

~~2010~~2011

~~2009~~2010

Amount

Income tax expense

41,~~331~~770

~~775~~1,217

~~3,556~~553

~~458~~45.84%

~~Our~~The ~~income~~increase ~~tax expense~~in ~~is generally attributable to state income taxes and income earned from certain of~~ our ~~foreign subsidiaries. For the nine months ended September 30, 2010 and 2009, our~~ income tax expense was ~~partially~~primarily ~~offset~~attributable byto ~~$0.3~~higher ~~million~~profitability ~~and~~in ~~$2.6 million, respectively, of income tax benefit generated by~~ our ~~Indian~~foreign ~~subsidiary as a result of its engagement in telecommunications infrastructure development~~subsidiaries. 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

	Nine Months Ended September 30,						Variance
	Three Months EndedMarch 31,						Variance
(Dollars in thousands)	~~2010~~2011			~~2009~~2010			Amount			%
Net cash provided by (used in):
Operating activities	$	~~110~~50,~~066~~110		$	~~123~~14,~~055~~965		$	~~(12~~35,~~989~~145	)		~~(10~~234.6)8%
Investing activities	$	(~~177~~99,~~013~~509	)	$	(~~139~~79,~~836~~361	)	$	3720,~~177~~148			2625.64%
Financing activities	$	(413,~~375~~020	)	$	~~129~~(2,~~559~~674	)	$	~~(133~~15,~~934~~694	)		~~(103.4)%~~*

*	Percentage not meaningful.

Net Cash Flows from Operating Activities

Net cash provided by operating activities was approximately $~~110~~50.1 million for the ~~nine~~three months ended ~~September~~ March 3031, ~~2010~~2011. This was due to approximately $~~105~~43.8 million of cash generated by earnings after adjustments of non-cash expenses ~~plus~~and a net ~~decrease~~increase in working capital of approximately $46.3 million. Net cash provided by operations was approximately $~~123~~15.10 million for the ~~nine~~ three months ended ~~September~~March 3031, ~~2009~~2010. This was due to approximately $6825.84 million of cash generated by earnings after adjustment for non-cash expenses plus a net decrease in working capital of $5410.34 million.

Net Cash Flows from Investing Activities

The increase in net cash used in investing activities was mainly due to an increase in capital expenditures on a cash basis of $8937.2 million, primarily related to the construction of our Jupiter satellite., ~~The~~which ~~increase~~ was partially offset by a net decrease in marketable securities activities of $4116.16 million. There were no purchases of marketable securities during the three months ended March 31, 2011 compared to $22.6 million in the three months ended March 31, 2010. In addition, proceeds from the sale of marketable securities decreased by $6.0 million in the three months ended March 31, 2011 as compared to March 31, 2010.

47Capital expenditures on a cash basis for the three months ended March 31, 2011 and 2010 are shown as follows (in thousands):


	Three Months Ended March 31,
	2011		2010		Variance
Capital expenditures:
Jupiter program	$	58,256	$	31,638	$	26,618
Capital expenditures—VSAT		39,744		27,768		11,976
Capital expenditures—other		2,841		3,589		(748	)
Capitalized software		2,752		3,166		(414	)
SPACEWAY program		418		673		(255	)

Total capital expenditures⁽¹⁾	$	104,011	$	66,834	$	37,177

(1) Capital expenditures ~~for~~ ~~the~~on ~~nine~~an ~~months~~accrual ~~ended~~basis ~~September 30,~~were ~~2010~~$98.9 million and ~~2009~~$65.2 ~~are~~million ~~shown~~for asthe ~~follows~~three ~~(in~~months ~~thousands):~~ended March 31, 2011 and 2010, respectively.

	Nine Months Ended September 30,
	2010		2009		Variance
Capital expenditures:
Jupiter program	$	104,836	$	16,282	$	88,554
Capital expenditures—VSAT		69,225		69,055		170
Capital expenditures—other		7,500		6,668		832
Capitalized software		9,935		10,315		(380	)
SPACEWAY program		1,970		1,948		22
Total capital expenditures(1)	$	193,466	$	104,268	$	89,198

(1) Capital expenditures on an accrual basis were $217.3 million and $127.8 million for the nine months ended September 30, 2010 and 2009, respectively.

Net Cash Flows from Financing Activities

For the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, the net cash ~~used~~provided inby our financing activities of $13.0 million was mainly driven by the financing activity in connection with the launch related tocosts of our Jupiter satellite. The increase in cash provided by our financing activities was partially offset by the repayment of our long-term ~~and short-term~~ debt and debt issuance costs associated with ~~the refinancing of~~ our ~~revolving~~financing ~~credit~~ facility. For the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~ 2010, our net cash provided by financing activities was mainly related to the ~~private~~additional debt ~~offering~~issuance ofcosts associated with the ~~2009~~refinancing ~~Senior~~of ~~Notes~~our revolving credit facility in ~~May~~March ~~2009~~2010, which was partially offset by the reduction in repayments of long-term debt.

