Hughes Network Systems 8-K Hughes Communications, Inc. Announces Third Quarter 2007 Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

Hughes Communications, Inc. Announces Third Quarter 2007 Results

Record Third Quarter Revenues, EBITDA and Net Income for HNS
 

Germantown, Md., November 7, 2007—Hughes Communications, Inc. (NASDAQ: HUGH) (“Hughes”), the global leader in broadband satellite network solutions and services, today announced financial results for the third quarter ended September 30, 2007. Hughes' consolidated operations are classified into three reportable segments: VSAT; Telecom Systems; and Parent and Other. The VSAT and Telecom Systems segments represent all the operations of Hughes Network Systems, LLC (“HNS”), Hughes’ principal operating subsidiary. The Parent and Other segment includes the financial results of Hughes Corporate, Electronic System Products, Inc., and investments in the other companies that were contributed from SkyTerra Communications, Inc. (“SkyTerra”), Hughes' predecessor, prior to the SkyTerra/Hughes spin-off in February 2006.

Hughes Network Systems, LLC (HNS)

“HNS delivered strong all-round financial performance with record third quarter revenues, EBITDA* and net income,” said Pradman Kaul, president and chief executive officer. “Revenues increased to $234 million in the third quarter of 2007 for an increase of 11.5% over the third quarter of 2006; EBITDA increased by 6% to $35 million, and net income increased to a strong $12.4 million in the third quarter of 2007.”

“The consumer/SMB and mobile satellite businesses continued to be the key contributors to our revenue growth,” said Kaul. “Over 37,000 new subscribers were activated in the third quarter of 2007, resulting in the consumer/SMB subscriber base growing to approximately 365,000 at September 30, 2007 for a growth of 17% over the subscriber base at September 30, 2006. Revenue from our mobile satellite business showed a strong 74% growth in the third quarter of 2007 over the third quarter of 2006. Our North American and International enterprise businesses continued their steady revenue contribution with combined growth of 3% over the third quarter of 2006.”

Kaul continued, “The third quarter of 2007 was also strong in new orders. We were awarded $284 million of new orders in the quarter compared to $183 million in the third quarter of 2006. The most significant contributor to this increase was a multi-year contract from U.K. lottery operator Camelot Group PLC to provide managed network services for over 27,000 lottery sites in the U.K. Other significant orders in the third quarter in our International enterprise business included Afsat, KT (Korea), and Telefonica. In our North American enterprise business, we were awarded significant orders by T.J. Maxx, State of Texas, Wyndham, and Big 5 Sporting Goods.

For the nine months ended September 30, 2007, HNS revenue grew by 12% over the same period in 2006 to $690 million, EBITDA by 45% to $92 million, Adjusted EBITDA increased by 17% to $94 million, and net income increased to $28 million compared to $8 million in the same period in 2006. HNS was awarded new orders of $780 million in the first nine months of 2007 for a growth of 37% over the same period in 2006.”

*EBITDA is defined as earnings (losses) before interest, income taxes, depreciation, amortization, and equity incentive plan compensation.  See “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures.”

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Set forth below is a table highlighting certain of HNS' results for the three- and nine-month periods ended September 30, 2007 and 2006:

Hughes Network Systems, LLC
	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(Dollars in thousands)	2007		2006		2007		2006
Revenue
VSAT	$	197,316	$	186,608	$	589,073	$	551,772
Telecom Systems		36, 341		23,007		101,424		63,138
Total HNS	$	233,657	$	209,615	$	690,497	$	614,910
Operating income (loss)
VSAT	$	14,468	$	13,740	$	39,326	$	19,194
Telecom Systems		7,338		6,312		15,723		13,529
Total HNS	$	21,806	$	20,052	$	55,049	$	32,723
Net income (loss)	$	12,446	$	12,142	$	27,932	$	7,908
EBITDA*	$	35,084	$	33,055	$	92,419	$	63,574
Adjusted EBITDA*	$	35,084	$	33,958	$	93,656	$	80,203

* For the definitions of EBITDA and Adjusted EBITDA, see “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below.

