Separately, the Company today announced the signature of a contract with FITEL, Peru's National Telecommunications Fund, for the supply of a satellite rural telephony network. The FITEL network will serve over 2,000 communities throughout various regions of Peru and is expected to provide Gilat with revenues of approximately US$27 million over the next four quarters.

The Company reported that its revenues for the third quarter are expected at over US$80 million, driven primarily from core enterprise and telephony business. Revenues from the consumer segment were minimal, primarily due to the fact that the previously announced US$50 million funding from EchoStar Communications to StarBand closed only at the end of the quarter.

In addition, third quarter revenues were negatively affected by the tragic events of September 11, 2001, which postponed certain transactions that were expected to close during the quarter.

The Company will record non-cash, one-time charges that include:

• an impairment of assets, primarily goodwill, of approximately US$80 million;
• an inventory write-off and mark-down of approximately US$70 million mainly as a result of excess inventory;
• the impairment of investments and capital leases relating to vertical market customers of approximately US$57 million; and
• bad debt reserve of approximately US$10 million reflecting deteriorating market conditions.

Gilat Chairman and CEO Yoel Gat stated, "While we did not meet our projected revenue target for the quarter, we did achieve a majority of our core business revenue target despite a very difficult economic environment and reduced corporate infrastructure spending.

The EchoStar / StarBand transaction only closed at the end of the quarter thus preventing any significant sales to the consumer segment in the U.S. during the quarter.

As a result of the unfortunate recent events in the U.S., the Company is examining several VSAT network requirements relating to disaster recovery and backup communications in which satellite networks are most advantageous.

Overall, despite weakness in the U.S. and Western Europe we have continued to make important progress in our core business in other parts of the world."

Gat added, "Visibility at this point of time prevents us from providing long-term guidance, however, we believe that next quarter we will achieve revenues of approximately US$90 million and a net loss of US$10 million or US$0.43 per share.

"This revenue figure relates primarily to core business, which could be increased by consumer market sales in the U.S. and other parts of the world.

"Based on the above, we have decided to adjust our balance sheet and have taken the decisive measures necessary to prevent future additional one-time balance sheet related charges. In addition, we will align the size of the company and its expense structure to reflect revised expected revenues.

"We believe that with an adjusted balance sheet, the completion of the StarBand financing, a strong focus on our core business and approximately US$90 million in cash, Gilat will continue to be a leader in the VSAT markets."

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