Future Liquidity Requirements

As of ~~September~~March 3031, ~~2010~~2011, our Cash and cash equivalents and Marketable securities were $~~127~~46.78 million and our total debt was $~~719~~761.30 million. We are leveraged as a result of our indebtedness. The Merger Agreement contemplates the repayment of our outstanding debt (including the 9 1/2% Senior Notes due 2014), except that the $115 million loan facility guaranteed by COFACE, the French Export Credit Agency, will continue to remain outstanding following the Merger if the requisite lender consents thereunder are obtained.

~~Revolving~~38 ~~Credit Facility and Term Loan~~

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 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. As of September 30, 2010, the total outstanding letters of credit and the available borrowing capacity under the Revolving Credit Facility was $4.9 million and $45.1 million, respectively. As of September 30, 2010, the Revolving Credit Facility was rated Baa3 and BB- by Moody’s and Standard & Poor’s (“S&P”), respectively.

In February 2007, we borrowed $115 million from a syndicate of banks pursuant to a senior unsecured credit agreement (the “Term Loan Facility”), which matures on April 15, 2014. The Term Loan Facility is guaranteed, on a senior unsecured basis, by all of our existing and future subsidiaries that guarantee our existing 2006 Senior Notes and the Revolving Credit Facility. The interest on the Term Loan Facility is paid quarterly at Adjusted LIBOR (as defined in the Term Loan Facility) plus 2.50%. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into an agreement to swap the Adjusted LIBOR for a fixed 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 and is subject to certain mandatory and optional prepayment provisions and contains negative covenants and events of default, in each case, substantially similar to those provisions contained in the indentures governing the Senior Notes. The remaining net interest payments on the Term Loan Facility are estimated to be approximately $2.2 million for the three 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. As of September 30, 2010, the Term Loan was rated B1 and B by Moody’s and S&P, respectively.

~~Our~~Revolving ~~subsidiaries primarily~~Credit ~~meet~~Facility their working capital requirements through their respective operations or the utilization of local credit facilities. Occasionally, the subsidiaries utilize temporary advances to/from us to meet temporary cash requirements. Certain of our foreign subsidiaries maintain various revolving lines of credit and ~~term~~Term ~~loans~~Loan funded by their respective local banks in local currency. As of September 30, 2010, the aggregate balance outstanding under these loans was $2.7 million. Our subsidiaries may be restricted from paying dividends to us under the terms of these loans.

~~The~~On ~~Company~~March 16, ~~and~~2010, ~~its~~we ~~subsidiaries are~~entered ~~separate~~into ~~and~~a ~~distinct~~credit ~~legal~~agreement ~~entities~~with ~~and~~JP Morgan Chase Bank, ~~except~~N.A. ~~for~~and ~~its~~Barclays ~~existing~~Capital to amend and ~~future~~restate ~~subsidiaries~~our senior ~~that~~secured ~~are~~$50 ormillion ~~will~~revolving becredit ~~guarantors~~facility (the “Revolving Credit Facility”). Pursuant to the terms of the ~~Senior~~agreement, ~~Notes~~among other changes, the ~~Term~~maturity ~~Loan~~date ~~Facility~~of ~~and~~ the Revolving Credit Facility was extended to March 16, 2014, ~~they~~subject ~~will~~to ~~have~~an noearly ~~obligation~~maturity date of 91 days prior to March 16, ~~contingent~~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 ~~otherwise~~amended) with maturities of no earlier than 91 days after March 16, 2014. The terms of the Revolving Credit Facility were amended to ~~pay~~be: ~~amounts~~(i) in ~~due~~respect ~~under~~of the ~~Senior~~interest ~~Notes~~rate, ~~Term~~at ~~Loan~~our option, the Alternative Borrowing Rate (as defined in the Revolving Credit Facility) ~~and~~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 orannum, in each case subject to ~~make~~downward ~~any~~adjustment ~~funds~~based on our leverage ratio. As of March 31, 2011, the total outstanding letters of credit and the available toborrowing ~~pay~~capacity ~~those~~under ~~amounts~~the Revolving Credit Facility was $4.6 million and $45.4 million, ~~whether~~respectively. byAs ~~dividend~~of March 31, ~~distribution~~2011, ~~loan~~the orRevolving ~~other~~Credit ~~payment~~Facility was rated Baa3 and BB- by Moody’s and Standard & Poor (“S&P”), respectively.