Selected Highlights

·   HNS’ next-generation SPACEWAY^™ 3 satellite was successfully launched by Arianespace on August 14, 2007, setting the stage for Hughes to begin offering a new range of satellite broadband services to enterprise, consumer and government customers throughout North America beginning in the first quarter of 2008.

·   HNS’ wholly owned European subsidiary HNS Ltd. was awarded a multi-year contract by U.K lottery operator Camelot PLC to provide managed network services for over 27,000 lottery sites in the U.K. supporting the cutting edge, IP-based lottery terminals Camelot will deploy under its license.

·   HNS announced that consumers across North America will be able to purchase HughesNet^® broadband Internet access service from Wal-Mart, giving customers in rural areas the opportunity to experience the benefits of high-speed Internet access. The HughesNet service will be sold in 2,800 Wal-Mart stores across the U.S., including locations throughout most of rural America where terrestrial broadband services, such as cable and DSL, are often not available.

·   HNS announced that it has shipped more than 300,000 broadband satellite terminals compliant with the DVB-S2/IPoS air interface standard, including the Adaptive Coding Modulation (ACM) feature since being introduced in 2006. This milestone validates Hughes as the leading supplier of very small aperture terminals (VSATs) that are compliant with DVB-S2/IPoS which yields higher throughputs and more efficient bandwidth utilization, and is the world’s leading broadband satellite standard approved by TIA, ETSI and ITU.

·   HNS announced the signing of an agreement with TerreStar Networks Inc. (TerreStar), an emerging mobile communications network operator and majority owned subsidiary of TerreStar Corporation (TSTR), under which Hughes will design, develop, and supply a satellite chipset platform based on UMTS standards to enable wireless mobile devices to communicate over the satellite portion of TerreStar's network.

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Hughes Communications, Inc. (Hughes)

Certain financial information for Hughes for the three- and nine- month periods ended September 30, 2007 and 2006 is shown below.

Hughes Communications, Inc.
	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(Dollars in thousands)	2007			2006			2007			2006
Revenue
VSAT	$	197,316		$	186,608		$	589,073		$	551,772
Telecom Systems		36,341			23,007			101,424			63,138
Parent and Other		46			146			446			386
Total HCI	$	233,703		$	209,761		$	690,943		$	615,296
Operating income (loss)
VSAT	$	14,468		$	13,740		$	39,326		$	19,194
Telecom Systems		7,338			6,312			15,723			13,529
Parent and Other		(1,139	)		(742	)		(3,793	)		(3,276	)
Total HCI	$	20,667		$	19,310		$	51,256		$	29,447
Net income (loss)	$	11,037		$	11,369		$	23,609		$	(48,570	)
EBITDA*	$	34,034		$	32,577		$	89,179		$	60,892

* For the definition of EBITDA, see “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below.

The net loss for the nine months ended September 30, 2006 includes a tax charge of approximately $51.3 million recorded in the first quarter of 2006, primarily related to the SkyTerra/Hughes spin-off. As Hughes is the accounting successor to SkyTerra, the taxes associated with the separation are included in Hughes' results for the quarter ended March 31, 2006 and a portion of the deferred tax assets were utilized to satisfy the tax expense resulting from the taxable gain. Accordingly, Hughes does not expect this expense to have an impact on its cash from operations.

To summarize, Kaul said, “We are very pleased that we have once again delivered strong financial results in the third quarter of 2007 after an equally strong first half. This performance, combined with strong order bookings in the third quarter, has positioned us well for continued revenue growth. Our SPACEWAY 3 satellite was launched successfully on August 14, 2007 and is currently going through the “orbit-raising” process. System testing will follow soon thereafter, and upon completion, we expect to commence HughesNet service on SPACEWAY 3 in the first quarter of 2008. We expect that SPACEWAY 3 will substantially reduce our space segment costs and open up new revenue opportunities going forward in the enterprise and consumer/SMB markets.”

Commenting on the financial performance, Grant Barber, executive vice president and chief financial officer said, “Our revenue and profitability showed strong growth in all operating segments in the third quarter of 2007 over the same period in 2006. For the nine-month period ended September 30, 2007, Hughes delivered earnings per share of $1.23 on a fully diluted basis compared to a loss of $3.14 per share in the same period in 2006. We generated cash from operations of $50 million during the nine months ended September 30, 2007 and we closed the third quarter with a healthy consolidated cash and marketable securities position of $136 million.”

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Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

The following table reconciles the differences between HNS' net income as determined under United States of America generally accepted accounting principles (GAAP), EBITDA and Adjusted EBITDA.

Hughes Network Systems, LLC
	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(Dollars in thousands)	2007			2006			2007			2006
Net income (loss)	$	12,446		$	12,142		$	27,932		$	7,908
Add:
Interest expense		10,759			11,158			34,067			30,898
Income tax (benefit) expense		832			1,068			1,221			2,055
Depreciation and amortization		12,298			11,520			34,821			28,736
Equity incentive plan compensation		807			118			2,102			270
Less:
Interest income		(2,058	)		(2,951	)		(7,724	)		(6,293	)
EBITDA	$	35,084		$	33,055		$	92,419		$	63,574
Add:
Inventory provision related to shift to Broadband focus		-			-			-			11,879
HughesNet branding costs		-			-			-			1,454
Restructuring charge		-			-			1,237			-
Benefits/insurance programs sponsored by DIRECTV		-			653			-			1,960
Legal settlement and related fees - pre-April 2005 Acquisition		-			-			-			586
Management fee to Hughes Communications, Inc.		-			250			-			750
Adjusted EBITDA	$	35,084		$	33,958		$	93,656		$	80,203

The following table reconciles the differences between Hughes’ net income as determined under GAAP and EBITDA:

Hughes Communications, Inc.
	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(Dollars in thousands)	2007			2006			2007			2006
Net income (loss)	$	11,037		$	11,369		$	23,609		$	(48,570	)
Add:
Interest expense		10,760			11,158			34,070			32,648
Income tax expense		1,092			1,068			1,776			52,889
Depreciation and amortization		12,298			11,520			34,821			28,736
Equity incentive plan compensation		1,045			577			3,067			2,087
Less:
Interest income		(2,198	)		(3,115	)		(8,164	)		(6,898	)
EBITDA	$	34,034		$	32,577		$	89,179		$	60,892

The financial statements of Hughes and HNS for the three- and nine-month periods ended September 30, 2007 and 2006 are attached to this press release.

Note:

EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, amortization and equity incentive plan compensation. Adjusted EBITDA is used in calculating covenant compliance under HNS' credit agreements and the indenture governing HNS’ 9½% Senior Notes due 2014. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain adjustments. EBITDA and Adjusted EBITDA are not recognized terms under GAAP. EBITDA and Adjusted EBITDA do not represent net income or cash flows from operations, as these terms are defined under GAAP, and should not be considered as alternatives to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of cash flow available to management for discretionary use, as such measures do not consider certain cash requirements such as capital expenditures (including expenditures on VSAT operating lease hardware and capitalized software development costs), tax payments, and debt service requirements (including VSAT operating lease hardware). EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA are presented herein because HNS and Hughes use such information in their review of the performance of management and in the performance of their business. In addition, information concerning Adjusted EBITDA is being presented because it reflects important components included in the financial covenants under the senior note indenture and HNS' credit agreements.

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About Hughes Communications, Inc.

Hughes Communications, Inc. (NASDAQ: HUGH) is the 100 percent owner of Hughes Network Systems, LLC. Hughes is the global leader in providing broadband satellite networks and services for enterprises, governments, small businesses, and consumers. HughesNet encompasses all broadband solutions and managed services from Hughes, bridging the best of satellite and terrestrial technologies. Its broadband satellite products are based on the IPoS (IP over Satellite) global standard, approved by the TIA, ETSI, and ITU standards organizations. To date, Hughes has shipped more than 1.2 million systems to customers in over 100 countries.

Headquartered outside Washington, D.C., in Germantown, Maryland, USA, Hughes maintains sales and support offices worldwide. For more information, please visit www.hughes.com.

Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995

This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, discussions regarding industry outlook and Hughes’ expectations regarding the performance of its business, its future liquidity and capital resource needs, its strategic plans and objectives and the ability to successfully deploy SPACEWAY 3. These forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans” and similar expressions and the use of future dates are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, the following: risks related to Hughes’ substantial leverage and restrictions contained in its debt agreements, technological developments, its reliance on providers of satellite transponder capacity, changes in demand for Hughes’ services and products, competition, industry trends, regulatory changes, foreign currency exchange rate fluctuations and other risks identified and discussed under the caption “Risk Factors” in Hughes’ Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 26, 2007 and in the other documents Hughes files with the Securities and Exchange Commission from time to time.

###

©Hughes Communications, Inc. All rights reserved. Hughes, HughesNet, IPoS, and SPACEWAY are trademarks of Hughes Network Systems, LLC. DIRECTV and DIRECWAY are registered trademarks of The DIRECTV Group, Inc.

Contact Information   Investor Relations Contact: Deepak V. Dutt, Vice President, Treasurer and Investor Relations Officer Email: ddutt@hns.com Phone: 301-428-7010
Media Contact: Judy Blake, Director, Marketing Communications Email: jblake@hns.com Phone: 301-601-7330   Attachments   Hughes Communications, Inc. Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flows   Hughes Network Systems, LLC Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flows

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HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30 2007			December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	75,937		$	106,933
Marketable securities		60,593			107,320
Receivables, net		198,170			180,955
Inventories		61,841			61,280
Prepaid expenses and other		62,475			39,947
Total current assets		459,016			496,435
Property, net		461,026			312,497
Capitalized software costs, net		46,348			41,159
Intangible assets, net		26,056			30,663
Other assets		88,122			50,890
Total assets	$	1,080,568		$	931,644
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	62,807		$	59,391
Short-term borrowings and current portion of long-term debt		17,253			27,210
Accrued liabilities		152,959			124,586
Due to affiliates		10,616			13,119
Total current liabilities		243,635			224,306
Long-term debt		576,360			469,190
Other long-term liabilities		9,905			18,079
Total liabilities		829,900			711,575
Commitments and contingencies
Minority interests		4,489			4,680
Stockholders' Equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no
shares issued and outstanding at September 30, 2007 and December 31, 2006		-			-
Common stock, $0.001 par value; 64,000,000 shares authorized;
19,200,172 shares and 19,000,622 shares issued and outstanding
as of September 30, 2007 and December 31, 2006, respectively		19			19
Additional paid in capital		630,107			626,927
Accumulated deficit		(386,799	)		(410,408	)
Accumulated other comprehensive income (loss)		2,852			(1,149	)
Total stockholders' equity		246,179			215,389
Total liabilities and stockholders' equity	$	1,080,568		$	931,644

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HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues:
Services	$	137,465		$	112,215		$	386,612		$	325,257
Hardware sales		96,238			97,546			304,331			290,039
Total revenues		233,703			209,761			690,943			615,296
Operating costs and expenses:
Cost of services		91,995			80,022			259,169			227,374
Cost of hardware products sold		80,802			74,175			253,320			237,193
Selling, general and administrative		34,744			31,336			110,290			99,853
Research and development		3,959			3,786			12,301			18,032
Amortization of intangibles		1,536			1,132			4,607			3,397
Total operating costs and expenses		213,036			190,451			639,687			585,849
Operating income		20,667			19,310			51,256			29,447
Other income (expense):
Interest expense		(10,760	)		(11,158	)		(34,070	)		(32,648	)
Interest income		2,198			3,115			8,164			6,898
Other income, net		140			1,453			280			2,211
Income before income tax expense; minority
interests in net losses (earnings) of subsidiaries; equity in losses
of unconsolidated affiliates; and discontinued operations		12,245			12,720			25,630			5,908
Income tax expense		(1,092	)		(1,068	)		(1,776	)		(52,889	)
Minority interests in net losses (earnings) of subsidiaries		33			(172	)		191			77
Equity in losses of unconsolidated affiliates		(149	)		(111	)		(436	)		(1,864	)
Income (loss) from continuing operations		11,037			11,369			23,609			(48,768	)
Discontinued operations:
Loss from discontinued operations		-			-			-			(42	)
Gain on sale of discontinued operations		-			-			-			240
Net income (loss)		11,037			11,369			23,609			(48,570	)
Cumulative dividends and accretion of convertible preferred stock
to liquidation value		-			-			-			(1,454	)
Net income (loss) attributable to common stockholders	$	11,037		$	11,369		$	23,609		$	(50,024	)
Basic net earnings (loss) per common share:
Continuing operations	$	0.58		$	0.60		$	1.25		$	(3.15	)
Discontinued operations		-			-			-			0.01
Basic net earnings (loss) per common share	$	0.58		$	0.60		$	1.25		$	(3.14	)
Diluted net earnings (loss) per common share:
Continuing operations	$	0.57		$	0.60		$	1.23		$	(3.15	)
Discontinued operations		-			-			-			0.01
Diluted net earnings (loss) per common share	$	0.57		$	0.60		$	1.23		$	(3.14	)
Basic weighted average common shares outstanding		18,868,126			18,811,645			18,857,953			15,941,853
Diluted weighted average common shares outstanding		19,229,519			19,059,227			19,218,036			15,941,853