In February 2007, we borrowed $115 million from a syndicate of banks pursuant to a senior unsecured credit agreement (the “Term Loan Facility”), which matures on April 15, 2014. The Term Loan Facility is guaranteed, on a senior unsecured basis, by all of our existing and future subsidiaries that guarantee our existing 2006 Senior Notes and the Revolving Credit Facility. The interest on the Term Loan Facility is paid quarterly at Adjusted LIBOR (as defined in the Term Loan Facility) plus 2.50%. To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into an agreement to swap the Adjusted LIBOR for a fixed 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 and is subject to certain mandatory and optional prepayment provisions and contains negative covenants and events of default, in each case, substantially similar to those provisions contained in the indentures governing the Senior Notes. The remaining net interest payments on the Term Loan Facility are estimated to be approximately $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. As of March 31, 2011, the Term Loan was rated B1 and B by Moody’s and S&P, respectively. As of March 31, 2011, interest accrued based on the Swap Agreement and the Term Loan Facility was $0.7 million.

Our subsidiaries primarily meet their working capital requirements through their respective operations or the utilization of local credit facilities. Occasionally, the subsidiaries utilize temporary advances to/from us to meet temporary cash requirements. Certain of our foreign subsidiaries maintain various revolving lines of credit and term loans funded by their respective local banks in local currency. As of March 31, 2011, the aggregate balance outstanding under these loans was $2.6 million. Our subsidiaries may be restricted from paying dividends to us under the terms of these loans.

The Company and its subsidiaries are separate and distinct legal entities and, except for its existing and future subsidiaries that are or will be guarantors of the Senior Notes, the Term Loan Facility, COFACE Guaranteed Facility and the Revolving Credit Facility, they will have no obligation, contingent or otherwise, to pay amounts due under the Senior Notes, Term Loan Facility, COFACE Guaranteed Facility and the Revolving Credit Facility, or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment.

Senior Notes

In 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”). The 2009 Senior Notes are guaranteed on a senior unsecured basis by each of our current and future domestic subsidiaries that guarantee any of our indebtedness or indebtedness of our other subsidiary guarantors. 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. We received net proceeds of approximately $133.6 million from the offering. We have used and intend to continue to use these net proceeds for general corporate purposes, which could include working capital needs, corporate development opportunities (which may include acquisitions), capital expenditures and opportunistic satellite fleet expansion. As of ~~September~~March 3031, ~~2010~~2011, the 2009 Senior Notes were rated B1 and B by Moody’s and S&P, respectively. As of ~~September~~March 3031, ~~2010~~2011, we had recorded $6.5 million of accrued interest payable related to the 2009 Senior Notes.

In39 April 2006, we issued $450 million of 9.50% senior notes maturing on April 15, 2014 (the “2006 Senior Notes”), which are guaranteed on a senior unsecured basis by us and each of our current and future domestic subsidiaries that guarantee any of our indebtedness or indebtedness of our other subsidiary guarantors. Interest on the 2006 Senior Notes is paid semi-annually in arrears on April 15 and October 15. As of September 30, 2010, we had recorded $19.6 million of accrued interest payable related to the 2006 Senior Notes. As of September 30, 2010, the 2006 Senior Notes were rated B1 and B by Moody’s and S&P, respectively.

Although the terms and covenants with respect to the 2009 Senior Notes are substantially identical to the 2006 Senior Notes, the 2009 Senior Notes were issued under a separate indenture and do not vote together with the 2006 Senior Notes. Each of the indentures governing the 2006 Senior Notes and 2009 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 case of the indentures, for so long as any Senior Notes are outstanding; (ii) in the case of the amended Revolving Credit Facility, for so long as the amended Revolving Credit Facility is in effect; and (iii) in the case of the Term Loan Facility, for so long as the Term Loan Facility remains outstanding. Negative 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; prepay, redeem 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 into, or sell substantially all of our assets to, another person; and enter into new lines of business. In addition to these negative covenants, the amended 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 the Company was in compliance with all of its debt covenants as of September 30, 2010.

In April 2006, we issued $450 million of 9.50% senior notes maturing on April 15, 2014 (the “2006 Senior Notes”), which are guaranteed on a senior unsecured basis by us and each of our current and future domestic subsidiaries that guarantee any of our indebtedness or indebtedness of our other subsidiary guarantors. Interest on the 2006 Senior Notes is paid semi-annually in arrears on April 15 and October 15. As of March 31, 2011, the 2006 Senior Notes had $19.6 million of accrued interest payable and ratings of were rated B1 and B by Moody’s and S&P, respectively.

COFACE Guaranteed Facility

On October 29, 2010, we entered into a $115 million loan agreement with BNP Paribas and Societe Generale (“COFACE Guaranteed Facility”), which is guaranteed by COFACE, the French Export Credit Agency, to finance the launch related costs for our Jupiter satellite. Pursuant to the COFACE Guaranteed Facility, loan draw-downs, which began in the fourth quarter of 2010, will occur over the construction period for the Jupiter launch vehicle up to the time of the launch, which is estimated to be in the first half of 2012. The COFACE Guaranteed Facility has a fixed interest rate of 5.13%, payable semi-annually in arrears starting six months after each borrowing, and requires that principal repayments be paid in 17 consecutive equal semi-annual installments starting the earlier of (i) six months after the in-orbit delivery, or (ii) December 1, 2012. The agreement also contains covenants and conditions which are customary for financings of this type. As of March 31, 2011, we had $43.5 million of borrowings under the loan and an available borrowing capacity of $71.5 million.

Although the terms and covenants with respect to the 2009 Senior Notes are substantially identical to the 2006 Senior Notes, the 2009 Senior Notes were issued under a separate indenture and do not vote together with the 2006 Senior Notes. Each of the indentures governing the 2006 Senior Notes and 2009 Senior Notes (collectively, the “Senior Notes”), the agreement governing the amended Revolving Credit Facility, the agreement governing the COFACE Guaranteed Facility and the agreement governing the Term Loan Facility require us to comply with certain affirmative and negative covenants: (i) in the case of the indentures, for so long as any Senior Notes are outstanding; (ii) in the case of the amended Revolving Credit Facility, for so long as the amended Revolving Credit Facility is in effect; (iii) in the case of the COFACE Guaranteed Facility, for so long as the COFACE Guaranteed Facility remains outstanding; and (iv) in the case of the Term Loan Facility, for so long as the Term Loan Facility remains outstanding. Negative 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; prepay, redeem 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 into, or sell substantially all of our assets to, another person; and enter into new lines of business. In addition to these negative covenants, the amended Revolving Credit Facility, the indentures governing the Senior Notes, the COFACE Guaranteed Facility 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 (as define in the respective agreements) 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 the Company was in compliance with all of its debt covenants as of March 31, 2011.

Other

In ~~July~~June ~~2006~~2009, we entered into an agreement with 95Space ~~West Co.~~Systems/Loral, Inc. (“~~95 West Co.~~SS/L”) for the construction of Jupiter and ~~its~~agreed ~~parent,~~to ~~Miraxis~~make ~~License~~installment ~~Holdings,~~payments ~~LLC~~to SS/L upon the completion of each ~~(“MLH”),~~milestone ~~pursuant~~as toset ~~which~~forth 95in ~~West~~the Coagreement. ~~and~~In ~~MLH~~connection ~~agreed~~with tothe ~~provide~~construction aof ~~series~~Jupiter, ofwe ~~coordination~~entered ~~agreements~~into ~~allowing~~a ~~the~~contract ~~Company~~with Barrett, whereby Barrett agreed to ~~operate~~lease ~~SPACEWAY~~user 3beams atand purchase gateways and Ka-band terminals for the ~~95°~~Jupiter ~~West~~satellite ~~Longitude~~that are ~~orbital~~designed ~~slot~~to ~~where~~operate ~~95 West~~in CoCanada. ~~and~~In ~~MLH~~April ~~have~~2010, ~~higher~~we ~~priority rights.~~entered ~~Our~~into ~~remaining~~an ~~obligations~~agreement with 95Arianespace ~~West~~for ~~Co.~~the aslaunch of ~~September 30,~~Jupiter ~~2010~~in ~~are~~the ~~subject~~first tohalf ~~conditions~~of in2012. Pursuant to the agreement, ~~including~~the ~~our~~Ariane ~~ability~~5 towill ~~operate~~launch ~~SPACEWAY~~Jupiter 3into ~~and~~geosynchronous ~~are~~transfer ~~$1.0 million~~orbit ~~for~~from Guiana ~~each~~Space ofCentre ~~the~~in ~~years~~Kourou, ~~ending~~French ~~December~~Guiana. As of March 31, 2011 ~~through~~, ~~2016~~our remaining obligation for the construction and launch of Jupiter was approximately $164.9 million.

InBased ~~June~~on ~~2009,~~our wecurrent ~~entered~~and ~~into~~anticipated anlevels ~~agreement with SS/L for the construction~~ of ~~Jupiter~~operations and ~~have~~conditions ~~agreed to make installment payments to SS/L upon the completion of each milestone as set forth~~ in ~~the~~our ~~agreement.~~markets Inand ~~connection with the construction of Jupiter~~industry, we ~~entered~~expect ~~into~~to ameet ~~contract~~our ~~with~~short-term ~~Barrett,~~cash ~~whereby~~requirements ~~Barrett~~through ~~agreed~~the touse ~~lease~~of ~~user~~cash ~~beams~~on ~~and~~hand ~~purchase gateways~~ and ~~terminals~~cash ~~for~~from operations ~~the Jupiter satellite~~ that ~~are~~we ~~designed~~expect to ~~operate in Canada~~generate. InWe ~~April~~expect ~~2010,~~to wemeet ~~entered~~our ~~into~~long-term ancash ~~agreement~~requirements ~~with~~through ~~Arianespace~~a ~~for~~combination ~~the~~of ~~launch~~(i) cash ofon ~~Jupiter~~hand inand ~~the~~cash ~~first~~from ~~half~~operations ofthat ~~2012.~~we ~~Pursuant~~expect to ~~the~~generate ~~agreement,~~and ~~the~~(ii) a ~~Ariane~~possible 5refinancing ~~will launch~~of ~~Jupiter~~the ~~into~~Senior ~~geosynchronous~~Notes and/or ~~transfer~~the ~~orbit~~Term ~~from~~Loan ~~Guiana~~Facility ~~Space~~that ~~Centre~~mature in ~~Kourou, French Guiana~~2014. AsIf ~~of September 30, 2010, our remaining obligation for~~ the ~~construction~~Merger ~~and~~is ~~launch~~not ~~of Jupiter was approximately $259.9 million.~~