 

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HUGHES COMMUNICATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	23,609		$	(48,570	)
Adjustments to reconcile net income (loss) to cash flows from operating
activities:
Loss on discontinued operations		-			42
Depreciation and amortization		35,392			29,434
Equity plan compensation expense		3,067			2,087
Minority interests		(191	)		(22	)
Equity in losses from unconsolidated affiliates		436			1,970
Gain on disposal of assets		(367	)		(221	)
Loss on extinguishment of debt		70			-
Deferred income taxes		(637	)		48,313
Gain on receipt of investment by subsidiary		-			(1,787	)
Change in other operating assets and liabilities, net of acquisitions:
Receivables, net		(12,247	)		35,583
Inventories		234			17,367
Prepaid expenses and other		(8,144	)		3,946
Accounts payable		4,462			(22,814	)
Accrued liabilities and other		4,530			(16,731	)
Net cash provided by continuing operations		50,214			48,597
Net cash used in discontinued operations		-			(9	)
Net cash provided by operating activities		50,214			48,588
Cash flows from investing activities:
Change in restricted cash		335			2,001
Sale (purchases) of marketable investments, net		48,081			(67,219	)
Expenditures for property		(211,266	)		(53,835	)
Expenditures for capitalized software		(10,694	)		(12,962	)
Proceeds from sale of property and intangibles		356			669
Acquisitions/divestitures, net of cash received		-			12,870
Other, net		-			(54	)
Net cash used in investing activities		(173,188	)		(118,530	)
Cash flows from financing activities:
Net increase (decrease) in notes and loans payable		800			(1,463	)
Debt borrowings from Apollo		-			100,000
Debt repayments to Apollo		-			(100,000	)
Proceeds from rights offering		-			100,000
Distribution to SkyTerra		-			(8,789	)
Payment of dividends on preferred stock		-			(1,394	)
Proceeds from exercise of stock options and warrants		113			1,982
Long-term debt borrowings		116,013			454,452
Repayment of long-term debt		(20,391	)		(354,415	)
Debt issuance costs		(2,049	)		(11,169	)
Net cash provided by financing activities		94,486			179,204
Effect of exchange rate changes on cash and cash equivalents		(2,508	)		(75	)
Net (decrease) increase in cash and cash equivalents		(30,996	)		109,187
Cash and cash equivalents at beginning of the period		106,933			21,964
Cash and cash equivalents at end of the period	$	75,937		$	131,151
Supplemental cash flow information:
Cash paid for interest	$	29,193		$	18,729
Cash paid for income taxes	$	2,642		$	3,983
Supplemental disclosure of non-cash financing activities:
Net liability distributed to SkyTerra, net of cash	$	-		$	48,113