On40 October 29, 2010, the Company entered into a $115 million loan agreement with BNP Paribas and Societe Generale to finance the launch related costs for Jupiter, our next generation, high-throughput, Ka-band satellite. The loan will be guaranteed by COFACE, the French Export Credit Agency. Arianespace has been contracted by the Company to launch Jupiter, the estimated launch date being in the first half of 2012.

LoanTable draw-downs, which will begin in the fourth quarter, will occur over the construction period for the launch vehicle up to the time of the launch. Terms of the loan include a fixed interest rate of 5.13% per annum, payable semi-annually in arrears, and a repayment period of 8.5 years after the launch. The agreement also contains covenants and conditions which are customary for financings of this type. Contents

~~Based on our current and anticipated~~ ~~levels of operations and conditions in our markets and industry~~consummated, we expect to meet our short-term cash requirements through the use of cash on hand and cash from operations that we expect to generate. We expect to meet our long-term cash requirements through a combination of (i) cash on hand and cash from operations that we expects to generate and (ii) a possible refinancing of our senior notes and/or term loan that mature in 2014. We believe that our current resources are sufficient to meet our short-term cash requirements. ~~We do not currently anticipate accessing the $50 million Revolving Credit Facility.~~ However, our ability to fund these needs and to comply with the financial covenants under our debt agreements depends on our future operating performance and cash flow, which is subject to prevailing economic conditions, the level of spending by our customers and other factors, many of which are beyond our control. We do not currently anticipate making borrowings under the $50 million Revolving Credit Facility for the next twelve months. Any future acquisitions, joint ventures, acquisition of a satellite, or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all.

Contractual Obligations

There have been no material changes to our contractual obligations since December 31, ~~2009~~2010, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2009,~~2010. ~~except for items listed below:~~

• On March 16, 2010, we entered into an amended and restated 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”). See the Future Liquidity Requirements section for a discussion of the Revolving Credit Facility.

• 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 will launch Jupiter into geosynchronous transfer orbit from Guiana Space Centre in Kourou, French Guiana.

Commitments and Contingencies

For a discussion of commitments and contingencies, see Note 1718—Commitments and Contingencies to our unaudited condensed consolidated financial statements included in Part I-Item 1 of this report.

Off-Balance Sheet Arrangements

We are required to issue standby letters of credit and bonds primarily to support certain sales of our equipment to international government customers. These letters of credit are either bid bonds to support contract bids, or to support advance payments made by customers upon contract execution and prior to equipment being shipped, or guarantees of performance issued in support of its warranty obligations. Bid bonds typically expire upon the issue of the award by the customer. Advance payment bonds expire upon receipt by the customer of equipment, and performance bonds typically expire when the warranty expires, generally one year after the installation of the equipment.

As of ~~September~~March 3031, ~~2010~~2011, we had $2318.29 million of ~~contractual~~ contractual obligations to customers and other statutory/governmental agencies, which were secured by letters of credit issued through us and our subsidiaries’ credit facilities. Of this amount, $4.96 million was issued under the Revolving Credit Facility; $10.6 million was secured by restricted cash; $1.01 million related to insurance bonds; and $1512.76 million was issued under credit arrangements available to our ~~Indian~~foreign ~~and Brazilian~~ subsidiaries. Certain letters of credit issued by our foreign subsidiaries are secured by ~~certain~~their assets.

Seasonality

Like many communications infrastructure equipment vendors, a significant amount of our hardware sales occur in the second half of the year due to our customers’ annual procurement and budget cycles. Large enterprises and operators usually allocate their capital expenditure budgets at the beginning of their fiscal year (which often coincides with the calendar year). The typical sales cycle for large complex system procurements is 6 to 12 months, which often results in the customer expenditure occurring towards the end of the year. Customers often seek to expend the budgeted funds prior to the end of the year and the next budget cycle. As a result, interim results are not indicative of the results to be expected for the full year.

Inflation

Historically, inflation has not had a material effect on our results of operations.

Certain Relationships and Related Transactions

For a discussion of related-party transactions, see Note 15—Transactions with Related Parties to our unaudited condensed consolidated financial statements included in Part I—Item 1. Financial Statements of this report.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. We evaluate these estimates and assumptions on an ongoing basis. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions. For a description of our critical accounting policies, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as included in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 3, 2010 (File number 333-138009).

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Analysis of Financial Condition and Results of Operations” as included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 3, 2010 (File number 333-138009).

New Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 12—~~Organization,~~ Basis of Presentation and ~~Summary~~New ~~of Significant~~ Accounting ~~Policies~~Pronouncements to the Company’s unaudited condensed consolidated financial statements included in Part I-Item 1 of this report.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

General

Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates, interest rates and changes in the market value of our equity investments. We manage our exposure to those market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. We enter into derivative instruments only to the extent considered necessary to meet our risk management objectives and do not enter into derivative contracts for speculative purposes.

Foreign Currency Risk

We generally conduct our business in United States dollars. ~~However,~~Our ~~as our~~ international business is conducted in a variety of ~~foreign~~ currencies, including U.S. dollars, and it is therefore exposed to fluctuations in foreign currency exchange rates. Our objective in managing our exposure to foreign currency changes is to reduce earnings and cash flow volatility associated with foreign exchange rate fluctuations. Accordingly, we may enter into foreign exchange contracts to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions. As of ~~September~~March 3031, ~~2010~~2011, we had an an estimated $11.97 million of foreign currency denominated receivables and payables outstanding, and $5.0.9 million of hedge contracts in place to partially mitigate foreign currency risk. The differences between the face amount of the foreign ~~exchange~~ exchange contracts and their estimated fair values were not material as of ~~September~~March 3031, ~~2010~~2011.

The impact of a hypothetical 10% adverse change in exchange rates on the fair value of foreign currency denominated net assets and liabilities of our foreign subsidiaries would be an estimated loss of $78.72 million as of ~~September~~March 3031, ~~2010~~2011.

Marketable Securities Risk

We have a significant amount of cash that is invested in marketable securities which is subject to market risk due to interest rate fluctuations. We have established an investment policy which governs our investment strategy and stipulates that we diversify investments among United States Treasury securities and other high credit quality debt instruments that we believe to be low risk. We are averse to principal loss and seek to preserve our invested funds by limiting default risk and market risk.

Interest Rate Risk

Our Senior Notes, the COFACE Guaranteed Facility and outstanding borrowings related to ~~very~~VSAT ~~small aperture terminal~~ hardware financing arrangements are not subject to interest rate fluctuations because the interest rate is fixed for the term of the instrument. We are subject to variable interest rates on certain other debt including the Revolving Credit Facility and the Term Loan Facility. To the extent we draw against the ~~credit~~Revolving ~~facility~~Credit Facility, increases in interest rates would have an adverse impact on our results of operations.

To mitigate the variable interest rate risk associated with the Term Loan Facility, we entered into the Swap Agreement to swap the ~~variable~~Adjusted LIBOR based interest on the Term Loan Facility for a fixed interest rate of 5.12% per annum. The remaining net interest payments based on the Swap Agreement and the Term Loan Facility are paid quarterly and estimated to be approximately $2.2 million for the three months ending December 31, 2010, $8.8 million for each of the years ending

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remaining 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, 2011 through 2013 and $3.3 million for the year ending December 31, 2014. The security for our interest obligation under the Swap Agreement is the same as the security for the Revolving Credit Facility described in Note 8 10—Debt to our unaudited condensed consolidated financial statements included in Part I-Item 1 in this report.

Market Concentration and Credit Risk

We provide services and extend credit to a number of equipment customers, service providers, and a large number of consumers, both in the United States and around the world. We monitor our exposure to credit losses and maintain, as necessary, allowances for anticipated losses. Financial instruments which potentially subject us to a concentration of credit risk consist of cash, cash equivalents and marketable investments. Although we maintain cash balances at financial institutions that exceed federally insured limits, these balances are placed with high credit quality financial institutions.

Commodity Price Risk

All of our products contain components whose base raw materials have undergone dramatic cost fluctuations in the last 24 months. Fluctuations in pricing of raw materials have the ability to affect our product costs. Although we have been successful in offsetting or mitigating our exposure to these fluctuations, such changes could have an adverse impact on our product costs. We are unable to predict the possible impact of changes in commodity prices.