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HUGHES NETWORK SYSTEMS

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30, 2007		December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	71,486	$	99,098
Marketable securities		54,346		103,466
Receivables, net		197,936		180,694
Inventories		61,841		61,280
Prepaid expenses and other		61,751		39,175
Total current assets		447,360		483,713
Property, net		461,026		312,497
Capitalized software costs, net		46,348		41,159
Intangible assets, net		26,056		30,663
Other assets		74,172		44,358
Total assets	$	1,054,962	$	912,390
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	61,378	$	57,781
Short-term borrowings and current portion of long-term debt		17,253		27,210
Accrued liabilities		152,412		123,576
Due to affiliates		11,444		13,592
Total current liabilities		242,487		222,159
Long-term debt		576,360		469,190
Other long-term liabilities		1,197		18,079
Total liabilities		820,044		709,428
Commitments and contingencies
Minority interests		4,443		4,659
Equity:
Class A membership interests		180,586		180,346
Class B membership interests		-		-
Retained earnings		47,034		19,102
Accumulated other comprehensive income (loss)		2,855		(1,145	)
Total equity		230,475		198,303
Total liabilities and equity	$	1,054,962	$	912,390

9

HUGHES NETWORK SYSTEMS

Condensed Consolidated Statements of Operations

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues:
Services	$	137,419		$	112,069		$	386,166		$	324,871
Hardware sales		96,238			97,546			304,331			290,039
Total revenues		233,657			209,615			690,497			614,910
Operating costs and expenses:
Costs of services		91,985			79,987			259,117			227,311
Costs of hardware products sold		80,802			74,175			253,320			237,193
Selling, general and administrative		33,569			30,483			106,103			96,254
Research and development		3,959			3,786			12,301			18,032
Amortization of intangibles		1,536			1,132			4,607			3,397
Total operating costs and expenses		211,851			189,563			635,448			582,187
Operating income		21,806			20,052			55,049			32,723
Other income (expense):
Interest expense		(10,759	)		(11,158	)		(34,067	)		(30,898	)
Interest income		2,058			2,951			7,724			6,293
Other income, net		140			1,571			231			2,051
Income before income tax expense, minority
interests in net losses (earnings) of subsidiaries		13,245			13,416			28,937			10,169
Income tax expense		(832	)		(1,068	)		(1,221	)		(2,055	)
Minority interests in net losses (earnings) of subsidiaries		33			(206	)		216			(206	)
Net income	$	12,446		$	12,142		$	27,932		$	7,908

10

HUGHES NETWORK SYSTEMS

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income	$	27,932		$	7,908
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization		35,392			29,434
Equity plan compensation expense		240			233
Minority interests		(216	)		-
Gain on receipt of investment by subsidiary		-			(1,787	)
Gain on disposal of assets		(367	)		-
Loss on extinguishment of debt		70			-
Change in other operating assets and liabilities, excluding the
effect of the January 2006 Transaction:
Receivables, net		(12,274	)		35,844
Inventories		234			17,367
Prepaid expenses and other		(9,538	)		4,392
Accounts payable		4,643			(21,918	)
Accrued liabilities and other		5,347			(16,024	)
Net cash provided by operating activities		51,463			55,449
Cash flows from investing activities:
Change in restricted cash		335			(363	)
Sale (purchase) of marketable investments, net		50,329			(67,893	)
Expenditures for property		(211,266	)		(53,835	)
Expenditures for capitalized software		(10,694	)		(12,962	)
Proceeds from sale of property		356			669
Other, net		-			206
Net cash used in investing activities		(170,940	)		(134,178	)
Cash flows from financing activities:
Net increase (decrease) in notes and loans payable		800			(1,463	)
Long-term debt borrowings		116,013			454,452
Repayment of long-term debt		(20,391	)		(354,415	)
Debt issuance costs		(2,049	)		(11,169	)
Net cash provided by financing activities		94,373			87,405
Effect of exchange rate changes on cash and cash equivalents		(2,508	)		(82	)
Net (decrease) increase in cash and cash equivalents		(27,612	)		8,594
Cash and cash equivalents at beginning of the period		99,098			113,267
Cash and cash equivalents at end of the period	$	71,486		$	121,861
Supplemental cash flow information:
Cash paid for interest	$	29,190		$	16,979
Cash paid for income taxes	$	2,630		$	1,800
Supplemental non-cash disclosure due to acquisition by
Hughes Communications, Inc.:
Increase in assets				$	29,399
Increase in liabilities					18,162
Increase in net assets				$	11,237

11