Item 4T4. Controls and Procedures

Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in such rules) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Our management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures will prevent all errors and all frauds. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the ~~third~~ first quarter of ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company continues to review its disclosure controls and procedures, including its internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

5343

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

On ~~June~~May 2218, 2009, ~~Sea~~the ~~Launch filed~~Company aand ~~voluntary~~HCI ~~petition~~received tonotice ~~reorganize under Chapter 11~~ of ~~the~~a ~~U.S.~~complaint ~~Bankruptcy~~filed ~~Code~~ in the U.S. ~~Bankruptcy~~District Court for the Northern District of ~~Delaware. As~~California aby ~~result~~two ofCalifornia ~~this~~subscribers ~~filing,~~to ~~our~~the ~~efforts~~HughesNet toservice. The ~~pursue~~plaintiffs ~~collection~~complain about the speed of the ~~arbitral~~HughesNet ~~award~~service, ~~from~~the ~~Sea~~Fair ~~Launch were~~Access ~~stayed~~Policy, ~~under~~early ~~the~~termination ~~bankruptcy~~fees ~~laws.~~and Oncertain ~~May 27,~~terms ~~2010,~~and weconditions ~~entered~~of ~~into~~the aHughesNet ~~settlement~~subscriber agreement. ~~with~~The ~~Sea~~plaintiffs ~~Launch~~seek to ~~resolve~~pursue ~~the~~their ~~claim~~claims ~~that~~as wea ~~filed~~class inaction ~~the~~on behalf ~~Sea~~of ~~Launch~~other ~~bankruptcy~~California ~~(the~~subscribers. ~~“Settlement~~On ~~Agreement”).~~June ~~The~~4, ~~Settlement~~2009, ~~Agreement provides~~the ~~that~~Company ~~Sea~~and ~~Launch~~HCI ~~will~~received ~~irrevocably~~notice ~~issue~~of toa ussimilar ~~two~~complaint ~~credits,~~filed ~~each~~by another HughesNet subscriber in the ~~amount~~Superior Court of ~~$22.2~~San ~~million~~Diego ~~(the “Credits”)~~County, California. The plaintiff in ~~satisfaction~~this ~~and~~case ~~discharge~~also seeks to pursue his claims as a class action on behalf of ~~our~~other ~~bankruptcy~~California ~~claim~~subscribers. ~~The~~Both ~~Credits~~cases ~~may~~have bebeen ~~used~~consolidated byinto usa tosingle ~~defray~~case in the ~~cost~~U.S. ofDistrict upCourt tofor ~~two launches~~the ~~contracted~~Northern byDistrict ~~December 31,~~of ~~2015~~California. In January 2011, ~~and~~the ~~scheduled~~Company agreed to settle ~~occur~~this byconsolidated ~~December 31,~~case ~~2017. In~~on ~~addition~~a nationwide basis, subject to ~~the~~court ~~terms~~approval. ~~and~~As ~~conditions~~a ofresult, the ~~Settlement~~Company ~~Agreement~~accrued $1.9 million for estimated settlement costs, ~~one~~plaintiffs’ orattorney ~~both~~fees ~~Credits~~and ~~may~~other berelated ~~transferred~~expenses toas ~~third~~of ~~parties~~December 31, 2010. ~~The~~In the ~~bankruptcy~~event ~~court~~that ~~has~~the ~~approved~~settlement ~~the~~is ~~Settlement~~not ~~Agreement~~effectuated, ~~and~~the ~~its~~Company ~~terms~~would ~~have~~revert ~~been~~to ~~incorporated~~its ~~into~~previous ~~the~~position ~~court's~~of ~~order~~vigorously ~~approving~~defending ~~Sea~~these ~~Launch's~~matters ~~plan~~as ofit ~~reorganization. The~~believes ~~Settlement~~that ~~Agreement~~the ~~became~~allegations ~~effective~~in onthese ~~October 27,~~complaints ~~2010~~are not meritorious.

On ~~May~~December 18, 2009, the Company and HCI received notice of a complaint filed in the ~~U.S.~~Cook ~~District~~County, ~~Court~~Illinois, ~~for~~Circuit ~~the~~Court ~~Northern~~by ~~District of~~a ~~California~~former bysubscriber ~~two California subscribers~~ to the HughesNet service. The ~~plaintiffs~~complaint ~~complain~~seeks ~~about~~a ~~the~~declaration ~~speed~~allowing of the ~~HughesNet~~former ~~service,~~subscriber ~~the~~to ~~Fair~~file ~~Access~~a ~~Policy,~~class arbitration challenging early termination fees ~~and~~under ~~certain terms and conditions of~~ the ~~HughesNet~~ subscriber agreement. ~~The~~While ~~plaintiffs~~the ~~seek~~Company toremains ~~pursue their claims as~~ a ~~class action on behalf of other California subscribers. On June 4~~defendant, ~~2009, the Company and~~ HCI was ~~received~~dismissed ~~notice~~from ofthis acase ~~similar complaint filed by another HughesNet subscriber~~ in ~~the~~September ~~Superior Court of San Diego County, California~~2010. The ~~plaintiff~~Company’s inmotion ~~this case also seeks~~ to ~~pursue~~dismiss, ~~his~~filed ~~claims as a class action on behalf of other California subscribers. Both cases have been consolidated into a single case~~ in ~~the~~September ~~U.S.~~2010, ~~District~~is ~~Court~~pending, ~~for~~and the ~~Northern~~ ~~District~~Company ofwill ~~California.~~continue ~~We believe that the allegations in both complaints are not meritorious and we intend~~ to vigorously defend ~~these~~the ~~matters~~case.

Some or all of HCI, its directors, EchoStar Corporation (“EchoStar”), EchoStar Satellite Services, L.L.C. (“EchoStar LLC”), Broadband Acquisition Corporation (“Merger Sub”), and Apollo Global Management, LLC (“AGM”) have been named as defendants in five shareholder class action lawsuits in connection with the proposed transaction in which EchoStar will acquire all of the outstanding equity of HCI. On ~~December~~February 18, ~~2009~~2011, the ~~Company~~Gottlieb ~~and~~Family ~~HCI~~Foundation ~~received~~filed ~~notice~~its ofclass aaction complaint in the Circuit Court for Montgomery County, Maryland. On February 23, 2011, Plymouth County Retirement System filed its shareholder class action complaint, which has since been voluntarily dismissed by the plaintiffs, in the ~~Cook~~Court ~~County~~of Chancery of the State of Delaware. On February 24, ~~Illinois~~2011, Edward Ostensoe filed his shareholder class action complaint in the Circuit Court byfor aMontgomery ~~former~~County, ~~subscriber~~Maryland. toOn February 28, 2011, Nina J. Shah Rohrbasser Irr. Trust filed its shareholder class action complaint in the ~~HughesNet~~Court ~~service~~of Chancery of the State of Delaware. ~~The~~On March 8, 2011, entities affiliated with ALJ Capital Management, LLC filed their shareholder class action complaint ~~seeks~~in athe Court of Chancery of the State of Delaware. Each complaint alleges, among other things, that the directors of HCI breached ~~declaration~~their ~~allowing~~fiduciary duties in agreeing to the ~~former~~transaction ~~subscriber~~and that some or all of HCI, EchoStar, EchoStar LLC, Merger Sub and AGM aided and abetted such breaches by the directors of HCI. In each case, the plaintiffs seek to ~~file~~enjoin athe ~~class~~proposed transaction ~~arbitration~~and/or ~~challenging~~damages, ~~early~~costs, ~~termination~~and attorney fees. ~~under~~On April 28, 2011, HCI, its directors, and AGM entered into a Memorandum of Understanding with the ~~subscriber~~plaintiffs ~~agreement~~in the Maryland actions that contains the essential terms of a settlement agreed to in principle between the parties (the “Settlement”). ~~Based~~The onSettlement ~~our~~remains ~~investigation~~subject to the approval of the court or courts, weand ~~believe~~contemplates the dismissal with prejudice of all four actions. HCI believes that the allegations in ~~this~~all ~~complaint~~of these complaints are not meritorious and weif ~~intend to~~necessary, will vigorously ~~defend~~contest ~~this~~these ~~matter~~actions.

No other material legal proceedings have commenced or been terminated during the period covered by this report.

Item 1A.

Risk Factors

For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of the Annual Report on Form 10-K filed with respect to the Company’s fiscal year ended December 31, ~~2009~~2010. There have been no material changes in the risk factors previously disclosed in such Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

(Removed and Reserved)

Item 5.

Other Information

On October 29, 2010, the Company entered into a $115 million COFACE Covered Export Credit Agreement (the “Credit Agreement”) with BNP Paribas and Société Générale, as original lenders and mandated lead arrangers, BNP Paribas, as facility agent, documentation agent, and security agent, and Société Générale, as structuring bank to finance the launch of Jupiter, its next generation, high-throughput, Ka-band satelliteNone. ~~Arianespace has been contracted by the Company to launch Jupiter, which is expected to occur in the first half of 2012.~~

The Credit Agreement will be guaranteed by COFACE, the French Export Credit Agency. In addition, the borrowings under the Credit Agreement are guaranteed on a by all existing and future domestic subsidiaries of the Company. The Credit Agreement has a fixed interest rate of 5.13% per annum, payable semi-annually in arrears, and a repayment period of 8.5 years starting after the launch. Loan draw-downs will occur over the Jupiter launch vehicle construction period up to time of the launch. The Credit Agreement contains covenants and conditions customary for financings of this type.

Item 6.

Exhibits


Exhibit Number		Description
Exhibit Number		Description

31.1*		Certification of Chief Executive Officer of Hughes Network Systems, LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer of Hughes Network Systems, LLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*		Certification of Chief Executive Officer and Chief Financial Officer of Hughes Network Systems, LLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

5545

SIGNATURES

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

Date: November 4, 2010	HUGHES NETWORK SYSTEMS, LLC
Date: May 4, 2011	HUGHES NETWORK SYSTEMS, LLC
	(Registrant)
	/s/ PRADMAN P. KAUL
	Name:	Pradman P. Kaul
	Title:	Chief Executive Officer and President (Principal Executive Officer)
	/S/ GRANT A. BARBER
	/s/ GRANT A. BARBER
	Name:	Grant A. Barber
	Title:	Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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Filing Compare · Hughes Network Systems, LLC